November 21, 2014

KOREA

Company News & Analysis Major Indices Close Chg Chg (%) Hanmi Pharmaceutical (128940/Buy/TP: W107,000) Raise TP KOSPI 1,964.84 6.80 0.35 Profits to improve on reduced R&D spend in the long term KOSPI 200 249.90 0.94 0.38 KOSDAQ 543.98 4.05 0.75

Sector News & Analysis Turnover ('000 shares, Wbn) Shipbuilding (Neutral) Downgrade rating Volume Value KOSPI 341,882 4,175 Outlook for 2015 appears dim KOSPI 200 71,455 2,894 KOSDAQ 386,661 2,003

Market Cap (Wbn) Value KOSPI 1,203,532 KOSDAQ 140,900

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,180 1,122 58 Institutional 870 800 70 Retail 2,078 2,228 -150

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 144 121 23 Institutional 102 92 10 Retail 1,757 1,789 -32

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 844 715 128 KOSDAQ 27 25 2

Advances & Declines Advances Declines Unchanged KOSPI 423 369 85 KOSDAQ 590 359 71

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value SDS 400,000 2,000 390 1,223,000 13,000 228 KCC 507,000 -4,000 183 KODEX LEVERAGE 10,660 65 153 Hyundai Motor 165,000 -2,000 121

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Com2us 142,600 9,100 205 Gamevil 142,800 16,700 121 Daum Communications 142,400 1,300 65 Bosung Power Tec 4,875 635 57 SM 33,150 600 36 Note: As of November 21, 2014

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.

Hanmi Pharmaceutical (128940 KS) Profits to improve on reduced R&D spend in the long term

Healthcare Focused on diabetes pipeline We recently visited Hanmi Pharmaceutical to check on the status of its operations . The Company Update company, which boasts an extensive R&D pipeline that includes diabetes treatments, November 21, 2014 small molecules, incrementally modified drugs (IMD), and combination drugs, is currently focusing most of its resources on developing diabetes treatments.

The company’s diabetes pipeline program, named the Quantum Project, consists of (Maintain) Buy LAPS Exendin-4, LAPS Insulin 115, and LAPS Insulin Combo. LAPS-Exendin-4, a GLP-1 agonist for the treatment of diabetes and obesity, is currently in a US phase 2b trial. Target Price (12M, W) 107,000 LAPS Insulin 115, a sustained-release formulation, is expected to enter a phase 1 trial in the US in 1Q15. LAPS Insulin Combo, which could be the world’s first once-weekly GLP-1 Share Price (11/20/14, W) 90,500 agonist/insulin combination treatment, is currently in preclinical studies.

Expected Return 18% The target markets for Quantum Project treatments are massive, and many global pharmaceutical firms are already developing or selling (licensed) drugs in these areas .

Given the strong potential of the diabetes treatment market, we believe Hanmi’s OP (14F, Wbn) 31 Quantum Project will grab the attention of many major pharmaceutical firms . If the Consensus OP (14F, Wbn) 35 project’s clinical trials proceed smoothly, Hanmi is likely to forge out-licensing EPS Growth (14F, %) -48.9 agreements with multinationals. Market EPS Growth (14F, %) -0.1 R&D expenses to fall after peaking in 2014 P/E (14F, x) 36.0 Market P/E (14F, x) 13.1 The company’s focus on its Quantum Project has led to significant R&D spending . With KOSPI 1,958.04 LAPS Exendin-4 in its phase 2b trial, we expect heavy R&D spending to continue through 1H15. Market Cap (Wbn) 882 Shares Outstanding (mn) 10 We forecast 2014 R&D spending to rise 35.3% YoY to W111.9bn. Once the phase 2b Free Float (%) 58.5 trial for LAPS Exendin-4 is over, Hanmi is likely to land an out-licensing deal in 2015. We Foreign Ownership (%) 5.9 expect R&D spending to subsequently decline 16.5% YoY to W93.4bn in 2015, resulting Beta (12M) -0.03 in improved profits. 52-Week Low 80,500 52-Week High 138,500 Maintain Buy and Raise TP to W107,000

