9 May 2012

TABLE OF CONTENTS

[Korea Autos]: Hyundai and ’s April Europe m/s could surpass 6%; Yen/US$ 2 dips below 80 again Hyundai and Kia’s combined m/s in Europe could surpass 6% in April; Yen/US$ dips below 80 level again

Samsung SDI [006400 KS; BUY; TP: KRW 203,000]: Quick comment on the 4 share price rise (+3.1%) SDI (006400 KS), which makes lithium-ion batteries, rallied to KRW170,000 (+5.2%) yesterday and closed at KRW166,500 (+3.1%), on the back of expectations for growth in its car battery business; benefits from the Galaxy S3; and removal of uncertainty regarding SMD ownership dilution in the near term.

Iljin Materials [020150 KS; BUY; TP: KRW 19,000]: Earnings to recover in 2Q12 5 Following up on our review report on Iljin Materials (020150 KS) yesterday, Earnings to recover in 2Q12, we further detail our views on 2Q12 and share catalysts. The shares closed at KRW14,150 (+0.35%) yesterday.

Impact of oil price decline: Limited impact on trading company & distributor sector 7 From 2Q12, the prices of Dubai oil and coal - both of which had been on an uptrend since the start of the year - have seen declines. This is due to reduced expectations for QE3 and a resultant increase in concerns over a delay in global economic recovery.

Wireless charging technology in the Galaxy S III 9 Samsung has introduced several user-friendly functions, such as Smart Stay, on its new Galaxy S3 smartphone. Even more remarkable is the phone’s wireless charging technology. The battery of the Galaxy S3 can be charged by simply placing the phone on a wireless charging pad, with no connecting jack needed. LGE has already adopted this technology for its new Optimus LTE2 model, while the charging method is also being developed by Apple.

Celltrion [068270 KS; BUY; TP: KRW61,000]: Ahead of all competitors 10 Concerns exist over competition between and its peers, including Samsung Biologics, Watson-Amgen and Norvatis.

See the last page of this report for important disclosures

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[Korea Autos] Hyundai and Kia’s April Europe m/s could surpass 6%; Yen/US$ dips below 80 again

Gregory Byung Kwan Kim, Analyst 82 2 3774 1592 [email protected]

Event

Hyundai and Kia’s combined m/s in Europe could surpass 6% in April; Yen/US$ dips below 80 level again

Impact

- Hyundai and Kia’s combined market share in Europe (EU27+EFTA) could surpass 6% for the first time. So far, Hyundai and Kia’s market share results for April look very strong in major European countries, including Germany (4.7%); the UK (7.3%); France (2.9%); Austria (9.0%); the Netherlands (10.5%); and the Czech Republic (13.7%). The full results are due to published on 16 May by ACEA (Europe’s auto manufacturers’ association); in the meantime, we could see strong momentum for Hyundai and Kia’s share prices to outperform the KOSPI.

Figure 1 Reported April sales numbers so far - by key country in Europe

- The Yen/US$ rate once again dipped below 80 yesterday, while share prices for Toyota, Nissan, Honda, Denso and Aisin Seiki fell by 3%, 5.2%, 5.6%, 3.9% and 4.2%, respectively. Considering Europe’s economic slump and China’s economic slowdown, as well as the spillover effects of both on neighboring countries, we could see greater margin pressure for the Japanese automakers in countries such as Brazil, Russia and India, in the short term.

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Action and recommendation

We maintain our OVERWEIGHT stance on the sector and reiterate our target price of KRW320,000 for Hyundai Motor and KRW110,000 for Kia Motors. We expect the share price gains for Hyundai and Kia to continue, on several short-to-mid term catalysts, such as: 1) strong sales in Europe and the US in 2Q12; 2) record-high operating profit and margins in 2Q12 (Hyundai’s operating profit up 18.2% YoY to KRW2.5tn, with 11.5% OPM; Kia up 20.9% YoY to KRW1.25tn, with 9.6% OPM); and 3) even stronger overseas sales in 2H12, as a result of new model launches in the US (New Azera, Elantra Coupe and New Santa Fe) and Europe (New i30 and Ceed) and new factories in China and Brazil entering operation.

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Samsung SDI [006400 KS; BUY; TP: KRW 203,000]: Quick comment on the share price rise (+3.1%)

Hak-Moo Lee, Analyst, 82 2 3774 1785 [email protected]

Event

Samsung SDI (006400 KS), which makes lithium-ion batteries, rallied to KRW170,000 (+5.2%) today; closing at KRW166,500 (+3.1%), on the back of expectations for growth of its car battery business, beneficiary of Galaxy S3 and removal of uncertainty regarding SMD ownership dilution in the near term.

