July 30, 2015

KOREA

Company News & Analysis Major Indices Close Chg Chg (%) LG Electronics (066570/Buy/TP: W67,000) KOSPI 2,019.03 -18.59 -0.91 Seasonality fails to lift earnings KOSPI 200 243.61 -2.36 -0.96 KOSDAQ 712.86 -17.61 -2.41 Hanwha Techwin (012450/Buy/TP: W44,000) Raise TP Easing uncertainties vs. weak earnings Turnover ('000 shares, Wbn) Volume Value Dong-A ST (170900/Buy/TP: W207,000) KOSPI 503,234 6,690 Pipeline value to gain increasing attention KOSPI 200 103,824 4,907 KOSDAQ 563,655 3,741

Doosan Corp. (000150/Buy/TP: W175,000) Market Cap (Wbn) In-house earnings improve; Watch for more shareholder-friendly actions in 2H Value KOSPI 1,262,118 Hyundai Heavy Industries (009540/Buy/TP: W156,000) KOSDAQ 195,673 Well positioned to gain competitive advantages KOSPI Turnover (Wbn) Doosan Heavy I&C (034020/Buy/TP: W28,000) Lower TP Buy Sell Net Foreign 1,531 1,615 -84 A stable, high dividend stock Institutional 1,367 1,294 73 Retail 3,735 3,759 -24

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 283 233 50 Institutional 177 290 -113 Retail 3,278 3,205 73

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,333 1,156 177 KOSDAQ 69 62 7

Advances & Declines Advances Declines Unchanged KOSPI 227 589 43 KOSDAQ 243 767 64

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Hanmi Pharm 394,000 -51,000 396 NHN 518,000 -84,000 394 Samsung Electronics 1,215,000 -48,000 378 Hynix 34,500 -2,500 327 Hanmi Science 138,500 1,000 223

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value i3system 58,000 -5,000 197 Komipharm 14,400 -1,200 90 Daum Communications 129,400 100 81 Binex 22,050 -3,900 71 Sansung P&C 72,500 -9,400 68 Note: As of July 30, 2015

This document is a summary of a report prepared by Daewoo Securities Co., Ltd. (“Daewoo”) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose.

LG Electronics (066570 KS) Seasonality fails to lift earnings

Technology 2Q15 review: OP of W244.1bn (-60.0% YoY, -20.0% QoQ) LG Electronics (LGE) announced 2Q revenue of W13.93tr (-7.6% YoY, -0.5% QoQ) and Results Comment operating profit of W244.1bn (-60.0% YoY, -20.0% QoQ). Excluding LG Innotek, revenue July 30, 2015 and operating profit were W12.48tr (-7.7% YoY, +0.2% QoQ) and W195.1bn (-62.5% YoY, -17.4% QoQ), respectively, missing our estimates (W13.31tr and W263.3bn) by

6.2% and 25.9%, respectively. The earnings miss was attributable to the weaker-than- (Maintain) Buy expected performance of the home entertainment (HE) and mobile communications (MC) divisions. Target Price (12M, W) 67,000 The HE division remained i n the red for the second straight quarter, with operating loss increasing QoQ to W82.7bn. The deterioration was largely due to 1) the weakness of Share Price (7/29/15, W) 43,800 emerging-market currencies (especially the ruble), 2) unfavorable panel prices, and 3) increased marketing spend amid intense competition. Expected Return 53% The MC division barely broke even, generating operating profit of just W0.2bn, weighed

down by the poor sales of the G4. Smartphone shipments fell 8.4% QoQ to 14.1mn OP (15F, Wbn) 1,083 units. Higher marketing spend also negatively affected margins. Consensus OP (15F, Wbn) 1,235 3Q15 preview: OP of W263bn (+7.7% QoQ); HE unit to return to profit EPS Growth (15F, %) 31.8 Market EPS Growth (15F, %) 31.5 For 3Q, we look for revenue of W13.9tr (-5.5% YoY, -0.2% QoQ) and operating profit of P/E (15F, x) 15.0 W263bn (-43.5% YoY, +7.7% QoQ). Excluding LG Innotek, we forecast revenue of Market P/E (15F, x) 11.0 W12.32tr and operating profit of W193.2bn KOSPI 2,037.62 The HE division should return to profitability in 3Q with an OP margin of 1.3%. TV Market Cap (Wbn) 7,168 shipments should recover to the 7mn level on the back of new releases. The F/X Shares Outstanding (mn) 181 environment is also starting to show signs of improvement, and as such, the TV business Free Float (%) 64.7 should gradually pick up. The MC division’s OP margin should slightly improve to 1% in Foreign Ownership (%) 20.9 2Q, helped by marketing spend reductions. Beta (12M) 0.48 52-Week Low 41,150 Reaffirm Buy and TP of W67,000 52-Week High 79,200 We previously argued that, even though a strong earnings recovery is unlikely in the (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M near term, shares will appreciate in 2Q on favorable seasonality. Our call, however, Absolute -7.1 -30.0 -41.2 proved incorrect, as the positive impact of seasonality on the appliance business was Relative -6.1 -33.0 -40.5 more than offset by the weakness of the TV business.