(%)(%)(%) 1M1M1M 6M6M6M 12M12M12M We respectively cut our 2014F and 2015F EPS by 35.7% and 22.4% to account for weak Absolute 6.0 -17.4 -22.6 3Q results and changes to our R&D spend assumptions. Despite our earnings forecast Relative 4.5 -15.1 -20.3 revisions, we slightly lift our target price to W107,000 (from W98,000) in light of the likelihoods of: 1) a diabetes treatment licensing deal in 2015 and 2) profit gains from the

140 Hanmi Pharmaceutical KOSPI subsequent decline in R&D expenses. Our target price represents 28.3x our 2015F EPS, 120 plus the value of the company’s equity stakes in Dong-A ST, Dong-A Socio Holdings, and

100 Crystal Genomics.

80 We continue to recommend Buy on the stock, as we expect to see an out-licensing deal for a diabetes treatment in 2015 and improved earnings at Beijing Hanmi. 60 11.13 3.14 7.14 11.14

Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/11 12/12 12/13 12/14F 12/15F 12/16F Revenue (Wbn) 606 674 730 735 781 867 [Healthcare] OP (Wbn) 21 48 62 31 47 77

Hyun-tae Kim OP margin (%) 3.5 7.1 8.5 4.2 6.0 8.9 +822-768-3251 NP (Wbn) 1 23 44 24 35 61 [email protected] EPS (W) 145 2,539 4,927 2,517 3,590 6,210 ROE (%) 0.4 6.5 11.4 5.8 7.8 12.1

P/E (x) 403.0 44.2 22.0 36.0 25.2 14.6 P/B (x) 1.5 2.8 2.4 2.0 1.9 1.7 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 AANALYSTNALYST CERTIFICATIONS AND IMPORTANT DISCLOSURESDISCLOSURES & DDISCLAIMERSISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

Shipbuilding Outlook for 2015 appears dim

2015 outlook In 2015, we expect large Korean shipbuilders to compete with one another to take (Downgrade) Neutral orders in key segments. In our view, new orders will be concentrated in the gas carrier and offshore platform categories (e.g., LNG carriers, very large ethane carrier s (VLEC), 2015 Outlook LPG carriers, floating storage and regasification units (FSRU), and floating LNG (FLNG) November 18, 2014 units). In addition, orders for mega containerships are likely to grow once again after being sluggish, with large shipbuilders anticipated to fight for the upper hand. Orders for other types of vessels are forecast to stay flat YoY amid global economic weakness. Daewoo Securities CCCo.,Co., Ltd.

[Shipbuilding & Machinery] We anticipate that shipbuilders will continue to face a hostile business environment . Shippers will likely struggle with overall sluggishness, unstable financial markets, and

Ki-jong Sung geopolitical risks such as the Ukraine conflict. While we could see an increase in orders +822-768-3263 ahead of the implementation of new emission standards, the impact of such a [email protected] development is unlikely to be significant due to time limitations. (Only ships ordere d

before 2H15 will be free from the new regulations.)

The offshore platform market is projected to stay tepid , affected by changes to the market environment. Nevertheless, the FLNG unit business is likely to be robust, given that large oil producers (e.g. , Royal Dutch Shell, Chevron, Exxon Mobil, Total) are eager to develop deep-sea fields and expand FLNG investments. We believe that large Korean shipbuilders need to focus on their technologies in this segment.

Modest margin expansion amid slumping orders and top-line growth We believe that tepid order intake between late 2014 and early 2015 will limit the top- line growth of shipbuilders in 2015. On a positive note, margins will likely improve modestly, in light of: 1) massive provisioning in and before 2014 by large shipbuilders, 2) the construction of high-priced orders taken during 2H13, and 3) a low possibility of additional heavy losses thanks to more rapid progress in offshore projects. Nevertheless, it should be kept in mind that some shipbuilders could incur one-off losses.

Downgrade to Neutral; Top picks: DSME and HMD We downgrade our rating for the shipbuilding sector from Overweight to Neutral, as the newbuilding market is forecast to stay sluggish in 2015 due to the protracted global slump. Orders for certain types of vessels are likely to stay healthy on the back of growing shale gas production, tightening environmental regulations, and a stronger focus on fuel efficiency. However, amid overall weakness, shipbuilders might need to accept that a one-year backlog is the new world order. On the other hand, shipbuilding stocks have fallen to their intrinsic values, increasing their valuation merits.

