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October 2, 2013 October 2, 2013 KOREA Company News & Analysis Major Indices Close Chg Chg (%) Hanjin Shipping (Buy/TP: W11,000) KOSPI 1,999.47 0.60 0.03 Calmer waters ahead KOSPI 200 261.87 0.39 0.15 KOSDAQ 532.02 1.67 0.31 KT Skylife (Trading Buy/TP: W32,000) Downgrade rating & lower TP Weathering the storm Turnover ('000 shares, Wbn) Volume Value KOSPI 234,244 4,304 Sector News & Analysis KOSPI 200 72,282 3,619 Banks (Overweight) KOSDAQ 284,772 1,663 Potential margin recovery ahead Market Cap (Wbn) Value Auto (Overweight) KOSPI 1,170,019 3Q13 global production comes in shy of our estimates KOSDAQ 123,934 KOSPI Turnover (Wbn) Economy & Strategy Update Buy Sell Net Foreign 1,223 998 225 Fixed Income Monthly Institutional 974 1,202 -228 Yields more likely to fall than rise in October Retail 2,077 2,056 21 KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 86 73 14 Institutional 70 74 -4 Retail 1,502 1,512 -10 Program Buy / Sell (Wbn) Buy Sell Net KOSPI 738 749 -11 KOSDAQ 20 18 2 Advances & Declines Advances Declines Unchanged KOSPI 330 467 89 KOSDAQ 488 404 88 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 1,418,000 36,000 494 KODEX LEVERAGE 12,160 0 257 Hynix 31,150 1,200 218 Kia Motors 62,800 -3,000 216 LG Electronics 68,400 -2,400 199 KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Celltrion 44,300 -1,500 67 Binex 6,680 -340 55 HyVISION 19,700 2,550 47 CJ E&M 41,950 1,850 46 ATTO 7,850 580 46 Note: As of October 2, 2013 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. Hanjin Shipping (117930 KS) Calmer waters ahead Shipping 3Q preview: Weaker than expected, but still resilient despite Sep. freight rate fall We forecast Hanjin Shipping’s 3Q operating profit to come in at W36.2bn, improving Earnings Preview both YoY and QoQ. We expect revenue to grow 2.3% QoQ on solid container traffic (+6.3% YoY) and higher freight rates in July-August. The company’s earnings are likely to October 2, 2013 be weaker than we originally expected, as freight rates have reversed sharply down since September. However, we believe stronger bulk earnings thanks to a rise in the Baltic Dry Index (BDI) and solid profit from Hanjin Newport have reduced the liner’s cash depletion (Maintain) Buy risks. As such, concerns over a potential liquidity crisis have somewhat subsided. Target Price (12M, W) 11,000 Despite falling rates, downside risks to shares are limited After climbing 25.3% from its previous trough, the Shanghai Containerized Freight Index Share Price (10/01/13, W) 8,660 (SCFI) has dropped 19.4% since September, raising risks of a stock pullback. However, we believe downside risks are limited for the following reasons. Expected Return 27% 1) Long-term indicators are improving: The Howe Robinson Container Index (HRCI; charter rates) and BDI have recently been moving up. Unlike the SCFI, which is heavily OP (13F, Wbn) -55 affected by idle capacity, these two indicators tend to reflect the overall supply and Consensus OP (13F, Wbn) -68 demand balance. The HRCI has been turning around for the first time in three years, a development largely attributable to capacity adjustments made by scrapping ships. EPS Growth (13F, %) RR Although the BDI is not directly correlated to the container market, it should have a Market EPS Growth (13F, %) 21.8 positive impact on non-container earnings and sentiment. P/E (13F, x) - Market P/E (13F, x) 10.2 2) Limited downside to spot rates: Freight rates have sharply declined since September, KOSPI 1,998.87 especially the Asia-Europe rate, which has slumped 49% from its peak (US$1,501/TEU). We see limited chances of a rebound with the off-season approaching. However, freight Market Cap (Wbn) 1,085 rates should see some downside support as rates fall below the cash cost level. The ratio Shares Outstanding (mn) 125 of laid-up ships has also been picking