120 LG Electronics KOSPI Despite heading into the off-season, we maintain our Buy rating on LGE, as 1) the stock is trading at a 2015F P/B of only 0.7x, 2) operating profit should improve QoQ , and 3) 100 the outlook for the vehicle components (VC) business look promising (although growth 80 so far has been underwhelming).

60 We keep our target price of W67,000, which equals 0.97x our 12-month forward BPS of 40 7.14 11.14 3.15 7.15 W68,883.

Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 55,123 56,772 59,041 57,202 60,839 66,514 [Telecom equipment/Electronic OP (Wbn) 1,217 1,249 1,829 1,083 1,691 2,043 components] OP margin (%) 2.2 2.2 3.1 1.9 2.8 3.1

Wonjae Park NP (Wbn) 92 177 399 526 973 1,135 +822-768-3372 EPS (W) 511 978 2,208 2,911 5,382 6,279 [email protected] ROE (%) 0.7 1.5 3.4 4.5 7.9 8.5

P/E (x) 144.1 69.7 26.8 15.0 8.1 7.0 P/B (x) 1.1 1.0 0.9 0.7 0.6 0.6 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 t he U.S.

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

Hanwha Techwin (012450 KS) Easing uncertainties vs. weak earnings

Technology 2Q15 review: Operating loss of W79.2bn; Minus one-off, OP of W6.8bn For 2Q, Hanwha Techwin posted revenue of W607.2bn (-16.1% YoY, +0.8% QoQ) and an Results Comment operating loss of W79.2bn (turning to red YoY and QoQ). Revenue missed our estimate July 30, 2015 (W642.5bn) by 5.5%, while the operating figure was far worse than our expectation (operating profit of W12.6bn). However, stripping away a one-off W86bn employee

compensation package, actual operating profit was W6.8bn.

(Maintain) Buy The Security Solutions (SS; CCTVs) and Intelligent Machinery & Solutions (IMS; high- speed chip mounters) divisions both performed poorly, with revenue declining QoQ and Target Price (12M, W) 44,000 YoY. We believe this was due to business interruptions caused by the company’s ownership transition to Hanwha Group. We estimate both units suffered losses as a Share Price (07/29/15, W) 35,700 result of revenue contraction.

Expected Return 23% Looking forward to 3Q, we forecast revenue of W613.9bn (+1.5% YoY, +1.1% QoQ) and operating profit of W4.7bn (-9.8% YoY, turning to profit QoQ). We believe upside to earnings will remain limited for some time, as 1) we expect the SS and IMS divisions to OP (15F, Wbn) -50 continue to be affected by the ownership transition, and 2) the outlooks for the power Consensus OP (15F, Wbn) -2 systems and defense divisions remain challenging.

EPS Growth (15F, %) - Earnings unlikely to sharply pick up, but uncertainties are easing Market EPS Growth (15F, %) 31.5 P/E (15F, x) 2,308.5 The confusion sparked by the ownership change is likely to delay the company’s business Market P/E (15F, x) 11.0 normalization. However, we highlight that uncertainties are starting to dissipate. The KOSPI 2,037.62 employee compensation issue is now resolved, and Hanwha Group has said that it has no intention of further restructuring. Market Cap (Wbn) 1,897 th Shares Outstanding (mn) 53 On July 27 , Hanwha Techwin unveiled its future vision, announcing plans to grow its Free Float (%) 67.6 robotics and energy equipment business. The company also int ends to develop systems Foreign Ownership (%) 6.9 for driverless and electric cars using self-driving and precision control technology as its Beta (12M) 0.77 new growth engines. We think such moves are positive in the long term and expect 52-Week Low 21,300 synergies with Hanwha Group to materialize. 52-Week High 49,250 Maintain Buy and Raise TP by 12.8% to W44,000 (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M The value of Hanwha Techwin’s investment securities is W1.6tr (including W926bn in Absolute 22.1 55.6 -27.2 Korea Aerospace Industries) , which is equivalent to 84.4% of its current market cap of Relative 23.4 48.9 -26.3 W1.9tr. Based on 2015F earnings, the company’s stock is trading at a P/B of 1.1x. We

130 Hanwha Techwin KOSPI believe the defense business will become Hanwha Techwin’s core operations. 110 We reiterate Buy on Hanwha Techwin and lift our target price to W44,000 (from 90 W39,000). We derived our target price by applying a P/B of 1.3x (vs. 1.19x previously ) to 70 our 12-month forward BPS of 34,091. We believe both the increasing value of the 50 company’s investment securities as well as the growth prospects of the defense 30 business deserve attention. 7.14 11.14 3.15 7.15

Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 2,935 2,630 2,616 2,510 2,655 2,872 [Telecom equipment/Electronic OP (Wbn) 156 96 8 -50 72 86 components] OP margin (%) 5.3 3.7 0.3 -2.0 2.7 3.0

Wonjae Park NP (Wbn) 131 132 -119 1 86 97 +822-768-3372 EPS (W) 2,466 2,494 -2,236 15 1,626 1,827 [email protected] ROE (%) 8.3 8.1 -7.1 0.0 4.8 5.1

P/E (x) 24.2 21.8 - 2,308.5 22.0 19.5 P/B (x) 2.0 1.7 0.8 1.1 1.0 1.0 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 t he U.S.