We put forth Daewoo Shipbuilding & Marine Engineering (DSME; 042660 KS/Buy/TP: W28,000) as our top pick given its relatively solid earnings and healthy order intake in 2014. And, although some of DSME’s rivals are also expected to show stable earnings in 2015 thanks to aggressive provisioning in previous years, only DSME is expected to show top-line growth. Meanwhile, we note that (HHI; 009540 KS/Trading Buy/TP: W145,000) could incur one-off expenses given its restructuring efforts. With regard to (SHI; 010140 KS/Trading Buy/TP: W30,000), some uncertainties, including a possible M&A, have emerged.

Hyundai Mipo Dockyard (HMD; 010620 KS/Buy/TP: W110,000) is forecast to turn around in 2015 due to the fact that the firm set aside significant provisions in 2014 and earlier . In our view, all of the negatives facing the firm have already been priced in , and we are highly optimistic about the company’s productivity improvement . Still, we advise investors to keep tabs on risks (e.g., tepid orders and possible price declines) go ing forward.

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.

Key Universe Valuations November 21, 2014

※All data as of close November 20, 2014, 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 005380 Hyundai Motor 36,346 165,000 1.4 1.9 6.2 3.7 7.1 5.8 5.4 0.7 0.6 13.0 12.4 018260 Samsung SDS 30,951 400,000 0.1 39.5 8.9 29.9 10.0 56.7 51.5 6.7 6.0 11.7 11.5 015760 KEPCO 29,145 45,400 2.2 20.3 26.5 259.2 -44.1 3.4 6.1 0.5 0.4 15.2 7.7 005490 POSCO 26,156 300,000 2.7 26.2 14.5 98.6 20.4 10.5 8.7 0.6 0.5 5.7 6.6 035420 NAVER 25,151 763,000 0.1 38.9 30.3 61.7 34.6 32.9 24.5 7.6 5.8 33.3 32.5 032830 Samsung Life 24,000 120,000 - - - - 0.0 0.0 055550 23,236 49,000 - - - - 0.0 0.0 017670 SK Telecom 22,891 283,500 3.5 15.8 7.5 13.9 8.0 10.9 10.1 1.3 1.2 13.8 13.6 012330 22,827 234,500 1.0 11.4 8.8 11.8 6.6 5.7 5.4 0.8 0.7 15.8 14.6 000270 Motors 22,822 56,300 1.6 19.5 10.2 12.9 7.7 5.8 5.3 0.8 0.7 15.9 14.8 105560 KB Financial Group 15,222 39,400 - - - - 0.0 0.0 000810 Samsung F&M 14,426 304,500 - - - - 0.0 0.0 051910 LG Chem 13,784 208,000 1.9 19.7 35.2 29.2 36.2 12.0 8.8 1.2 1.1 10.1 12.5 090430 Amorepacific 13,434 2,298,000 0.3 16.0 22.1 16.7 23.0 32.9 26.7 4.7 4.1 15.5 16.4 033780 KT&G 13,084 95,300 3.5 1.0 2.4 3.3 -1.5 15.4 15.7 2.0 1.9 14.4 13.2 034220 LG Display 12,327 34,450 -7.6 23.2 -17.5 32.3 14.3 10.8 1.0 0.9 7.2 8.8 003550 LG Corp. 11,596 67,200 1.5 18.0 4.2 18.5 5.9 9.4 8.9 0.9 0.8 9.4 9.2 034730 SK C&C 11,250 225,000 0.6 9.9 19.7 15.8 -56.6 