Morning Focus

February 15, 2019

Korea Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) SK Holdings (034730/Buy/TP: W400,000) Raise TP KOSPI 2,225.85 24.37 1.11 Share re-rating on the horizon KOSPI 200 288.68 3.71 1.30 KOSDAQ 742.27 2.36 0.32 KEPCO KPS (051600/Buy/TP: W42,000) Upgrade rating & Raise TP Improving outlook for 2019 Turnover ('000 shares, Wbn) Volume Value Asiana Airlines (020560/Hold) Downgrade rating KOSPI 561,305 6,281 KOSPI 200 111,332 4,743 Disappointing earnings KOSDAQ 725,633 3,926

Kakao (035720/Buy/TP: W130,000) Market Cap (Wbn) Steady growth ahead Value KOSPI 1,469,358 Studio Dragon (253450/Buy/TP: W130,000) Lower TP KOSDAQ 251,780 Investment case remains intact KOSPI Turnover (Wbn) Buy Sell Net CJ CheilJedang (097950/Buy/TP: W460,000) Foreign 1,646 1,696 -49 Three investment points for 2019 Institutional 2,027 1,803 223 Retail 2,580 2,773 -192 Orion (271560/Buy/TP: W155,000) Growth strategy for 2019 KOSDAQ Turnover (Wbn) Buy Sell Net Emart (139480/Buy/TP: W240,000) Foreign 354 341 13 Institutional 233 252 -19 In need of differentiated traffic growth strategy Retail 3,352 3,327 26

Lotte Shopping (023530/Trading Buy/TP: W220,000) Lower TP Program Buy / Sell (Wbn) Uncertainties resurface Buy Sell Net KOSPI 1,679 1,485 194 Ssangyong Cement (003410/Buy/TP: W8,300) Raise TP KOSDAQ 307 306 1 Tried and true Advances & Declines Advances Declines Unchanged Meerecompany (049950/Not Rated) KOSPI 451 368 76 Potential revaluation of surgical robots KOSDAQ 678 508 104

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 47,500 1,300 802 KODEX KOSDAQ150 LEVERAGE 13,455 20 195 KODEX LEVERAGE 13,750 245 186 Hynix 77,400 1,200 177 Hyundai Motor 121,500 -3,000 129

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Diostech 20,750 -1,350 112 LB SEMICON 4,700 205 102 SCD 1,940 445 84 Emerson Pacific 24,850 -1,100 70 Toptec 11,950 1,450 66 Note: As of February 14, 2019

Mirae Asset Daewoo Research This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd. (“Mirae Asset 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. Mirae Asset 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. Mirae Asset 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.

SK Holdings (034730 KS) Share re-rating on the horizon

Conglomerates SK Biopharmaceuticals’ out-licensing deal with a European partner SK Biopharmaceuticals, SK Holdings’ wholly owned subsidiary, disclosed on February Company Update 14th that it has entered a US$530mn out-licensing agreement for cenobamate (epilepsy treatment) with Arvelle Therapeutics (Switzerland), targeting 32 countries in Europe. February 15, 2019 Under the agreement, SK Biopharmaceuticals will receive an upfront payment of US$100mn and is eligible to receive up to US$430mn upon the achievement of regulatory and commercial milestones. It is the largest licensing deal in the European central nervous system (CNS) drug market. When the drug hits the market, SK (Maintain) Buy Biopharmaceuticals will also receive recurring royalties based on net revenue. Notably, the upfront payment is non-refundable and accounts for 18.9% of the total contract ▲ value, which is two times the market norm (upfront payments typically are around 10% Target Price (12M, W) 400,000 of the contract value). We believe this reflects the confidence Arvelle Therapeutics has regarding cenobamate’s chances of regulatory approval and commercialization. SK Share Price (02/14/19, W) 277,500 Biopharmaceuticals plans to file a new drug application (NDA) with the European Medicines Agency (EMA) for cenobamate, based on global clinical trial results. Expected Return 44% Raising fair value of SK Biopharmaceuticals; Successful IPO more likely

In light of the deal, we revise up the fair value of SK Biopharmaceuticals to W5.5tr. (We had valued the firm at around W4.5tr, based on the expected US sales of cenobamate.) OP (18F, Wbn) 5,175 Consensus OP (18F, Wbn) 6,189 1) Cenobamate: SK Biopharmaceuticals filed an NDA with the US FDA for cenobamate in November 2018. The regulatory review commenced in February 2019. The drug is EPS Growth (18F, %) 17.4 expected to gain FDA approval in 2H19 (November), followed by commercial release in the US in 2020. Annual sales are projected to reach W1tr in 2024. Market EPS Growth (18F, %) 4.6 P/E (18F, x) 9.4 * UCB’s Vimpat, the current best-selling antiepileptic drug in the US, records annual Market P/E (18F, x) 9.2 sales of roughly W1.1tr. KOSPI 2,225.85 * In a phase 2b study, cenobamate showed superior efficacy, including lower frequency of seizures, compared to Vimpat. Market Cap (Wbn) 19,525 Shares Outstanding (mn) 71 In addition, the sleep disorder treatment solriamfetol, which the company licensed out Free Float (%) 48.9 to Jazz Pharmaceuticals in 2011, is anticipated to gain approval from the US FDA in March and the EMA in September 2019. The drug is anticipated to generate royalty Foreign Ownership (%) 26.5 income following its commercial production and release in 2H19. Beta (12M) 1.10 52-Week Low 245,500 2) A virtuous cycle to enhance shareholder returns: Proceeds from SK Biopharmaceuticals’ IPO to be distributed as special dividend 52-Week High 313,500 Meanwhile, SK Holdings introduced a new dividend policy, which allows for the payout (%) 1M 6M 12M of special dividends using proceeds from subsidiary IPOs or stake sales. The firm’s Absolute 10.1 7.1 -4.5 dividend yield looks very attractive in light of 1) past dividend levels (DPS of W4,000 in Relative 2.1 8.7 3.9 2017 and W5,000 in 2018) and 2) the potential for special dividend payouts in the event that SK Biopharmaceuticals goes public after 2H19. 110 SK Holdings KOSPI Maintain Buy and lift TP to W400,000; Undervalued stock 100 We maintain our Buy rating and lift our target price to W400,000 (from W390,000), as

90 we revised up the value of the firm’s stake in SK Biopharmaceuticals, reflecting our upward adjustment to the latter’s enterprise value (from W4.5tr to W5.5tr). The stock 80 looks steeply undervalued, trading at a more than 40% discount to its NAV.

70 Our reverse calculation based on SK Holdings’ market value suggests that SK 2.18 6.18 10.18 2.19 Biopharmaceuticals is currently being priced at a deep discount. Given the latest out- licensing deal and the likelihood of an IPO, we expect the company’s equity stake in SK Biopharmaceuticals to come into focus, prompting a re-rating in the stock. Mirae Asset Daewoo Co., Ltd.

[ Conglomerates/Software] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 39,300 82,730 90,613 101,507 103,278 105,278 Dae-ro Jeong +822-3774-1634 OP (Wbn) 1,407 5,281 5,745 4,689 6,475 7,125 [email protected] OP margin (%) 3.6 6.4 6.3 4.6 6.3 6.8

NP (Wbn) 5,346 766 1,677 1,969 2,076 2,255 EPS (W) 93,713 10,794 23,650 27,759 29,266 31,788 ROE (%) 70.6 6.0 12.5 13.3 12.3 12.0

P/E (x) 2.6 21.3 12.0 9.4 9.5 8.7 P/B (x) 1.3 1.2 1.4 1.1 1.1 1.0 Dividend yield (%) 1.4 1.6 1.4 1.9 1.8 1.8 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo 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.

KEPCO KPS (051600 KS) Improving outlook for 2019

Utility 4Q18 review: OP hits highest level since 4Q14; Strong results even after considering one-offs Results Comment For 4Q18, KEPCO KPS reported revenue of W386.4bn (+12.8% YoY), handily beating the February 15, 2019 market consensus (W343.2bn). Revenue improved across all major divisions. The thermal and nuclear segments returned to positive growth, with revenue expanding 6.3% and 14.8% YoY, respectively. We believe a large portion of the revenue recognitions that were previously delayed came through in 4Q18. Overseas revenue (Upgrade) Buy also grew 46.8% YoY, boosted by revenue recognition for the UAE nuclear plant trial run. Target Price (12M, W) ▲ 42,000 Operating profit also came in far above the consensus (W64bn), surging 141.5% YoY to W88.4bn—the highest level since 4Q14 (W96.4bn). We believe the company performed Share Price (02/14/19, W) 33,800 strongly even after considering one-off declines in expenses (W30bn, including reduced bonuses and reversal of pension provisions). Labor costs fell 17.9% YoY, and overall cost growth (+5.1% YoY) was also modest compared to revenue growth thanks Expected Return 24% to lower outsourcing costs. Net profit jumped 144.4% YoY to W74.5bn, as non-operating profit was boosted by OP (18F, Wbn) 192 around W10bn in reversals of provisions related to the ordinary wage litigation. Consensus OP (18F, Wbn) 166 Roughly W20bn in remaining reversals are likely to be recognized in subsequent quarters. EPS Growth (18F, %) 18.7 Market EPS Growth (18F, %) 4.6 Watch for domestic revenue recovery and overseas orders P/E (18F, x) 9.3 For 2019, we forecast operating profit to slightly fall YoY to W186.4bn. However, we Market P/E (18F, x) 9.2 believe this actually represents robust profit growth, when adjusting for the W40bn in KOSPI 2,225.85 one-off expense declines in 2018. 1) Nuclear and thermal: In 2019, we project nuclear and thermal revenue to grow Market Cap (Wbn) 1,521 4.2% and 8.6% YoY, respectively. In the nuclear segment, revenue should continue to Shares Outstanding (mn) 45 grow, driven by new power plants and recent extensions to the maintenance schedule, Free Float (%) 48.8 though at a slower pace due to fewer outage maintenance days. Following a sluggish Foreign Ownership (%) 11.5 performance in 2018, the thermal segment should also see growth recover, supported Beta (12M) 1.16 by a favorable comparison (stemming from site closures). 52-Week Low 26,500 2) Overseas: The company, which has yet to win a new order after last year’s massive 52-Week High 51,200 Pakistan deal (W132.1bn), expects to nab an order in UAE during 1H19. We believe (%) 1M 6M 12M order prospects are improving, as the government has recently been making a push to promote overseas project orders. That said, we expect to gain a clearer picture of the Absolute -0.7 -8.6 -11.2 UAE project’s margins only after the order is won. Relative -7.9 -7.3 -3.3 Raise TP to W42,000 and upgrade to Buy 130 KEPCO KPS KOSPI We revise up our 2019 net profit estimate on KEPCO KPS by 24% and consequently 110 raise our target price from W32,000 to W42,000. With our new target price implying 90 24% upside potential, we upgrade our rating from Trading Buy to Buy. Our target price is based on a 2019F P/E of 12.3x, which is nearly 20% lower than the stock’s five-year 70 average low (15.3x). We view our valuation as achievable, given 1) the company’s

50 improving earnings growth potential, and 2) favorable changes in domestic/overseas 2.18 6.18 10.18 2.19 order conditions.

