2H19 Outlook

Telecom Equipment/ Electronic Components Navigating headwinds

Wonjae Park +822-3774-1426 [email protected]

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. Contents

[Summary] Era of components and new markets 3

I. [Telecom Equipment] 1H19 review 5

II. [Telecom Equipment] 2H19 outlook 10

III. [Electronic Components] 1H19 review 15

IV. [Electronic Components] 2H19 outlook 16

V. Medium/long-term outlook 17

VI. Global peer group valuations 19

VII. Top picks 20 , LG Electronics, LG Innotek, Seoul Semiconductor

[Conclusion] Korean IT industry showing resilience 24 [Summary] Era of components and new markets

(1/3/05=100) MSCI Korea IT (L) US$/W (R) Era of 800 2,200 TV era (Sony) era () Smartphone era (Apple) components st SEC 2nd SEC 1st SEC 1 and LGE 2nd LGE 3rd LGE 8th automotive electronics

600 market 1,800

400 1,400

200 1,000

0 600 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19F

Source: Mirae Asset Daewoo Research

3| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research [Telecom Equipment] Foldables and 5G to drive demand

Significant new growth opportunities for first time in three years

2020 • Full-scale 5G expansion - Differentiation 2019 by company * 1H19 iPhone 8/X iPhone XS - Foldables -S10andM/S

Galaxy Note 7

2019 -New Apple Galaxy S8 Galaxy S9 Galaxy Fold models -5G expansion

Galaxy Note 9 Galaxy S10

1Q16 1Q17 1Q18 1Q19 1Q20F

Source: Mirae Asset Daewoo Research

4| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research I. [Telecom Equipment] 1H19 review

Market environment: • Smartphone shipments remained on the downtrend in 1H19.  310mn units in 1Q19 (-6.6% YoY, -17.5% QoQ) Growth slowdown • Product differentiation has weakened: Market is increasingly consolidating around the big three.  Decreased  Big three players: Samsung Electronics (SEC; M/S 19.6%), (M/S 15.7%), and Apple (AAPL US/CP: differentiation US$189.00; M/S 13.1%)  Consolidation into big three players Smartphone shipments and YoY growth Big three players’ M/S trend

(mn units) (%) (%) 6.0 Smartphone shipments (L) 60 60 YoY growth (R)

4.5 4.3 40

50

3.1 3.0 20

40

1.5 0

0.0 -20 30 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Source: IDC, Mirae Asset Daewoo Research Source: Counterpoint, Mirae Asset Daewoo Research

5| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research I. [Telecom Equipment] 1H19 review

Big three • SEC: Shipments of 6.9mn units in 1Q19 (-1.8% YoY, -9.6% QoQ)  19.6% market share - Market share rebounded on solid Galaxy S10 sales.  SEC: Rebound • Huawei: Shipments of 5.5mn units in 1Q19 (+44.6% YoY, -1.8% QoQ)  15.8% market share  Huawei: Growth - The second largest smartphone maker in terms of market share  Apple: Slowdown • Apple: Shipments of 4.6mn units in 1Q19 (-17.4% YoY, -29.4% QoQ)  13.1% market share - Weaker-than-expected new iPhone model sales depressed market share.

SEC smartphone shipments and Huawei smartphone shipments and Apple smartphone shipments and YoY growth YoY growth YoY growth (mn units) Smartphone shipments (L) (%) (mn units) Smartphone shipments (L) (%) (mn units) Smartphone shipments (L) (%) YoY shipment growth (R) YoY shipment growth (R) YoY shipment growth (R) SEC M/S (R) Huwawei M/S (R) Apple M/S (R) 100 45 100 45 100 45

75 30 75 30 75 30

50 15 50 15 50 15

25 0 25 0 25 0

0 -15 0 -15 0 -15 1Q11 1Q13 1Q15 1Q17 1Q19 1Q11 1Q13 1Q15 1Q17 1Q19 4Q13 4Q14 4Q15 4Q16 4Q17 4Q18 Source: Counterpoint, Mirae Asset Daewoo Research Source: Counterpoint, Mirae Asset Daewoo Research Source: Counterpoint, Mirae Asset Daewoo Research

6| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research I. [Telecom Equipment] 1H19 review

US: Apple struggled; SEC • In 1Q19, US smartphone shipments declined 15.3% YoY to 35.41mn units.  Maturity stage remained stable; LGE • Apple’s new products displayed sluggish sales; SEC maintained the second-largest market share. disappointed • LG Electronics (LGE) remained in third place in the US market, while ZTE (000063 CH/CP: RMB28.50) showed a sluggish performance; Motorola’s market share turned upward.

US smartphone shipments and YoY growth US quarterly smartphone M/S trends

(mn units) (%) (%) 80 Shipments (L) 90 60 Apple SEC YoY shipment growth (R) LGE ZTE Motorola

60 60 45

40 30 30

20 0 15

0 -30 0 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Source: Counterpoint, Mirae Asset Daewoo Research Source: Counterpoint, Mirae Asset Daewoo Research

7| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research I. [Telecom Equipment] 1H19 review

China: Deceleration of • In 1Q, total smartphone shipments in declined to 92.97mn units (-7% YoY). market growth slowdown; • In 1Q, + Vivo maintained the largest market share (16.9% for Oppo; 19.2% for Vivo). market share uptrend for • Huawei’s market share remained on an uptrend (29.2% in 1Q) Huawei vs. slight pickup for • SEC’s China market share turned upward to 1.4% in 1Q (+0.05%p YoY, +0.54%p QoQ) SEC

China smartphone shipments and YoY growth China monthly smartphone M/S trends

(mn units) Shipments (L) (%) (%) 250 Huawei + Oppo + Vivo (L) 100 60 Oppo + Vivo Huawei Total YoY growth (R) Apple Huawei + Oppo + Vivo YoY growth (R) SEC Huawei + Oppo + Vivo M/S (R) 200 75 45

150 50

30

100 25

15 50 0

0 -25 0 1Q15 1Q16 1Q17 1Q18 1Q19 9/14 3/15 9/15 3/16 9/16 3/17 9/17 3/18 9/18 3/19

Source: Counterpoint, Mirae Asset Daewoo Research Source: Counterpoint, Mirae Asset Daewoo Research

8| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research I. [Telecom Equipment] 1H19 review

India: SEC striving to • In 1Q, ’s total smartphone shipments increased 16.5% YoY to 34.9mn units. maintain M/S; Xiaomi • Fierce competition continued between SEC and Xiaomi (1810 HK/CP: HK$10.16). remained the top player;  In 1Q, SEC displayed a market share of 23.1% (-0.1%p YoY), while Xiaomi, recorded 27.6% (-3.5%p YoY) Indian players to recover in • Indian brands remained sluggish. 2H19

India smartphone shipments and YoY growth India quarterly smartphone M/S trends

(mn units) (%) (%) 60 Shipments (L) 90 45 SEC YoY shipment growth (R) Xiaomi China (Huawei + Vivo + Oppo) YoY market growth (R) India (Micromax + Lava) Penetration (R) 45 60

30

30 30

15

15 0

0 -30 0 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q15 1Q16 1Q17 1Q18 1Q19 Source: IDC, Mirae Asset Daewoo Research Source: Counterpoint, Mirae Asset Daewoo Research

9| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research II. [Telecom Equipment] 2H19 outlook

Foldables, new models, and • For 2019, smartphone sales volume is forecast at 1.4bn units (-0.8% YoY), with the smartphone market expected to grow to US$494.8bn (+7.5% YoY) 5G services to stimulate • Smartphone shipments (units): 1.44bn in 2015  1.47bn in 2016  1.47bn in 2017  1.41bn in 2018  1.4bn in replacement demand, 2019F leading to outperformance • The launch of foldable smartphones, new Galaxy/iPhone models, and 5G services will likely stimulate replacement demand, leading to outperformance by top-tiers. by leading players

Global handset shipment and growth trends 2019 (Wbn) (%) * 1H 24 90 - Foldables Feature phones (L) -S10andM/S Smartphones (L) Smartphone market growth (R) 19.7 19.8 19.0 * 2H Smartphone shipment growth (R) 18.1 17.8 - New iPhone models 18 60 5.0 5.1 4.9 -5G expansion 4.1 3.5

14.7 14.7 14.015.7 12 14.1 30

7.5 1.8 6 0 -4.0 -0.8

0 -30 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019F

Source: IDC, Mirae Asset Daewoo Research

10| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research II. [Telecom Equipment] 2H19 outlook

Negative growth in • Smartphone market growth in China, as well as in the US and Western Europe, is slowing rapidly.  developed markets and In particular, sales volume in China, which has been a key driver behind rapid smartphone market expansion, will likely contract in 2019. China; Positive Indian • Going forward, India and other Asia will likely drive global market growth. outlook  India’s smartphone market is expected to grow 12.8% in 2019 (+14.5% in 2018).

Global smartphone shipment growth

2016 2017 2018 2019F

US 4.7% 0.5% -7.2% 0.3%

W. Europe -8.3% -5.7% 3.2% -2.8%

Japan 2.3% 8.4% 0.0% -3.4%

China 8.7% -4.9% -10.5% -6.6%

India 5.2% 14.0% 14.5% 12.8%

Other Asia -0.1% -0.1% -2.1% 1.9%

Latin America -0.3% 5.7% -7.1% -2.6%

Total 1.8% 2.6% -2.2% -0.1%

Source: IDC, Mirae Asset Daewoo Research

11| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research II. [Telecom Equipment] 2H19 outlook

Market leadership to • Mature smartphone market  SEC needs to expand its low/mid-end lineup (growth markets: India, South America, Southeast Asia), while also prove more important maintaining competitiveness in the high-end segment. than margin  The company has to continue to improve cost efficiency, while maintaining brand competitiveness and economies of scale. improvement in 2019  The firm is likely to regain its market leadership via foldable model rollouts, and maintain its market share through expansion in low/mid-end sales.  Securing long-term competitiveness will prove more important than short-term margin improvements; earnings improvement is expected from 2020 onward. Economies of scale are crucial (OP margins of top three SEC’s IM division: Revenue and OP margin handset makers in the mid-2000s) (Wtr) (%) (%) 30 SEC삼성전자 40 Revenue (L) 20 OP margin (R) LGLGE전자

노키아Nokia

30 15 20

20 10 10

10 5 0

0 0 -10 1Q05 1Q07 1Q09 1Q11 1Q13 1Q15 1Q17 1Q19 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

12| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research II. [Telecom Equipment] 2H19 outlook

Apple needs to start • Apple opted for a price hike strategy, rather than innovation, for the iPhone XS.  innovating again; Revenue contributions from the Apple Watch and AirPods will likely increase, with service revenue likely to expand. Chinese smartphone • Chinese smartphone makers are facing a slowdown in top-line growth, which could threaten their survival. makers fighting to survive

Apple iPhone XS, XS Max, and XR Chinese smartphone makers’ M/S and shipments

iPhone XS iPhone XS Max iPhone XR 4Q17 (units) 4Q18 (units) M/S (%) YoY (%) Huawei 39,132,509 51,957,370 11.0 32.8 Xiaomi 28,299,170 33,843,499 7.2 19.6 Oppo 30,552,987 29,984,856 6.4 -1.9 Vivo 24,178,697 29,546,019 6.3 22.2 Transsion 34,759,398 32,816,267 7.0 -5.6 Other 31,784,005 26,619,130 5.6 -16.2 15,379,757 11,001,968 2.3 -28.5 TCL 9,942,920 8,959,479 1.9 -9.9 AP Apple A12 Bionic 2,843,396 2,858,411 0.6 0.5

OS iOS 12 ZTE 9,380,477 1,851,334 0.4 -80.3 OnePlus 1,272,863 1,800,985 0.4 41.5 5.8” IPS LCD 6.5” IPS LCD 6.1” Display Wiko 2,320,224 1,790,060 0.4 -22.8 Super AMOLED IPS LCD 1,336,540 1,203,021 0.3 -10.0 Resolution 1125 x 2436p 1242 x 12688p 828 x 1792p 5,888,227 1,114,840 0.2 -81.1 1,991,499 1,085,706 0.2 -45.5 RAM 4GB 4GB 3GB Smartisan 865,400 1,000,405 0.2 15.6 Storage 64/256/512GB 64/128/256GB Qihoo 360 1,007,080 787,000 0.2 -21.9 Rear: 12MP telephoto Rear: 12MP dual Camera Koobee 794,546 488,700 0.1 -38.5 Front: 7MP Front: 7MP Battery 2,658mAh 3,174mAh 2,942mAh HTC 1,681,189 449,053 0.1 -73.3

Source: GSMArena, Mirae Asset Daewoo Research Source: IDC, Mirae Asset Daewoo Research

13| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research [Electronic Components] Korean suppliers are thriving

Investment strategy: New markets 2020 * IT applications 2019 - Automotive -Healthcare 1H19 -Stable * New devices competitiveness -IoT - Supply to SEC - Robotics Automotive electronics

F/X rates 3D sensing

Dual cameras

Triple MLCCs cameras 2019 2H19 - Renewed growth - Supply to Apple

1Q16 1Q17 1Q18 1Q19 1Q20F

Source: Mirae Asset Daewoo Research

14| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research III. [Electronic Components] 1H19 review

Robust smartphone • In 1H19, shares have picked up, despite overall earnings weakness. component sales;  Earnings improvement and marked share price gains mainly for SEC-bound component suppliers Increasing earnings • Focus on companies that have beefed up long-term competitiveness through either new technology adoption or scale effects: Suppliers of 3D sensing modules, camera modules, MLCCs, passive components, etc, deserve divergence among attention. suppliers

IT sector performances and market indices US$/W rate and IT hardware index

(1/2/16=100) (1/6/16=100) 260 KOSPI 150 IT hardware index (L) 1,350 KOSDAQ US$/W (R) Handsets/telecom equipment Semiconductors 220 Display 130 1,250

180

110 1,150

140

90 1,050 100

60 70 950 1/16 6/16 11/16 4/17 9/17 2/18 7/18 12/18 1/16 7/16 1/17 7/17 1/18 7/18 1/19 Source: Quantiwise, Mirae Asset Daewoo Research Note: The IT hardware index is composed of 201 stocks, including LG Innotek and SEMCO. Source: Quantiwise, Mirae Asset Daewoo Research

15| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research IV. [Electronic Components] 2H19 outlook

Economies of scale, new • Smartphone market: Growing replacement demand  Parts suppliers merit higher attention. products, and new • Home appliance/TV producers’ trading-up strategies should boost demand for related parts. markets hold the key for • New components: Triple cameras, 3D sensing, VR/AR, under-glass fingerprint sensors, etc. • Strengthening competitiveness of producers and the emergence of new markets: Positive outlook for MLCCs, etc. parts makers • 5G-related component makers deserve attention.

MLCC market outlook Automotive electronics

(US$bn) (%) 18 Global MLCC market value (L) 30.0 YoY growth (R)

15 20.0

12 10.0

9 0.0

6 -10.0 2012 2013 2014 2015 2016 2017 2018 2019F 2020F

Source: Counterpoint, Mirae Asset Daewoo Research Source: Harman, Mirae Asset Daewoo Research

16| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research V. Medium/long-term outlook

Smartphones becoming • Smartphones can be manufactured by a growing number of firms. commoditized: Solid • Commoditization: Swift response to consumer needs + cost efficiency + ability to apply new technology + brand value  Increasing importance of supply chain  SEC vs. LGE vs. Sony (6758 JP/CP: JPY5,900) vs. Apple supply chain is important • SEC and LGE are likely to maintain or improve their competitiveness.

IT products: Life cycle vs. profitability Major IT firms’ supply chains

(%) (%) 99 Penetration (L) 45 Devices SEC LGE Apple Foxconn Sony Earnings (R)

66 30 Samsung SEC, LGD, Display Samsung LG SEMCO, LG Innotek, SEMCO LGD Murata, Parts Display Innotek Murata, Ibiden, Ibiden, Nichia, etc. TDK, etc.

33 15

Shin-Etsu Chemical, SUMCO, Samsung LG Hitachi Materials Other Other SDI Chem Chemical, JSR, Sumitomo Chemical, 0 0 Nitto Denko, Sumitomo Bakelite Beginning Middle Maturing

Source: Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

17| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research V. Medium/long-term outlook

Markets for IT • IT powerhouses have seen their businesses advance in the following order: 1) IT products; 2) components; and 3) components and materials/equipment. • It has been about 10 years since Korean IT products began to gain major ground in the global market. materials/equipment to • The competitiveness of Korean IT products has been driven by component quality. expand  Accelerating overseas expansion: The components industry should become the major pillar of the Korean IT industry. • In addition to component makers, Korean materials/equipment makers are also likely to display growth. M/S breakdowns for LCDs and semiconductors Leaders (countries) of key components/materials markets (Korea: Semiconductors 73%, LCDs 40%)

LCD Changes in market leadership Sharp Innolux DRAM 75% of total 1st place Entry 65% CSOT LCD 90% 2nd place 1st place Entry 60% 26 26 27 27 BOE 26 25 24 23 st 22 Wafers 1 place Entry 15% AUO 30 27 28 26 Photoresists Oligopoly Entry 10% 24 24 23 22 18 LG Display Entry 0% Samsung Display Liquid crystals 2009 2010 2011 2012 2013 2014 2015 2016 2017 45% Polarizers Oligopoly Entry DRAM Appliances 1st place

TVs 1st place

Handsets 1st place Other 1st place 26 28 Nanya Camera modules 23 25 27 27 28 nd 22 27 MLCC 2 place 23 Micron

Power modules 1st place SK Hynix 46 47 45 45 33 38 43 42 37 41 LEDs 3rd place SEC

70 80 90 00 10 20F 30F 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: IDC, Gartner, Mirae Asset Daewoo Research Source: IDC, Mirae Asset Daewoo Research

18| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research VI. Global peer group valuations

Relative performances of the MSCI World and MSCI IT Index MSCI IT indices of major countries (1/1/12=100) (1/1/12=100) 360 MSCI World MSCI World IT 380 MSCI US IT MSCI Korea IT 320 MSCI Japan IT MSCI Taiwan IT 320 280 240 260

200 200 160 140 120 80 80 2/12 2/13 2/14 2/15 2/16 2/17 2/18 2/19 2/12 2/13 2/14 2/15 2/16 2/17 2/18 2/19

Source: Bloomberg, Mirae Asset Daewoo Research Source: Bloomberg, Mirae Asset Daewoo Research

P/Es of major countries’ IT sectors (2019F) P/B-ROE of major countries’ IT sectors (2019F)

(x) P/B (x) 30 8 US

20.7 20.8 6 18.8 20 17.2 16.6 World 13.7 4

10 China 2 Taiwan Japan Korea ROE (%) 0 0 World US Japan China Taiwan Korea 0 5 10 15 20 25 30 35 40 45

Source: Bloomberg, Mirae Asset Daewoo Research Source: Bloomberg, Mirae Asset Daewoo Research

19| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research Samsung Electronics (005930 KS)

Earnings to improve after bottoming in 2Q19; Potential increase in shareholder returns

2H19F OP of W14.7tr (-48.3% YoY, +19.2% HoH) (Maintain) Buy - Semiconductors: Relatively high DRAM inventories could continue to serve as a drag; competition will likely intensify in the NAND market. Target Price (12M, W) 56,000 - IT & mobile communications (IM): Despite the release of the Galaxy S10 series and robust sales of the A series, we do not foresee any meaningful margin improvements for some time. Share Price (5/3/19, W) 45,300 - Consumer electronics (CE): To continue to deliver stable earnings - Display: Earnings to improve on a gradual rise in utilization Expected Return 24% - 2H19 operating profit to improve modestly to W14.7tr (-48.3% YoY, +19.2% HoH)

OP (19F, Wbn) 26,992 Maintain Buy and TP of W56,000 Consensus OP (19F, Wbn) 28,436 We believe earnings will bottom out in 2Q19; the recent rise in the US$/W rate is also positive. EPS Growth (19F, %) -46.7 - Downside to shares should be supported by expectations for shareholder returns; from a medium/long-term Market EPS Growth (19F, %) -18.2 - perspective, we continue to believe investors should gradually accumulate shares. P/E (19F, x) 14.1

Market P/E (19F, x) 12.2 KOSPI 2,196.32

Market Cap (Wbn) 270,431 110 FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Samsung Electronics KOSPI Shares Outstanding (mn) 6,793 105 Revenue (Wbn) 201,867 239,575 243,771 224,550 244,079 265,883 100 Free Float (%) 78.8 OP (Wbn) 29,241 53,645 58,887 26,992 37,491 56,840 95 Foreign Ownership (%) 57.3 OP margin (%) 14.5 22.4 24.2 12.0 15.4 21.4 90 Beta (12M) 1.49 NP (Wbn) 22,416 41,345 43,891 21,819 29,381 43,888 85

52-Week Low 37,450 80 EPS (W) 2,735 5,421 6,024 3,212 4,325 6,461

52-Week High 53,000 75 ROE (%) 12.5 21.0 19.6 8.8 11.1 15.1 (%) 1M 6M 12M70 P/E (x) 13.2 9.4 6.4 14.1 10.5 7.0

Absolute -2.8 2.6 -14.565 P/B (x) 1.5 1.8 1.1 1.2 1.1 1.0 60 Relative -2.5 -2.1 -3.218.4 18.8 18.12 19.4 Div.Yield (%) 1.6 1.7 3.7 3.1 3.1 3.1 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Samsung Electronics, Mirae Asset Daewoo Research estimates

20| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research LG Electronics (066570 KS)

Earnings to remain solid in 2H19

2H19F OP of W1.09tr (+32.1% YoY, -39.7% HoH) (Maintain) Buy - We believe the home appliance & air solution (H&A) division’s earnings will improve, backed by a higher mix of new products, such as electric dryers, A9 cordless vacuums, stylers, and air purifiers. Target Price (12M, W) 99,500 - The home entertainment (HE; TV) division’s margins will likely stabilize on a higher mix of OLED TVs. - The key earnings variable in 2H19 will likely be the vehicle component solutions (VS) division. While the Share Price (5/3/19, W) 76,600 division, which has yet to achieve scale, is continuing to make losses, we think earnings could improve in 2H19, as orders translate into revenue. For the mobile communications (MC; smartphones) division, we could see positive effects from the relocation Expected Return 30% - of the Pyeongtaek smartphone plant to Vietnam, which is set to be completed in 4Q19. - In 2H19, we expect operating profit to improve solidly to W1.09tr (+32.1% YoY, -39.7% HoH). OP (19F, Wbn) 2,895

Consensus OP (19F, Wbn) 2,824 Maintain Buy and TP of W99,500 EPS Growth (19F, %) 23.7 - We believe the stock is attractively priced, currently trading at a 12-month forward P/E of 8.0x and P/B of 0.8x. Market EPS Growth (19F, %) -18.2 - Contrary to market expectations, we expect operating profit to grow in 2Q19. P/E (19F, x) 9.0 - The MC and VS businesses deserve attention in 2H19. Market P/E (19F, x) 12.2 KOSPI 2,196.32

110 Market Cap (Wbn) 12,535 LG Electronics FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F

Shares Outstanding (mn) 181 KOSPI Revenue (Wbn) 55,367 61,396 61,342 63,512 68,371 73,602 100 Free Float (%) 65.7 OP (Wbn) 1,338 2,469 2,703 2,895 3,473 4,150 Foreign Ownership (%) 32.5 90 OP margin (%) 2.4 4.0 4.4 4.6 5.1 5.6

Beta (12M) 1.33 NP (Wbn) 77 1,726 1,240 1,535 2,147 2,726 80 52-Week Low 59,400 EPS (W) 425 9,543 6,858 8,487 11,872 15,072

52-Week High 103,000 70 ROE (%) 0.7 13.7 9.0 10.3 12.9 14.4

(%) 1M 6M 12M60 P/E (x) 121.4 11.1 9.1 9.0 6.5 5.1 Absolute 0.1 14.0 -25.6 P/B (x) 0.8 1.4 0.8 0.9 0.8 0.7 50 Relative 0.4 8.8 -15.818.4 18.8 18.12 19.4 Div.Yield (%) 0.8 0.4 1.2 1.0 1.0 1.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: LG Electronics, Mirae Asset Daewoo Research estimates

21| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research LG Innotek (011070 KS)

Expectations rising

Earnings to improve in 2Q19; 2H19F operating profit of W277bn (+18.7% YoY, TTB HoH) (Maintain) Buy - Despite the operating loss in 1Q19, LG Innotek fared better than our expectations, helped by an increasing market share within Apple and aggressive cost recognition in 4Q18. Target Price (12M, W) 156,000 - For 2Q19, we forecast LG Innotek to report revenue of W1.5tr (-1.3% YoY, +9.4% QoQ) and operating profit of W9.1bn (-32.4% YoY, turning to profit QoQ). Share Price (5/3/19, W) 121,000 - We expect more meaningful improvement to begin in 3Q19, driven by Apple’s new product cycle. - Two of the three upcoming iPhone models are likely to adopt triple cameras, which should have positive effects Expected Return 29% on ASP. - 2H19F operating profit of W277bn (+18.7% YoY, TTB HoH)

OP (19F, Wbn) 275 Maintain Buy and TP of W156,000 Consensus OP (19F, Wbn) 281 - While the increased volatility of quarterly earnings is worrisome, it is encouraging that LG Innotek proved its EPS Growth (19F, %) -3.4 resilience in the face of tough challenges in 1Q19. Market EPS Growth (19F, %) -18.2 - The F/X trend is looking more favorable to earnings (the US$/W rate averaged 1,125 in 1Q19 and 1,145 in April, P/E (19F, x) 18.2 vs. LG Innotek’s full-year assumption of 1,080). Market P/E (19F, x) 12.2 - As most investors are probably aware, buying the stock before Apple’s new product cycle and selling it afterward KOSPI 2,196.32 has proven to be a rewarding strategy; we believe it is time to overweight the stock. Market Cap (Wbn) 2,864 140 FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F LG Innotek KOSPI Shares Outstanding (mn) 24 130 Revenue (Wbn) 5,755 7,641 7,982 7,841 8,121 8,496

Free Float (%) 59.2 120 OP (Wbn) 105 296 264 275 316 327 Foreign Ownership (%) 28.9 110 OP margin (%) 1.8 3.9 3.3 3.5 3.9 3.8

Beta (12M) 0.61 100 NP (Wbn) 5 175 163 158 205 191

52-Week Low 81,300 90 EPS (W) 209 7,385 6,891 6,660 8,649 8,056

52-Week High 164,000 80 ROE (%) 0.3 9.4 8.0 7.2 8.6 7.5 (%) 1M 6M 12M70 P/E (x) 422.4 19.5 12.5 18.2 14.0 15.0 60 Absolute -0.4 -4.7 -5.8 P/B (x) 1.2 1.7 1.0 1.3 1.2 1.1 50 Relative -0.1 -9.1 6.618.4 18.8 18.12 19.4 Div.Yield (%) 0.3 0.2 0.3 0.3 0.4 0.5 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: LG Innotek, Mirae Asset Daewoo Research estimates

22| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research Seoul Semiconductor (046890 KQ)

Focus on positives that are not yet priced in; Time to buy

Earnings growth to gain traction in 2H19 with OP of W68.3bn (+13.6% YoY, +90.0% HoH) (Maintain) Buy - Unstable market conditions  Intensifying competition in the LED market and sluggishness in the TV market Earnings growth will likely be limited in 2Q19; however, the recent uptrend in the US$/W rate is positive. Target Price (12M, W) 29,500 - - We expect earnings to meaningfully grow from 3Q19, supported by new QLED TV rollouts and the operation of the Vietnamese plant. Share Price (5/3/19, W) 18,950 - One of Seoul Semiconductor’s (SSC) key strengths is its patent competitiveness; many established LED players are experiencing slowing growth, while Chinese suppliers are being hindered by patent issues. Expected Return 56% - Revenue growth in automotive lighting should also be concentrated in 2H19; the mix of general lighting sales (which are less profitable) should fall in 2H19, aiding margin improvements.

OP (19F, Wbn) 104 - In 2H19, operating profit will likely improve to W68.3bn (+13.6% YoY, +90.0% HoH).

Consensus OP (19F, Wbn) 104 Maintain Buy and TP of W29,500 EPS Growth (19F, %) 24.4 - For investors willing to withstand the weakness in 2Q19, we recommend gradually accumulating shares. Market EPS Growth (19F, %) -18.2

P/E (19F, x) 14.1

Market P/E (19F, x) 12.2 KOSDAQ 761.82

Market Cap (Wbn) 1,105 140 FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Seoul Semiconductor KOSDAQ Shares Outstanding (mn) 58 130 Revenue (Wbn) 954 1,110 1,194 1,253 1,385 1,510

Free Float (%) 67.4 120 OP (Wbn) 58 98 95 104 129 158

Foreign Ownership (%) 14.9 110 OP margin (%) 6.1 8.8 8.0 8.3 9.3 10.5 Beta (12M) 0.90 NP (Wbn) 36 40 63 78 89 108 100 52-Week Low 15,700 EPS (W) 621 692 1,077 1,340 1,519 1,859 90 52-Week High 25,050 ROE (%) 6.1 6.7 10.1 11.5 11.9 13.0 80 (%) 1M 6M 12M P/E (x) 25.1 40.3 18.0 14.1 12.5 10.2 70 Absolute -11.7 -8.2 -4.3 P/B (x) 1.5 2.7 1.7 1.5 1.4 1.2 60 Relative -13.1 -16.8 8.818.4 18.8 18.12 19.4 Div.Yield (%) 0.5 0.7 1.5 1.6 0.5 0.5 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Seoul Semiconductor, Mirae Asset Daewoo Research estimates

23| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research [Conclusion] Korean IT industry showing resilience

Shares climbed despite sluggish earnings in 1H19; Competitiveness to strengthen in 2H19

2H19  New growth drivers

- SEC (dividends) - LG Innotek (new Apple models) - SSC (LED)

iPhone 8/X iPhone XS F/X rate

New iPhone New markets models * IT - Automotive Galaxy Fold/ - Healthcare A * New devices Galaxy Galaxy Galaxy Galaxy S9 Galaxy S10/ -Flexible S8 Note 8 Note 9 5G

1Q17 2Q 3Q 4Q 1Q18 2Q 3Q 4Q 1Q19 2QF 3QF 4QF

Source: Mirae Asset Daewoo Research

24| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research Coverage overview

Target Price Current Price Company Ticker Rating (12M, W) (5/3/19, W)

Samsung Electronics 005930 KS Buy 56,000 45,300

LG Electronics 066570 KS Buy 99,500 76,600

Samsung Electro-Mechanics 009150 KS Buy 133,000 104,000

LG Innotek 011070 KS Buy 156,000 121,000

Seoul Semiconductor 046890 KQ Buy 29,500 18,950

Hanwha Aerospace 012450 KS Buy 43,000 30,850

LS 006260 KS Buy 65,900 49,250

Partron 091700 KQ Buy 19,000 15,200

Amotech 052710 KQ Buy 29,000 23,200

Spigen Korea 192440 KQ Buy 79,000 76,500

Source: Mirae Asset Daewoo Research

25| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research APPENDIX 1

Important Disclosures & Disclaimers 2-Year Rating and Target Price History

Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price Samsung Electronics(005930) LG Innotek(011070) 03/18/2019 Buy 56,000 04/23/2019 Buy 156,000 02/01/2019 Buy 57,000 03/20/2019 Buy 139,000 01/01/2019 Buy 50,800 01/27/2019 Buy 122,000 09/21/2018 Buy 63,000 01/01/2019 Buy 126,000 07/31/2018 Buy 64,000 09/30/2018 Buy 177,000 07/01/2018 Buy 70,000 07/25/2018 Buy 210,000 05/03/2018 Buy 73,000 06/11/2018 Buy 184,000 12/31/2017 No Coverage 06/01/2018 Buy 180,000 10/13/2017 Buy 68,000 04/25/2018 Buy 162,000 09/22/2017 Buy 66,000 04/02/2018 Buy 167,000 07/27/2017 Buy 59,000 01/24/2018 Buy 180,000 07/07/2017 Trading Buy 54,000 01/01/2018 Buy 210,000 04/27/2017 Trading Buy 50,000 10/25/2017 Buy 232,000 LG Electronics(066570) 09/01/2017 Buy 230,000 03/29/2019 Buy 99,500 07/03/2017 Buy 199,000 03/03/2019 Buy 89,100 04/02/2017 Buy 171,000 02/01/2019 Buy 86,000 Seoul Semiconductor(046890 01/01/2019 Buy 89,000 04/29/2019 Buy 29,500 09/30/2018 Buy 99,000 04/08/2019 Buy 29,100 09/02/2018 Buy 110,000 01/30/2019 Buy 30,500 07/01/2018 Buy 123,000 01/18/2019 Buy 27,300 06/01/2018 Buy 138,000 01/01/2019 Buy 26,700 04/27/2018 Buy 149,000 09/30/2018 Buy 26,000 04/01/2018 Buy 147,000 07/01/2018 Buy 23,500 02/18/2018 Buy 131,000 05/01/2018 Buy 28,100 01/01/2018 Buy 129,000 04/02/2018 Buy 29,100 10/26/2017 Buy 113,000 01/30/2018 Buy 36,200 08/30/2017 Buy 100,000 11/30/2017 Buy 37,800 07/10/2017 Buy 95,000 10/25/2017 Buy 34,300 04/09/2017 Buy 96,000 10/10/2017 Buy 31,000 09/01/2017 Buy 28,000 07/03/2017 Buy 26,900 04/02/2017 Buy 23,400

26| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research APPENDIX 1

(W) Samsung Electronics(W) LG Electronics (W) LG Innotek (W) Seoul Semiconductor

80,000 200,000 250,000 40,000

200,000 60,000 150,000 30,000 150,000 40,000 100,000 20,000 100,000

20,000 50,000 10,000 50,000

0 0 0 0 May 17 May 18May May 17 19 May 18May May 17 19 May 18May May 17 19 May 18 May 19

Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10%

Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Equity Ratings Distribution & Investment Banking Services Buy Trading Buy Hold Sell Equity Ratings Distribution 83.52% 8.24% 8.24% 0.00% Investment Banking Services 82.61% 4.35% 13.04% 0.00% * Based on recommendations in the last 12-months (as of March 31, 2019)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of Samsung Electronics, LG Innotek, LG Electronics as an underlying asset; other than this, Mirae Asset Daewoo has no other special interests in the covered companies.

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein.

27| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research APPENDIX 1

Disclaimers This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and it is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo.

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28| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research Mirae Asset Daewoo International Network

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29| 2H19 Outlook [Telecom Equipment/Electronic Components] Mirae Asset Daewoo Research