Impact

- Local media reported that COO, Lee Jae Yong, son of Samsung Electronics’ chairman, met with the chairman of Volkswagen to discuss cooperation on electric-car batteries. Lee was also recommended as an outside board member of Exor SpA, holding company of Fiat SpA (Lee also met with the CEO of BMW in February). The news increased speculation that Samsung owners are interested in the car parts business and that SDI will be the main beneficiary, in terms of batteries.

- Samsung Electronics unveiled its new Galaxy S3, with a larger battery, higher selling price and improved margin. Samsung SDI is a key beneficiary of the new smartphone. The Galaxy S3 uses a 2100mAh battery, versus 1650mAh for the S2, providing the S3 with 30% greater battery capacity than the S2. We expect the trend of larger batteries for high-end smartphones to continue, which will benefit rechargeable battery players, such as SDI (the Samsung Galaxy Note uses a 2500mAh cell, while the Motorola RAZR MAXX uses a 3300mAh cell).

- Samsung Group announced the merger of its three display units, Samsung Display, SMD and S-LCD on 27 April. Samsung SDI will be granted a stake in the newly-created display entity (tentatively named Samsung Display Company, or SDC) based on the value of its stake in SMD (KRW4.3tn). There are two positives here: Dissipation of SMD concerns and increased book value. With the merger announcement, concerns over the decline in its SMD stake have lifted. Also, SDI’s SDC stake will be re- valued at KRW3.1tn (we estimate a 25% discount to KRW4.3tn) after the merger, which is significantly higher than the current book value of KRW1.7tn.

Action and recommendation

We maintain our BUY rating and target price of KRW203,000 on Samsung SDI, as we expect continued benefits from smart devices into 2Q12, as well as share price momentum, on dissipation of SMD- related concerns. We believe Samsung SDI is an attractive investment target at the current share price.

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Iljin Materials [020150 KS; BUY; TP: KRW 19,000]: Earnings to recover in 2Q12

Hak-Moo Lee, Analyst 82 2 3774 1785 [email protected]

Event

Following up on our review report on Iljin Materials (020150 KS) yesterday, Earnings to recover in 2Q12, we further detail our views on 2Q12 and share catalysts. The shares closed at KRW14,150

(+0.35%) yesterday

Impact

Demand forecast We expect shipment growth of more than 10 % for both ICS and I2B in 2Q12.

1) Elecfoil for IT PCB (ICS) Due to an increase in electricity tariffs in Taiwan and Japan, where its competitors are based, Iljin Materials will have cost competitiveness. We also expect a rise in ASP, as competitors’ should see increased manufacturing costs (electricity costs account for 8~9% of the total elecfoil manufacturing process).

2) Elecfoil for batteries (I2B) With a recovery in demand for notebook computers and the release of new smart devices, we believe demand for I2B (the main customers for which are Samsung SDI and LG Chemical) will increase. The release of Samsung’s Galaxy S3 will also have a positive impact on Iljin’s I2B (we have requested I2B demand data for each company for 2~3Q and will provide details soon).

Earnings upside 1) KRW4bn for one-off cost in 1Q12 The one-off cost of KRW4bn for reorganization of Iljin’s ICS factory in 1Q12 attributed Iljin Materials’ net loss and we expect the earnings in 2Q12 will turn black.

2) LED business losses Iljin Materials posted LED losses of KRW3.5bn in 1Q12; we expect the losses will decline to KRW1.5bn in 2Q12 (LED sales in 1Q: KRW1.6bn; 2Q: KRW4.0bn).

3) Higher ASP and utilization rate and operating leverage ASP in 2Q12 is higher than last quarter, while the utilization rate has also recovered.

1Q12 2Q12 ICS 85% Above 90% I2B 70% 75~80%

With a higher ASP and utilization rate, OPM will improve in 2Q12. We can expect an operating leverage effect of KRW3~4bn, on the back of: 1) more than 10% shipment growth; and 2) a rise in ASP. Considering LED loss reduction of KRW1.5bn and a one-off cost of KRW4bn for factory reorganization, we expect a total of KRW10bn in operating leverage effect in 2Q12, compared with 1Q12.

Capacity transition The 4000t in additional capacity for the transition from ICS to I2B will not be completed in 2012 (as the utilization rate of I2B remains about 80%).

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Action and recommendation

We continue to recommend BUY on the shares, as its operating profit is likely to see rapid improvement and turn black in 2Q12. Steady growth in shipments and the increase in prices of PCB- use ICS should drive up the company's profitability going forward. We believe that the current share price of Iljin Materials is attractive, but we recommend buying Iljin Materials at the end of May, when the visibility of its 2Q12 operating status will be higher. We maintain BUY on Iljin Materials at a target price of KRW19,000.

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Impact of oil price decline: Limited impact to trading companies & Distributors sector

Hae-soon Kwon, Analyst 82 2 3774 6022 hskwon @miraeasset.com

Event

From 2Q12, the prices of Dubai oil and coal - both of which had been on an uptrend since the start of the year - have seen declines. This is due to reduced expectations for QE3 and a resultant increase in concerns over a delay in global economic recovery.

The price of Dubai oil has risen from US$106/bbl at the start of this year to US$124/bbl in March. However, today’s Dubai oil price was US$109/bbl, a 12% fall from its March peak of US$124/bbl. The price of coal has also been on an uptrend; going from US$111/ton at the start of this year to US$119/ton in February. However, on 4 May, the price of thermal coal was US$98/ton, an 18% decline from its February peak of US$119/ton.

Impact

The decline in commodity prices in 2Q12 has had a negative effect on the share prices of trading companies. This is because, historically, during periods of weak commodity prices, concerns emerge on falling earnings at E&P businesses, which are mid- to long-term growth drivers. Rising share prices of trading companies in 1Q12 provided an opportunity for the profit taking during 2Q12, as commodity prices weakened.

[Daewoo International] We expect the impact of the decline in commodity prices on the estimated earnings of DWI and the value of its Myanmar gas project to be negligible, as: 1) the sale of gas from DWI’s Myanmar gas fields will commence from May 2013; and 2) we assumed a Dubai oil price of US$100/bbl – still lower than the current price – when we estimated the value of the Myanmar gas fields at about KRW3tn. The Myanmar gas fields’ earnings sensitivity to the price of Dubai oil is shown below: Dubai oil price (US$/bbl) 75 83 91 100 110 121

Gas price (US$/mmbtu) 7.7 7.9 8.2 8.5 8.7 9.1 Discount rate 5% 3,391 3,502 3,667 3,833 3,944 4,165 6% 2,936 3,034 3,183 3,331 3,430 3,628 7% 2,511 2,640 2,774 2,907 2,996 3,174 8% 2,225 2,305 2,426 2,547 2,627 2,785 9% 1,947 2,020 2,130 2,239 2,313 2,459 10% 1,708 1,775 1,875 1,975 2,042 2,176

Our HK analyst, Gordon Kwan, forecast that the prices of Brent and WTI oil are likely to average US$115/bbl and US$105, respectively, during 2012; with both averages converging toward US$100 in the long term. He also believes there is a good chance that prices could spike above US$120, but only if QE3, or a war in the Persian Gulf, occurs.

[LG International] If the prices of Dubai oil price and thermal coal continue at their current levels through 2012, LGI’s net profit should fall by about 5.6%. We estimated E&P earnings based on a Dubai oil price of US$115/bbl and an average thermal coal price of US$110/ton during 1Q12. If the prices of coal and Dubai oil should increase/decrease by 10% from current prices, LGI’s E&P profits and net profit should increase/decrease by roughly 1.2% and 4.5%, respectively. As a result, we judge the impact of falling commodity prices in 2Q12 to be marginal.

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2012 Net profit (KRW bn) Dubai Oil price US$104/bbl US$115/bbl US$127/bbl US$99/ton 236 247 258 Thermal coal price US$110/ton 239 250 261 US$121/ton 242 253 264

Action and recommendation

We attribute the recent share price sluggishness of DWI and LGI to the tendency of some investors to take a conservative approach, due to expectations of continued weakness in commodity prices. As we also forecast continued weakness in commodity prices in 2Q12, we do not expect investor sentiment to turn positive in the short term. However, we reiterate our positive stance on the sector and strongly recommend investors take advantage of the current commodity price weakness to accumulate shares, for the following reasons: 1) We do not expect further commodity price declines for the time being; and 2) there will be high earnings growth from increases in production volume. Thus, we believe the valuation merit of both companies to be high. We maintain DWI and LGI as our Top picks among Korean trading companies.

We reiterate our BUY rating and target price KRW50,000 for DWI. We expect net profit to grow by 48% YoY to FY2014, when production at its Myanmar gas fields should be fully normalized.

We reiterate our BUY rating and target price of KRW70,000 for LGI. We expect robust profit growth of 22% YoY over the next three years, on the back of increasing coal and oil production volume from development of new E&P projects. Moreover, as it is currently trading at an FY12E P/E of a mere 6.3x and FY13E P/E of 5.5x, we believe the company is greatly undervalued. LGI has traded at an average P/E of 10x since 2009, when the E&P division - a key growth driver for the company - began to exhibit stable earnings.

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Wireless charging technology in the Galaxy S III

Soon-Hak Lee, Analyst 82 2 3774 1651 [email protected]

Event

Samsung has introduced several user-friendly functions, such as Smart Stay, on its new Galaxy S3 smartphone. Even more remarkable is the phone’s wireless charging technology. The battery of the Galaxy S3 can be charged by simply placing the phone on a wireless charging pad, with no connecting jack needed. LGE has already adopted this technology for its new Optimus LTE2 model, while the new charging method is also being developed by Apple.

Impact

All handsets to adopt wireless charging Samsung and LG have adopted wireless charging technology for their main smartphone models, while Apple applied for a related patent in June 2011. According to iSuppli, the size of the market for wireless charging - which stood at US$0.9bn in 2011 - will jump to US$24bn (including EVs and home appliances) in 2015. Apple is developing a wireless charging system that can charge all Apple devices without the use of any jacks or plugs. And the WPC* will standardize wireless chargers for handsets, so that handsets can be charged on any kind of charger. All the necessary conditions have been met for ensuring its adoption: demand for wireless charging is increasing; the market leaders are adopting the technology; and there is industry cooperation towards a technology standard. * Wireless Power Consortium: This organization, whose members include Intel, Qualcomm, Motorola, Verizon and around 200 other members, is responsible for establishing standards for wireless chargers.

Action and recommendation

There are several beneficiaries of wireless charging in the handset supply chain: 1. RFTech (061040 KQ): The company supplies 30% of the battery chargers for SEC handsets. It has developed wireless charging technology and supplied relevant parts to SEC as a cooperative firm. 2. Chemtronics (089010 KQ): The company manufactures a wireless charging material, EMC**, and received qualification from WPC. It supplies Thin Glass to its main customers, SEC and Apple. 3. Wisepower (040670 KQ): Recently, the company has begun to supply wireless chargers to its Taiwanese customers, as well as to LGE for its Optimus LTE2. It’s main customers are LGE and Pantech (maker of Sky smartphones).

**EMC (Electromagnetic compatibility): This material enables electromagnetic shielding, absorption and heating on a device.

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Celltrion [068270 KS; BUY; TP: KRW61,000]: Ahead of all competitors

Ji-Won Shin, Analyst 82 2 3774 2176 [email protected]

Event

Concerns exist over competition between Celltrion and its peers, including Samsung Biologics, Watson- Amgen and Norvatis.

Impact

We believe that in the long-term, other Korean companies (besides Samsung Biologics, under the Samsung Group) that have announced plans to expand their biopharmaceutical business by focusing on monoclonal antibody biosimilars can become competitors to Celltrion. However, with regards to concerns over competition against Samsung, we believe Samsung’s biosimilar business is in too early a stage to be considered a threat to Celltrion. According to the company’s press release, Samsung Biologics has begun building 30,000 liter mammalian cell culture facilities for the biopharmaceutical business in Korea’s Songdo International Business District. The company plans to add an additional 90,000 liters of capacity, which would bring its total capacity to 120,000 liters. Even though Samsung Biologics established a joint venture for the biosimilar business with Idec, its product pipeline is still in the early stages of clinical trials. Therefore, we believe it will be some time before Samsung Biologics becomes a competitor to Celltrion.

Action and recommendation

We believe that, at this point, Celltrion’s sharp competitive edge needs to be highlighted once again, for the following reasons: We believe Celltrion still maintains the upper hand in the biosimilar market, considering (1) its early investment in capex expansion, in order to meet US FDA cGMP requirements; (2) its accumulated know-how in biosimilar development and production; and (3) the progress it has made in global clinical trials of biosimilar pipelines. As such, we believe that Celltrion is the leading biosimilar drug maker, ahead of its peers, both at home and abroad, and continue to recommend BUY (TP: KRW61,000).

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Compliance notice This report is distributed to our clients only, and none of the report material may be copied or distributed to any other party. While have taken all reasonable care to ensure its reliability, we do not guarantee that it is accurate or complete. Therefore, Mirae Asset Securities shall not be liable for any result from the use of this report. This report has never been provided to any institutional investor or third party. This report has been prepared without any undue external influence or interference, and accurately reflects the personal views of the analyst on the company herein.

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