21.2 49.0 3.1 2.9 17.6 6.9 000830 Samsung C&T 10,888 69,700 0.9 26.7 6.4 41.7 6.8 17.4 16.2 0.9 0.9 5.7 5.8 066570 LG Electronics 10,752 65,700 0.6 18.2 25.4 68.7 26.5 9.8 7.8 0.9 0.8 9.5 10.9 086280 10,706 285,500 0.5 12.2 12.2 1.7 10.3 17.8 16.2 3.2 2.7 19.3 17.9 086790 9,813 33,850 - - - - 0.0 0.0 051900 LG Household & Health Care 9,543 611,000 0.7 18.8 12.2 20.0 14.6 26.1 22.7 5.1 4.3 22.3 21.2 009540 Hyundai Heavy Industries 9,462 124,500 1.6 - 103.3 - 118.1 22.7 10.4 0.6 0.5 2.7 5.6 023530 Lotte Shopping 9,290 295,000 0.5 8.3 6.0 15.3 7.3 10.4 9.6 0.5 0.5 5.2 5.3 006400 Samsung SDI 9,008 131,000 1.2 - 71.5 143.2 52.1 33.4 21.9 1.1 1.1 3.5 5.1 030200 KT 8,734 33,450 3.0 - 7.2 - 33.0 16.1 12.1 0.7 0.7 4.9 6.3 024110 8,315 15,050 - - - - 0.0 0.0 096770 SK Innovation 8,220 88,900 3.6 198.4 35.4 - 35.5 11.1 8.2 0.5 0.5 4.8 6.2 003600 SK Holdings 8,195 174,500 1.4 29.8 6.2 34.0 -3.9 5.8 6.0 0.6 0.5 10.9 9.5 035720 Daum Communications 8,055 142,400 0.8 226.9 35.3 144.0 39.4 33.0 23.7 10.4 7.6 37.2 38.4 010130 Korea Zinc 7,850 416,000 1.2 15.6 5.5 21.5 6.2 13.0 12.2 1.5 1.4 12.5 11.9 004020 7,564 64,900 0.8 -0.5 8.0 1.0 17.7 9.5 8.1 0.5 0.5 5.6 6.2 088350 Hanwha Life 7,469 8,600 - - - - 0.0 0.0 035250 7,124 33,300 3.3 7.2 5.3 12.1 7.1 16.2 15.1 2.2 2.1 15.3 15.1 021240 Coway 6,471 83,900 2.4 14.4 13.6 14.3 17.3 21.9 18.7 4.8 4.2 26.0 26.3 161390 6,417 51,800 1.0 7.0 9.0 13.2 10.1 7.7 7.0 1.2 1.1 17.1 16.1 139480 Emart 6,049 217,000 0.7 12.4 9.7 18.1 13.8 11.7 10.3 0.8 0.7 7.0 7.3 011170 Lotte Chemical 6,015 175,500 0.6 65.2 25.9 76.9 29.2 11.7 9.0 0.9 0.8 7.7 9.2 001800 Orion 5,700 954,000 0.3 3.6 17.5 12.4 18.5 32.1 27.1 4.1 3.6 13.6 14.2 010140 Samsung Heavy Industries 5,437 23,550 2.1 152.4 4.2 128.4 6.0 9.2 8.6 0.8 0.7 9.5 9.3 002380 KCC 5,334 507,000 1.6 7.9 11.4 10.2 12.3 18.9 16.8 1.0 0.9 5.4 5.8 036460 Korea Gas 5,299 57,400 1.7 18.7 8.4 -7.0 13.3 11.8 10.5 0.5 0.5 4.7 5.1 000720 Hyundai E&C 5,167 46,400 1.3 19.8 5.1 38.8 9.6 7.8 7.1 0.9 0.8 11.6 11.4 032640 LG Uplus 4,846 11,100 2.0 16.6 3.6 35.9 9.5 14.9 13.6 1.1 1.0 7.5 7.8 011210 Hyundai Wia 4,759 175,000 0.3 20.6 10.4 11.8 10.5 8.9 8.0 1.5 1.3 18.3 17.0 010950 S-Oil 4,734 42,050 3.2 - 62.4 - 62.4 14.0 8.6 0.9 0.8 6.6 10.0 000120 CJ Korea Express 4,619 202,500 51.5 14.5 157.1 9.7 29.3 26.7 1.6 1.5 6.7 6.9 097950 CJ CheilJedang 4,539 346,000 0.5 22.3 7.9 118.2 14.7 16.7 14.6 1.5 1.4 9.7 10.2 009150 Samsung Electro-Mechanics 4,146 55,500 1.0 - 105.7 -72.7 94.7 31.8 16.3 0.9 0.9 3.0 5.6 Source: KDB Daewoo Securities Research