up from low levels, suggesting capacity Free Float (%) 62.0 adjustments are gaining pace. Foreign Ownership (%) 14.0 Beta (12M) 1.43 3) Perpetual bonds recognized as capital: The Korea Accounting Standards Board (KASB) 52-Week Low (W) 6,610 recently recognized perpetual bonds as a capital item, which should allow Hanjin to 52-Week High (W) 14,200 lower its debt ratio. Although this is merely an accounting change, if Hanjin successfully issues its perpetual bonds (an estimated W400bn), this would prove positive to the (%) 1M 6M 12M company’s balance sheet and further its financing abilities. Absolute 0.8 -13.4 -35.9 Relative -3.0 -13.5 -36.0 Chances of survival increasing; Valuation inexpensive Share price We maintain Buy on Hanjin Shipping with a target price of W11,000. Currently, the 110 KOSPI stock is trading at a 12-month forward P/B of 1.1x, which we do not find demanding 90 given that supply and demand conditions are expected to improve full swing from 2014. 70 While there are lingering doubts over long-term competitiveness in an industry that is 50 leaning towards vessel upsizing, we expect that 1) more favorable supply and demand, 2) balance sheet improvement, and 3) strong alliances will give Hanjin a greater chance of 30 9/12 1/13 5/13 9/13 survival. Daewoo Securities Co., Ltd. FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F Revenue (Wbn) 9,625 9,523 10,589 10,578 11,348 12,244 Transportation OP (Wbn) 687 -513 -110 -55 384 459 Jay JH Ryu OP margin (%) 7.1 -5.4 -1.0 -0.5 3.4 3.8 +822-768-4175 NP (Wbn) 287 -835 -651 -409 -59 24 [email protected] EPS (W) 3,257 -8,673 -5,204 -2,534 -473 193 ROE (%) 12.4 -35.6 -40.3 -37.7 -6.2 2.3 P/E (x) 11.0 - - - - 44.9 P/B (x) 1.2 0.7 1.2 1.2 1.1 1.0 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 the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. KT Skylife (053210 KS) Weathering the storm Media What’s new: Net subscriber data still weak, home shopping negotiations stalling Yesterday, KT Skylife released its subscriber data for September. The company said it Earnings Preview acquired 63,429 new subscribers and, accounting for cancellations, added 30,966 net subscribers in the month. In 2H12, net subscriber additions averaged more than 50,000 October 2, 2013 per month, but the number has slowed since May this year to a little over 30,000 per month. The September figure was particularly hurt by fewer business days due to the Chuseok holiday. We lowered our annual subscriber estimates, in light of the clear (Downgrade) Trading Buy slowdown in 3Q. Target Price (12M, W) 32,000 As of end-September, negotiations on home shopping transmission commissions (which are typically concluded in the second quarter) have yet to yield an agreement. Although Share Price (10/01/13, W) 28,300 there are reports that the Korea Communications Commission (KCC) may propose guidelines for the negotiations, it seems talks are still in a stalemate. With this in mind, Expected Return 13% we are now more conservative on the company’s platform revenue. Key issue: Major challenges need to be addressed OP (13F, Wbn) 83 In our view, KT Skylife currently faces three major challenges: 1) the ongoing Consensus OP (13F, Wbn) 109 deceleration in net subscriber additions, 2) stalling negotiations on home shopping commissions (which have a huge impact on profits), and 3) the risk of subscriber EPS Growth (13F, %) 16.4 regulations on KT’s IPTV and KT Skylife’s satellite TV operations. Although these Market EPS Growth (13F, %) 21.8 challenges stem from external factors that are beyond the firm’s control, they are also P/E (13F, x) 20.7 closely tied to its individual competitiveness. Market P/E (13F, x) 10.3 KOSPI 1,998.87 The domestic pay-TV market seems to be following in the footsteps of the telecoms market, where marketing has played an important role.
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