October 2, 2012

October 2, 2012 KOREA Morning Sector News & Analysis Major Indices Close Chg Chg (%) Construction (Overweight) KOSPI 1,996.21 7.51 0.38 Overseas orders to expand this year KOSPI 200 262.49 0.87 0.33 KOSDAQ 523.78 5.49 1.06 Turnover ('000 shares, Wbn) Volume Value KOSPI 667,396 4,713 KOSPI 200 101,352 3,453 KOSDAQ 494,991 2,024 Market Cap (Wbn) Value KOSPI 1,150,517 KOSDAQ 114,785 KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,214 1,030 184 Institutional 1,257 1,358 -101 Retail 2,221 2,304 -82 KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 88 64 24 Institutional 124 106 19 Retail 1,812 1,851 -39 Program Buy / Sell (Wbn) Buy Sell Net KOSPI 949 771 177 KOSDAQ 12 10 2 Advances & Declines Advances Declines Unchanged KOSPI 494 305 95 KOSDAQ 610 317 72 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 1,346,000 8,000 423 KODEX LEVERAGE 12,800 -5 220 Kia Motors 69,400 -400 197 Mirae 542 9 162 Hyundai Motor 252,000 3,500 160 KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value YG Entertainment 95,300 -1,200 125 Soribada 3,535 155 70 ydonline 8,280 500 46 SaraminHR 27,250 -750 34 Wemade 52,000 2,300 32 Note: As of September 28, 2012 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. 님 Industry October 2, 2012 Overweight Construction Daewoo Securities Co., Ltd. Daniel Song Overseas orders to expand this year +822-768-2122 [email protected] 2012 overseas orders at the six largest domestic builders to grow to US$38bn John Han +822-768-4179 The six largest domestic construction companies aim to achieve overseas orders [email protected] (combined) of US$51.6bn (up 59.1% YoY) in 2012. Given that their YTD overseas orders reached US$21.8bn in 3Q (42.3% of 2012F combined target), if they win all of the orders that are highly likely to be finalized this year, these builders would take overseas orders of US$40.2bn this year (77.8% of 2012F combined target). However, looking at the data after the 2008 global crisis, we found YTD 3Q combined overseas orders at these six major domestic construction companies achieved 59.8% of their full-year combined targets on average (45.4% in 2009; 70.3% in 2010; 63.7% in 2011). Even considering that orders tend to be concentrated in 4Q, 4Q combined orders have accounted for just 40.1% of full-year figures on average. As such, we forecast combined 2012 overseas orders at these six companies at US$38bn. Although overseas orders are likely to meet only 73.6% of their target for the year, it should be noted that overseas orders should still expand (up 20.6% YoY). In addition, these six companiesÊ overseas orders (relative to their full-year targets) have been steadily weakening. Their overseas orders met 96.7% of target (W30.5tr) in 2009, 88.6% of target (W41.7tr) in 2010, and 75.7% of target (W47.8tr) in 2011. In 2012, they are likely to meet 73.6% of target (W57.6tr). Figure 1. Overseas orders of the six largest domestic builders, and Dubai crude oil prices (US$bn) (US$) 45 120 Hyundai E&C Samsung Engineering 40 Daelim Industrial Samsung C&T 100 35 GS E&C Daewoo E&C Dubai crude oil price (R) 30 80 25 60 20 15 40 10 20 5 0 0 00 01 02 03 04 05 06 07 08 09 10 11 12F Sources: Respective companiesÊ data, KDB Daewoo Securities Research 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. Industry October 2, 2012 Maintain Overweight rating; Top picks: Hyundai E&C; Samsung Engineering We reiterate our Overweight rating on the construction sector. And we continue to recommend Hyundai E&C (000720 KS/Buy/TP: W90,000) and Samsung Engineering (028050 KS/Buy/TP: W280,000) as our top picks for the sector. Now that apartment prices in Seoul and its neighboring areas have been falling, we advise investors to focus on builders that are relatively less exposed to the domestic housing sector, and possess the potential to grow on the back of overseas competitiveness. We anticipate oil prices will steadily decline going forward, affected by the US- driven shale gas revolution. As such, we believe that a rise in oil prices should not act as a growth driver for builders anymore (as it did during 2004~2008). And market competition is likely to further intensify. Therefore, we believe investors should focus on large-cap builders with strong competitiveness. Table 1. Hyundai E&CÊs valuation metrics (Wbn) Year Revenues OP OP margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA (Wbn) (Wbn) (%) (Wbn) (W) (Wbn) (Wbn) (%) (x) (x) (x) 12/10 11,378 723 6.4 513 4,604 862 268 15.0 15.7 2.1 8.6 12/11 11,920 754 6.3 635 5,701 812 -196 15.8 12.4 1.9 9.3 12/12F 12,767 710 5.6 537 4,814 728 315 12.0 14.0 1.6 9.7 12/13F 15,058 1,007 6.7 831 7,459 1,044 578 16.2 9.1 1.4 6.3 12/14F 17,607 1,309 7.4 1,084 9,729 1,343 550 18.0 6.9 1.2 4.6 Sources: Company data, KDB Daewoo Securities Research Table 2. Samsung EngineeringÊs valuation metrics (Wbn) Year Revenues OP OP margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA (Wbn) (Wbn) (%) (Wbn) (W) (Wbn) (Wbn) (%) (x) (x) (x) 12/10 5,312 412 7.8 339 8,482 458 45 38.3 22.6 7.9 14.5 12/11 9,298 717 7.7 513 12,832 657 -247 43.7 15.7 6.1 11.2 12/12F 12,034 839 7.0 617 15,432 844 348 38.4 12.4 4.2 8.0 12/13F 14,237 1,012 7.1 758 18,940 1,050 875 34.7 10.1 3.1 5.7 12/14F 16,570 1,212 7.3 928 23,193 1,249 913 31.9 8.3 2.4 4.2 Sources: Company data, KDB Daewoo Securities Research Figure 2. P/B band of major construction companies Figure 3. P/E band of major construction companies (x) (x) 4 30 12-month forward P/B 12-month forward P/E 25 3 20 Avg. + 1 STD: 17.6 Avg. + 1 STD: 2.11 2 15 Avg.: 12.0 Avg.: 1.46 10 1 5 0 0 03 04 05 06 07 08 09 10 11 12 03 04 05 06 07 08 09 10 11 12 Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research 2 Industry October 2, 2012 Table 3. Overseas target and achievement rate of major construction companies (US$mn, %) Major builders Major projects Value Note Hyundai E&C 2012F target (overseas) 10,000 Saudi Maaden Alumina plant 1,500 Finalized 3Q Orders (YTD) 5,887 Venezuela refinery plant 1,410 Finalized Achievement (%) 58.9 Qatar Lusail highway project 980 Finalized Achievement (%) 8,587 Kuwait causeway bridge construction 2,100 Highly likely (including highly likely projects) 85.9 Philippine sabic coal-fired power plant 600 Highly likely Likely to be finalized by 4Q 2,700 Samsung Engineering 2012F target (overseas) 12,000 UAE Carbon Black project 2,480 Finalized 3Q Orders (YTD) 6,095 Kazakhstan coal-fired power plant 2,080 Finalized Achievement (%) 50.8 Bolivia fertilizer project 845 Finalized Achievement (%) 9,895 Saudi acrylic production complex 690 Finalized (including highly likely projects) 82.5 Saudi YanbuⅢ power plant project 3,000 Highly likely Iraq Badrah GOSP 800 Highly likely Likely to be finalized by 4Q 3,800 Daelim Industrial 2012F target (overseas) 7,000 Vietnam Tahi BinhⅡ coal-fired power plant 704 Finalized 3Q Orders (YTD) 2,231 Jamaica Old Harbour 360MW 310 Finalized Achievement (%) 31.9 Saudi Kemya project 713 Finalized Achievement (%) 5,515 Saudi PetroRabigh petrochemical complex 220 Finalized (including highly likely projects) 78.8 Vietnam O Mon coal-fired power plant 284 Finalized Saudi Rajhi steel mil plant 3,000 Highly likely Likely to be finalized by 4Q 3,284 Samsung C&T Singapore skyscrapper complex, Mongolia 2012F target (overseas) 7,500 730 Finalized complex development 3Q Orders (YTD) 2,258 Saudi Riyadh hotel construction 350 Finalized Achievement (%) 30.1 Singapore DTL-3 PJT (M&E) 210 Finalized Achievement (%) 5,598 Indonesia IPP power plant 1,600 Highly

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