Market Data November 21, 2014

※All data as of close November 21, 2014, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 388.77 -5.18 -1.32 -12.15 USD/KRW 1,113.10 1,104.20 1,060.40 1,056.30 KOSPI 1,964.84 6.80 0.35 -0.12 JPY100/KRW 940.91 934.57 991.72 1,055.56 KOSDAQ 543.98 4.05 0.75 9.61 EUR/KRW 1,395.83 1,385.05 1,356.83 1,419.24 Dow Jones* 17,719.00 33.27 0.19 7.77 3Y Treasury 2.16 2.16 2.24 2.98 S&P 500* 2,052.75 4.03 0.20 12.05 3Y Corporate 2.48 2.48 2.59 3.41 NASDAQ* 4,701.86 26.15 0.56 13.49 DDR2 1Gb* 1.38 1.38 1.41 1.49 Philadelphia Semicon* 656.27 6.09 0.94 24.35 NAND 16Gb* 2.30 2.30 2.40 3.52 FTSE 100* 6,678.90 -17.70 -0.26 -0.58 Oil (Dubai)* 73.60 74.87 85.06 104.80 Nikkei 225 17,357.51 56.65 0.33 9.11 Gold* 1,190.90 1,193.90 1,251.00 1,258.00 Hang Seng* 23,349.64 -23.67 -0.10 0.04 Customer deposits (Wbn)* 15,979 15,257 14,634 14,624 Taiwan (Weighted) 9,091.53 12.66 0.14 5.56 Equity type BC (Wbn)(Nov. 19) 79,185 79,118 77,277 84,068 Note: * as of November 20, 2014 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 SAMSUNG SDS 105.00 KCC 37.09 Honam Petrochemical 25.70 KEPCO 16.78 KEPCO 17.25 Hyundai Motor 35.51 Hyundai Heavy Industries 20.02 Hynix 13.59 Hyundai Mobis 10.76 SK Energy 9.68 LG Display 17.96 Glovis 10.65 LG Household & Health Care 7.34 Samsung Corp. 9.26 Samsung Electronics 15.87 Hyundai Mobis 9.59 LG Chem 6.13 POSCO 9.09 LG Electronics 13.27 NHN 8.02 Korean Air Lines 5.23 HANJINKAL 8.84 LG Chem 13.03 GS Construction 7.70 LG Electronics 4.97 LG Display 7.33 KODEX LEVERAGE 11.69 7.27 KT 4.84 HYUNDAI WIA 5.43 SK Energy 9.48 KODEX 200 7.10 Amore Pacific 4.57 SK Telecom 5.30 POSCO 8.85 Hyundai Motor 6.95 Hotel Shilla 4.47 Samsung F&M Insurance 5.29 LG Innotek 8.83 KOREA KOLMAR 6.80 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 Com2us 7.61 Paradise 5.29 SM 5.22 PATI Games 8.34 Daum Communications 6.26 Gamevil 3.25 Daum Communications 5.16 EO Technics 2.85 CJ O Shopping 2.28 Access Bio 1.95 LOEN 3.81 CJ O Shopping 2.52 Digital Chosun 1.70 Techno Semichem 1.40 Partrion 3.54 Celltrion 2.29 Celltrion 1.65 LOEN 1.06 Paradise 3.45 SEEGENE 2.08 Techwing 1.52 YG Entertainment 1.00 Gamevil 3.34 Kolon Life Science 1.96 Tovis 1.32 Samhwa Networks 0.98 Modetour Network 2.06 Huons 1.62 KH Vatec 1.24 KOREIT 0.96 Com2us 1.72 NaturalendoTech 1.25 Webzen 1.04 SM 0.94 SFA Engineering 1.23 Interpark INT 1.25 Medy-tox 1.00 EO Technics 0.94 Simmtech 1.21 Access Bio 1.00 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 1,223,000 13,000 180,147 Daum Communications 142,400 1,300 8,055 Hyundai Motor 165,000 -2,000 36,346 Celltrion 40,500 300 4,195 Hynix 46,450 -800 33,816 Paradise 28,100 500 2,555 SAMSUNG SDS 400,000 2,000 30,951 Dongsuh 22,500 -350 2,243 KEPCO 45,400 100 29,145 CJ O Shopping 255,200 3,800 1,584 POSCO 300,000 4,500 26,156 Com2us 142,600 9,100 1,438 NHN 763,000 -26,000 25,151 Medy-tox 251,000 -700 1,420 120,000 500 24,000 CJ E&M 36,350 150 1,408 Shinhan Financial Group 49,000 -250 23,236 GS Home Shopping 213,600 -200 1,402 SK Telecom 283,500 1,000 22,891 SK Broadband 4,340 0 1,284 Source: