September 24, 2013

Korea

Company News & Analysis Major Indices Close Chg Chg (%) (Buy/TP: W120,000) KOSPI 2,007.10 -2.31 -0.11 Selling off fashion unit to focus on electronic materials KOSPI 200 262.83 -0.19 -0.07 KOSDAQ 527.29 0.22 0.04

Turnover ('000 shares, Wbn) Volume Value KOSPI 305,884 4,181 KOSPI 200 107,310 3,419 KOSDAQ 300,603 1,682

Market Cap (Wbn) Value KOSPI 1,173,541 KOSDAQ 122,876

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,357 1,286 72 Institutional 912 1,012 -99 Retail 1,887 1,844 43

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 101 81 20 Institutional 80 71 10 Retail 1,496 1,521 -25

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,004 897 107 KOSDAQ 25 21 4

Advances & Declines Advances Declines Unchanged KOSPI 343 464 85 KOSDAQ 382 506 92

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Electronics 1,373,000 13,000 410 KODEX LEVERAGE 12,240 -20 305 KODEX INVERSE 7,520 -5 179 NHN 543,000 3,000 127 Hynix 30,500 -50 115

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value 46,000 -1,250 158 GemVax 23,500 900 92 Speco 4,020 30 39 HyVISION 33,150 2,150 35 Seoul Semiconductor 41,300 1,200 35 Note: As of September 24, 2013

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Cheil Industries (001300 KS) Selling off fashion unit to focus on electronic materials

Technology What’s new: Cheil to sell fashion unit to Samsung for W1.05tr On September 23rd, Cheil Industries announced that it will sell its fashion unit to Samsung News Comment Everland for W1.05tr. The deal appears to be favorable for Cheil Industries, given that: 1) we September 24, 2013 previously estimated the fashion unit’s operating value at W700bn, 2) and the division’s net asset value stood at W883bn at end-2Q13. We expect the company to use the proceeds

from the sale to invest in its electronic materials and chemicals businesses. Gains on the deal (an estimated W167.4bn) will be booked as non-operating profit in 4Q. (Maintain) Buy Impact: Increased focus on materials is positive; Efficient investments to be key Target Price (12M, W) 120,000 1) Evolving into a pure electronic materials player: We are encouraged by Cheil Industries’ decision, as the fashion business: 1) generated little synergy with the Share Price (09/23/13, W) 95,000 electronic materials and chemicals units and 2) has dented the company’s overall profitability due to new brand launches and massive marketing expenses. The sale of the Expected Return 26% fashion business, which is cyclical in nature, will likely allow the company to lower its earnings volatility and focus on the materials business, leading to structural growth.

OP (13F, Wbn) 327 2) ROE improvement through efficient investments: We expect Cheil Industries to Consensus OP (13F, Wbn) 343 raise its ROE through investments in the high-margin materials. Based on the company’s 2013F earnings, the combined ROE for the electronic materials and chemicals units EPS Growth (13F, %) 98.6 stands at 11.2%, while that of the fashion unit is only 2.7%. Although the fashion unit Market EPS Growth (13F, %) 21.8 has particularly underperformed this year, its profitability is typically lower than that of P/E (13F, x) 12.0 the electronic materials and chemicals units. Although the company’s overall ROE should Market P/E (13F, x) 10.3 drop due to the exclusion of fashion-related earnings in the short term, we expect ROE KOSPI 2,009.41 to improve in the long term, aided by: 1) the expansion of existing high-margin Market Cap (Wbn) 4,982 businesses and 2) investments in new materials businesses. Shares Outstanding (mn) 52 3) Investments to catalyze shares: We believe that efficient investments (i.e., spending Free Float (%) 86.4 in more profitable segments) are essential for Cheil Industries’ shares to rise from the current Foreign Ownership (%) 24.3 level. A likely scenario is: W200bn in OLED (acquisition of Novaled), W400bn in polarizer Beta (12M) 0.78 capacity ramp-ups, W60bn in rechargeable battery separators, W200bn in polycarbonate 52-Week Low (W) 82,100 capacity expansion, and W90bn in Samsung Group’s new electronic materials research 52-Week High (W) 105,000 center. The growth of these areas, which report OP margin levels of roughly 5-15%, should contribute to Cheil’s margin improvements. Moreover, the fact that they are related to (%) 1M 6M 12M Samsung Group’s new growth drivers should ensure greater earnings visibility. Absolute 11.0 14.3 -8.2 Relative 3.5 11.2 -8.6 Valuation: Maintain Buy with TP of W120,000 Share price We maintain our Buy rating on Cheil Industries with a target price of W120,000. We 110 KOSPI derived our target price using the sum of the company’s operating value and asset value. 100 The fashion division’s operating value (W700bn) was not included, but cash proceeds 90 80 from the sale of the division should help reduce the company’s net borrowings from

70 W1.3tr to W250bn, allowing enterprise value to remain largely intact. The company may 60 even undergo a re-rating once its newly secured financial resources are channeled into 9/12 1/13 5/13 9/13 highly profitable businesses.