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

Dong-A ST (170900 KS) Pipeline value to gain increasing attention

Healthcare 2Q OP meets our expectation For 2Q, Dong-A ST reported non-consolidated revenue of W139.3bn (-5.8% YoY) , Results Comment operating profit of W15.6bn (+37.7% YoY), and net profit of W12.1bn (+95.7% YoY) . July 30, 2015 Revenue was in line with our estimate, but missed the consensus. Operating profit also came in line with our estimate and was better than the consensus. Net profit

significantly beat both our expectation and the consensus. (Market estimates were (Maintain) Buy revenue of W148bn, operating profit of W14.2bn, and net profit of W9.4bn.) Aside from exports, the company’s business divisions (ETC, medical devices, and Target Price (12M, W) 207,000 diagnostics) all did poorly due to the impact of the MERS outbreak.

Share Price (07/29/15, W) 141,000 Despite the MERS impact, operating profit topped market expectations thanks to the receipt of milestone payments. In 2Q, Dong-A ST received milestone payments for the Expected Return 47% European approval and UK release of the antibacterial drug Sivextro, as well as an up- front payment related to an out-licensing deal for the diabetes treatment Evogliptin in Latin America. The marked rise in net profit stemmed from F/X gains. OP (15F, Wbn) 56 Consensus OP (15F, Wbn) 53 3Q earnings likely to improve YoY For 3Q, we anticipate revenue of W144bn (+8.0% YoY), operating profit of W14.3bn EPS Growth (15F, %) 16.8 (+3.6% YoY), and net profit of W10bn (-4.4% YoY). Despite the patent expiry of Stillen Market EPS Growth (15F, %) 31.5 P/E (15F, x) 27.1 (gastric ulcer treatment), we expect ETC sales t o grow in 3Q on new drug effects (the Market P/E (15F, x) 11.0 arthritis treatment Acelex and several generics). This, along with strong overseas KOSPI 2,037.62 revenue, should support overall top-line growth.

Market Cap (Wbn) 1,117 Operating profit should increase YoY, backed by 1) revenue growth, especially overs eas, Shares Outstanding (mn) 8 and 2) a milestone from the Russian firm Geropharm for the recent out-licensing of the Free Float (%) 48.8 diabetes drug Evogliptin. Foreign Ownership (%) 23.9 Retain Buy and TP of W207,000; Pipeline value to attract increasing attention Beta (12M) 1.51 52-Week Low 80,600 Looking at Dong-A ST’s pipeline, we highlight 1) Sivextro, which has been released in 52-Week High 172,000 developed markets, 2) DA-3880 (an Aranesp biosimilar candidate) and DA-9801 (an herbal drug candidate), which are both currently in clinical trials in developed countries, (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M and 3) Evogliptin, which is set to be released in the do mestic market. Sivextro went on Absolute -6.0 62.1 41.0 sale in the UK in June 2015. As the drug’s sales take off in the US and Europe, the Relative -4.9 55.2 42.7 company should receive increasing running royalties. The Aranesp biosimilar has recently entered a phase 1 clinical trial in Japan. Followin g the successful completion of 190 Dong-A ST KOSPI 170 the drug’s phase 1 trial in Europe, the company is currently looking for a partner. As 150 such, we expect more deals to emerge. DA-9801 is expected to enter a phase 3 trial in 130 the US in 2016. Evogliptin is likely to be released in Korea at the end of the year. As 110 such, we expect the value of the company’s new drugs to capture increasing attention 90 going forward. We maintain our Buy rating and target price of W207,000 and reiterate 70 7.14 11.14 3.15 7.15 the stock as our top pick in healthcare

Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 931 496 568 568 603 660 [Healthcare] OP (Wbn) 88 39 48 56 67 76

Hyun-tae Kim OP margin (%) 9.5 7.9 8.5 9.9 11.1 11.5 +822-768-3251 NP (Wbn) 68 -65 34 41 46 57 [email protected] EPS (W) 0 -11,546 4,452 5,200 5,846 7,142 ROE (%) 9.2 -11.0 7.4 8.1 8.6 9.7 Seung-min Kim +822-768-4157 P/E (x) - - 20.6 27.1 24.1 19.7 [email protected] P/B (x) - 1.7 1.4 2.1 2.0 1.8 Note: All figures are based on non-consolidated K-IFRS 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 t he U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

Doosan Corp. (000150 KS) In-house earnings improve ; Watch for more shareholder-friendly actions in 2H

Holding Companies 2Q review: Parent earnings robust, but consolidated earnings miss consensus 1) Parent: Revenue of W456.7bn (+2.0% YoY), OP of W41.5bn (+102.4% YoY) Results Comment By business segment, the electro-materials unit recorded revenue of W127.8bn (-7.5% July 30, 2015 YoY) and operating profit of W11.6bn (+68.1% YoY). Revenue declined due to a reduction in low-margin products, and margins improved on the back of increase d revenue from high-margin package CCLs as well as production efficiency. The industrial vehicle division saw revenue of W173.8bn (+9.2 % YoY) and operating profit of W16.9bn (Maintain) Buy (+38.5% YoY). Revenue should continue to grow in 2H, supported by increased domestic sales (due to pull-in demand ahead of the discontinuation of Tier 3-based vehicles) and Target Price (12M, W) 175,000 US sales, as well as the introduction of Tier 4 standards in June. The Mottrol unit posted revenue of W69.1bn (-12.1% YoY) and operating profit of W1.2bn (turning to profit Share Price (7/29/15, W) 102,000 YoY). China’s sluggish excavator market continued to drag down revenue, but the unit managed to remain in the black thanks to lower fixed costs resulting from restructuring. Meanwhile, the fuel cell business (which was consolidated into the company’s in-house Expected Return 72% businesses in 4Q14) signed a W28bn deal (5.6MW) with Korea South-East Power. This is expected to be followed up by a W40bn long-term service contract. OP (15F, Wbn) 1,001 2) Consolidated: Revenue of W4.92tr (-5.2% YoY), OP of W307.6bn (-6.1% YoY) Consensus OP (15F, Wbn) 1,075 Despite the solid performance of in-house businesses, consolidated results missed the EPS Growth (15F, %) 59.6 consensus due to weaker earnings at subsidiaries, including Doosan Heavy I&C. Market EPS Growth (15F, %) 31.5 Fuel cells and industrial vehicles are the next growth engines P/E (15F, x) 25.8 Since 2014, Doosan Corp. has been beefing up its fuel cell and industrial vehicles Market P/E (15F, x) 11.0 businesses through acquisitions in an effort to ensure medium- and long-term growth. KOSPI 2,037.62 In fuel cells, the company is looking to set itself apart on the back of cost Market Cap (Wbn) 2,170 competitiveness (40% target reduction by 2019), better product efficiency, and capacity Shares Outstanding (mn) 27 expansion (five units/month in 1Q15 to 16 units/month in 2Q16). We expect fuel cells Free Float (%) 29.2 to generate meaningful revenue from 2H. (Management expects consolidated fuel cell Foreign Ownership (%) 10.3 revenue to be W181.4bn in 2015 and is targeting W1.1tr by 2019.) Beta (12M) 1.42 For industrial vehicles, the company recently acquired the UK rental company Rushlift as 52-Week Low 100,000 part of its plan to become a comprehensive logistics provider. The company plans to 1) 52-Week High 126,500 gradually broaden its business portfolio from forklifts to warehousing and airport and port logistics, and 2) expand abroad, starting with North America before moving on to (%) 1M 6M 12M (%)(%) 1M1M 6M6M 12M12M Europe and emerging markets. (Management expects consolidated industrial vehicle Absolute -7.3 -3.3 -15.7 revenue to reach W750.3bn in 2015 and is targeting W1.2tr by 2020.) Relative -6.2 -7.4 -14.7 Maintain Buy and TP of W175,000 110 Doosan Corp. KOSPI We reiterate our Buy call and target price of W175,000 on Doosan Corp. We believe the 100 latest 2Q results point to a solid earnings outlook for in-house businesses in 2H and also confirm the company’s promising medium- and long-term growth. In addition to the 90 ongoing share buyback program, we believe the company could take other shareholder- 80 friendly actions in 2H, such as increasing dividends or canceling shares, as it has previously done. At the current share price, we believe the stock offers a compelling 70 7.14 11.14 3.15 7.15 investment case.

Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/11 12/12 12/13 12/14 12/15F 12/16F Revenue (Wbn) 3,884 24,352 21,616 20,468 19,895 20,804 [Holding Companies/IT Services] OP (Wbn) 400 799 1,135 1,008 1,001 1,188

Dae-ro Jeong OP margin (%) 10.3 3.3 5.3 4.9 5.0 5.7 +822-768-4160 NP (Wbn) 305 95 124 65 105 131 [email protected] EPS (W) 9,893 3,451 4,703 2,478 3,955 4,921 ROE (%) 11.7 3.2 4.3 2.2 3.6 4.4 Yoon-seok Seo +822-768-4127 P/E (x) 14.3 37.4 29.7 41.8 25.8 20.7 [email protected] P/B (x) 1.2 1.2 1.1 0.9 0.8 0.8 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

Hyundai Heavy Industries (009540 KS) Well positioned to gain competitive advantages

Shipbuilding 2Q review: Revenue of W11.95tr (-6.8%YoY); Operating loss narrows to W171bn For 2Q, Hyundai Heavy Industries (HHI) reported revenue of W11.95tr (-6.8% YoY), an Results Comment operating loss of W171bn, and a pretax loss of W301.9bn. Losses declined significantly YoY. Revenue was below our estimate, but the operating loss figure was broadly in line. July 30, 2015 The revenue contraction was primarily due to the oil refining business, where revenue

slumped 37.3% YoY (W930bn) due to lower oil prices. Revenue at the onshore plan t, offshore-platform, and shipbuilding divisions grew 135.9% (W72bn), 31.9%, and 2.3% (Maintain) Buy YoY, respectively. Other business divisions generally saw flat revenue.

Target Price (12M, W) 156,000 The operating loss was partly attributable to the shipbuilding business, which posted a W120.3bn loss due to Hyundai Samho Heavy Industries’ specialty ship construction Share Price (7/29/15, W) 99,800 issues. The offshore division also suffered a loss of W291.2bn, hurt by construction delays and a change order delay. One-off expenses related to workforce restructuring Expected Return 56% markedly decl ined QoQ to W43.9bn (from W150bn in 1Q15). On a positive note, the onshore business and Hyundai Mipo Dockyard remained in the black QoQ thanks to productivity gains. All other divisions recorded a profit, aside from construction OP (15F, Wbn) 5 equipment. Meanwhile, non-operating losses widened on the restructuring of overseas subsidiaries. Consensus OP (15F, Wbn) 154

EPS Growth (15F, %) - Well positioned to gain competitive advantages rd Market EPS Growth (15F, %) 31.5 As we warned in our July 23 preview report, domestic shipbuilders’ 2Q earnings are P/E (15F, x) - causing turmoil in the market. Amid the panic, HHI has come out with relatively smaller Market P/E (15F, x) 11.0 losses, and looks better positioned to gain competitive advantage s over peers in terms KOSPI 2,037.62 of orders, earnings, and balance sheet.

Market Cap (Wbn) 7,585 Samsung Heavy Industries (SHI; 010140 KS/Hold) reported a massive loss in 2Q, hit by construction missteps stemming from the company’s lack of experience in large-sized Shares Outstanding (mn) 76 EPC projects. The shipbuilder suffered further losses in its areas of strength—drillships Free Float (%) 59.8 and commercial vessels—because of production disruptions caused by the misallocation Foreign Ownership (%) 11.7 of labor resources. Daewoo Shipbuilding & Marine Engineering (DSME; 042660 KS/Hold) Beta (12M) 1.77 also announced a considerable loss in 2Q after writing off W3tr worth of accounts 52-Week Low 95,000 receivable in the offshore and merchant vessel segments. Debt is likely to balloon at 52-Week High 168,500 both companies, pressuring their funding and order-taking capabilities.

(%)(%)(%) 1M1M1M 6M6M6M 12M12M12M Maintain Buy and TP of W156,000 Absolute -9.7 -12.8 -40.8 We reiterate our Buy call and target price of W156,000 on HHI. We believe the Relative -8.7 -16.5 -40.1 shipbuilder is poised to gain competitive advantages on the back of its relati vely stable

130 Hyundai Heavy Industries balance sheet and robust competitiveness. The company’s strength in merchant vessels KOSPI and offshore platforms, as well as its well-diversified business portfolio, should allow it 110 to recover quicker than peers.

90 While the weakening of the won and growth of merchant vessel orders are positives, 70 orders from offshore and other divisions are likely to remain muted given low oil prices and challenging macro conditions. In light of such uncertainties, we used a P/B of 0.7x 50 7.14 11.14 3.15 7.15 for our target price.

Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 54,974 54,188 52,582 48,323 45,665 46,350 [Shipbuilding & Machinery] OP (Wbn) 2,006 802 -3,249 5 959 936

Ki-jong Sung OP margin (%) 3.6 1.5 -6.2 0.0 2.1 2.0 +822-768-3263 NP (Wbn) 993 279 -1,769 -261 523 551 [email protected] EPS (W) 13,061 3,667 -23,279 -3,433 6,878 7,255 ROE (%) 6.0 1.6 -10.9 -1.7 3.4 3.5 Ho-seung Lee +822-768-4176 P/E (x) 18.5 70.1 - - 14.5 13.8 [email protected] P/B (x) 1.0 1.0 0.5 0.5 0.5 0.4 Note: 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

Doosan Heavy I&C (034020 KS) A stable, high dividend stock

Machinery 2Q review: Still sluggish, but headwinds are fading Doosan Heavy I&C (DHIC) posted 2Q consolidated revenue and operating profit of Company Report W4.22tr (-8.7% YoY) and W227.3bn (-20% YoY), respectively. Revenue was slightly below our projection and the consensus, but OP margin came largely in line at 5.4%. July 30, 2015 Subsidiary earnings were also health ier than market expectations. The company swung to a pretax profit of W43.3bn, helped by a fall in foreign currency interest expenses and smaller derivative losses. (Maintain) Buy 1) Parent operating profit came in line with expectations. Despite the continued impact of sluggish order intake, operating profit remained stable, supported by the near Target Price (12M, W) 28,000 completion of low-margin EPC projects in the Middle East and higher sales mix of power plant equipment, which are more profitable. Share Price (07/29/15, W) 20,250 2) Subsidiary earnings were also consistent with expectations. Doosan Infracore delivered healthy earnings on the back of the robust performances of Bobcat and the Expected Return 38% machine tool unit and won depreciation. That said, losses from construction equipment widened, raising worries. At Doosan E&C, losses r elated to unsold apartments narrowed, but a fall in revenue led to a decline in operating profit. Doosan Engine posted another OP (15F, Wbn) 867 loss, as revenue was slow to recover due to last year’s muted order intake. Consensus OP (15F, Wbn) 925 On track to meet 2015 order target EPS Growth (15F, %) - DHIC won around W3.9tr worth of new orders in 1H (including the Song Hau power Market EPS Growth (15F, %) 31.5 plant EPC contract in Vietnam and the Shin-Kori reactor contract), achieving 44% of its P/E (15F, x) 262.5 full-year guidance (W9.3tr). For 2H, the company is targeting W3tr in new orders from Market P/E (15F, x) 11.0 domestic thermal power plants (EPC and equipment), 40% higher than last year’s KOSPI 2,037.62 W2.2tr. Looking overseas, we expect quarterly orders to continue stable growth on the back of increasing spending on power plants in Southeast Asia. As such, we believe the Market Cap (Wbn) 2,150 company will have little trouble meeting its full-year target. Shares Outstanding (mn) 119 DHIC is the exclusive supplier of domestic nuclear reactor equipment, orders for which Free Float (%) 51.7 tend to occur once every two years. The government recently released its seventh Foreign Ownership (%) 12.0 energy supply and demand roadmap, and it seems likely investments in nuclear reactors Beta (12M) 1.95 will be pushed forward. We expect the company to gain more than W2tr in orders for 52-Week Low 20,200 nuclear reactor equipment in 2016. 52-Week High 32,450 Earnings to begin turning around in 4Q (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M We maintain our Buy rating on DHIC, but lower our target price by 30% to W28,000 Absolute -14.6 -14.7 -37.6 (from W40,000). We expect earnings to begin turning around in 4Q15 in light of the Relative -13.6 -18.4 -36.9 order recovery that started in 4Q14 . However, we revised down our earnings estimates,

130 Doosan Heavy I&C KOSPI as we see weaker subsidiary earnings stalling the company’s margin recovery. 110 Still, we note that the stock currently has a dividend yield of 4% and that operating cash

90 flow should remain stable on the back of healthy order book and backlog. We also see limited risks of the company providing financial assistance to its beleaguered 70 subsidiaries. And with valuation at an all-time low (P/B of 0.5x), we believe the stock 50 should be looked at as a long-term investment. 7.14 11.14 3.15 7.15

Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 21,274 19,208 18,128 17,475 17,947 18,844 [Shipbuilding & Machinery] OP (Wbn) 586 958 888 867 969 1,036

Ki-jong Sung OP margin (%) 2.8 5.0 4.9 5.0 5.4 5.5 +822-768-3263 NP (Wbn) 43 69 -95 9 139 207 [email protected] EPS (W) 402 653 -884 77 1,160 1,734 ROE (%) 1.0 1.6 -2.0 0.2 3.0 4.4 Ho-seung Lee +822-768-4176 P/E (x) 112.4 54.2 - 262.5 17.5 11.7 [email protected] P/B (x) 1.2 0.8 0.6 0.5 0.5 0.5 Note: 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

Key Universe Valuations July 30, 2015

※All data as of close July 29, 2015, unless otherwise noted.

15F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 15F 16F 15F 16F 15F 16F 15F 16F 15F 16F 005930 Samsung Electronics 178,969 1,215,000 1.3 10.1 11.9 -3.8 14.7 9.3 8.1 1.1 1.0 13.0 13.3 005380 Hyundai Motor 33,041 150,000 2.4 -11.9 8.0 -7.1 2.1 6.3 6.1 0.7 0.6 11.4 10.7 015760 KEPCO 31,199 48,600 1.4 41.8 7.4 251.3 -50.2 3.3 6.6 0.5 0.5 16.3 7.3 000660 SK Hynix 25,116 34,500 1.2 13.1 0.6 8.5 2.8 5.4 5.3 1.1 0.9 22.9 19.4 090430 AmorePacific 23,734 406,000 0.3 40.9 31.8 51.4 31.2 48.8 37.2 8.5 7.0 18.6 20.7 018260 Samsung SDS 22,362 289,000 0.2 17.2 19.8 9.2 20.7 49.6 41.1 4.9 4.4 10.3 11.3 032830 Samsung Life 21,100 105,500 - - - - 0.0 0.0 012330 Hyundai Mobis 20,540 211,000 1.6 -10.7 11.1 -10.7 15.1 6.7 5.8 0.8 0.7 12.4 12.8 055550 Shinhan Financial Group 19,988 42,150 - - - - 0.0 0.0 017670 SK Telecom 19,783 245,000 4.1 7.8 11.2 9.5 9.5 10.0 9.2 1.1 1.0 13.0 13.1 000270 Kia Motors 17,775 43,850 2.6 -4.4 25.0 -0.3 14.9 6.0 5.2 0.7 0.7 13.0 13.7 005490 POSCO 17,263 198,000 4.0 -9.6 30.8 124.5 65.9 12.3 7.4 0.4 0.4 3.4 5.5 035420 NAVER 17,075 518,000 0.2 12.7 34.4 32.0 35.5 28.5 21.0 5.2 4.2 28.8 29.4 051910 LG Chem 16,634 251,000 1.6 53.5 26.1 61.5 35.5 13.2 9.8 1.4 1.3 11.2 13.8 033780 KT&G 14,690 107,000 3.3 14.8 -6.3 22.9 -10.5 14.5 16.2 2.2 2.1 17.1 14.1 105560 KB Financial Group 14,160 36,650 - - - - 0.0 0.0 000810 Samsung F&M 13,407 283,000 - - - - 0.0 0.0 051900 LG Household & Health Care 13,307 852,000 0.5 34.8 20.3 34.4 22.6 32.2 26.2 7.4 6.0 26.1 26.0 034730 SK C&C 12,914 293,500 0.7 23.2 9.0 356.4 4.3 25.3 24.2 4.3 3.7 22.7 19.8 003550 LG Corp. 9,784 56,700 1.8 18.0 4.2 18.5 5.9 7.9 7.5 0.7 0.7 9.4 9.2 003600 SK Holdings 9,721 207,000 1.2 91.8 -14.6 - -41.3 7.1 12.0 0.8 0.7 12.0 6.5 096770 SK Innovation 9,293 100,500 3.2 - -29.2 - -27.6 6.8 9.4 0.6 0.5 8.8 6.0 010130 Korea Zinc 9,246 490,000 1.3 3.2 17.4 9.4 17.6 16.9 14.3 1.8 1.6 11.3 12.0 011170 Lotte Chemical 8,997 262,500 0.4 274.4 6.8 578.2 9.9 9.0 8.2 1.2 1.1 14.4 13.8 035250 Kangwon Land 8,857 41,400 2.6 15.3 12.3 23.6 14.4 19.9 17.4 2.8 2.6 15.6 16.3 000830 Samsung C&T 8,764 56,100 1.1 -19.4 12.2 61.9 9.6 20.6 18.8 0.7 0.6 3.3 3.5 086790 Hana Financial Group 8,554 28,900 - - - - 0.0 0.0 023530 Lotte Shopping 8,125 258,000 0.6 11.3 12.6 37.8 13.4 10.7 9.5 0.5 0.4 4.4 4.8 034220 LG Display 8,122 22,700 2.2 47.1 -34.0 49.0 -33.1 6.0 9.0 0.7 0.6 11.3 7.0 030200 KT 7,886 30,200 2.6 - 2.9 - -42.6 7.0 12.2 0.6 0.6 10.3 5.5 004020 Hyundai Steel 7,780 58,300 1.3 10.8 4.8 44.4 -4.6 6.2 6.5 0.5 0.4 7.8 7.0 035720 Daum Kakao 7,752 129,400 0.1 33.4 37.8 -51.5 52.3 43.7 28.7 2.9 2.7 6.9 9.8 021240 Coway 7,712 100,000 2.6 18.3 14.3 24.9 14.5 24.7 21.6 5.8 5.2 27.8 27.8 19745. 009540 Hyundai Heavy Industries 7,524 99,000 - - - - 14.4 0.5 0.4 - 3.4 0 024110 Industrial Bank of Korea 7,428 13,350 - - - - 0.0 0.0 009240 Hanssem 7,272 309,000 0.3 35.1 34.9 35.3 34.3 62.0 46.2 15.3 11.8 30.8 31.8 086280 Hyundai Glovis 7,106 189,500 1.1 7.0 12.6 -0.4 15.0 13.3 11.6 2.3 1.9 18.0 18.0 088350 Hanwha Life 7,052 8,120 - - - - 0.0 0.0 010950 S-Oil 6,868 61,000 4.5 - -24.6 - -22.9 7.5 9.7 1.2 1.1 17.8 12.2 066570 LG Electronics 6,685 40,850 1.5 -40.8 56.2 31.8 84.9 14.0 7.6 0.6 0.6 4.5 7.9 139480 Emart 6,648 238,500 0.6 5.8 23.2 102.7 -12.2 11.3 12.9 0.9 0.9 8.3 6.9 006400 Samsung SDI 6,505 94,600 1.1 15.7 224.9 - 58.9 24.9 15.7 0.6 0.6 2.3 3.6 001800 Orion 6,501 1,088,000 0.6 17.2 9.4 26.9 14.7 31.3 27.3 4.6 4.0 15.7 15.9 097950 CJ CheilJedang 5,380 409,000 0.5 48.6 9.3 246.6 15.1 18.5 16.1 1.8 1.6 10.4 11.0 051600 KEPCO KPS 5,355 119,000 - - - - 0.0 0.0 012630 Hyundai Development 5,186 68,800 0.7 81.1 27.2 241.9 34.2 22.0 16.4 2.1 1.9 10.3 12.6 036570 NCsoft 5,175 236,000 1.6 11.5 15.4 16.4 10.7 19.3 17.5 3.1 2.8 18.3 17.8 008770 Hotel Shilla 5,142 131,000 0.3 45.8 69.3 77.4 84.8 40.2 21.8 6.2 4.9 16.6 25.4 002380 KCC 5,102 485,000 1.9 13.3 3.2 -22.5 3.7 20.2 19.5 0.8 0.8 4.1 4.1 161390 Hankook Tire 5,029 40,600 1.0 -12.5 12.7 -4.5 14.2 7.5 6.6 1.0 0.9 13.9 14.0 Source: KDB Daewoo Securities Research

Market Data July 30, 2015

※All data as of close July 30, 2015, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 362.60 3.65 1.02 -6.23 USD/KRW 1,157.90 1,166.20 1,124.10 1,024.70 KOSPI 2,019.03 -18.59 -0.91 4.81 JPY100/KRW 934.32 943.68 917.15 1,003.57 KOSDAQ 712.86 -17.61 -2.41 28.74 EUR/KRW 1,272.18 1,290.17 1,260.51 1,374.12 Dow Jones* 17,751.39 121.12 0.69 -0.46 3Y Treasury 1.74 1.72 1.79 2.51 S&P 500* 2,108.57 15.32 0.73 2.45 3Y Corporate 1.98 1.96 2.01 2.92 NASDAQ* 5,111.73 22.52 0.44 8.14 DDR2 1Gb* 1.18 1.18 1.19 1.71 Philadelphia Semicon* 651.75 0.85 0.13 -5.09 NAND 16Gb* 1.63 1.63 1.72 2.39 FTSE 100* 6,631.00 75.72 1.16 1.27 Oil (Dubai)* 52.91 52.58 59.85 105.43 Nikkei 225 20,522.83 219.92 1.08 17.89 Gold* 1,092.60 1,096.20 1,179.00 1,298.30 Hang Seng* 24,619.45 115.51 0.47 3.19 Customer deposits (Wbn)* 21,802 21,854 22,786 16,078 Taiwan (Weighted) 8,651.49 88.01 1.03 -6.71 Equity type BC (Wbn)(Jul. 28) 77,547 77,354 76,228 78,458 Note: * as of July 29, 2015 Source: KSDA, Wisefn, 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 Hyundai Motor 66.63 Samsung Electronics 121.14 KB Financial Group 19.98 KODEX LEVERAGE 47.68 Shinhan Financial Group 27.70 NHN 86.80 Samsung Electronics 18.35 Hanmi Pharm 35.67 SK C&C 12.22 LG Electronics 27.91 Samsung Techwin 16.50 NHN 32.83 CHEIL INDUSTRIES 11.15 Hynix 25.10 LG Uplus 16.38 CHEIL INDUSTRIES 23.99 Hotel Shilla 10.58 KODEX 200 16.56 POSCO 14.59 Hynix 16.93 Samsung Life Insurance 9.51 Hyundai Heavy Industries 15.02 KODEX INVERSE 14.42 Hyundai Motor 13.21 Lotte Shopping 7.92 LG Uplus 8.63 Shinhan Financial Group 14.28 Korean Air Lines 12.12 Samsung Heavy Ind. 7.03 AmorePacific 8.26 Kia Motors 13.78 KOREA AEROSPACE 8.97 SAMSUNG SDS 7.00 Samsung Electronics (P) 8.22 Samsung F&M Insurance 12.29 LG Electronics 7.79 Hana Financial Group 6.49 POSCO 7.41 LG Household & Health Care 10.60 SK C&C 6.94 Source: KSDA, Wisefn

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 Daum Communications 20.26 Medy-tox 4.57 iNtRON Bio 2.86 Daum Communications 13.58 Kolon Life Science 4.71 Celltrion 4.21 PEPTRON 2.57 Sansung P&C 8.35 Medipost 3.92 ISPLUS 3.03 ISPLUS 1.72 CJ E&M 7.02 Wemade 3.53 Bio Space 2.54 SaraminHR 1.57 ViroMed 6.68 HLB 3.17 Sam Chun Dang Pharm 2.19 Paradise 1.49 Medy-tox 5.19 Lutronic 2.58 ENF Technology 1.89 HaanSoft 1.47 KEBT 4.94 SEEGENE 2.44 Binex 1.70 YG Entertainment 1.45 GemVax 4.93 DAWONSYS 2.42 ViroMed 1.60 KT Music 1.45 COSON 4.13 Estech Pharma 2.31 CJ O Shopping 1.51 Wins 1.38 Medipost 4.10 EO Technics 2.25 YG Entertainment 1.29 Korea Information Service 1.28 OSSTEM IMPLANT 3.68 Source: KSDA, Wisefn

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 1,215,000 -48,000 178,969 Celltrion 76,400 200 8,558 Hyundai Motor 150,000 4,000 33,041 Daum Communications 129,400 100 7,752 KEPCO 48,600 100 31,199 Dongsuh 42,400 400 4,227 Hynix 34,500 -2,500 25,116 Medy-tox 514,600 -32,400 2,911 Amore Pacific 406,000 -17,500 23,734 CJ E&M 72,000 -4,200 2,789 SAMSUNG SDS 289,000 2,000 22,362 ViroMed 166,000 -17,200 2,357 CHEIL INDUSTRIES 165,000 -4,500 22,275 Paradise 23,200 -100 2,110 Samsung Electronics (P) 926,000 -39,000 21,144 LOEN 82,000 -6,500 2,074 Samsung Life Insurance 105,500 5,000 21,100 SEEGENE 57,300 -1,200 1,503 Hyundai Mobis 211,000 500 20,540 OCI Materials 125,500 -100 1,324 Source: Korea Exchange