Mirae Asset Daewoo Co., Ltd.

[ Transport/Energy] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 1,180 1,223 1,237 1,242 1,274 1,299 Jay JH Ryu +822-3774-1738 OP (Wbn) 175 106 164 192 186 188 [email protected] OP margin (%) 14.8 8.7 13.3 15.5 14.6 14.5

NP (Wbn) 170 88 136 161 153 158 EPS (W) 3,776 1,962 3,021 3,585 3,403 3,515 ROE (%) 22.9 11.2 16.0 17.0 14.8 14.1

P/E (x) 23.6 27.6 13.4 9.3 9.9 9.6 P/B (x) 5.1 3.1 2.0 1.5 1.4 1.3 Dividend yield (%) 1.9 1.3 3.6 4.4 4.3 4.3 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Asiana Airlines (020560 KS) Disappointing earnings

Airlines 4Q18 review: Earnings disappoint, with operating loss of W25bn Results Comment For 4Q18, Asiana Airlines reported revenue of W1.75tr (+6.4% YoY). Revenue growth February 15, 2019 was driven by the cargo unit (+10.9% YoY). For the passenger segment, revenue grew only 1.5% YoY in international and slumped 9.3% YoY in domestic.

Despite top-line growth, Asiana Airlines swung to an operating loss of W25bn, missing the market consensus (operating profit of W46.7bn). Profit was hurt by a 3%p YoY fall (Downgrade) Hold in domestic passenger load factor and yield declines of 11% YoY in domestic and 2% in international (in US$ terms). Target Price(12M, W) - Stripping away the fuel cost increase (+27% YoY), operating expenses increased W72.4bn, partly due to one-off factors (W20bn-W40bn). The airline turned to a net loss Share Price (02/14/19, W) 4,345 of W3.5bn, weighed by the operating loss and financial expenses. Debt-to-equity ratio remained stable at 504.9%. Expected Return - Unfavorable environment; Focus on balance sheet improvement

1) 2019 management plan: For 2019, Asiana Airlines plans to increase passenger OP (18F, Wbn) 178 supply by 2.5% but cut cargo supply by 1%. The airline plans to maintain the cargo fleet Consensus OP (18F, Wbn) 243 of 12 aircraft. In the passenger segment, it plans to focus more on long-haul routes (to EPS Growth (18F, %) - be serviced by the A350). The operating schedule has yet to be decided, however. Market EPS Growth (18F, %) 4.6 The firm targets won-based yield increases of 4% in passenger and 5% in cargo. We P/E (18F, x) - view these targets as aggressive, considering the company’s US$/W rate (W1,112) and Market P/E (18F, x) 9.2 jet fuel price (US$75) estimates for 2019. Considering the recent softening of demand, KOSPI 2,225.85 we think yield hikes driven by limited supply are unlikely. Market Cap (Wbn) 892 For 2019, Kumho Asiana Group guided operating profit of W510bn (vs. W281.4bn in Shares Outstanding (mn) 205 2018). Given the revenue structure, Asiana Airlines likely has to achieve consolidated Free Float (%) 66.5 operating profit of W300bn to meet the target. We believe this is difficult to guarantee Foreign Ownership (%) 15.9 at the moment. Beta (12M) 1.37 52-Week Low 3,350 2) Debts: We believe additional debt financing is inevitable, as the firm’s total debt 52-Week High 5,340 maturing in 2019 is estimated at W957.8bn. Asiana Airlines needs to issue ABS to repay debts (W450bn in ABS and W300bn in aircraft financing). Therefore, the firm’s debt-to- (%) 1M 6M 12M equity ratio may rise to 900% from 700% (on a parent basis), due to changes in Absolute 2.1 3.8 -14.8 accounting standards. As such, a key point to watch is the possibility of Asiana Airlines Relative -5.3 5.4 -7.3 taking capital enhancement measures such as perpetual bond issuance.

110 Asiana Airlines KOSPI Downgrade to Hold; Financing and balance sheet improvement are needed 100 90 Although lower oil prices are likely to result in earnings improvement, we downgrade 80 our rating on Asiana Airlines to Hold (from Buy), as intensifying competition and 70 market share declines are adding to earnings uncertainties. The stock’s valuation is 60 undemanding at a P/B of 0.6x, which should provide downside support. However, we 50 believe preemptive moves to raise funds and improve the balance sheet are needed to 2.18 6.18 10.18 2.19 convince investors.

Mirae Asset Daewoo Co., Ltd.

[ Transport/Energy] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 5,541 5,764 6,227 6,851 6,845 7,072 Jay JH Ryu +822-3774-1738 OP (Wbn) 46 256 276 178 251 278 [email protected] OP margin (%) 0.8 4.4 4.4 2.6 3.7 3.9

NP (Wbn) -138 49 252 -13 105 134 EPS (W) -708 251 1,227 -63 509 651 ROE (%) -15.0 5.7 24.7 -1.0 7.4 8.8

P/E (x) - 16.8 3.7 - 8.5 6.7 P/B (x) 1.1 1.0 0.8 0.6 0.6 0.6 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Kakao (035720 KS) Steady growth ahead

Internet 4Q18 review: Revenue surprise and profit shock Results Comment For 4Q18, Kakao reported revenue of W673.1bn (+12% QoQ, +24% YoY), backed by February 15, 2019 well-balanced growth across ad, content, and commerce. Ad platform revenue expanded to W181.7bn (+9% QoQ, +14% YoY), driven by strong year-end demand and solid ad growth in messaging services, especially Kakao Talk Plus Friend and Kakao Talk notifications. (Maintain) Buy Other revenue surged to W177bn (+41% QoQ, +48% YoY), supported by strong seasonal demand. In particular, commerce transactions (Kakao Talk in-app gift sales, Target Price (12M, W) 130,000 KakaoMakers, etc.) and revenue from Kakao Mobility and Kakao Pay increased. However, operating profit fell to W4.3bn (-86% QoQ, -88% YoY). Increased commission Share Price (02/14/19, W) 100,500 fees from revenue growth, year-end bonus payouts, and higher marketing spend for new businesses caused operating expenses to swell to W668.8bn in the quarter. Expected Return 29% Revenue beat our forecast (W640bn), but operating profit missed our estimate (W33bn) by a wide margin due to the heavy expense burden. Despite the mixed results, we view OP (18P, Wbn) 73 4Q18 as a prelude to the firm’s growth story. Consensus OP (18F, Wbn) 97 2019 outlook: Steady top-line growth and margin improvement EPS Growth (18P, %) -88.9 Two highlights from the latest earnings release are that 1) the ad and e-commerce Market EPS Growth (18F, %) 4.6 businesses are expanding at an accelerating rate, and 2) a new ad revenue model is set P/E (18P, x) 579.4 to be introduced for Kakao Talk in 2Q19. Market P/E (18F, x) 9.2 KOSPI 2,225.85 We look for further growth of Kakao Pay, where 4Q18 transaction volume reached W7.7tr (+45% QoQ), including W3tr in December alone. Annual transaction volume Market Cap (Wbn) 8,380 totaled W20tr. Shares Outstanding (mn) 83 Free Float (%) 62.5 Ad services, Kakao Pay, e-commerce, and KakaoPage displayed growth momentum in Foreign Ownership (%) 23.9 2018. In 2019, we expect new businesses such as internet banking and brokerage Beta (12M) 1.14 services to enter a growth phase. 52-Week Low 87,600 Focus on top-line growth; Maintain Buy and TP of W130,000 52-Week High 141,500 Shares of Kakao have tumbled recently, as 1) the firm suspended its carpooling service (%) 1M 6M 12M test run due to the taxi industry’s backlash, and 2) increased operating expenses have Absolute 0.5 -21.2 -18.0 fueled concerns over margin erosion. However, we note that growth stocks perform Relative -6.8 -20.0 -10.7 strongly when investments near completion and margins begin to improve on the back of meaningful growth in new business revenue. 110 Kakao KOSPI 100 We raised our 2019-20 revenue and operating profit estimates, in light of the upside 90 potential confirmed in the 4Q18 results. We maintain our Buy rating and target price of 80 W130,000 on Kakao. Our valuation is based on the sum of the values of Kakao’s 70 60 business divisions, assessed based on similar businesses of industry peers. 50 2.18 6.18 10.18 2.19

Mirae Asset Daewoo Co., Ltd.

[ Internet] FY (Dec) 12/15 12/16 12/17 12/18P 12/19F 12/20F Revenue (Wbn) 932 1,464 1,972 2,417 2,926 3,439 Chang-kwean Kim +822-3774-1614 OP (Wbn) 89 116 165 73 167 341 [email protected] OP margin (%) 9.5 7.9 8.4 3.0 5.7 9.9

NP (Wbn) 76 58 109 14 109 222 EPS (W) 1,269 874 1,602 178 1,312 2,657 ROE (%) 3.0 1.9 2.9 0.3 2.7 5.2

P/E (x) 91.2 88.1 85.5 579.4 76.6 37.8 P/B (x) 2.7 1.5 2.3 2.1 2.0 1.9 Dividend yield (%) 0.1 0.2 0.1 0.1 0.1 0.1 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

February 15, 2019 Kakao

Table 1. Earnings forecast revisions (Wbn, %)

Previous Revised % chg. Notes 2019F 2020F 2019F 2020F 2019F 2020F Revenue 2,773 3,363 2,926 3,439 5.5 2.3 Operating profit 143 330 167 341 16.8 3.3 Net profit 178 318 126 255 -29.2 -19.8 Reflected 4Q18 earnings OP margin 5.1 9.8 5.7 9.9 - - Net margin 6.4 9.5 4.3 7.4 - - Note: Net profit is attributable to controlling and non-controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Table 2. Quarterly and annual earnings (Wbn, %)

1Q18 2Q18 3Q18 4Q18P 1Q19F 2Q19F 3Q19F 4Q19F 2018P 2019F 2020F Revenue 555 589 599 673 671 715 735 804 2,417 2,926 3,439 1) Ads 155 166 167 182 180 200 201 225 670 807 927 2) Content 286 303 307 314 321 341 358 385 1,209 1,406 1,563 Games 106 112 99 100 102 112 119 137 417 470 507 Music 126 130 136 140 142 146 150 154 533 592 620 Other 54 61 71 74 77 83 89 94 260 343 436 3) Other 115 120 126 177 170 174 175 194 537 713 949 Operating profit 10 28 31 4 35 39 45 48 73 167 341 OP margin 1.9 4.7 5.1 0.6 5.2 5.5 6.1 6.0 3.0 5.7 9.9 Net profit 15 25 7 -29 33 26 34 34 16 126 255 Net margin 2.6 4.3 1.2 -4.2 4.9 3.6 4.6 4.2 0.7 4.3 7.4 YoY growth Revenue 25.2 25.7 16.3 23.6 20.9 21.4 22.7 19.5 22.5 21.1 17.5 1) Ads 16.0 9.9 10.3 13.9 16.6 20.5 20.5 23.8 12.4 20.5 15.0 2) Contents 27.7 28.1 17.3 18.2 12.5 12.6 16.9 22.6 22.7 16.3 11.1 Games 31.5 41.9 5.8 12.5 -3.5 0.4 19.7 37.0 21.9 12.8 7.7 Music 14.5 10.4 11.5 8.6 12.7 11.8 10.3 10.0 11.4 11.2 4.6 Other 62.9 57.2 56.7 55.0 43.2 36.6 25.6 27.0 57.4 32.2 27.1 3) Other 32.7 44.9 22.6 48.4 47.5 44.9 39.6 9.7 37.4 32.6 33.1 Operating profit -72.9 -38.1 -35.2 -87.6 236.8 42.2 45.3 1,018.3 -55.8 128.8 104.5 Net profit -73.1 103.8 -81.5 TTR 122.2 1.7 359.6 TTB -87.3 692.1 102.2 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research February 15, 2019 Kakao

Table 3. Global peer valuation (Wbn, x, %)

Market Revenue OP NP EV/EBITDA P/E P/B ROE Company cap 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F NAVER (KOR) 21,014 5,537 6,441 965 946 696 657 16.9 16.1 29.7 30.8 3.7 3.4 13.8 11.9 Kakao 8,380 2,391 2,776 98 176 76 140 32.5 23.8 100.5 55.9 1.7 1.7 1.8 3.0 Cafe24 1,249 - 167 - 17 - -24 - 51.9 - - - 16.0 - -42.3 NHN Ent. 1,422 1,258 1,480 77 99 120 78 10.6 8.7 12.9 18.5 0.8 0.8 7.9 4.9 Interpark 178 534 562 7 15 1 9 8.1 5.5 587.7 19.8 1.1 1.0 0.2 5.3 Alphabet (US) 878,845 122,612 148,297 30,559 41,062 42,379 44,053 13.4 11.4 20.8 20.7 4.5 3.7 17.2 16.5 Amazon 905,971 259,856 309,901 13,758 19,901 15,955 20,613 24.6 19.4 56.9 45.0 18.1 12.2 27.3 25.7 Facebook 526,613 61,807 77,644 27,317 28,452 27,642 28,895 13.0 11.7 19.3 19.1 5.6 4.6 25.7 22.7 EBay 37,308 12,012 12,209 3,273 3,417 2,559 2,549 9.4 9.0 15.7 13.6 5.1 7.5 33.1 52.2 Snap 13,475 1,308 1,726 -820 -523 -739 -518 - - - - 5.5 6.3 -39.0 -35.8 Twitter 26,643 3,355 3,902 832 954 686 725 17.5 15.8 39.1 36.0 3.7 3.1 10.0 11.3 Shopify 21,314 1,188 1,662 10 19 38 56 451.3 294.3 551.3 391.8 10.3 9.1 1.3 1.6

MercadoLibre (AR) 18,330 1,456 1,609 153 -87 120 -42 81.8 - 149.2 - 36.8 56.1 25.5 -12.9 Yahoo Japan (JP) 16,562 8,933 9,706 1,900 1,519 1,313 928 4.3 5.0 13.7 18.1 1.8 1.9 13.4 9.6 Rakuten 11,712 11,100 12,521 1,603 993 1,097 575 2.4 3.1 10.2 19.4 1.4 1.3 13.6 7.8 LINE 10,087 2,203 2,508 57 -36 -60 -122 60.2 85.2 - - 5.1 5.3 -2.7 -5.4 Tencent (CH) 467,635 40,418 52,191 14,217 16,870 10,976 12,815 31.5 24.3 43.0 35.0 12.0 8.3 31.2 26.7 Alibaba 493,843 42,186 62,229 11,976 9,748 14,293 14,169 27.2 24.0 34.3 32.5 7.9 6.1 19.5 17.3 Baidu 68,138 14,633 16,794 2,622 3,346 3,551 3,837 17.5 14.5 19.7 17.9 3.6 2.6 17.3 18.7 JD.co 40,043 61,560 76,426 49 -631 856 390 47.0 61.0 49.5 99.7 5.6 4.3 1.9 0.2 Weibo 16,606 1,244 1,930 441 706 424 687 32.0 21.8 38.4 24.9 12.7 7.4 37.2 36.7 Momo 7,279 1,427 2,238 378 551 379 572 15.0 10.8 18.7 13.3 6.2 5.2 39.0 35.2 Yandex (RU) 12,353 1,757 2,145 284 467 265 385 26.6 18.8 55.1 33.6 7.9 4.2 17.4 20.7 Average 18.6 20.1 33.0 27.1 4.9 4.6 14.8 12.7 Note: Market cap, revenue, operating profit, and net profit based on Bloomberg (exchange rates as of Feb. 14); average P/E and P/B figures exclude LINE, Shopify, and MercadoLibre Source: Bloomberg, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research

Studio Dragon (253450 KQ) Investment case remains intact

Media Retain Buy, but lower TP to W130,000 We retain our Buy rating on Studio Dragon, but lower our target price from W153,000 Results Comment to W130,000. We adjusted down our 2019 operating profit estimate by 7.9% to February 15, 2019 W91.7bn, as we reflected a more conservative assumption on licensing sales to China (we now expect sales of simultaneous releases to resume in 2H19). In our view, the company’s latest amortization decision has somewhat weakened the visibility of exports to China. That said, we believe Studio Dragon’s investment case remains intact, given the company’s growing content competitiveness, the rising value of global (Maintain) Buy production companies, and diversification of domestic/overseas channels. Our target P/E remains unchanged at 50x. Target Price (12M, W) ▼ 130,000 In 4Q18, Studio Dragon recognized massive intangible asset amortizations, sparking worries that the expenses (which are difficult to estimate) could recur in future quarters. However, we believe such worries are overblown. With production costs Share Price (02/14/19, W) 94,600 having stabilized, the recent change in the amortization schedule merely represents a difference in the timing of recognition, with the impact lasting only through the Expected Return 37% content lifecycle. Of note, even under an extreme scenario where the useful life is halved from 18 months to nine months in 2019, we believe the impact on full-year operating profit is unlikely to exceed 10%. OP (18F, Wbn) 40 4Q18 review: Operating profit misses on higher content amortization Consensus OP (18F, Wbn) 52 For 4Q18, Studio Dragon posted consolidated revenue of W101.7bn (+41.5% YoY; all growth figures hereafter are YoY) and operating profit of W0.4bn (-87.3%). Revenue EPS Growth (18F, %) 21.7 came in line with our projection, supported by strong programming (+39.5%) and Market EPS Growth (18F, %) 4.6 licensing (+46.9%) revenue. Major titles like Memories of the Alhambra (Netflix and P/E (18F, x) 72.3 China OTT) and Encounter (sold to more than 100 countries) lived up to expectations, Market P/E (18F, x) 9.2 generating both strong buzz and sales. KOSDAQ 742.27 Operating profit, however, sharply missed our estimate (W11.2bn) due to larger-than- expected one-off expenses, which included an additional W11bn in content Market Cap (Wbn) 2,654 amortization and W2.5bn in employee incentives. The content amortization was Shares Outstanding (mn) 28 attributable to the conservative estimation of the residual values of 10 titles, following Free Float (%) 25.2 delays in licensing to China. Foreign Ownership (%) 2.4 Emerging as a global player in 2019 Beta (12M) 1.18 The Netflix original drama Kingdom debuted on January 25th to positive reviews from 52-Week Low 75,800 viewers around the world. Production for its second season, which will air in 2020, has 52-Week High 119,800 also begun. While Studio Dragon did not produce the series (AStory), we believe the drama has had a positive impact by reminding the market once again of the (%) 1M 6M 12M widespread appeal of K-dramas. Absolute -1.5 -8.8 19.0 Meanwhile, increasing competition among platforms should benefit Studio Dragon in Relative -9.3 -6.4 35.9 terms of global original production orders and licensing sales from 2020. Established OTT players like Netflix, Amazon, and Hulu are continuing to ramp up investments, 160 Studio Dragon KOSDAQ while newer players like Disney, AT&T, and Apple are getting ready to launch their own 140 platforms from 2H19. Studio Dragon is working on two Netflix original series this year (Love Alarm and Me Alone and You), and we believe the company will raise the bar for 120 both of these titles as well as future titles. 100 The China-related business is likely to diversify into joint original productions, 80 production support for remakes, and licensing sales of old titles. The company is likely 60 to pursue simultaneous title releases, while also focusing on improving margins to the 2.18 6.18 10.18 2.19 best extent possible.

Mirae Asset Daewoo Co., Ltd.

[ Media] FY (Dec.) 12/14 12/15 12/16 12/17 12/18F 12/19F Revenue (Wbn) - - - 287 380 574 Jeong-yeob Park +822-3774-1652 OP (Wbn) - - - 33 40 92 [email protected] OP margin (%) - - - 11.5 10.5 16.0

NP (Wbn) - - - 24 36 73 EPS (W) - - - 1,050 1,278 2,601 ROE (%) - - - 9.5 9.3 16.6

P/E (x) - - - 61.9 72.3 36.4 P/B (x) - - - 4.9 6.4 5.6 Dividend yield (%) - - - 0.0 0.0 0.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

CJ CheilJedang (097950 KS) Three investment points for 2019

Food & Beverage 4Q18 review: Robust revenue growth in processed food and bio For 4Q18, CJ CheilJedang (CJCJ) reported a 12.3% YoY rise in revenue and a 44.7% YoY Results Comment gain in operating profit (based on processed food, foodstuff, bio, and feed/livestock; February 15, 2019 excluding CJ Logistics and CJ Healthcare). At the net level, the company recorded a sizeable loss, hurt by higher F/X losses, donations (up W23.9bn), and intangible asset impairments (W29.5bn). In processed food, revenue grew 14.7% YoY, driven by home meal replacement (HMR; (Maintain) +46%), kimchi (+45%), Hetbahn (+18%), and global (+45%). Operating profit also Buy expanded 18.7% YoY. In foodstuff, revenue rose just 1.7%, and operating profit remained flat, weighed by higher flour input costs and delays in product price hikes. Target Price (12M, W) 460,000 In bio, revenue increased 15.6% YoY, with food additives up 29.0% YoY on higher nucleotide prices and feed additives up 10% YoY on the growth of valine and Share Price (02/14/19, W) 339,500 methionine and Selecta’s increased sales. Operating profit, on the other hand, fell 11.1% YoY due to incentive payouts. In feed/livestock, revenue grew 13.2% YoY, and Expected Return 35% operating profit improved materially to W24.9bn (turning to profit YoY) thanks to a recovery in hog pricing in Vietnam and higher poultry pricing in Indonesia. Three investment points for 2019 OP (18F, Wbn) 833 1) Synergy effects from Schwan’s acquisition: For CJCJ, the Schwan’s acquisition should Consensus OP (18F, Wbn) 842 boost revenue by allowing the company to expand the US distribution network (logistics, factories, and retail channels in the Midwest/South) for its Bibigo dumplings EPS Growth (18F, %) 112.2 (2018 revenue of around W200bn). For Schwan’s, the deal should create synergies such Market EPS Growth (18F, %) 4.6 as manufacturing efficiency (facility replacement and process improvement), cost P/E (18F, x) 6.1 savings, product innovation using CJCJ’s R&D resources, direct sales of CJCJ’s products, and expansion beyond frozen food into fresh food. We expect the overseas exposure Market P/E (18F, x) 9.2 (US, China, Vietnam, Russia, etc.) of CJCJ’s processed food business to rise from 18% in KOSPI 2,225.85 2018 to 49% in 2020, making overseas processed food a key part of the company’s business. Market Cap (Wbn) 5,111 Shares Outstanding (mn) 16 2) Processed food price hikes: In March 2018, CJCJ raised prices of its processed food products (including Hetbahn, Spam, frozen dumplings, fish cakes, etc.; around W900bn Free Float (%) 51.9 in total) by 6-9%, as rising prices of raw materials (rice, dried pepper, meat, cabbage, Foreign Ownership (%) 20.4 etc.) ate into margins. Since then, raw material prices have continued to rise, Beta (12M) 0.44 prompting the company to increase prices again in February 2019 by 6-9% (Hetbahn, 52-Week Low 312,000 Cupbahn, fish cakes, crab meat, red chili/bean paste, Dashida, etc.; W700bn in total). Such price increases should help defend processed food margins. 52-Week High 381,500 3) Bio profit growth: We expect bio profits to improve, supported by manufacturing (%) 1M 6M 12M cost savings due to technologies enabling the interchangeability of raw materials, Absolute -1.0 -1.5 6.3 lysine’s reduced exposure to China, methionine capacity expansions (increased by Relative -8.2 0.0 15.6 80,000 tonnes to 180,000 tonnes), higher pricing and volume growth of nucleotides, and revenue growth of specialty products (due to the addition of large customers and stronger sales of arginine and valine). 110 CJ CheilJedang KOSPI

100 Maintain Buy and TP of W460,000

90 In the bio business, CJCJ has seen a cycle of reduced investments, profit growth, and investment effects since 2018. The company has also secured long-term growth 80 potential through investments in the US, China, Vietnam, and Russia. We believe CJCJ is well-positioned for sustainable growth. 70 2.18 6.18 10.18 2.19

Mirae Asset Daewoo Co., Ltd.

[ F&B] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 12,924 14,563 16,477 18,670 20,429 22,308 Woon-mok Baek +822-3774-1679 OP (Wbn) 751 844 777 833 912 1,007 [email protected] OP margin (%) 5.8 5.8 4.7 4.5 4.5 4.5

NP (Wbn) 189 276 370 875 311 343 EPS (W) 13,073 19,044 25,536 54,184 18,989 20,921 ROE (%) 6.2 8.4 10.9 21.4 6.3 6.6

P/E (x) 28.9 18.8 14.3 6.1 17.9 16.2 P/B (x) 1.7 1.5 1.5 1.1 1.1 1.0 Dividend yield (%) 0.7 0.7 0.8 1.1 1.0 1.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

February 15, 2019 CJ CheilJedang

Table 1. 4Q18 review (Wbn, %) 4Q18 Growth 4Q17 3Q18 Mirae Asset Actual Consensus YoY QoQ Daewoo Revenue 4,291 4,946 4,922 4,682 4,708 14.7 -0.5 Excluding CJ Logistics 2,484 2,745 2,651 6.7 -3.4 Excluding CJ Logistics and CJ Healthcare 2,360 2,745 2,651 12.3 -3.4 Foodstuff 420 484 427 1.7 -11.8 Processed food 735 972 843 14.7 -13.3 Feed/livestock 536 553 607 13.2 9.7 Bio 670 736 774 15.6 5.2 Healthcare 124 - - - - Logistics, etc. 1807 2201 2272 25.7 3.2 Operating profit 150 265 173 174 182 14.8 -34.9 Excluding Logistics 98 211 104 6.5 -50.7 Excluding CJ Logistics and CJ Healthcare 72 211 104 44.7 -50.7 Foodstuff 3 41 3 0.0 -92.7 Processed food 25 98 30 18.7 -69.7 Feed/livestock -8 18 25 TTB 42.3 Bio 52 54 46 -11.1 -14.7 Healthcare 26 - - - - Logistics, etc. 53 54 69 30.5 26.8 Pretax profit 24 162 -28 86 92 TTR TTR Net profit 11 108 -54 43 50 TTR TTR OP margin 3.5 5.4 3.5 3.7 3.9 - - Net margin 0.2 2.2 -1.1 0.9 1.1 - - Note: CJ Healthcare is excluded from earnings as of 3Q18 due to the disposal of the healthcare business Source: Company data, Quantiwise, Mirae Asset Daewoo Research estimates

Table 2. Quarterly and annual earnings (Wbn, %) 18 19F 17 18 19F

1Q 2Q 3Q 4Q 1QF 2QF 3QF 4QF Annual Annual Annual Revenue 4,349 4,454 4,946 4,922 4,779 4,953 5,396 5,301 16,477 18,670 20,429 Operating profit 210 185 265 173 227 206 294 185 777 833 912 Pretax profit 112 1,048 162 -28 140 128 189 42 584 1,294 500 Net profit 63 758 108 -54 90 68 128 26 370 875 311 OP margin 4.8 4.1 5.4 3.5 4.8 4.2 5.5 3.5 4.7 4.5 4.5 Net margin 1.4 17.0 2.2 -1.1 1.9 1.4 2.4 0.5 2.2 4.7 1.5 Revenue growth 12.5 13.9 12.1 14.7 9.9 11.2 9.1 7.7 13.1 13.3 9.4 OP growth 9.2 12.3 -1.5 14.8 8.0 11.7 10.9 6.9 -7.9 7.2 9.6 Pretax profit growth -10.4 - -55.4 TTR 25.0 -87.8 16.5 TTB 10.6 121.5 -61.4 Net profit growth -23.8 - -57.9 TTR 43.3 -91.0 18.1 TTB 34.2 136.4 -64.5 Note: Schwan’s earnings will be reflected after the acquisition (2Q19) Source: Company data, Mirae Asset Daewoo Research estimates

Table 2. 2019-20 earnings forecast revisions (Wbn, %) Previous Revised % chg. Notes 19F 20F 19F 20F 19F 20F Revenue 20,202 21,980 20,429 22,308 1.1 1.5 Operating profit 906 982 912 1,007 0.7 2.6 Pretax profit 539 571 500 550 -7.3 -3.6 Net profit 313 334 311 343 -0.6 2.6 OP margin 4.5 4.5 4.5 4.5 Net margin 1.5 1.5 1.5 1.5 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

Orion (271560 KS) Growth strategy for 2019

Food & Beverage 4Q18 review: Earnings turnaround continues Results Comment For 4Q18, Orion (Korea, China, Vietnam, and Russia) reported a 15.5% YoY increase in consolidated revenue (reflecting IFRS 15) and a 246.5% YoY gain in operating profit February 15, 2019 (W70.3bn; OP margin of 14.3%). Earnings in Vietnam, Russia, and Korea were in line with our expectations, while China earnings slightly missed our estimate.

The China business turned to a profit of W32.9bn on a 23.8% YoY rise in revenue, supported by 1) the entries of new products; 2) the shelf space recovery of existing (Maintain) Buy products; 3) the difference in timing of the Chinese New Year (Chinese New Year effects were absent in 4Q17 but visible in 4Q18); 4) a temporary cost decline related to the Target Price (12M, W) 155,000 October potato harvest season; and 5) ongoing cost savings (labor and logistics). In Vietnam, revenue rose 15.3% YoY, and operating profit surged 64.2% YoY to Share Price (02/14/19, W) 116,000 W13.6bn. Vietnam’s domestic revenue grew more than 20% YoY, driven by Choco Pie and Oh Gamja, offsetting weaker exports to the Middle East. In Russia, revenue and Expected Return 34% operating profit increased 5.5% and 53.6% YoY, respectively, backed by the end of dealer restructuring (1Q18 through 3Q18) and new product releases. In Korea (domestic sales and direct exports), revenue and operating profit rose 6.8% and 18.1% OP (18F, Wbn) 282 YoY on more business days and new products (Market O Nature, Fresh Cream Pie, Sun Consensus OP (18F, Wbn) 290 Chips, etc.).

EPS Growth (18F, %) 37.8 Growth strategy for 2019 Market EPS Growth (18F, %) 4.6 For 1Q19, we expect earnings to grow only marginally (+5.5% for revenue and +1.4% P/E (18F, x) 26.7 for operating profit) due to the high base effect from China. For the full year, we expect Market P/E (18F, x) 9.2 consolidated revenue and operating profit to grow 6.8% and 11.4% YoY, respectively. KOSPI 2,225.85 In China, we see revenue and operating profit rising 6.9% and 16.2% YoY, respectively. Although earnings growth should slow in 2019, we believe Orion will fare well, Market Cap (Wbn) 4,586 considering China’s slowing domestic consumption and Korean market conditions. Shares Outstanding (mn) 40 In 2019, we believe the company will continue efforts to recover shelf space and save Free Float (%) 56.2 costs in China, while strategically focusing on the launch of new products, new Foreign Ownership (%) 37.9 business expansion, and reorganization of distribution channels. In 2019, we expect Beta (12M) 0.71 Orion to roll out more than 15 new products in China (vs. 12 in 2018). Orion also plans 52-Week Low 88,600 to enter the Chinese nut product market and launch bottled water (Jeju Lava Water) in 52-Week High 155,000 Southern China. For modern trade channels (45%), the company is switching to a direct management system. For traditional trade channels (48%), the company is reorienting (%) 1M 6M 12M away from direct management to dealers as part of its cost-savings efforts, adopting Absolute -4.1 -1.7 11.0 an approach used by local players like Want Want and Tingyi. Relative -11.1 -0.2 20.8 In Vietnam, Orion is set to launch more than 10 new products in 2019 (vs. six in 2018) and plans to enter the packaged bread and rice snack markets. In Russia, it plans to 140 Orion KOSPI expand its brand lineup beyond chocolate products (Choco Pie and Choco Songi) to 120 include snacks and biscuits (Choco Chip). In Korea, 2018 revenue was supported by the

100 launch of 27 new products, and 30 new products are planned for 2019 to meet changing consumer preferences. 80 Maintain Buy and TP of W155,000 60 2.18 6.18 10.18 2.19 We expect China earnings to continue to rebound through 2019. We believe the valuation of Korean F&B firms hinges on their global market performance. In our view,

Mirae Asset Daewoo Co., Ltd. Orion is well-positioned to achieve sustainable growth in global markets.

[ F&B] FY (Dec) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) - - 1,117 1,927 2,058 2,190 Woon-mok Baek +822-3774-1679 OP (Wbn) - - 107 282 314 345 [email protected] OP margin (%) - - 9.6 14.6 15.3 15.8

NP (Wbn) - - 76 178 214 243 EPS (W) - - 3,261 4,493 5,418 6,139 ROE (%) - - 5.8 12.9 14.0 14.0

P/E (x) - - 32.0 26.7 21.4 18.9 P/B (x) - - 3.2 3.3 2.8 2.5 Dividend yield (%) - - 0.6 0.5 0.6 0.6 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

February 15, 2019 Orion

Table 1. 4Q18 review (Wbn, %) 4Q18 Growth 4Q17 3Q18 Mirae Asset Actual Consensus YoY QoQ Daewoo Revenue 427.0 493.7 493.2 502.3 510.0 15.5 -0.1 Operating profit 20.3 78.7 70.3 74.4 80.0 246.5 -10.6 Pretax profit 17.7 77.4 74.5 70.7 73.3 321.0 -3.7 Net profit 11.2 32.6 51.7 50.3 53.7 359.8 58.3 OP margin 4.8 15.9 14.3 14.8 15.7 - - Net margin 2.6 6.6 10.5 10.0 10.5 - -

Note: 4Q17 revenue is based on IFRS 15. Source: Company data, Quantiwise, Mirae Asset Daewoo Research estimates

Table 2. 4Q18 earnings breakdown by subsidiary (Wbn, %) Revenue Operating profit OP margin

4Q17 4Q18 YoY 4Q17 4Q18 YoY 4Q17 4Q18 Orion (domestic + 172.2 183.8 6.8 20.6 24.3 18.1 12.0 13.2 direct exports) China 177.8 220.1 23.8 -8.5 32.9 TTB -4.8 14.9 OFC 177.8 220.1 23.8 -22.2 9.4 TTB -12.5 4.3 OAC 5.8 8.9 53.4 1.0 1.2 16.5 17.2 13.5 OFS 42.9 53.0 23.5 7.1 10.4 46.1 16.6 19.6 OFG 26.1 30.8 18.3 3.8 7.1 89.2 14.6 23.1 OFSY 18.4 22.4 22.0 3.2 5.4 68.5 17.4 24.1 OBC 2.5 6.4 158.1 -0.8 -0.5 - -32.0 -7.8 China I-Pak 6.2 2.4 128.9 -0.8 -0.1 - -12.9 -4.2 Pan Orion (China) 0.0 0.0 - 0.0 0.0 - - - Vietnam 60.6 69.8 15.3 8.3 13.6 64.2 13.6 19.4 Russia 20.9 22.1 5.5 2.1 3.3 53.6 10.1 14.8 Showbox 53.5 26.5 51.5 2.1 5.8 182.8 3.9 21.9 Orion Holdings 457.2 533.8 16.7 21.9 60.5 175.9 4.8 11.3 (consolidated) Orion 427.0 493.2 15.5 20.3 70.3 246.5 4.8 14.3 (consolidated) Note: 4Q17 revenues are based on IFRS 15. Source: Company data, Mirae Asset Daewoo Research estimates

Table 3. 4Q18 confectionery earnings by region (Wbn, %) Revenue Operating profit OP margin

4Q17 4Q18 YoY 4Q17 4Q18 YoY 4Q17 4Q18 Korea 158.7 167.4 5.5 20.6 24.3 18.1 12.0 13.2 China 177.8 220.1 23.8 -8.5 32.9 TTB -4.8 14.9 Vietnam 54.9 67.7 23.4 8.3 13.6 64.2 13.6 19.4 Russia 20.9 22.1 5.5 2.1 3.3 53.6 10.0 14.8 Other 14.4 11.6 -19.5 0.0 0.0 - - - Total 426.8 489.0 14.6 22.4 74.0 229.9 5.3 15.1 Note: 4Q17 revenues are based on IFRS 15. Source: Company data, Mirae Asset Daewoo Research estimates

Table 4. Quarterly and annual earnings (Wbn, %) 18 19F 17 18 19F

1Q 2Q 3Q 4Q 1QF 2QF 3QF 4QF Annual Annual Annual Revenue 516 424 494 493 545 452 537 525 1,073 1,927 2,058 Operating profit 94 40 79 70 95 53 89 78 107 282 314 Pretax profit 88 36 77 75 89 53 86 77 105 275 306 Net profit 66 28 33 52 62 37 61 54 76 178 214 OP margin 18.1 9.3 15.9 14.3 17.4 11.7 16.5 14.8 10.0 14.6 15.3 Net margin 12.8 6.5 6.6 10.5 11.4 8.3 11.3 10.3 7.0 9.2 10.4 Revenue YoY - - -2.5 15.5 5.5 6.7 8.7 6.4 - - 6.8 Operating profit YoY - - 0.0 246.5 1.4 33.9 12.6 10.6 - - 11.4 Pretax profit YoY - - -2.9 321.0 2.2 48.2 11.1 3.5 - - 11.1 Net profit YoY - - -44.8 359.8 -5.8 36.7 85.6 4.6 - - 20.6 Note: 2Q17 reflects post-split data (month of June only); 4Q17 and 2017 annual revenues are based on IFRS 15 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research February 15, 2019 Orion

Table 5. 2019-20 earnings forecast revisions (Wbn, %) Previous Revised % chg. Notes 19F 20F 19F 20F 19F 20F Revenue 2,069 2,184 2,058 2,190 -0.5 0.3 Operating profit 315 343 314 345 -0.4 0.8 Pretax profit 306 334 306 335 0.0 0.5 Net profit 222 244 214 243 -3.5 -0.6 OP margin 15.3 15.7 15.3 15.8 - - Net margin 10.7 11.2 10.4 11.1 - - Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

Emart (139480 KS) In need of differentiated traffic growth strategy

Retail 4Q18 review: Consensus miss Results Comment For 4Q18, Emart reported consolidated revenue of W4.23tr (+7.2% YoY) and operating February 15, 2019 profit of W61.4bn (-58.9% YoY). Operating profit came in well below our estimate and the consensus, affected by 1) slower top-line growth, with same-store sales (SSS) falling 2.8%, and 2) tepid sales of high-margin categories (fashion, stationery, etc.) caused by the shift to online shopping. Consolidated subsidiary profit was also sluggish, with L'Escape suffering another operating loss (estimated at around W5bn) and Shinsegae (Maintain) Buy Food’s operating profit contracting on higher labor expenses.

Target Price (12M, W) 240,000 Hypermarket: Operating profit slumped 53.1% YoY to W73.6bn, and SSS declined 8.0% YoY. Negative leverage effects from the slowdown in revenue were largely to blame for Share Price (02/14/19, W) 182,000 the sharp decline in operating profit. Given that the revenue slowdown stems from the consumer shift to online shopping, we see limited prospects of a recovery in 2019, Expected Return 32% absent a clear strategy for driving offline traffic.

Online: The online business’s operating loss widened materially to W8.9bn, weighed down by: 1) slower growth (from +15.5% in November to +12.5% in December) due to OP (18F, Wbn) 463 Coupang’s aggressive advance; 2) TV ad spending (W2.1bn); and 3) one-off labor Consensus OP (18F, Wbn) 542 expenses related to the online spinoff. EPS Growth (18F, %) -26.5 In need of strategy for online/offline traffic recovery Market EPS Growth (18F, %) 4.6 P/E (18F, x) 11.2 The earnings weakness in 2018 was primarily attributable to a decline in offline traffic Market P/E (18F, x) 9.2 (-3% in 2018). We thus believe top-line growth driven by a recovery in traffic is critical KOSPI 2,225.85 for operating profit to improve. With online migration likely to continue (especially in general products and accessories), Emart needs to come up with a differentiated Market Cap (Wbn) 5,073 strategy to attract in-store traffic. The online business also needs a traffic growth Shares Outstanding (mn) 28 strategy that can drive gross merchandise volume and improve market share (which Free Float (%) 71.9 fell from 2.5% in 2017 to 2.2% in 2018) if the new online entity is to receive a high Foreign Ownership (%) 47.4 valuation. Beta (12M) 0.37 If Emart succeeds in reviving traffic through a differentiated strategy, we believe this 52-Week Low 172,500 will lead to 1) top-line growth and profit improvement in the offline space, and 2) a 52-Week High 317,500 market share recovery and increased customer loyalty in the online space. (%) 1M 6M 12M Absolute -5.7 -14.2 -36.4 Maintain Buy and TP of W240,000 Relative -12.5 -12.9 -30.8 We maintain our Buy rating and target price of W240,000 on Emart. While the latest results missed the consensus, we believe additional downside risks to share prices are 130 Emart KOSPI minimal, as there were no unknown negatives. That said, prospects of a meaningful 110 rebound appear limited for now, as 1) the retailer lacks a differentiated strategy that

90 can drive online/offline traffic, and 2) no significant fixed cost savings are expected in 2019. In our view, a differentiated strategy for attracting online/offline traffic is critical 70 for valuation and operating profit to recover. Given 1) Emart’s competitiveness in the

50 online grocery space and 2) positioning as an offline retail leader with the ability to 2.18 6.18 10.18 2.19 develop a differentiated strategy for reviving traffic, we continue to recommend Buy on the stock. Mirae Asset Daewoo Co., Ltd.

[ Retail] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 13,640 14,615 15,877 17,049 18,637 19,904 Myoungjoo Kim +822-3774-1458 OP (Wbn) 504 569 567 463 517 553 [email protected] OP margin (%) 3.7 3.9 3.6 2.7 2.8 2.8

NP (Wbn) 455 376 616 453 424 467 EPS (W) 16,312 13,497 22,101 16,237 15,206 16,738 ROE (%) 6.5 5.1 7.7 5.4 4.9 5.2

P/E (x) 11.6 13.6 12.3 11.2 12.0 10.9 P/B (x) 0.8 0.7 0.9 0.6 0.6 0.6 Dividend yield (%) 0.8 0.8 0.6 1.0 1.0 1.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Lotte Shopping (023530 KS) Uncertainties resurface

Retail 4Q18 review: Results fall short of consensus Results Comment For 4Q18, Lotte Shopping reported consolidated revenue of W4.4tr (-7.6% YoY) and operating profit of W90.3bn (-73% YoY). Earnings missed our expectation and the February 15, 2019 consensus, mainly because of 1) the shift to online shopping, which led to slower growth in department stores (especially in accessories) and weakness in hypermarkets, and 2) the front-loading of domestic and overseas department store restructuring expenses. At the net level, the company posted a loss of W448.6bn due to goodwill and (Maintain) Trading Buy asset impairments at Lotte Himart. Department stores: Operating profit contracted 26.7% YoY to W136bn. Same-store Target Price (12M, W) ▼ 220,000 sales (SSS) slipped 0.8% YoY, pressured by 1) the difference in timing of the Chuseok holiday and 2) sluggish accessory sales stemming from the shift to online shopping. Share Price (02/14/19, W) 193,500 Excluding expenses related to store restructuring, domestic operating profit improved 6.9% YoY to W215.1bn, helped by SG&A expense savings. Expected Return 14% Hypermarkets: The hypermarket division recorded an operating loss of W8bn, weighed by 1) tepid sales across most categories due to the difference in timing of the Chuseok holiday and the migration to online shopping, and 2) negative leverage OP (18F, Wbn) 597 effects from higher SG&A expenses. Consensus OP (18F, Wbn) 672 Uncertainties resurface EPS Growth (18F, %) - In 2019, we expect general product sales in hypermarkets and accessory sales in Market EPS Growth (18F, %) 4.6 department stores to remain muted, as consumers continue to turn to online shopping P/E (18F, x) - (online penetration expected to reach 30% of retail sales (excluding auto) in 2019 vs. Market P/E (18F, x) 9.2 27% in 2018F). Furthermore, the economic and housing market slowdown in smaller KOSPI 2,225.85 cities is likely to cause a sharp deceleration in operating profit at the department store business, which has a high revenue exposure to smaller cities. As such, while Market Cap (Wbn) 5,474 restructuring expenses were front-loaded in 4Q18, we could see additional Shares Outstanding (mn) 28 restructuring charges in 2019. Free Float (%) 39.2 In 2019, Lotte Shopping plans to focus on 1) reducing low-margin SKUs and growing Foreign Ownership (%) 20.7 rental income in the hypermarket business, and 2) enhancing merchandising Beta (12M) 0.70 competitiveness and improving store margins in smaller cities and outlet margins in 52-Week Low 179,000 the department store business. It remains to be seen to what extent such efforts will 52-Week High 264,000 offset the slowdown caused by the shift to online shopping.

(%) 1M 6M 12M Lower TP to W220,000 (from W260,000); Maintain Trading Buy Absolute -6.3 1.3 -9.6 We maintain our Trading Buy rating on Lotte Shopping and lower our target price from Relative -13.1 2.8 -1.6 W260,000 to W220,000, as we reduced our 2019 operating profit forecast by 15% to reflect the slowing improvement in offline channels. While the China hypermarket 110 Lotte Shopping KOSPI headwind has been removed, uncertainties are now increasing over the mainstay 100 business. We expect Lotte Shopping’s stock to exhibit weakness for some time.

90 We believe a recovery in share prices will require 1) an improvement in offline store 80 competitiveness to counter the rise in online penetration, and 2) fixed-cost savings 70 through additional SG&A expense reductions. In our view, turning around the mainstay

60 business is a more urgent issue than securing new growth drivers for now. 2.18 6.18 10.18 2.19

Mirae Asset Daewoo Co., Ltd.

[ Retail] FY (Dec.) 12/14 12/15 12/16 12/17 12/18F 12/19F Revenue (Wbn) 28,100 29,128 24,114 18,180 17,820 18,196 Myoungjoo Kim +822-3774-1458 OP (Wbn) 1,188 854 763 530 597 677 [email protected] OP margin (%) 4.2 2.9 3.2 2.9 3.4 3.7

NP (Wbn) 527 -383 168 -136 -543 537 EPS (W) 16,724 -12,164 5,341 -4,437 -19,268 18,980 ROE (%) 3.2 -2.3 1.0 -0.9 -4.4 4.4

P/E (x) 15.4 - 39.2 - - 10.2 P/B (x) 0.5 0.4 0.4 0.4 0.5 0.4 Dividend yield (%) 0.8 0.9 1.0 2.6 2.5 2.7 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Ssangyong Cement (003410 KS) Tried and true

Construction Materials 4Q18 review: OP margin of 21.9% Results Comment For 4Q18, Ssangyong Cement announced revenue of W430.9bn (+3.6% YoY) and February 15, 2019 operating profit of W94.2bn (+35.7% YoY). Operating profit was better than the consensus, with growth largely driven by cement price hikes and cost-savings initiatives, such as waste heat recovery and energy storage systems (ESS). Despite worries, shipments also recovered in the quarter, supporting stable revenue.

(Maintain) Buy Earnings stability stands out One of the biggest highlights of the report was the stability of profits. In 2018, Korea’s Target Price (12M, W) ▲ 8,300 cement demand contracted 11% YoY due to fewer apartment presales. Typically, when cement demand declines, revenue and profits also decline. However, Ssangyong Share Price (02/14/19, W) 6,950 Cement has kept revenue and margins steady even amid a fall in domestic shipments by maintaining utilization through exports and lowering costs through investments. Expected Return 19% The biggest risk for the cement industry is the vulnerability of profits to shipments. Through continued investments and revenue diversification, Ssangyong Cement has OP (18F, Wbn) 247 been reducing its earnings sensitivity to changes in shipments. We thus expect profit Consensus OP (18F, Wbn) 241 growth to remain stable even as demand softens in the housing sector.

EPS Growth (18F, %) -52.8 Positives abound in 2019 Market EPS Growth (18F, %) 4.6 For 2019, management guided revenue of W1.59tr and operating profit of W260bn. P/E (18F, x) 21.7 However, we see strong upside risks to operating profit, given 1) the price increases Market P/E (18F, x) 9.2 made in October 2018 (W5,000/tonne), 2) cost savings, and 3) rising cement demand in KOSPI 2,225.85 the civic sector amid growing infrastructure spending. Our operating profit forecast for 2019 is W293bn (OP margin of 18.7%). Even in a worst-case scenario, we do not expect Market Cap (Wbn) 3,502 operating profit to contract YoY, as the company should be able to maintain shipments Shares Outstanding (mn) 505 through coking coal option contracts and exports. Free Float (%) 21.9 Foreign Ownership (%) 4.1 Preparing for the future Beta (12M) 0.97 In an industry where few changes have occurred over the course of its history, 52-Week Low 3,890 Ssangyong Cement has undergone an impressive transformation that has led to 52-Week High 7,720 continued profit growth. Since late 2018, the company has been investing in the (%) 1M 6M 12M conversion of synthetic resin scraps to fuel. The company plans to spend W82.8bn Absolute 13.0 24.1 73.3 through 2020, with the aim of saving more than W90bn annually starting from 2021. Relative 4.8 26.0 88.6 We believe the use of refuse-derived fuel is a smart move from not only a cost

190 Ssangyong Cement KOSPI perspective but also an environmental point of view. Reflecting our stable profit 170 growth outlook and the company’s positive investment plans, we raise our target price 150 to W8,300. Sometimes, the tried and true are the best bets. 130 110 90 70 2.18 6.18 10.18 2.19

Mirae Asset Daewoo Co., Ltd.

[ Construction/Building Materials] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 1,986 1,430 1,517 1,510 1,563 1,690 Kwangsoo Lee +822-3774-1457 OP (Wbn) 214 258 251 247 293 315 [email protected] OP margin (%) 10.8 18.0 16.5 16.4 18.7 18.6

NP (Wbn) 77 173 302 146 209 226 EPS (W) 190 401 613 290 413 447 ROE (%) 6.1 11.6 16.6 7.4 10.3 10.9

P/E (x) 17.1 7.4 6.1 21.7 16.8 15.6 P/B (x) 1.0 0.8 1.0 1.6 1.7 1.7 Dividend yield (%) 0.0 1.1 5.7 5.6 5.0 5.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

February 15, 2019 Ssangyong Cement

Table 1. 4Q18 review (Wbn, %, %p) 4Q17 1Q18 2Q18 3Q18 4Q18P YoY QoQ Previous Diff. Cons. Diff.

Revenue 416 304 415 361 431 3.6 19.4 445 (3.2) 452 (4.6) Operating profit 69 20 72 61 94 35.7 54.4 61 54.7 88 7.7 Pretax profit 39 14 58 53 76 93.1 42.7 57 32.9 75 0.6 Net profit (controlling interests) 136 12 44 45 46 (66.3) 1.9 43 6.6 59 (21.9) OP margin 16.6 6.6 17.3 16.9 21.9 5.3 5.0 13.7 8.2 19.4 2.5 Pretax margin 9.4 4.6 14.0 14.7 17.5 8.1 2.9 12.8 4.8 16.6 0.9 Net margin 32.7 3.9 10.6 12.5 10.6 (22.0) (1.8) 9.7 1.0 13.0 (2.3) Source: WiseFn, Mirae Asset Daewoo Research estimates

Table 2. Earnings forecast revisions (Wbn, %, %p) Revised Previous Change Consensus Diff.

2018P 2019F 2018F 2019F 2018P 2019E 2018F 2019F 2018P 2019F Revenue 1,510 1,563 1,585 1,680 (4.7) (7.0) 1,531 1,559 (1.4) 0.3 Operating profit 247 293 210 309 17.6 (5.2) 241 268 2.5 9.3 Pretax profit 200 276 182 299 9.8 (7.6) 202 237 (1.2) 16.5 Net profit (controlling interests) 146 209 139 226 4.7 (7.5) 157 180 (7.0) 16.1 OP margin 16.4 18.7 13.3 18.4 3.1 0.3 15.7 17.2 0.6 1.6 Pretax margin 13.2 17.7 11.5 17.8 1.7 (0.1) 13.2 15.2 0.0 2.5 Net margin 9.7 13.4 8.8 13.4 0.9 (0.1) 10.3 11.5 (0.6) 1.8 Source: WiseFn, Mirae Asset Daewoo Research estimates

Table 3. Target price calculation (W, x, %) 2014 2015 2016 2017 2018P 2019F 2020F EPS 260 190 401 613 290 413 447 BPS 3,174 3,335 3,896 3,999 4,073 4,139 4,238 Average market cap 745 1,287 1,407 1,456 2,698 BPS 4,139 2019F BPS; increase in profits due to cement price hike Target P/B 2 30% premium to average P/B of Japanese cement firms Target price 8,277 Current price 6,950 Expected return (%) 19% Source: WISEfn, Mirae Asset Daewoo Research estimates

Figure 1. Domestic cement demand and Ssangyong Cement’s OP margin

60 20 Cement demand (L, t/mn) OP margin (R, %) 18 55 16 14 50 12 45 10 8 40 6 4 35 2 30 0 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research February 15, 2019 Ssangyong Cement

Table 1. Quarterly and annual earnings by business (Wbn) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18P 2016 2017 2018P 2019F 2020F Revenue 445 290 366 416 304 415 360 431 2,060 1,517 1,510 1,563 1,690 YoY 55.0% 0.9% 27.4% 40.1% -31.7% 42.9% -1.6% 3.6% 3.7% -27.0% -0.5% 3.5% 8.1% Cement 203 253 228 240 180 262 242 260 884 946 944 980 970 Ready-mix concrete 84 108 91 94 74 120 120 100 365 382 414 447 424 Other 158 (70) 47 82 68 33 (2) 71 811 175 152 136 296 Ssangyong Cement 242 280 249 262 203 266 261 289 1,411 1,033 1,020 998 1,107 Daehan Cement 0 0 18 46 32 50 56 43 0 64 181 211 214 Ssangyong Remicon 89 115 97 99 73 100 98 102 58 400 373 404 409 Hankook Slag & Materials 12 19 18 16 12 19 17 16 67 65 63 67 65 Consolidation adj./other 102 (124) (16) (7) (16) (20) (72) (19) 524 (45) (127) (117) (105) Cost-to-revenue ratio 81.1% 63.7% 75.6% 71.8% 82.2% 73.3% 72.7% 69.6% 79.4% 74.5% 73.9% 71.1% 71.8% SG&A 32 31 34 48 34 39 37 37 162 145 147 158 161 Operating profit 52 75 56 69 20 72 61 94 262 251 247 293 315 YoY 20.4% -6.7% -18.6% 12.8% -62.1% -4.5% 9.5% 35.7% 22.2% -4.3% -1.6% 18.8% 7.5% OP margin 11.6% 25.6% 15.2% 16.7% 6.5% 17.3% 17.0% 21.9% 12.7% 16.5% 16.4% 18.8% 18.7% Cement 31 55 40 58 17 62 42 50 165 184 171 193 209 Ready-mix concrete 2 9 7 7 1 10 8 7 12 25 26 35 38 Other 19 10 8 4 2 (0) 11 37 85 41 50 65 68 Ssangyong Cement 32 54 36 53 11 45 40 67 178 175 162 178 187 Daehan Cement 0 0 3 7 4 9 8 11 0 10 32 27 29 Ssangyong Remicon 7 13 8 5 5 7 8 7 30 33 28 37 39 Hankook Slag & Materials 2 3 3 3 1 3 18 24 67 11 46 68 71 Consolidation adj. 11 6 6 6 (1) 7 (13) (14) (13) 28 (21) (17) (11) Pretax profit 50 52 35 42 14 58 53 76 229 275 200 276 299 Net profit 55 85 25 149 12 44 45 46 175 301 147 210 227 (Controlling) 56 85 24 148 12 44 34 39 175 301 147 210 226 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research

Meerecompany (049950 KQ/Not Rated) Potential revaluation of surgical robots

 What’s new: Meerecompany rallies following news of J&J’s Auris Health deal  Impact: Investors could rethink the valuation of the surgical robot business Issue Comment

February 15, 2019 What’s new: Meerecompany rallies following news of J&J’s Auris Health deal

th Mirae Asset Daewoo Co., Ltd. - On February 13 , Johnson & Johnson, one of the world’s largest medtech companies, announced that it has agreed to buy Auris Health for US$3.4bn. Auris Health is an [MedTech/Healthcare Solutions] endoscopic surgical robotics maker whose Monarch Platform was cleared by the US FDA for

Choong-hyun Kim, CFA the detection of lung cancer. +822-3774-1740 [email protected] - Meerecompany’s stock closed up 18% the following day.

Impact: Investors could rethink the valuation of the surgical robot business

- Meerecompany is currently trading at a 12-month forward P/E of 19.3x, a fairly high valuation for a display equipment manufacturer (vs. peer average of 10x). But as a robotics company (the company’s new businesses are surgical robots and 3D sensing), the stock is trading at a discount (vs. peer average of 24.4x).

- The surgical robot business is critical to Meerecompany’s value. The company’s market cap once reached more than W1.2tr, of which surgical robots accounted for more than W900bn.

- At present, the company has a market value of around W530bn. Assuming the display equipment business’s operating value at W300bn (based on sector average P/E of 10x), this implies the company’s new businesses are being valued at around W230bn.

- In the latest deal, Auris Health was valued at around W4tr (W2.4tr based on series D funding). TransEnterix, which sells reusable surgical instruments and whose business model is focused on system sales, has a market value of around W660bn. This suggests that the value of Meerecompany’s new businesses is not fully reflected in its valuation.

- TransEnterix’s stock declined as the effects of its first surgical robotics deal fizzled out, similar to what happened with Meerecompany. However, TransEnterix subsequently drove its value higher through additional contracts and expansion overseas.

- Meerecompany’s surgical robot business is now in the beginning stages, with the potential for positive events like additional deals and overseas forays. In addition, the hospital that partnered with the company to conduct clinical trials has on multiple occasions discussed the possibility of introducing the company’s surgical robot. If the company lands additional deals and generates actual revenue, we believe it would be reasonable to value the company based on the valuations of robotics and automation stocks rather than on asset value.

- We believe the latest M&A event could prompt investors to rethink the valuation of the company’s surgical robot business. Meanwhile, the expansion of the 3D sensing business, which has received less attention, is progressing as planned.

February 15, 2019 Meerecompany

Table 1. Global peer valuation: ROBO index (Wbn) Market OP margin (%) P/E (x) P/B (x) ROE (%) EV/EBITDA (x) Companies Cap 17 18F 19F 17 18F 19F 17 18F 19F 17 18F 19F 17 18F 19F

Koh Young 1,170 21.7 20.9 22.1 42.3 25.4 21.0 4.8 4.9 3.9 16.6 23.5 21.9 22.2 26.1 19.9 NVIDIA 101,580 33.0 37.4 33.8 21.0 22.5 26.2 7.2 7.6 7.9 59.3 48.5 30.7 23.9 19.2 22.4 Keyence 75,738 55.6 55.3 55.6 32.4 31.5 28.5 12.6 12.3 11.3 16.0 15.6 15.0 17.9 19.6 17.7 Qualcomm 68,392 3.3 23.3 26.9 16.0 12.8 11.1 3.3 3.0 2.7 15.7 52.1 - 25.2 10.4 9.2 Intuitive Surgical 66,529 32.2 38.9 39.2 52.9 42.4 37.2 15.8 13.8 12.0 19.7 18.9 20.5 39.2 33.5 28.9 FANUC 37,680 31.6 25.2 24.1 20.1 23.8 28.2 5.1 5.8 6.0 12.3 9.8 8.5 11.3 15.0 16.1 Hexagon 20,251 24.6 25.5 26.1 21.7 19.6 18.0 4.2 3.9 3.7 17.5 14.7 14.6 13.7 13.5 12.6 Omron 10,061 10.0 9.0 9.1 17.5 17.2 17.1 1.1 1.1 1.1 10.7 10.6 10.0 6.7 8.3 8.2 Cognex 9,080 34.7 27.3 29.3 38.1 40.3 34.5 10.2 10.1 9.2 12.9 18.7 19.7 36.6 30.9 27.4 Qiagen 9,325 17.8 26.9 28.1 42.2 25.5 22.4 5.7 5.2 4.8 7.4 9.8 10.7 18.1 16.4 14.8 Average 26.4 29.0 29.4 30.4 26.1 24.4 7.0 6.8 6.3 18.8 22.2 16.8 21.5 19.3 17.7 Source: Bloomberg, Mirae Asset Daewoo Research

Table 2. Global peer valuation: Surgical robots (Wbn) Market OP margin (%) P/E (x) P/B (x) ROE (%) EV/EBITDA (x) Company Cap 17 18F 19F 17 18F 19F 17 18F 19F 17 18F 19F 17 18F 19F

Stryker 77,671 18.7 25.7 26.3 28.9 22.8 20.9 5.1 4.7 4.4 32.8 23.5 22.4 19.8 17.9 16.5 Intuitive Surgical 68,701 32.2 38.8 39.1 54.6 43.8 38.4 16.3 14.2 12.4 19.7 18.9 20.5 39.2 34.6 29.8 Koh Young 1,136 19.4 20.3 21.3 31.0 23.6 19.1 4.8 4.1 3.5 18.9 19.9 20.9 26.5 17.4 14.1 TransEnterix 664 -870.9 -197.1 -132.4 - - - 27.6 24.7 16.1 -99.4 - - - - - Meerecompany 529 20.5 - - 19.7 - - 2.1 - - 23.2 - - 17.4 - - Sejong Medical 83 35.7 - - 20.9 - - 4.6 - - 16.0 - - - - - Curexo 255 1.7 - - - - - 7.4 - - -25.6 - - - - - Stereotaxis 100 -19.0 - - - - - 1.9 ------Restoration Robotics 32 -81.1 -116.6 -92.2 - - - 0.9 1.3 1.1 ------Titan Medical 90 -352.2 - - - - - 15.8 ------Average -93.7 -45.8 -81.7 31.0 30.1 26.1 7.8 9.8 8.9 -2.1 20.8 21.3 25.7 23.3 20.1 Source: Bloomberg, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Key Universe Valuations February 15, 2019

※All data as of close February 13, 2019, unless otherwise noted.

18F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 005930 Samsung Electronics 283,565 47,500 3.0 9.8 -44.6 11.1 -25.5 7.9 10.6 1.3 1.2 19.5 12.1 000660 SK Hynix 56,347 77,400 1.9 51.9 -59.0 45.0 -59.3 3.7 9.0 1.1 1.0 38.3 12.7 051910 LG Chem 26,825 380,000 1.6 -23.3 3.8 -24.3 7.6 20.2 18.8 1.7 1.6 8.8 8.9 068270 Celltrion 26,346 210,000 - - - - 0.0 0.0 005490 POSCO 23,235 266,500 3.8 19.9 -17.7 -39.4 64.7 13.7 8.3 0.5 0.5 3.9 6.2 028260 Samsung C&T 22,289 117,500 1.7 28.7 5.4 107.7 -4.2 16.9 17.7 0.9 0.8 5.8 5.2 015760 KEPCO 21,698 33,800 - - - - - 12.4 0.3 0.3 - 2.5 035420 NAVER 21,014 127,500 0.2 -20.1 -2.3 -17.5 -5.0 32.9 34.7 3.2 3.0 12.6 10.7 017670 SK Telecom 20,994 260,000 3.8 -21.8 7.5 19.6 -6.0 6.8 7.2 0.9 0.8 15.5 12.5 055550 Shinhan Financial Group 20,983 44,250 17.5 4.6 8.2 6.8 6.6 6.2 0.6 0.5 9.2 9.0 034730 SK Holdings 19,525 277,500 1.6 3.9 6.3 28.9 -9.9 9.1 10.1 1.2 1.0 14.5 11.4 105560 KB Financial Group 19,317 46,200 5.1 17.4 -8.7 17.6 6.3 5.4 0.5 0.5 8.8 9.7 032830 Samsung Life 18,160 90,800 - - - - 0.0 0.0 018260 Samsung SDS 17,681 228,500 1.1 18.9 13.5 23.1 12.6 27.1 24.1 2.9 2.7 11.2 11.6 096770 SK Innovation 16,967 183,500 4.4 -34.4 5.3 -22.5 -4.1 10.6 11.0 0.9 0.9 9.0 8.4 006400 Samsung SDI 16,538 240,500 0.4 511.7 43.3 6.7 47.0 24.1 16.4 1.4 1.3 6.0 8.3 000810 Samsung F&M 14,260 301,000 - - - - 0.0 0.0 033780 KT&G 13,661 99,500 4.0 -14.1 14.2 -17.3 10.5 14.2 12.9 1.6 1.5 12.1 12.6 003550 LG Corp. 13,373 77,500 1.7 0.5 8.3 -23.0 10.4 7.4 6.7 0.8 0.7 10.9 10.8 086790 Hana Financial Group 12,160 40,500 16.3 10.4 9.0 11.3 5.4 4.9 0.5 0.4 8.9 9.0 066570 LG Electronics 11,832 72,300 1.0 9.5 -3.3 -28.1 8.4 10.5 9.7 0.9 0.8 9.0 9.0 010950 S-Oil 11,821 105,000 1.7 -50.4 129.2 -73.2 250.3 36.7 10.5 1.9 1.6 5.0 16.6 251270 Netmarble 10,573 124,000 0.3 -52.6 44.7 -44.3 49.8 57.1 38.1 2.4 2.2 4.2 6.0 011170 Lotte Chemical 10,351 302,000 3.5 -31.4 -11.1 -24.6 -3.4 6.1 6.3 0.8 0.7 13.9 12.1 091990 Celltrion Healthcare 10,244 72,900 -14.3 87.4 -8.7 33.6 63.6 47.6 5.5 5.1 9.0 11.1 036570 NCsoft 9,829 448,000 1.6 5.1 37.8 -5.1 49.2 23.5 15.7 3.1 2.7 14.7 19.4 009150 Samsung Electro-Mechanics 8,515 114,000 0.9 232.5 6.0 305.8 5.4 13.5 12.8 1.8 1.6 14.5 13.4 035720 Kakao 8,380 100,500 0.1 -38.4 40.3 -48.8 126.5 122.5 54.1 2.1 2.0 1.6 3.7 010130 Korea Zinc 8,218 435,500 2.3 -14.5 10.1 -15.7 25.8 15.5 12.3 1.3 1.2 8.7 10.2 024110 Industrial Bank of Korea 7,896 14,100 18.2 6.7 16.8 4.8 5.3 5.0 0.4 0.4 8.6 8.5 030200 KT 7,455 28,550 3.5 -8.3 -1.1 42.4 17.2 11.0 9.4 0.5 0.5 5.5 6.0 000720 Hyundai E&C 6,949 62,400 0.8 -14.7 24.1 89.1 22.8 18.2 14.9 1.1 1.0 5.9 7.1 034220 LG Display 6,942 19,400 2.6 -96.2 -52.4 - - - - 0.5 0.5 - - 004020 Hyundai Steel 6,739 50,500 1.5 -25.0 31.1 -44.3 95.2 16.9 8.7 0.4 0.4 2.4 4.5 032640 LG Uplus 6,527 14,950 3.7 -11.5 -5.7 -13.7 -12.2 13.8 15.7 1.0 0.9 7.8 6.0 023530 Lotte Shopping 5,474 193,500 2.7 30.3 26.6 - 657.1 70.7 9.3 0.4 0.4 0.6 4.6 128940 Hanmi Pharmaceutical 5,429 467,500 0.1 3.0 97.1 -7.8 114.0 95.6 44.7 6.8 6.0 7.6 14.6 086280 Hyundai Glovis 5,269 140,500 2.1 -2.3 4.6 -35.7 32.9 12.0 9.1 1.2 1.1 10.6 12.9 005830 DB Insurance 5,126 72,400 - - - - 0.0 0.0 097950 CJ CheilJedang 5,111 339,500 0.9 7.6 9.9 136.6 -65.7 5.6 16.4 1.1 1.0 23.3 6.6 139480 Emart 5,073 182,000 1.0 -18.4 10.9 -27.3 -6.0 11.3 12.0 0.6 0.6 5.4 4.9 036460 KOGAS 5,050 54,700 2.7 27.9 1.9 - -3.2 8.0 8.2 0.6 0.6 7.8 7.1 271560 Orion 4,586 116,000 0.5 168.8 9.2 39.5 23.5 25.5 20.6 3.2 2.8 13.1 14.4 000120 CJ Logistics 4,118 180,500 3.0 30.1 20.3 270.1 108.7 29.4 1.3 1.3 1.5 5.1 003670 POSCO Chemtech 4,094 69,300 0.6 2.2 23.9 27.6 8.4 31.0 28.6 5.4 4.7 18.9 17.6 029780 Samsung Card 3,986 34,400 -35.4 -12.6 -9.8 -11.6 11.4 12.9 0.6 0.6 1.5 1.3 012750 S1 3,952 104,000 2.6 2.4 5.3 5.2 5.2 26.2 24.9 3.1 2.9 12.1 12.0 005940 NH Investment & Securities 3,771 13,400 - - - - 0.0 0.0 006360 GS E&C 3,733 47,000 0.6 234.2 -8.1 - 14.9 6.1 5.3 1.0 0.9 17.3 18.2 088350 Hanwha Life 3,674 4,230 - - - - 0.0 0.0 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data February 15, 2019

※All data as of close February 14, 2019, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 467.24 3.05 0.66 8.93 USD/KRW 1,121.70 1,124.60 1,117.60 1,082.80 KOSPI 2,225.85 24.37 1.11 10.74 JPY100/KRW 1,010.77 1,018.15 1,030.28 1,004.13 KOSDAQ 742.27 2.36 0.32 10.89 EUR/KRW 1,262.98 1,274.57 1,281.61 1,337.20 Dow Jones* 25,543.27 117.51 0.46 9.50 3Y Treasury 1.79 1.80 1.80 2.27 S&P 500* 2,753.03 8.30 0.30 9.68 3Y Corporate 2.24 2.25 2.26 2.81 NASDAQ* 7,420.38 5.76 0.08 11.32 DDR2 1Gb* 1.13 1.13 1.15 1.34 Philadelphia Semicon* 1,340.71 3.99 0.30 15.05 NAND 16Gb* 2.49 2.49 2.81 2.89 FTSE 100* 7,190.84 57.70 0.81 6.78 Oil (Dubai)* 63.34 62.23 61.16 59.84 Nikkei 225 21,139.71 -4.77 -0.02 8.07 Gold* 1,310.80 1,309.20 1,289.50 1,328.10 Hang Seng* 28,497.59 326.26 1.16 13.40 Customer deposits (Wbn)* 24,899 24,947 23,114 27,708 Taiwan (Weighted) 10,089.01 -1.57 -0.02 5.60 Equity type BC (Wbn)(Feb. 12) 87,945 87,990 86,605 80,458 Note: * as of February 13, 2019 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 140.99 Hyundai Motor 23.98 Samsung Electronics 49.32 Doosan Corp. 30.00 KOREA AEROSPACE 21.59 Celltrion 22.74 Hynix 43.48 DHICO 12.15 WooriFinancialGroup 13.48 Doosan Infracore 19.67 NCsoft 16.70 Hyundai Mipo Dockyard 7.31 FILA KOREA 11.18 In the F 12.78 emart 15.24 KODEX INVERSE 7.22 Daum Communications 9.69 SEMCO 12.52 Daum Communications 13.61 KODEX KOSDAQ150 LEVERAGE 7.03 LG Display 8.44 POSCO 10.84 Shinhan Financial Group 13.13 Hyundai Heavy Industries 6.62 NHN Entertainment 8.24 SK Telecom 9.63 LG Electronics 12.81 Hyundai Mobis 6.44 KOLMAR KOREA 7.47 Shinhan Financial Group 9.19 Samsung Electronics (P) 11.76 SEMCO 6.33 Doosan Corp. 5.63 Doosan Bobcat 8.50 KOREA AEROSPACE 8.81 Macquarie Korea Infrastructure Fund 5.90 SAMSUNG SDS 4.71 Amore Pacific 8.49 LG Innotek 8.19 Doosan Infracore 5.88 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 Nowcom 6.98 SillaJen 12.43 HyVISION 3.99 Celltrion Healthcare 4.45 BH,LTD. 6.37 Diostech 4.86 WONIK IPS 3.81 Mezzion Pharma 3.45 Cafe24 Corp. 3.75 LB SEMICON 3.19 NEPES 3.77 Sam Chun Dang Pharm 3.13 Hugel 3.37 Daea TI 2.94 BH,LTD. 3.21 CJ O Shopping 3.07 ViroMed 3.24 Tes 2.49 SMC 2.82 SM 3.00 megastudyEdu 2.91 Komico 2.12 AbClon 2.38 NCB Networks 2.95 Posco Chemtech 2.85 Emerson Pacific 2.12 JET TECH 2.24 W.I.C 2.80 Partrion 2.70 GMP 2.11 KBH 2.21 SillaJen 2.48 Seoul Semiconductor 2.60 OSSTEM IMPLANT 1.77 Com2us 1.82 YG Entertainment 2.36 INICIS 2.47 Toptec 1.69 Hanyang ENG 1.81 Emerson Pacific 2.20 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 47,500 1,300 283,565 Celltrion Healthcare 72,900 -1,400 10,244 Hynix 77,400 1,200 56,347 SillaJen 71,400 -900 5,024 Samsung Electronics (P) 38,000 400 31,270 CJ O Shopping 216,400 -3,400 4,745 LG Chem 380,000 2,000 26,825 ViroMed 280,000 -2,600 4,468 Celltrion 210,000 -2,000 26,346 Posco Chemtech 69,300 -200 4,094 Hyundai Motor 121,500 -3,000 25,961 HLB 82,400 400 3,228 SAMSUNG BIOLOGICS 382,000 2,500 25,275 Medy-tox 542,000 7,000 3,066 POSCO 266,500 -500 23,235 Studio Dragon 94,600 100 2,654 SAMSUNG C&T 117,500 0 22,289 PearlAbyss 202,900 1,000 2,626 KEPCO 33,800 -200 21,698 Kolon TissueGene 39,000 -100 2,380 Source: Korea Exchange