Daewoo Securities Co., Ltd. FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F Electronic materials Revenue (Wbn) 5,113 5,581 6,010 6,633 5,594 6,304 OP (Wbn) 330 223 322 327 415 487 Will Cho OP Margin (%) 6.5 4.0 5.4 4.9 7.4 7.7 +822-768-4306 [email protected] NP (Wbn) 279 259 209 414 340 402 EPS (W) 5,573 5,079 3,979 7,900 6,491 7,657

ROE (%) 11.8 8.7 6.5 12.6 10.3 12.1

P/E (x) 19.9 19.9 23.7 12.0 14.6 12.4

P/B (x) 2.0 1.9 1.7 1.8 1.8 1.8 Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

Key Universe Valuations September 24, 2013

※All data as of close September 24, 2013, unless otherwise noted.

13F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 13F 14F 13F 14F 13F 14F 13F 14F 13F 14F 005930 200,327 1,360,000 0.6 33.8 11.1 36.9 14.3 7.3 6.4 1.6 1.3 24.2 22.3 005380 Hyundai Motor 56,171 255,000 0.9 4.0 10.3 2.6 5.6 8.3 7.9 1.5 1.3 18.3 16.5 012330 28,765 295,500 0.8 -4.0 18.4 -3.8 12.7 8.4 7.5 1.5 1.3 18.6 17.7 005490 POSCO 28,554 327,500 2.5 -10.5 39.5 -26.6 62.6 15.6 9.6 0.7 0.6 4.6 7.2 000270 Motors 27,565 68,000 1.1 5.3 6.2 3.3 8.4 6.9 6.4 1.5 1.2 21.3 19.2 000660 SK Hynix 21,697 30,550 0.5 - 18.9 - 22.0 7.8 6.4 1.9 1.5 24.8 24.0 055550 21,220 44,750 0.2 -10.3 14.2 -10.1 13.7 11.3 9.9 0.8 0.7 7.1 7.6 051910 LG Chem 21,041 317,500 1.3 4.1 25.6 3.1 26.2 15.2 12.1 2.0 1.8 13.7 15.3 032830 Samsung Life 21,000 105,000 2.0 0.0 9.3 4.2 4.3 18.1 17.4 1.1 1.0 6.0 5.8 009540 Hyundai Heavy 20,216 266,000 -31.9 47.9 -5.8 72.5 21.8 12.6 1.2 1.1 5.4 8.6 015760 KEPCO 19,259 30,000 - 80.9 - 295.0 34.4 8.7 0.4 0.4 1.1 4.3 035420 NHN 17,800 540,000 0.2 -5.8 54.7 28.3 47.9 37.1 25.1 27.4 14.4 26.8 37.1 017670 SK Telecom 17,320 214,500 4.4 26.0 29.6 66.0 25.6 9.1 7.2 1.7 1.5 15.6 18.0 105560 KB Financial Group 14,990 38,800 -3.3 11.4 3.8 11.4 8.5 7.7 0.6 0.6 6.9 7.4 096770 SK Innovation 14,055 152,000 2.0 21.5 17.6 19.7 33.4 10.0 7.5 0.9 0.8 8.9 10.8 066570 LG Electronics 11,848 72,400 0.4 32.1 45.6 670.8 115.3 25.4 11.8 1.2 1.1 4.2 8.8 000810 Samsung F&M 11,725 247,500 2.8 20.2 14.1 19.2 14.4 11.1 9.7 1.2 1.1 11.7 11.9 003550 LG Corp. 11,682 67,700 1.5 5.1 11.4 15.8 5.4 11.0 10.4 1.0 0.9 9.4 9.2 086790 11,190 38,600 -8.7 10.0 -22.8 12.7 8.1 7.2 0.6 0.5 8.8 7.3 033780 KT&G 10,572 77,000 4.1 -4.5 5.1 1.3 5.6 14.1 13.4 1.9 1.8 14.2 14.0 010140 Samsung Heavy 10,135 43,900 1.3 11.2 5.6 26.8 8.4 10.0 9.3 1.5 1.3 17.7 16.5 034220 LG Display 9,607 26,850 1.9 6.0 -21.6 111.5 22.2 19.5 15.9 1.0 0.9 4.7 5.6 000830 Samsung C&T 9,607 61,500 0.9 -7.1 34.4 -17.3 22.4 26.5 21.7 0.9 0.9 3.2 3.7 030200 KT 9,400 36,000 5.2 2.3 9.5 -7.7 10.0 9.6 8.8 0.9 0.9 7.8 8.3 003600 SK Holdings 9,064 193,000 1.5 12.7 19.6 20.0 9.6 7.3 6.6 2.1 1.6 10.7 10.8 010950 S-Oil 9,018 80,100 4.4 22.9 21.4 52.0 5.6 10.5 10.0 1.6 1.4 15.6 15.0 006400 Samsung SDI 8,246 181,000 0.9 -43.6 152.4 -66.1 42.3 17.1 12.0 1.1 1.1 6.7 9.2 051900 LG Household & Health Care 8,137 521,000 0.7 16.8 12.2 14.5 13.1 26.5 23.5 6.0 4.8 26.0 23.9 161390 7,928 64,000 1.0 258.3 4.8 262.0 2.5 9.5 9.2 2.0 1.7 23.2 19.4 086280 7,350 196,000 1.1 7.1 6.9 -1.0 11.0 14.9 13.4 3.2 2.6 23.0 20.9 000720 Hyundai E&C 7,171 64,400 1.2 13.5 22.2 1.2 34.4 13.9 10.4 1.5 1.3 10.8 13.2 004020 6,996 82,000 0.7 -14.3 58.1 -41.3 63.7 15.0 9.1 0.7 0.6 4.6 7.2 011170 Lotte Chemical 6,649 194,000 1.0 6.5 84.8 0.8 80.3 19.5 10.8 1.1 1.0 5.5 9.2 024110 6,630 12,050 0.3 -26.5 16.3 -19.6 16.1 8.3 7.1 0.5 0.5 6.6 7.3 042660 DSME 6,526 34,100 0.9 -14.7 60.0 -11.0 131.5 33.1 14.3 1.4 1.3 4.2 9.1 088350 Hanwha Life 6,245 7,190 3.5 - - 3.5 1.6 9.8 9.6 0.8 0.8 8.6 8.3 010130 Korea Zinc 6,227 330,000 1.7 -13.2 20.7 -10.3 25.4 12.4 9.9 1.5 1.3 12.3 13.8 035250 6,226 29,100 3.2 11.6 15.4 19.7 16.6 17.6 15.1 2.3 2.1 14.3 15.4 009150 Samsung Electro-Mechanics 6,222 83,300 1.3 21.8 9.6 16.7 11.5 12.6 11.3 1.6 1.4 12.5 12.4 034730 SK C&C 5,800 116,000 1.2 10.3 5.2 30.7 5.9 12.5 11.8 2.0 1.8 19.5 18.3 001800 Orion 5,773 967,000 0.3 -3.6 7.9 -1.9 16.2 38.8 33.4 5.3 4.6 14.0 14.1 036460 KOGAS 5,474 59,300 -2.5 27.4 -91.8 1075.1 152.6 13.0 0.9 0.9 0.4 4.6 078930 GS 5,463 58,800 2.5 31.6 9.4 26.0 18.9 9.0 7.5 0.9 0.8 9.5 10.4 090430 Amorepacific 5,343 914,000 0.7 -4.1 10.2 -2.1 14.9 23.9 20.8 2.6 2.3 10.8 11.3 032640 LG Uplus 5,239 12,000 2.7 395.6 24.9 - 37.8 14.5 10.5 1.6 1.4 9.2 11.7 001300 Cheil Industries 4,982 95,000 0.8 1.7 26.8 98.6 -17.8 12.0 14.6 1.8 1.8 12.6 10.3 034020 Doosan Heavy I&C 4,942 46,550 1.8 3.9 6.6 1028.4 19.4 11.5 9.6 1.5 1.4 9.5 11.2 021240 COWAY 4,651 60,300 3.7 33.0 14.0 116.7 3.4 17.9 17.3 5.1 4.2 29.1 25.0 011210 Hyundai Wia 4,554 177,000 0.3 3.6 14.9 4.3 17.3 10.4 8.9 2.1 1.7 21.3 20.2 018880 Halla Climate Control 4,527 42,400 3.5 17.4 7.7 16.4 8.1 14.5 13.4 2.7 2.4 20.0 18.7 Source: KDB Daewoo Securities Research

Market Data September 24, 2013

※All data as of close September 24, 2013, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 429.79 4.80 1.13 0.13 USD/KRW 1,075.90 1,085.20 1,124.30 1,119.40 KOSPI 2,007.10 -2.31 -0.11 -1.18 JPY100/KRW 1,089.24 1,092.85 1,139.28 1,432.65 KOSDAQ 527.29 0.22 0.04 5.12 EUR/KRW 1,452.03 1,468.49 1,502.74 1,452.37 Dow Jones* 15,401.38 -49.71 -0.32 14.83 3Y Treasury 2.82 2.80 2.96 2.81 S&P 500* 1,701.84 -8.07 -0.47 16.37 3Y Corporate 3.23 3.21 3.33 3.32 NASDAQ* 3,765.29 -9.44 -0.25 20.98 DDR2 1Gb* 1.60 1.60 1.31 1.18 Philadelphia Semicon* 491.29 -1.86 -0.38 22.91 NAND 16Gb* 3.26 3.26 2.97 1.77 FTSE 100* 6,557.37 -39.06 -0.59 8.79 Oil (Dubai)* 107.19 107.27 107.53 108.02 Nikkei 225 14,732.61 -9.81 -0.07 37.84 Gold* 1,327.00 1,332.60 1,395.70 1,775.60 Hang Seng* 23,371.54 -130.97 -0.56 0.26 Customer deposits (Wbn)* 18,868 18,837 18,074 18,950 Taiwan (Weighted) 8,299.12 6.29 0.08 6.68 Equity type BC (Wbn)(Sep. 3) 89,262 89,478 91,603 96,824 Note: * as of September 2, 2010 Source: KSDA, FnGuide, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Samsung Electronics 63.90 Samsung Electronics (P) 15.29 LG Innotek 14.78 Samsung Electronics 53.16 Hynix 40.23 POSCO 11.88 KODEX LEVERAGE 14.67 KODEX 200 26.07 KODEX 200 31.54 Cheil Industries 11.86 LG Display 13.55 Hynix 23.02 Samsung SDI 11.04 LG Innotek 11.43 Kia Motors 12.89 DSME 15.31 SK Telecom 10.05 LG Display 9.65 Korean Air Lines 8.89 Cheil Industries 12.05 Hyundai Eng. & Cosnt. 9.58 LG Electronics 7.83 Hana Tour 8.58 KT 10.64 HANKOOK TIRE 8.22 Kangwon Land 7.47 Korea Gas Corp. 8.07 LG Chem 10.25 Doosan Infracore 7.67 NHN Entertainment 6.57 Honam Petrochemical 7.58 Doosan Infracore 9.57 6.48 5.77 LG Electronics 7.55 SK Energy 8.56 CJ CGV 5.19 Honam Petrochemical 5.33 CJ Cheiljedang 7.19 Hyundai Eng. & Cosnt. 8.55 Source: KSDA, FnGuide

KOSDAQ Top 10 Foreign Net Buy / Net Sell (Wbn) KOSDAQ Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Seoul Semiconductor 11.29 Lumens 1.84 SM 4.81 SFA Engineering 4.36 Paradise 3.50 SM 1.75 HyVISION 3.45 DUKSAN HI-METAL 3.83 Medy-tox 2.31 Media Flex 1.28 Interflex 2.47 Partrion 1.82 Sung Kwang Bend 2.01 SEEGENE 1.24 Interpark 2.39 HaanSoft 1.75 i-SENS 1.53 KH Vatec 0.98 INFRAWARE 2.20 Medy-tox 1.47 HyVISION 1.41 HaanSoft 0.81 Lumens 2.12 KH Vatec 1.10 Partrion 1.26 NEPES 0.67 INICIS 1.90 SK Broadband 1.08 OSSTEM IMPLANT 1.22 TPC 0.63 Paradise 1.62 NEPES 0.92 Interflex 1.17 STC 0.58 CJ E&M 1.46 TK Corp. 0.92 INFRAWARE 1.14 Daedong Steel 0.46 Amicogen 1.10 Media Flex 0.79 Source: KSDA, FnGuide

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 1,373,000 13,000 202,242 Celltrion 46,000 -1,250 4,623 Hyundai Motor 255,000 0 56,171 Seoul Semiconductor 41,300 1,200 2,408 Hyundai Mobis 296,000 500 28,814 Paradise 23,300 1,250 2,119 POSCO 324,000 -3,500 28,249 CJ O SHOPPING 339,300 -5,600 2,105 Kia Motors 68,400 400 27,727 Ssangyong E&C 136,800 0 1,999 Hynix 30,500 -50 21,661 Dongsuh 28,500 300 1,687 Shinhan Financial Group 44,850 100 21,268 GS Home Shopping 239,500 6,400 1,572 LG Chem 315,000 -2,500 20,875 CJ E&M 38,650 50 1,466 103,500 -1,500 20,700 SK Broadband 4,675 -40 1,384 263,000 -3,000 19,988 POSCO ICT 9,690 40 1,328 Source: