Nongshim (Buy/TP: W320,000) Raise TP KOSPI 1,889.70 -11.17 -0.59 Likely to Overcome All Negatives KOSPI 200 246.90 -1.28 -0.52 KOSDAQ 513.80 -7.63 -1.46

November 13, 2012

KOREA

Company News & Analysis Major Indices Close Chg Chg (%) Nongshim (Buy/TP: W320,000) Raise TP KOSPI 1,889.70 -11.17 -0.59 Likely to overcome all negatives KOSPI 200 246.90 -1.28 -0.52 KOSDAQ 513.80 -7.63 -1.46

Sector News & Analysis Turnover ('000 shares, Wbn) Shipbuilding (Neutral) Volume Value KOSPI 487,154 3,859 The law of the jungle KOSPI 200 74,365 2,631 KOSDAQ 472,518 2,034

Market Cap (Wbn) Value KOSPI 1,091,838 KOSDAQ 112,759

KOSPI Turnover (Wbn) Buy Sell Net Foreign 763 770 -7 Institutional 842 856 -14 Retail 2,224 2,215 9

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 68 104 -36 Institutional 117 100 17 Retail 1,846 1,828 18

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 567 525 42 KOSDAQ 15 13 2

Advances & Declines Advances Declines Unchanged KOSPI 214 613 75 KOSDAQ 254 700 37

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value KODEX LEVERAGE 11,220 -145 285 Samsung Electronics 1,349,000 4,000 196 LG Electronics 78,400 2,000 137 KODEX INVERSE 7,940 50 118 WOORIDUL SCIENCES 2,930 -240 91

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Tera Resource Co., Ltd 1,440 140 48 Celltrion 25,400 -850 37 Infraware 9,110 -1,140 36 Kornic Systems 8,360 870 35 Com2us 69,500 -300 32 Note: As of November 13, 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.

Company November 13, 2012

Food & Beverage Nongshim (004370 KS) Daewoo Securities Co., Ltd. Woon-mok Baek Likely to overcome all negatives +822-768-4158 [email protected] Raise TP to W320,000; Maintain Buy call

This year, Nongshim has been plagued with three negatives: price-fixing fines, legal disputes over the distribution rights of Samdasoo (bottled water), and food safety issues. As a result, the company’s shares have fared poorly relative to its peers, despite the potential for a 3Q earnings improvement, and an expansion in ramen market share. We expect the company’s shares to find momentum in 2013 from a normalization of its ramen market share, potential price hikes, expectations for new Buy (Maintain) products in Korea and China, and new business expansion. We maintain our Buy call Target Price (12M, W) 320,000 and raise our target price to W320,000 (from W290,000). We derived our target Share Price (11/12/12, W) 255,000 price by applying a target P/E of 15x (up from 13.5x; on reflection of the recent rise Expected Return (%) 25.5 in the food and beverage industry’s average P/E) to the average of 2013 and 2014 EPS Growth (12F, %) TTR Market EPS Growth (12F, %) 9.0 EPS estimates. P/E (12F, x) - Market P/E (12F, x) 10.2 3Q review: Exceeded the consensus KOSPI 1,900.87 Nongshim’s 3Q operating results exceeded the market consensus, with revenues of Market Cap (Wbn) 1,551 W500.7bn (up 3.9% YoY), an operating profit of W34.7bn (up 25.4% YoY), and a net Shares Outstanding (mn) 6 profit of W31.2bn (up 60.1% YoY). Ramen revenues expanded 10.3% YoY. And Avg Trading Volume (60D, '000) 38 Avg Trading Value (60D, Wbn) 10 revenues related to cup-ramen products jumped 16.2% YoY, boosted by an increase Dividend Yield (12F, %) 1.6 in single-person households. The company’s ramen market share continued to pick Free Float (%) 49.6 up QoQ, reaching 67.4% in 3Q (from 63.7%). The company’s ramen market share 52-Week Low (W) 203,000 had plunged from 68.1% in 3Q11 to 62.7% in 4Q11 and 62.2% in 1Q12. Beverage 52-Week High (W) 296,000 revenues deteriorated 9.6% YoY due to a supply disruption of Samdasoo. Overseas Beta (12M, Daily Rate of Return) 0.27 revenues grew 18.6% YoY thanks to robust revenues in China (up 24.8% YoY) and Price Return Volatility (12M Daily, %, SD) 2.6 Foreign Ownership (%) 27.1 the US (up 20.9% YoY). Major Shareholder(s) Growth in operating profit and net profit was largely attributable to a reduction in Nongshim Holdings et al. (45.49%) fixed costs (resulting from ramen sales volume growth) and an increase in F/X- NPS (6.12%) related gains caused by won appreciation. Price Performance Noteworthy items for 2013: Ramen market share; Introduction of Baeksansoo (%) 1M 6M 12M Absolute -10.5 4.9 16.7 We anticipate Nongshim’s market share to expand to 70% in 2013, driven by the Relative -8.9 5.8 14.7 revival of red-soup ramen products, a re-launch of Shin Ramyun Black, launches of Key Business premium products priced at above W1,000 (e.g., Jinjja Jinjja, Gochu Bibimmyun, Nongshim is the top ramen and confectionery company in Korea. Shin Ramyun Black), and the renewals of some products. Although some sales of the company’s products could contract due to food safety issues, we believe sales should recover in three~six months. In addition, given that Samyang Foods and Paldo raised their ramen prices in August, we believe that Nongshim could also raise its ramen prices next year.

Share price FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 140 KOSPI (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X) 130 12/10 1,895 155 8.2 138 22,696 201 104 10.4 9.0 0.8 4.2 120 110 12/11 1,971 110 5.6 86 14,167 162 43 5.9 16.4 0.9 6.3 100 12/12F 1,997 110 5.5 -6 -939 165 1 -0.4 - 1.1 7.0 90 12/13F 1,967 117 6.0 119 19,574 180 79 7.9 13.0 1.0 6.1 80 12/14F 2,136 135 6.3 143 23,482 197 115 8.9 10.9 0.9 5.1 11/11 3/12 7/12 11/12 Notes: All figures are based on non-consolidated K-IFRS Sources: Company data, KDB Daewoo Securities Research estimates

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. Company November 13, 2012

Given that the company’s contract regarding its Samdasoo distribution rights expires in mid-December, Nongshim plans to introduce its Chinese bottled water brand Baeksansoo in Korea around December. Nongshim’s Chinese subsidiary built a factory for Baeksansoo in the Jilin Province in 2010, the capacity of which is equivalent to 50% of the Samdasoo capacity. We project the discontinuation of Nongshim’s Samdasoo business will lead to a W190bn decline in revenues (9% of overall revenues) and a W12bn drop in operating profit (11% of overall operating profit) in 2013 for Nongshim. However, it should be noted that Nongshim has distribution networks for its bottled water business. We advise investors to keep tabs on whether the Baeksansoo brand can smoothly penetrate the domestic market.

Table 1. Nongshim 3Q earnings vs. forecasts (Wbn, %) 3Q12 Change 3Q11 2Q12 Actual KDB Daewoo Consensus YoY QoQ Revenues 482.0 469.2 500.7 497.9 495.1 3.9 6.7 Operating profit 27.7 18.7 34.7 30.0 29.2 25.4 85.2 Pretax profit 25.6 22.1 41.4 37.8 33.9 61.5 87.0 Net profit 19.5 16.7 31.2 29.1 26.7 60.1 86.7 OP margin 5.7 4.0 6.9 6.0 5.9 - - NP margin 4.0 3.6 6.2 5.8 5.4 - - Sources: Company data, KDB Daewoo Securities Research

Table 2. Nongshim quarterly earnings forecasts (Wbn, %) 2012F 2013F 2012F 2013F 2014F 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Annual Annual Annual Revenues 496 469 501 531 480 462 495 529 1,997 1,967 2,136 Operating profit 31 19 35 25 29 23 31 34 110 117 135 Pretax profit -72 22 41 36 43 38 34 39 27 155 185 Net profit -81 17 31 28 33 29 26 30 -6 119 143 OP margin 6.3 4.0 6.9 4.8 6.0 5.1 6.2 6.5 5.5 6.0 6.3 NP margin -16.2 3.6 6.2 5.2 6.9 6.3 5.3 5.7 -0.3 6.1 6.7 Revenue growth -1.4 -5.0 3.9 8.0 -3.2 -1.5 -1.2 -0.2 1.3 -1.5 8.6 OP growth -10.9 -36.0 25.4 40.9 -8.0 24.9 -11.6 34.2 0.1 6.2 15.0 Pretax profit growth TTR -38.8 61.5 48.3 TTB 71.8 -17.2 9.3 -78.9 472.9 20.0 Net profit growth TTR -39.6 60.1 273.2 TTB 75.5 -15.3 9.3 TTR TTB 20.0 Source: KDB Daewoo Securities Research

Figure 1. Nongshim operating profit and OP margin forecasts Figure 2. Nongshim ramen market share

(Wbn) (%) (%) 190 12 80 Operating profit (L) OP margin (R) 75 160 9 70

130 6 65

60 100 3 55

70 0 50 04 05 06 07 08 09 10 11 12F 13F 14F 00 02 04 06 08 10 12

2 Industry November 13, 2012

Neutral Shipbuilding Daewoo Securities Co., Ltd. Ki-jong Sung The law of the jungle +822-768-3263 [email protected] 2012 review: Robust offshore demand offsets market sluggishness Ryan Kang +822-768-3065 As of October, global shipbuilding contracts declined by 43.4% YoY to 16.8mn CGT. [email protected] This contract volume represents 2001 levels, with ship financing remaining at 2009 levels. However, the three largest Korean shipbuilders secured offshore orders of

US$16.4bn by September, similar to that of last year. Small and mid-sized shipbuilders, though, do not have an alternative market they can rely on outside of the traditional merchant-vessel market (as large Korean shipbuilders do with offshore production plants).

2013 and the medium-to-long-term outlook A second phase of industry restructuring is expected in 2013, and we expect competition in the shipbuilding market will intensify. We believe the current ship- financing market is at the last stage of its cycle, and during this period, the differentiation between shipbuilders will likely widen even further. As has been the case in the 2~4-years of a single shipbuilding-industry cycle, order growth is expected to turn to positive from 2013. However, despite an increase in orders, restructuring is also expected to be accelerated as a result of decreased backlogs, intensifying competition, falling ship prices, and sluggish orders.

The stabilization of the eurozone and the turnaround of the global economy will be key factors for the shipbuilding market in 2013. We believe an improvement in supply and demand conditions for vessels, and an increase in raw material prices, will be the key signals of a cyclical turnaround in the shipbuilding market.

Global shipbuilding contracts, and shipyard capacity by country

(CGTmn) (GTmn) 90 Japan (L) Korea (L) China (L) 180 Shipbuilding industry under sudden Europe (L) Others (L) New orders (R) change since the global financial crisis 75 150 Tanker orders surge due to 1st phase of 2nd phase of Middle East war restructuring restructuring 60 120 Japan's capacity Japan's capacity reduction (1st phase) reduction (2nd phase) 45 90 Plaza Transfer to Accord 30 non-shipbuilding 60 business

15 30

0 0 75 80 85 90 95 00 05 06 07 08 09 10 11 12F 13F

Sources: LloydÊs List, Clarkson, KDB Daewoo Securities Research

Key issues in 2013 Three key issues in 2013: 1) Severe competition for orders. In 1H13, shipbuilders are expected to secure an 1) Severe competition in order average order backlog of one and a half years. In order to strengthen backlogs, takings, 2) industry restructuring, shipbuilders are projected to seek out new orders, similar to 2009~2010. Meanwhile, and 3) ECO-friendly vessels actual orders are expected to increase as ship owners seek to order vessels at low prices. However, despite an increase in orders, we expect competition amongst shipbuilders will intensify.

2) A second phase of industry restructuring. We expect a second phase of restructuring, centered on competition amongst the survivors, will weed out less competitive shipbuilders against the backdrop of falling new-building orders. We believe the winners of the second phase of restructuring will likely benefit significantly when the market recovers. We expect the market to remain sluggish; however, we also project the three largest Korean shipbuilders will perform well in 2013.

3) ECO-friendly vessels. ECO-friendly vessels are projected to be in increased demand in 2013, as the International Maritime Organization (IMO) strengthened regulations on CO2 emissions and other environmental issues. Furthermore, the global recession, and a hike in fuel prices, should boost the demand for ECO-friendly vessels.

On the other hand, ship owners and shipping companies are not rushing their investments in ECO-friendly vessels because of tight financing. Also, most ship owners are conservative in their vessel investments, and investment paybacks could be delayed given the sluggish market circumstances.

Investment strategy We maintain our Neutral rating We maintain our Neutral rating on the shipbuilding industry; however, we on the shipbuilding sector. recommend to selectively buy Hyundai Heavy Industries (009540 KS/Buy/TP: W280,000), Samsung Heavy Industries (010140 KS/Buy/TP: W44,000), Hyundai Mipo Dockyard (010620 KS/Buy/TP: W148,000), and Hanjin Heavy I&C (097230 KS/Trading Buy/TP: W16,200). We believe major Korean shipbuilders have upside potential, as: 1) they have a competitive advantage among global peers; 2) they have properly switched to an alternative market (offshore plants); and 3) they are likely to see an improvement in cash flow.

Despite the robust performance of the offshore production plant market, large Korean shipbuilders seem to be undervalued because of the deteriorated merchant- vessels business. In 2013, because the proportion of offshore plants is expected to increase, and cash flows should be improved, we expect large Korean shipbuilders to see upward momentum on their share price.

Because Hyundai Mipo Dockyard has a competitive edge in the mid-to-small-sized commercial vessels market, and the company shows solid order-takings, earnings, and cash flow relative to its peers, we think the company is the only small-to-mid- size shipbuilder in Korea that is capable of performing respectably, thanks to its competitiveness.

Market Data November 12, 2012

※All data as of close November 13, 2012, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 394.92 -1.56 -0.39 10.25 USD/KRW 1,088.40 1,089.60 1,115.40 1,134.30 KOSPI 1,889.70 -11.17 -0.59 3.47 JPY100/KRW 1,368.20 1,371.51 1,422.98 1,460.88 KOSDAQ 513.80 -7.63 -1.46 1.38 EUR/KRW 1,382.98 1,386.03 1,442.16 1,543.67 Dow Jones* 12,815.08 -0.31 0.00 4.89 3Y Treasury 2.78 2.79 2.77 3.37 S&P 500* 1,380.03 0.18 0.01 8.06 3Y Corporate 3.30 3.31 3.28 4.23 NASDAQ* 2,904.25 -0.62 -0.02 9.65 DDR2 1Gb* 1.19 1.20 1.17 1.06 Philadelphia Semicon* 370.02 0.32 0.09 0.39 NAND 16Gb* 1.93 1.94 1.97 3.01 FTSE 100* 5,767.27 -2.41 -0.04 1.18 Oil (Dubai)* 106.31 104.60 110.43 110.33 Nikkei 225 8,661.05 -15.39 -0.18 1.18 Gold* 1,728.40 1,730.90 1,758.00 1,788.10 Hang Seng* 21,430.30 45.92 0.21 13.52 Customer deposits (Wbn)* 17,242 17,313 18,847 20,398 Taiwan (Weighted) 7,136.05 -131.70 -1.81 2.64 Equity type BC (Wbn)(Nov. 9) 95,689 95,617 95,940 103,894 Note: * as of November 12, 2012 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 LG Electronics 14.42 KODEX 200 24.74 KODEX 200 20.86 KODEX LEVERAGE 64.20 LG Chem 13.81 POSCO 14.77 POSCO 20.29 Hyundai Heavy Industries 16.38 KT 12.34 GS Construction 10.62 KODEX INVERSE 16.40 KEPCO 14.65 KODEX LEVERAGE 11.41 SK Telecom 6.93 LG Electronics 13.34 LG Chem 14.64 Hyundai M&F Insurance 9.16 Amore Pacific 6.44 Samsung Electronics 11.29 DHICO 8.97 Hyundai Mobis 8.49 DSME 5.94 Hyundai Department Store 11.21 Samsung Heavy Ind. 8.69 KEPCO 5.86 Korea Exchange Bank 5.53 Hynix 10.35 DSME 8.20 DHICO 4.76 KT&G 5.31 Nongshim 6.91 Honam Petrochemical 7.87 SEMCO 4.68 Samsung F&M Insurance 5.01 LG Uplus 6.84 Hyundai Motor 6.94 Woori Finance Group 3.62 Samsung Electronics (P) 4.81 SK Telecom 6.71 Kia Motors 6.62 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 Daum Communications 3.79 KCP 3.84 SK Broadband 4.69 Duk San Hi Metal 3.23 SM 1.84 Gamevil 3.30 SM 3.69 TK Corp. 3.10 Partrion 1.59 Celltrion 3.26 Melfas 3.30 Daum Communications 2.64 Seoul Semiconductor 1.06 Medy-tox 2.61 Com2us 2.98 Paradise 1.74 Techno Semichem 0.68 TK Corp. 1.86 Interpark 1.99 SEEGENE 1.65 Flexcom 0.56 OSSTEM IMPLANT 1.86 OSSTEM IMPLANT 1.75 Infraware 1.42 Macrogen 0.45 Paradise 1.63 Gamevil 1.64 TERA SEMICON 1.38 CTC Bio 0.43 Dongsuh 1.60 YG Entertainment 1.58 Celltrion 1.16 Mirae Nanotech 0.42 INICIS 0.72 JVM 1.34 Flexcom 1.13 Openbase 0.37 S-MAC 0.71 Samjung Packing & Aluminum 1.19 ELK 0.76 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 1,349,000 4,000 198,707 Celltrion 25,400 -850 4,436 Hyundai Motor 212,000 -4,500 46,699 Paradise 20,300 -800 1,846 POSCO 325,000 2,000 28,336 CJ O Shopping 252,000 1,000 1,563 Hyundai Mobis 271,500 0 26,429 SM 69,200 2,100 1,414 Kia Motors 55,300 -1,200 22,417 SK Broadband 4,710 60 1,394 LG Chem 302,000 -3,500 20,014 Seoul Semiconductor 21,350 -150 1,245 Samsung Life Insurance 93,000 400 18,600 Daum Communications 85,300 -400 1,152 Samsung Electronics (P) 783,000 4,000 17,879 CJ E&M 29,500 -550 1,119 Hynix 25,350 50 17,597 Dongsuh 36,000 2,000 1,073 KEPCO 26,650 -350 17,108 SEEGENE 79,500 -3,100 1,041 Source: Korea Exchange