Entertainment (Music) Content to Drive Blockbuster Growth in 2013

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Entertainment (Music) Content to drive blockbuster growth in 2013

SM to top 2012 annual Japanese concert attendance with 1H13 concerts alone We have recently seen a number of indicators suggesting that domestic music firms are remaining resilient despite headwinds from yen depreciation. First, SM Entertainment’s Entertainment Japanese concert attendance (1.37mn based on maximum seating capacities and confirmed tour schedules) for 1H13 is expected to be 1.28 times greater than its 2012 Anchor Report annual figure (1.07mn based on maximum seating capacities). April 16, 2013 Furthermore, SM Entertainment’s dome (i.e., large stadium) concerts as a percentage of total concerts have increased from 46.3% in 2012 to 81.7% in 2013, a positive development given that dome tours tend to generate royalty income (per 10,000 Daewoo Securities Co., Ltd. attendees) twice as high as that of regular concerts (capacity of 40,000-50,000 per Internet/Game/Entertainment concert for dome tours vs. 10,000-15,000 for regular tours). Chang-kwean Kim Also, a number of Chinese concerts were added to 2013 ex-Japan tour schedules for the +822-768-4321 first time. TVXQ is set to hold a concert in Beijing in March, while G-Dragon is scheduled [email protected] to tour Beijing, Shanghai, and Guangzhou this May. Boy band Super Junior’s 2013 Super

Show 5 will include a tour in Latin America, which we expect will draw 200,000 concertgoers.

In 2013, we believe the Chinese performance market will begin serving as a medium- to

long-term growth driver for Korean music companies (following a pattern seen in many

other consumer industries).

Gov’t support to nurture entertainment giants; Music companies to take the lead In our view, the new administration’s strong commitment to support the content industry will act as a major upside catalyst. The Ministry of Science, ICT and Future Planning intends to: 1) effectively coordinate the interests of industry parties on copyrights, etc., 2) relax regulations, and 3) create a new ecosystem across the entertainment industry to foster the digital content market (VOD, digital music, etc.). We expect this to give rise to domestic entertainment giants that are integrated across music, film, television series productions, distribution, and other sub-segments. In particular, we believe domestic music companies are best positioned in this regard, given their strong financial strength and growing global reputations.

Maintain Buy on SM (TP: W72,000) and YG (TP: W94,000) On a P/E basis, leading domestic music companies are currently undervalued compared to major domestic and foreign entertainment firms as well as the broader media sector. The US media and entertainment sector is now trading at an average 2013 P/E of 27.1x, underpinned by solid growth prospects. Global media stocks are trading at a 2013 average multiple of 22.9x. We maintain our Buy rating on SM Entertainment (041510 KQ) with a target price of W72,000. We also reiterate our Buy call on YG Entertainment (122870 KQ) with a target price of W94,000.

Annual earnings and valuation metrics (Wbn, x, ‘000 people) 2009 2010 2011 2012 2013F Revenue 62 97 143 241 290 Operating profit 9 20 26 61 74 SM Entertainment Net profit 5 17 23 40 59 P/E 16.0 16.0 33.0 22.8 16.3 Overseas concertgoers 424 236 1,009 1,604 2,769 Revenue 36 45 78 107 137 Operating profit 7 10 18 22 32 YG Entertainment Net profit 4 10 13 19 29 P/E 22.1 33.3 26.8 Overseas concertgoers 180 175 1,258 1,834 Note: 2009-10 figures are based on K-GAAP. Figures for 2011 and beyond are based on consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.

April 16, 2013 Entertainment (Music)

Investment summary

1. The music industry is still growing and evolving

The success of entertainment companies hinges on their ability to produce competitive content. The entertainment industry boasts stronger operating leverage than any other industry, which should enable the sector’s companies to see their margins soar once revenue begins to outstrip fixed costs. Lately, Korean music companies are showing revenue growth on the back of favorable market changes and their diversified artist lineups. In particular, the quality of earnings from Japan—in which Korean firms are seeing market share expansion—is improving. Also, outside of Japan (e.g., Taiwan, Hong Kong, and Singapore), Korean artists attracted more fans to concerts last year than in 2011. This year, many Korean artists are scheduled to hold tours in China (a key market) and Latin America. As for SM Entertainment, profitable dome (large stadium) concerts are expected to account for a whopping 80% of overall concerts (vs. 46.3% in 2012). And YG Entertainment is likely to improve the efficiency of its tours this year by concentrating schedules in specific periods and areas.

New artists’ activities should be noteworthy. We expect SM’s new boy band EXO-M to gain popularity in Greater China in 2013 with the release of a full album. For YG, Psy has just rolled out his new album, and new artists (e.g., Kang Seung-yoon, a new girl band) are scheduled to launch new albums sometime soon.

Given that the Korean music industry represents only 1.7% of the global market, domestic operations appear insufficient to keep Korean firms in the black. However, SM and YG recorded respective operating profits of W60.5bn and W21.5bn in 2012 on the back of their competitive content. On April 13th, Psy’s fans around the world watched his Sangam-dong concert live via YouTube, and gave real-time feedback via Twitter and Facebook. Indeed, the internet is proving to be a key marketing tool, presenting Korean entertainment companies with new opportunities to diversify markets.

The government hopes that, along with the music business, other content businesses (e.g., movies, dramas, online and mobile games) grow significantly enough to create jobs and attract foreign tourists. We note that the music industry has enhanced its global competitiveness on the back of industry realignment. In our view, in order for other content businesses to thrive, big players with diverse product lineups, capital, planning capabilities, distribution power, and marketing know-how need to take the lead. And we expect terrestrial broadcasters, cable channel operators that are affiliated with chaebols, and pure entertainment companies to attempt to become such big players this year.

Figure 1. SM’s revenue, OP, and monthly share prices

(Wbn) Chinese operations + SM C&C (W) 390 Revenue (L) OP (L) Price (R) entering growth period 75,000

60,000 SM Entertainment 290 Japan drove SM's Preparing to enter overseas rapid growth 45,000 markets 190

30,000

90 15,000

-10 0 00 02 04 06 08 10 1214F 14

Source: Company data, KDB Daewoo Securities Research

2 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

2. 2013 earnings and indicators

Table 1. SM's annual earnings trends (Wbn, %) 2007 2008 2009 2010 2011 2012 2013F Revenue 31 40 62 86 143 241 290 CD 9 11 15 15 20 22 23 Digital 4 5 9 9 6 6 9 Overseas 6 9 16 37 81 129 158 Management 12 16 22 26 36 36 39 Other 0 0 0 0 0 48 61 YoY Revenue 27.9 54.1 39.9 65.6 68.7 20.3 CD 21.3 35.7 2.1 32.0 13.3 1.5 Digital 8.9 98.1 -10.2 -26.2 1.2 49.4 Overseas 52.0 84.1 133.1 120.6 58.6 22.7 Management 28.4 37.3 19.6 37.2 0.9 7.8 Other 28.7 Proportion CD 28.4 26.9 23.7 17.3 13.8 9.3 7.8 Digital 14.0 11.9 15.3 9.8 4.4 2.6 3.3 Overseas 18.0 21.4 25.5 42.6 56.7 53.3 54.3 Management 39.6 39.8 35.5 30.3 25.1 15.0 13.5 Other 0.0 0.0 0.0 0.0 0.0 19.8 21.1 Operating profit -4 -2 9 20 26 61 74 YoY -48.6 -586.4 118.5 26.5 136.4 22.2 OP margin -11.8 -4.8 15.0 23.4 17.9 25.1 25.5 Net profit -8 4 4 17 23 40 59 YoY -156.1 4.5 282.8 33.0 75.3 48.1 NP margin -24.3 10.7 7.2 19.8 15.9 16.5 20.3 Notes: Pre-2011 figures are based on K-GAAP. Other figures are based on consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research

Table 2. SM's annual overseas CD and concert ticket sales (‘000 copies, ‘000 seats, %) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F CD 177 1,692 1,534 902 1,409 885 914 914 1,162 1,770 2,919 1,748 2,500 YoY 855.3 -9.3 -41.2 56.2 -37.2 3.2 0.0 27.1 52.3 64.9 -40.1 43.0 Japan Concert - - 37 171106 41 160 337 374 13 655 9031,700 YoY 356.9 -38.0 -60.9 285.3 111.3 11.0 -96.5 4,937.6 63.7 58.6 Concert ------55 50 223 354 532 1,069 Ex-Japan YoY -9.1 346.0 58.7 50.3 100.8 Notes: Based on album release dates, concert dates, and maximum seating capacities; 2013 figures are our estimates based on confirmed schedules as of April 12, 2013 Source: KDB Daewoo Securities Research

Table 3. SM's domestic monthly CD sales (copies) 1/12 2/12 3/12 4/12 5/12 6/12 7/12 8/12 9/12 10/12 11/12 12/12 1/13 2/13 3/13 TVXQ 1,031 1,968 1,493 503 756 557 387 505 46,470 108,657 8,407 43,558 3,918 2,201 1,209 Super Junior 7,915 3,620 4,298 4,790 3,534 758 202,506 76,388 14,081 7,948 5,293 2,441 1,023 20,002 6,902 SHINee 419 5,275 96,439 31,612 4,309 1,574 2,379 8,314 2,071 966 850 894 1,613 66,972 79,352 Girls’ Generation 11,109 5,600 6,364 4,108 3,728 996 1,719 642 571 1,063 617 3,317 110,681 8,060 4,404 TaeTiSeo 65,655 2,133 1,078 726 666 517 540 691 823 BoA 8,446 10,185 2,871 560 439 f(x) 684 487 3,637 43,865 8,713 2,298 1,458 673 546 575 582 438 EXO-M 14,450 14,439 3,309 6,098 4,239 2,765 2,285 1,320 1,747 3,105 2,249 1,897 EXO-K 39,046 26,632 12,788 6,874 5,317 3,091 2,714 1,759 3,995 3,057 2,135 SM Town 6,980 967 1,151 SM Best Album 3,063 733 Quarterly total 146,215 281,533 422,325 197,913 325,748 Notes: Based on album release dates, concert dates, and maximum seating capacities; 2013 figures are our estimates based on confirmed schedules as of April 12, 2013 Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 3 April 16, 2013 Entertainment (Music)

Table 4. YG's annual earnings trends (Wbn, %) 2007 2008 2009 2010 2011 2012 2013F Revenue 11 19 36 45 78 107 137 CD 2 6 6 7 10 12 13 Digital 3 3 7 6 7 9 12 Overseas 0 0 0 5 32 53 77 Management 5 7 21 24 28 30 32 Other 1 3 2 3 2 2 2 YoY Revenue 61.3 92.7 25.4 74.5 36.4 28.4 CD 186.4 10.9 12.9 30.7 24.2 13.0 Digital -4.3 106.1 -14.3 25.9 20.5 37.5 Overseas 586.0 67.8 44.7 Management 29.7 216.3 16.4 14.2 8.7 5.3 Other 197.3 -40.5 71.5 -36.5 33.6 -2.4 Proportion CD 17.8 31.6 18.2 16.4 12.3 11.2 9.8 Digital 29.9 17.7 19.0 13.0 9.3 8.3 8.8 Overseas 10.4 40.8 50.2 56.5 Management 44.0 35.4 58.1 53.9 35.3 28.1 23.1 Other 8.3 15.2 4.7 6.4 2.3 2.3 1.7 Operating profit 1 1 7 10 18 21 32 YoY 132.2 433.6 40.0 71.6 20.9 49.8 OP margin 5.2 7.5 20.7 23.1 22.7 20.1 23.5 Net profit 1 2 4 10 13 19 29 YoY 217.5 159.9 134.7 32.4 45.0 53.9 NP margin 4.4 8.6 11.7 21.8 16.6 17.6 21.1 Notes: Pre-2011 figures are based on K-GAAP. Other figures are based on consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research

Table 5. YG's annual overseas CD and concert ticket sales (‘000 copies, ‘000 seats, %) 2005 2006 2007 2008 2009 2010 2011 2012 2013F CD 49 30 20 64 174 155 296 599 YoY -39.5 -34.2 224.9 171.8 -11.1 91.3 102.5 Japan Concert 16 43 24 29 0 180 175 724 800 YoY 177.4 -44.2 20.8 -100.0 -2.8 313.7 10.5 Concert 16 534 1,034 Ex-Japan YoY -100.0 93.7 Notes: Based on album release dates, concert dates, and maximum seating capacities; 2013 figures are our estimates based on confirmed schedules as of April 14, 2013; attendance for 2013 confirmed concerts is 553,600 for Japanese concerts and 258,000 for ex-Japan concerts. Source: KDB Daewoo Securities Research

Table 6. YG's domestic monthly CD sales (copies) 1/12 2/12 3/12 4/12 5/12 6/12 7/12 8/12 9/12 10/12 11/12 12/12 1/13 2/13 3/13 Seven Big Bang 10,540 66,598 11,557 9,752 4,518 2,417 1,994 2,226 44,323 7,836 3,187 G-Dragon 545 823 449 785 1,046 91,039 19,366 4,533 3,883 3,468 3,246 3,615 Taeyang G-Dragon & T.O.P. 582 649 365 656 643 734 787 878 771 1,082 829 975 Seungri 2NE1 602 674 355 582 598 531 2,704 1,792 Gummy Quarterly total 82,182 122,441 39,559 70,353 Notes: Based on album release dates, concert dates, and maximum seating capacities; 2013 figures are our estimates based on confirmed schedules as of April 14, 2013 Source: KDB Daewoo Securities Research

4 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

3. Overseas revenue structure for music companies

The price of a Japanese concert ticket is JPY8,000-12,000 (W120,000-170,000). As such, an audience of 10,000 yields ticket revenue of W1.2-1.7bn (and merchandise sales). SM Entertainment shares this revenue—after settling certain expenses (e.g., concert site rent payments and stage-setting)—with a Japanese agency at a ratio of 7:3.

While dome concerts, which can draw audiences of 40,000-50,000, and regular concerts, which generally attract 10,000-15,000 people, generate similar per-capita revenue, their cost structures are quite different. If an artist holds five regular concerts (drawing a total audience similar in size to that of a single dome concert), certain expenses (e.g., marketing, site rental payments, stage-setting, travel, personnel, special effects) would be incurred five times. Thus, for SM, we assume that a regular Japanese tour generates royalty income of W250-400mn per 10,000 attendees (on a consolidated basis), vs. W400-800mn for a dome tour.

Out of overseas revenue sources, digital music sales and royalty income related to CD and DVD sales are the most profitable. The overseas management segment (e.g., concerts and TV commercial income) is relatively less profitable, since 50-80% of revenue goes to artists. On the other hand, COGS-to-revenue ratio for overseas CD sales and digital music sales is only 20-30%.

On the overseas front, only Japan contributes CD sales and digital music-related royalty income. Considering that the average prices for Japanese single and full albums are W20,000 and W50,000, respectively, we estimate a CD sale translates into revenue of W30,000 on average. In addition, the Japanese digital music market (currently 30% of overall music market) is quickly growing. Considering that Korean music companies recognize 15% of CD sales and 30% of digital music sales as royalty income, we estimate that the sale of 100,000 CD copies leads to approximately W600-700mn in royalty income.

With regard to royalty income from ex-Japan concerts, frequency, not concertgoer figures, is the key determinant. Ex-Japan concert ticket prices are in the broad range of W50,000-150,000. Concert margins fluctuate significantly depending on sponsored advertising. A large-scale concert such as SM Town generates royalty income of W1-3bn per concert, vs. W500-600mn for an individual artist concert.

Table 7. SM's quarterly non-consolidated revenue by business unit 1Q12 2Q12 3Q12 4Q12 Comments Revenue 38 32 52 46 CD 3 4 9 7 COGS-to-revenue ratio: 80% Digital 2 1 2 2 COGS-to-revenue ratio: 20-30% Domestic Overseas 0 0 0 6 Management 7 7 9 6 COGS-to-revenue ratio: 80% Subtotal 12 13 20 21 CD 0 0 0 0 Direct exports of Korean-made CDs Digital 0 2 1 2 COGS-to-revenue ratio: 20-30% Mostly overseas-produced CD and DVD sales; COGS- Royalty income 6 9 3 4 to-revenue ratio: 20-30% Management (excluding concert-related 20 9 28 19 Overseas management) COGS-to-revenue ratio: 80% Concert-related revenue Concert-related revenue COGS-to-revenue ratio for overseas concerts (ticket Management of about W12bn; of about W20bn; sales + merchandise sales): 50~60% remaining revenue came remaining revenue came A regular tour generates revenue of W250~400mn from TV commercial from TV commercial per 10,000 concertgoers; a dome tour generates income, etc. income, etc. revenue of W400-800mn per 10,000. Subtotal 27 20 32 25 Operating profit 12 10 12 14 Net profit 9 10 9 9 Source: Company data, KDB Daewoo Securities Research

KDB Daewoo Securities Research 5 April 16, 2013 Entertainment (Music)

4. Valuation

SM Entertainment’s 3Q12 earnings shock gave rise to a plethora of questions about Korean music companies, including the following: What are the fair valuations of SM Entertainment and YG Entertainment? Is there a relevant peer group for these companies? Will the recent stellar performance of Korean music companies be short- or long-lived? Is it worth investing in companies that suffer from low earnings visibility? Should entertainment firms, including music companies, operate as private companies rather than public ones?

Despite this skepticism, we once again recommend music companies, as: 1) we were able to confirm robust 2013 global concert schedules for both SM and YG, which could boost earnings markedly; 2) the industry environment is turning favorable for content developers holding copyrights amid the proliferation of smartphones and YouTube; 3) advances into the Chinese market are likely to soon generate tangible results (in addition to existing strong positions in Japan and Southeast Asia); 4) shares of global media and entertainment companies are rallying on earnings improvement; and 5) the new government’s policies should promote the growth of entertainment companies.

We maintain our Buy call on SM Entertainment with a target price of W72,000. We expect the company to continue to grow rapidly, just as it has over the past several years. Disney, the most successfully entertainment firm in the world, saw its market cap soar 23-fold between 1986 to 1998, with its shares trading at up to two to three times the market P/E. Then, what is the fair valuation of SM Entertainment? The company’s shares are currently trading at a P/E lower than the multiples of YG Entertainment and media firms such as Cheil Worldwide, CJ E&M, and KT Skylife. The average 2013F P/E of global major media/entertainment firms stands at 22.9x. We derived our target price for SM Entertainment using the average 2013F P/E (27.1x) of the US media/entertainment sector. Indeed, we believe that the company deserves a valuation as high as US media/entertainment firms in light of: 1) its EPS growth over the past several years and current ROE, 2) the growth potential of the global entertainment market, and 3) its solid competitiveness in the digital content market.

And what is the fair valuation of YG Entertainment, which is currently trading at a higher valuation than SM Entertainment? YG Entertainment has been expanding into overseas markets since 2012. For 2013, we confirmed that not only Big Bang but also the group’s individual artists (G-Dragon and Daesung) are scheduled to hold concerts. Furthermore, the frequency and audience sizes of Psy’s global solo concerts and “YG family” concerts (including Psy) are likely to exceed our assumptions, which are based on concert schedules. As such, we applied a premium to the US media/entertainment sector P/E in deriving our valuation of YG Entertainment.

Figure 2. EPS growth vs. P/E of global media entertainment companies

(P/E, x) 30.0 YG Entertainment Discovery Communications (US) 25.0

Cheil Worldwide 20.0 Disney (US) News Corp. (US) Time Warner (US) SM Entertainment 15.0 CBS (US Viacom (US) 10.0 Amuse (Japan) 5.0 (EPS growth, %) 0.0 0.0 10.0 20.0 30.0 40.0 50.0 60.0

Source: Bloomberg, KDB Daewoo Securities Research

6 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

Table 8. Global media/entertainment earnings and valuation metrics (2012) (Wbn, mn local currency, %, x) Company Market cap Share price Revenue OP OPM NP EPS ROE P/E P/B SM Entertainment 968 47,100 241 61 25.1 40 1,994 24.7 22.8 5.5 YG Entertainment 773 74,900 107 22 20.2 19 1,849 21.6 33.3 7.1 Cheil Worldwide 2,922 25,400 2,365 122 5.2 95 829 13.0 26.0 3.2 Korea CJ E&M 1,324 34,900 1,395 36 2.6 29 750 2.4 35.3 1.5 KT Skylife 1,886 39,450 556 69 12.4 53 1,111 16.7 30.1 5.3 Average 13.1 15.7 29.5 4.5 Disney 123,465 60.6 42,278 8,863 21.0 5,682 3.2 14.7 16.7 2.3 Time Warner 62,775 59.5 28,729 6,214 21.6 3,019 3.1 10.1 14.2 1.5 CBS 33,090 46.6 14,089 3,013 21.4 1,574 2.5 15.6 14.9 2.3 Discovery Communications 33,025 81.0 4,487 1,861 41.5 943 2.5 14.7 25.2 3.1 North Viacom 37,199 66.5 13,887 3,901 28.1 1,981 3.7 24.6 12.7 3.6 America Liberty Interactive 13,021 21.3 10,054 1,200 11.9 1,530 0.5 21.8 1.4 E.W. Scripps 814 13.1 903 90 9.9 40 0.7 7.3 12.1 1.1 News Corp 82,955 31.7 33,706 5,379 16.0 1,179 0.5 4.3 15.8 2.2 Pandora 2,632 13.5 274 -11 -4.0 -16 -0.2 20.6 Average 18.6 14.1 16.0 4.2 Avex 1,436 2,710 121 12 10.1 5 115 14.5 8.7 1.2 Japan Amuse 218 2,043 32 4 11.2 2 210 15.5 5.3 0.8 Average 10.7 162.7 15.0 7.0 1.0 Global Average 15.9 14.8 19.5 4.1 Notes: Figures for domestic firms (except KT Skylife) are based on consolidated K-IFRS. Market cap is based on Wbn. Except per-share data and Korean/Japanese data, currency units are based on mn units. Source: Bloomberg, KDB Daewoo Securities Research

Table 9. Global media/entertainment earnings and valuation metrics (2013F) (Wbn, mn in local currencies, %, x) Net Company Revenue OP OP margin EPS ROE P/E P/B profit SM Entertainment 290 74 25.5 59 2,881 24.6 16.4 4.1 YG Entertainment 137 32 23.5 29 2,797 26.3 26.8 6.8 Cheil Worldwide 2,723 184 6.8 140 1,217 16.6 20.9 3.2 Korea CJ E&M 1,667 96 5.8 66 1,727 5.3 20.2 1.7 KT Skylife 682 155 22.7 113 2,363 28.8 16.7 4.7 Average 16.9 20.3 20.2 4.1 Disney 45,170 10,430 23.1 6,256 3.4 15.5 17.6 2.6 Time Warner 29,745 6,557 22.0 3,450 3.7 11.4 16.2 1.6 CBS 14,936 3,348 22.4 1,876 3.0 18.4 15.5 2.8 Discovery Holdings 5,526 2,261 40.9 1,222 3.4 21.1 24.0 4.8 North Viacom 13,795 3,974 28.8 2,316 4.7 31.3 14.1 4.6 America Liberty Interactive 10,393 1,316 12.7 588 1.2 8.7 18.5 1.7 E.W. Scripps 849 23 2.7 8 0.1 91.7 News Corp. 35,599 5,920 16.6 3,914 1.7 15.2 18.9 2.7 Pandora 425 -36 -8.5 -14 3.0 -29.8 17.5 Average 17.9 11.5 27.1 4.8 Avex 140 14 10.1 6 140 17.6 19.4 3.0 Japan Amuse 31 4 12.9 3 282 17.6 7.2 Average 85 9 11.5 4 17.6 13.3 3.0 Global Average 16.8 15.2 22.9 4.6 Notes: Figures for domestic firms (except KT Skylife) are based on consolidated K-IFRS. Market cap is based on Wbn. Except per-share data and Korean/Japanese data, currency units are based on mn units. Source: Bloomberg, KDB Daewoo Securities Research

KDB Daewoo Securities Research 7 April 16, 2013 Entertainment (Music)

SM Entertainment (041510 KQ) Chinese operations to generate new growth

Overcoming the negative impact of yen depreciation Entertainment In 2012, SM Entertainment’s media subsidiary SM C&C (45.1% stake) reported a net loss of W10.4bn due to goodwill amortization. The company’s artists include many famous (Maintain) Buy names including movie stars and talk show hosts. However, the company is not anticipated to contribute much to SM Entertainment’s profits with its media business in Target Price (12M, W) 72,000 2013, unless: 1) the government announces support measures such as the introduction of standard contracts allowing independent producers to own the copyrights to the Share Price (04/15/13, W) 49,750 content they create on behalf of others, or 2) the company finds new business opportunities such as a partnership or co-production deal with overseas media companies. Expected Return 45% Meanwhile, SM’s Beijing headquarters, established in May 2012, is anticipated to drive OP (13F, Wbn) 74 SM Entertainment’s earnings, with China’s entertainment market likely to expand rapidly Consensus OP (13F, Wbn) 69 alongside the country’s robust economic growth. Given rampant piracy issues, however,

EPS Growth (13F, %) 44.5 we note that the concert segment is expected to grow faster than other media Market EPS Growth (13F, %) 22.3 segments. P/E (13F, x) 17.3 SM Entertainment has long prepared to advance into China, signing contracts with Market P/E (13F, x) 9.1 Chinese artists (for Super Junior-M, f(x), EXO-M, etc.) since the early 2000s. Detailed KOSDAQ 553.99 performance schedules (including SM Town concerts) in China are expected to be Market Cap (Wbn) 1,023 released soon. Shares Outstanding (mn) 21 In 2013, we expect SM Entertainment to report revenue of W290.4bn (+20.3%) and an Free Float (%) 77.9 operating profit of W74bn (+22.2%). For the year, 1.7mn Japanese fans are expected to Foreign Ownership (%) 14.1 go to SM’s concerts in Japan (+58.6% YoY), with album sales surging 74.2% to 2.5mn Beta (12M) 0.23 copies. Outside Japan, the number of concertgoers is projected at 1.07mn, increasing 52-Week Low (W) 36,000 52-Week High (W) 71,600 100.8%.

(%) 1M 6M 12M We forecast SM’s 2013 overseas earnings to lag behind its overseas performance for the Absolute 7.0 -24.1 15.3 year. Indeed, while the number of concerts and performances held in 2012 but Relative 10.3 -23.8 19.7 recognized in 2013 was small, a large portion of overseas concert royalties generated in 2H13 is projected to be recognized in 2014. Still, as overseas concerts are scheduled to Share price 170 KOSDAQ begin in earnest in 2Q, quarterly earnings should rise on a QoQ basis after bottoming in 150 1Q. 130 110 We have already confirmed two factors that should boost SM’s earnings in 2013: 1)

90 TVXQ’s dome tour in July (1.37mn Japanese concertgoers secured as of April; already 70 higher than last year’s 1.07mn), and 2) the increase in the tour’s revenue contribution 4/12 8/12 12/12 4/13 from 46.3% in 2012 to 81.7% in 2013 (in general, a dome tour’s royalty revenue per concertgoer is more than double that of other tours).

FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F Revenue (Wbn) 97 143 241 290 345 380 OP (Wbn) 20 26 61 74 92 107 OP Margin (%) 20.9 17.9 25.1 25.5 26.7 28.2 NP (Wbn) 17 23 40 59 80 92 EPS (W) 942 1,235 1,994 2,881 3,901 4,500 ROE (%) 22.9 23.1 24.7 24.6 26.1 23.7 P/E (x) 16.0 33.0 22.8 17.3 12.8 11.1 P/B (x) 3.6 7.4 5.5 4.4 3.3 2.5 Notes: All figures are based on consolidated K-IFRS; NP refers to profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates

8 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

Table 10. SM's annual earnings (Wbn, %) 2007 2008 2009 2010 2011 2012 2013F Revenue 31 40 62 86 143 241 290 CD 9 11 15 15 20 22 23 Digital 4 5 9 9 6 6 9 Overseas 6 9 16 37 81 129 158 Management 12 16 22 26 36 36 39 Others 0 0 0 0 0 48 61 YoY Revenue 27.9 54.1 39.9 65.6 68.7 20.3 CD 21.3 35.7 2.1 32.0 13.3 1.5 Digital 8.9 98.1 -10.2 -26.2 1.2 49.4 Overseas 52.0 84.1 133.1 120.6 58.6 22.7 Management 28.4 37.3 19.6 37.2 0.9 7.8 Others 28.7 Proportion CD 28.4 26.9 23.7 17.3 13.8 9.3 7.8 Digital 14.0 11.9 15.3 9.8 4.4 2.6 3.3 Overseas 18.0 21.4 25.5 42.6 56.7 53.3 54.3 Management 39.6 39.8 35.5 30.3 25.1 15.0 13.5 Others 0.0 0.0 0.0 0.0 0.0 19.8 21.1 OP -4 -2 9 20 26 61 74 YoY -48.6 -586.4 118.5 26.5 136.4 22.2 OP margin -11.8 -4.8 15.0 23.4 17.9 25.1 25.5 NP -8 4 4 17 23 40 59 YoY -156.1 4.5 282.8 33.0 75.3 48.1 NP margin -24.3 10.7 7.2 19.8 15.9 16.5 20.3 Note: All figures are based on K-GAAP until 2010. From 2011 all figures are based on consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research

Table 11. Revisions to SM's 2013-2015 earnings forecasts (Wbn, %) Previous Revised Change %

2013F 2014F 2015F 2013F 2014F 2015F 2013F 2014F 2015F Revenue 303 359 395 290 345 380 -4.1 -3.8 -3.8 Operating profit 90 108 124 74 92 107 -17.8 -14.3 -13.8 Net profit 82 98 114 59 80 92 -28.1 -18.4 -18.8 EPS 4,108 4,906 5,689 2,881 3,901 4,500 -29.9 -20.5 -20.9 OP margin 29.7 30.0 31.5 25.5 26.7 28.2 NP margin 27.1 27.4 28.8 20.4 23.2 24.3 Note: All figures are based on consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research

KDB Daewoo Securities Research 9 April 16, 2013 Entertainment (Music)

SM Entertainment (041510 KQ/TP: W72,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/12 12/13F 12/14F12/15F (Wbn) 12/12 12/13F 12/14F 12/15F Revenue 241 290 345380 Current Assets 198 245 323 409 Cost of Sales 132 158 184 196 Cash and Cash Equivalents 100 135 201 279 Gross Profit 110 133 161 183 AR & Other Receivables 23 28 34 37 SG&A Expenses 49 59 69 76 Inventories 6 7 8 9 Operating Profit (Adj) 61 74 92 107 Other Current Assets 25 31 36 40 Operating Profit 61 74 92 107 Non-Current Assets 125 146 159 170 Non-Operating Profit -4 12 13 15 Investments in Associates 2 2 2 2 Net Financial Income -2 -2 -3 -5 Property, Plant and Equipment 39 39 38 37 Net Gain from Inv in Associates 4 0 0 0 Intangible Assets 43 35 32 31 Pretax Profit 57 86 105 122 Total Assets 323 391 482 579 Income Tax 20 30 28 32 Current Liabilities 74 89 105 116 Profit from Continuing Operations 37 57 77 90 AP & Other Payables 45 54 65 71 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 3 3 3 3 Net Profit 37 57 77 90 Other Current Liabilities 27 32 38 42 Controlling Interests 40 59 80 92 Non-Current Liabilities 10 10 10 10 Non-Controlling Interests -3 -3 -3 -3 Long-Term Financial Liabilities 8 8 8 8 Total Comprehensive Profit 34 53 74 87 Other Non-Current Liabilities 1 2 2 2 Controlling Interests 37 56 77 89 Total Liabilities 84 99 115 126 Non-Controlling Interests -3 -3 -3 -3 Controlling Interests 213 269 345 435 EBITDA 70 102 115128 Capital Stock 10 10 10 10 FCF (Free Cash Flow) 2 43 66 77 Capital Surplus 119 119 119 119 EBITDA Margin (%) 29.0 35.1 33.2 33.6 Retained Earnings 84 143 223 316 Operating Profit Margin (%) 25.1 25.5 26.7 28.2 Non-Controlling Interests 26 24 21 19 Net Profit Margin (%) 16.5 20.4 23.2 24.3 Stockholders' Equity 239 292 366 453

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/12 12/13F 12/14F12/15F 12/12 12/13F 12/14F 12/15F Cash Flows from Op Activities 46 52 81 92 P/E (x) 22.8 17.3 12.8 11.1 Net Profit 37 57 77 90 P/CF (x) 18.4 11.7 10.0 9.0 Non-Cash Income and Expense 34 46 37 38 P/B (x) 5.5 4.4 3.3 2.5 Depreciation 2 1 1 1 EV/EBITDA (x) 11.8 8.6 7.1 5.7 Amortization 7 27 22 20 EPS (W) 1,994 2,881 3,901 4,500 Others -6 13 13 13 CFPS (W) 2,471 4,244 4,997 5,506 Chg in Working Capital -4 -20 -5 -3 BPS (W) 8,305 11,372 15,245 19,627 Chg in AR & Other Receivables -6 -5 -5 -3 DPS (W) 0 0 0 0 Chg in Inventories -3 -1 -1 -1 Payout ratio (%) 0.0 0.0 0.0 0.0 Chg in AP & Other Payables 15 9 10 7 Dividend Yield (%) 0.0 0.0 0.0 0.0 Income Tax Paid -21 -30 -28 -32 Revenue Growth (%) 68.8 20.4 18.8 10.0 Cash Flows from Inv Activities -48 -15 -14 -12 EBITDA Growth (%) 116.7 45.5 12.4 11.4 Chg in PP&E -23 0 0 0 Operating Profit Growth (%) 136.4 22.3 24.4 16.2 Chg in Intangible Assets -19 -19 -19 -19 EPS Growth (%) 61.5 44.5 35.4 15.4 Chg in Financial Assets -5 0 0 0 Accounts Receivable Turnover (x) 14.1 12.4 12.3 11.9 Others -2 4 5 7 Inventory Turnover (x) 58.3 46.3 46.0 44.4 Cash Flows from Fin Activities 75 -2 -2 -2 Accounts Payable Turnover (x) 7.7 6.7 6.6 6.4 Chg in Financial Liabilities 0 0 0 0 ROA (%) 15.2 15.8 17.7 16.9 Chg in Equity 65 0 0 0 ROE (%) 24.7 24.6 26.1 23.7 Dividends Paid 0 0 0 0 ROIC (%) 65.3 56.5 65.8 75.1 Others 9 -2 -2 -2 Liability to Equity Ratio (%) 35.1 33.9 31.5 27.7 Increase (Decrease) in Cash 66 36 66 78 Current Ratio (%) 266.4 275.1 306.7 353.8 Beginning Balance 34 100 135 201 Net Debt to Equity Ratio (%) -55.8 -57.8 -64.0 -69.0 Ending Balance 100 135 201 279 Interest Coverage Ratio (x) 51.3 43.3 53.8 62.6 Source: Company data, KDB Daewoo Securities Research estimates

10 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

YG Entertainment (122870 KQ) Made in Korea

Entertainment Earnings contribution from global markets (ex-Japan) to increase in 2013

YG Entertainment’s global outreach efforts are gaining traction. Like SM Entertainment, (Maintain) Buy YG Entertainment has proven its competitiveness on the global stage. However, we note that the two Korean entertainment giants are different in their approaches to the global Target Price (12M, W) 94,000 music industry.

Psy’s massively successful “Gangnam Style” provides a solid example of YG’s global Share Price (04/15/13, W) 85,000 market strategy. The company’s albums and digital music are composed by Korean musicians and sung in Korean. Meanwhile, SM pursues aggressive localization by actively Expected Return 11% adopting music composed by foreign musicians and releasing albums recorded in local languages. In addition, SM pays more attention to its fan base, a holdover from the days OP (13F, Wbn) 32 when H.O.T. was tremendously popular. Consensus OP (13F, Wbn) 35 While SM is enjoying strong album sales in Korea and Japan on the back of its massive EPS Growth (13F, %) 51.3 artist lineup, YG excels in domestic digital music sales and exposure on overseas internet Market EPS Growth (13F, %) 22.3 sites, including YouTube and Facebook. P/E (13F, x) 30.4 Market P/E (13F, x) 9.1 In our view, YG is receiving a higher valuation than SM for the following reasons. First, KOSDAQ 553.99 investors see greater potential for global expansion in YG (driven by artists like Psy and Big Bang). Second, with regard to overall growth potential, the company overshadows Market Cap (Wbn) 877 its competitor thanks to its expanding artist lineup and increasing global market Shares Outstanding (mn) 10 penetration. Third, investors appear to believe that YG is less exposed to risks as it Free Float (%) 58.2 Foreign Ownership (%) 3.1 focuses heavily on its key business, music. Beta (12M) 0.57 YG’s overseas concerts attracted just 180,000 attendees in 2010 and 175,000 in 2011. 52-Week Low (W) 37,300 However, the number surged to W1.26mn in 2012 (based on maximum seating 52-Week High (W) 108,700 capacities of venues). In 2012, YG Entertainment’s Japanese concert audience figure (%) 1M 6M 12M accounted for 57.8% of the company’s overseas total, lower than SM’s 66.8%. Absolute 15.7 17.1 91.7 In 2013, YG is expected to see Japanese concertgoers increase 10.4% YoY to 800,000, Relative 19.0 17.4 96.1 while audiences for overseas concerts, excluding Japan, are projected to jump 93.8% Share price YoY to 1.03mn. As of April, 533,000 people have attended the company’s concerts in 270 KOSDAQ Japan, and concerts held overseas, excluding Japan, have attracted 258,000 individuals. 220 Meanwhile, out of the company’s Japanese revenue, the contribution of dome concerts 170 is projected to improve from 65.7% in 2012 to 79.5% in 2013. 120

70 We expect YG Entertainment’s 2013 revenue and operating profit to climb 28.4% YoY 4/12 8/12 12/12 4/13 and 49.7% YoY to W136.8bn and W32.2bn, respectively. In 1Q13, the company is expected to record royalty income related to 2NE1’s Saitama Super Arena concerts and Big Bang’s concerts in Japan’s three biggest domes (held last year).

FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F Revenue (Wbn) 45 78 107 137 181 202 OP (Wbn) 10 18 22 32 48 56 OP Margin (%) 23.1 22.7 20.2 23.5 26.7 27.6 NP (Wbn) 10 13 19 29 42 48 EPS (W) 1,308 1,663 1,849 2,797 4,018 4,625 ROE (%) 63.8 26.7 21.6 26.3 29.5 26.5 P/E (x) 0.0 22.1 33.3 30.4 21.2 18.4 P/B (x) 0.0 5.2 7.1 7.8 5.9 4.6 Note: All figures are based on consolidated K-IFRS; NP refers to profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 11 April 16, 2013 Entertainment (Music)

Table 12. YG's annual earnings trends (Wbn, %) 2007 2008 2009 2010 2011 2012 2013F Revenue 11 19 36 45 78 107 137 CD 2 6 6 7 10 12 13 Digital 3 3 7 6 7 9 12 Overseas 0 0 0 5 32 53 77 Management 5 7 21 24 28 30 32 Others 1 3 2 3 2 2 2 YoY Revenue 61.3 92.7 25.4 74.5 36.4 28.4 CD 186.4 10.9 12.9 30.7 24.2 13.0 Digital -4.3 106.1 -14.3 25.9 20.5 37.5 Overseas 586.0 67.8 44.7 Management 29.7 216.3 16.4 14.2 8.7 5.3 Others 197.3 -40.5 71.5 -36.5 33.6 -2.4 Proportion CD 17.8 31.6 18.2 16.4 12.3 11.2 9.8 Digital 29.9 17.7 19.0 13.0 9.3 8.3 8.8 Overseas 10.4 40.8 50.2 56.5 Management 44.0 35.4 58.1 53.9 35.3 28.1 23.1 Others 8.3 15.2 4.7 6.4 2.3 2.3 1.7 Operating profit 1 1 7 10 18 21 32 YoY 132.2 433.6 40.0 71.6 20.9 49.8 OP margin 5.2 7.5 20.7 23.1 22.7 20.1 23.5 Net profit 1 2 4 10 13 19 29 YoY 217.5 159.9 134.7 32.4 45.0 53.9 NP margin 4.4 8.6 11.7 21.8 16.6 17.6 21.1 Note: All figures are based on K-GAAP until 2010. From 2011 all figures are based on consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research

Table 13. Revisions to YG's 2013-2015 earnings forecasts (Wbn, %) Previous Revised Change %

2013F 2014F 2015F 2013F 2014F 2015F 2013F 2014F 2015F Revenue 164 233 261 137 181 202 -16.7 -22.6 -22.6 Operating profit 45 72 83 32 48 56 -28.3 -33.2 -32.9 Net profit 34 55 64 29 42 48 -15.2 -24.7 -25.1 EPS 3,362 5,432 6,278 2,797 4,018 4,625 -16.8 -26.0 -26.3 OP margin 27.3 31.0 31.8 23.5 26.7 27.6 NP margin 20.8 23.6 24.4 21.1 23.0 23.6 Note: All figures are based on consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research

12 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

YG Entertainment (122870 KQ/Buy/TP: W94,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/12 12/13F 12/14F12/15F (Wbn) 12/12 12/13F 12/14F 12/15F Revenue 107 137 181202 Current Assets 92 116 155 197 Cost of Sales 65 80 104 114 Cash and Cash Equivalents 53 71 101 139 Gross Profit 42 57 77 88 AR & Other Receivables 13 17 22 25 SG&A Expenses 21 25 29 33 Inventories 4 6 7 8 Operating Profit (Adj) 22 32 48 56 Other Current Assets 4 5 7 8 Operating Profit 22 32 48 56 Non-Current Assets 26 35 43 51 Non-Operating Profit 3 6 6 7 Investments in Associates 3 9 15 21 Net Financial Income -2 -2 -2 -3 Property, Plant and Equipment 11 10 9 9 Net Gain from Inv in Associates 4 6 6 6 Intangible Assets 8 9 10 11 Pretax Profit 25 38 55 63 Total Assets 118 151 199 247 Income Tax 6 9 13 15 Current Liabilities 20 26 34 38 Profit from Continuing Operations 19 29 42 48 AP & Other Payables 12 15 20 22 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0 Net Profit 19 29 42 48 Other Current Liabilities 8 10 14 15 Controlling Interests 19 29 42 48 Non-Current Liabilities 0 3 6 9 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0 Total Comprehensive Profit 18 28 41 47 Other Non-Current Liabilities 0 3 6 9 Controlling Interests 18 28 41 47 Total Liabilities 20 29 40 46 Non-Controlling Interests 0 0 0 0 Controlling Interests 97 122 159 201 EBITDA 24 36 5260 Capital Stock 5 5 5 5 FCF (Free Cash Flow) 4 21 34 41 Capital Surplus 47 47 47 47 EBITDA Margin (%) 22.8 26.1 28.9 29.6 Retained Earnings 45 70 108 150 Operating Profit Margin (%) 20.2 23.5 26.7 27.6 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 17.6 21.1 23.0 23.6 Stockholders' Equity 97 122 159 201

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/12 12/13F 12/14F12/15F 12/12 12/13F 12/14F 12/15F Cash Flows from Op Activities 12 23 36 43 P/E (x) 33.3 30.4 21.2 18.4 Net Profit 25 29 42 48 P/CF (x) 28.9 27.1 19.4 17.0 Non-Cash Income and Expense 1 7 11 12 P/B (x) 7.1 7.8 5.9 4.6 Depreciation 1 1 1 1 EV/EBITDA (x) 23.2 22.1 14.6 12.1 Amortization 2 3 3 4 EPS (W) 1,849 2,797 4,018 4,625 Others -4 0 0 0 CFPS (W) 2,130 3,138 4,390 5,016 Chg in Working Capital -8 -3 -3 -1 BPS (W) 8,675 10,974 14,431 18,422 Chg in AR & Other Receivables -9 -4 -5 -3 DPS (W) 300 400 500 600 Chg in Inventories -2 -1 -2 -1 Payout ratio (%) 16.5 14.3 12.4 13.0 Chg in AP & Other Payables 6 3 5 2 Dividend Yield (%) 0.5 0.5 0.6 0.7 Income Tax Paid -6 -9 -13 -15 Revenue Growth (%) 36.4 28.4 32.0 12.0 Cash Flows from Inv Activities 3 -2 -2 -1 EBITDA Growth (%) 20.1 46.7 46.1 14.7 Chg in PP&E -6 0 0 0 Operating Profit Growth (%) 20.9 49.8 50.2 15.4 Chg in Intangible Assets -4 -4 -4 -4 EPS Growth (%) 11.2 51.3 43.7 15.1 Chg in Financial Assets 9 0 0 0 Accounts Receivable Turnover (x) 11.8 9.6 9.7 9.0 Others 4 2 2 3 Inventory Turnover (x) 31.0 28.0 28.3 26.3 Cash Flows from Fin Activities 1 -3 -4 -5 Accounts Payable Turnover (x) 89.6 61.9 62.6 58.2 Chg in Financial Liabilities 0 0 0 0 ROA (%) 18.1 21.5 23.7 21.4 Chg in Equity 1 0 0 0 ROE (%) 21.6 26.3 29.5 26.5 Dividends Paid 0 -3 -4 -5 ROIC (%) 94.3 96.6 128.5 138.1 Others 0 0 0 0 Liability to Equity Ratio (%) 20.6 23.4 24.9 23.1 Increase (Decrease) in Cash 16 18 30 37 Current Ratio (%) 462.3 454.8 461.0 521.7 Beginning Balance 37 53 71 101 Net Debt to Equity Ratio (%) -72.3 -72.3 -74.8 -77.7 Ending Balance 53 71 101 139 Interest Coverage Ratio (x) Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 13 April 16, 2013 Entertainment (Music)

Appendix

SM Entertainment’s major overseas concerts

Table 14. SM's major Japanese concerts (seats) Date BoA TVXQ Girls’ Generation SHINee Super Junior Joint performances Location 03/27/03 2,700 Osaka 03/28/03 2,700 Osaka 03/30/03 3,012 Nagoya 03/31/03 3,012 Nagoya 04/05/03 13,000 Tokyo 04/06/03 13,000 Tokyo 03/20/04 37,000 Saitama 03/21/04 37,000 Saitama 03/26/04 10,000 Nagoya 03/27/04 10,000 Nagoya 04/03/04 11,000 Fukuoka 04/10/04 16,000 Osaka 04/11/04 16,000 Osaka 04/17/04 17,000 Yokohama 04/18/04 17,000 Yokohama 04/02/05 15,000 Fukuoka 04/07/05 13,000 Tokyo 04/09/05 13,000 Tokyo 04/10/05 13,000 Tokyo 04/16/05 16,000 Osaka 04/17/05 16,000 Osaka 04/23/05 10,000 Nagoya 04/24/05 10,000 Nagoya 05/13/06 500 Sapporo 05/18/06 1,500 Osaka 05/20/06 1,500 Osaka 05/21/06 1,700 Yokohama 05/22/06 1,700 Yokohama 05/23/06 800 Fukuoka 05/24/06 1,000 Nagoya 05/25/06 600 Niigata 05/26/06 700 Tokyo 05/27/06 2,700 Tokyo 05/28/06 2700 Tokyo 09/29/06 2000 Nagoya 09/30/06 2,000 Nagoya 10/07/06 2,000 Fukuoka 10/08/06 2,000 Fukuoka 10/13/06 2,000 Osaka 10/14/06 2,000 Osaka 10/17/06 2,000 Tokyo 10/18/06 2,000 Tokyo 10/21/06 2,000 Sendai 10/22/06 2,000 Sendai 10/28/06 2,000 Sapporo 10/29/06 2,000 Sapporo 11/05/06 2,000 Tokyo 03/31/07 17,000 Yokohama 04/01/07 17,000 Yokohama 04/07/07 15,000 Fukuoka 04/14/07 16,000 Osaka 04/15/07 16,000 Osaka

14 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

04/21/07 10,000 Nagoya 04/22/07 10,000 Nagoya 05/10/07 2,222 Nakano 05/12/07 2,400 Osaka 05/13/07 2,400 Osaka 05/16/07 1,730 Niigata 05/18/07 2,084 Tokyo 05/19/07 2,084 Tokyo 05/23/07 1,000 Sapporo 05/27/07 1,300 Sendai 05/29/07 2,100 Kobe 05/31/07 1,800 Shiga 06/02/07 2,500 Nagoya 06/03/07 2,500 Nagoya 06/15/07 2,300 Fukuoka 06/16/07 2,300 Fukuoka 06/18/07 14,900 Tokyo 06/19/07 14,900 Tokyo 03/19/08 17,000 Yokohama 03/20/08 17,000 Yokohama 03/26/08 16,000 Osaka 03/27/08 16,000 Osaka 03/29/08 16,000 Osaka 03/30/08 16,000 Osaka 04/01/08 11,093 Fukuoka 04/12/08 10,000 Hiroshima 04/13/08 10,000 Hiroshima 04/15/08 10,000 Nagoya 04/16/08 10,000 Nagoya 04/19/08 7,000 Sendai 04/20/08 7,000 Sendai 04/26/08 11,500 Sapporo 05/03/08 37,000 Saitama 05/05/08 37,000 Saitama 05/06/08 37,000 Saitama 05/08/08 1,527 Ichihara 05/10/08 2,488 Kanagawa 05/11/08 2,488 Kanagawa 05/15/08 3,012 Nagoya 05/16/08 3,012 Nagoya 05/21/08 1,730 Niigata 05/23/08 2,200 Toyama 05/28/08 2,001 Hiroshima 05/30/08 2,754 Osaka 05/31/08 2,754 Osaka 06/05/08 2,336 Shizuoka 06/06/08 2,112 Kobe 06/13/08 2,372 Sendai 06/17/08 1,966 Oita 06/18/08 2,316 Fukuoka 06/20/08 2,001 Kagawa 06/22/08 1,848 Shiga 06/26/08 2,505 Saitama 06/28/08 5,012 Tokyo 06/29/08 5,012 Tokyo 05/04/09 9,000 Kobe 05/05/09 9,000 Kobe 05/09/09 37,000 Saitama 05/10/09 37,000 Saitama 05/16/09 7,063 Sendai 05/17/09 7,063 Sendai

KDB Daewoo Securities Research 15 April 16, 2013 Entertainment (Music)

05/23/09 12,000 Hokkaido 05/24/09 12,000 Hokkaido 05/30/09 15,000 Fukuoka 05/31/09 15,000 Fukuoka 06/06/09 10,000 Hiroshima 06/07/09 10,000 Hiroshima 06/10/09 16,000 Osaka 06/11/09 16,000 Osaka 06/13/09 16,000 Osaka 06/14/09 16,000 Osaka 06/18/09 10,000 Nagoya 06/20/09 10,000 Nagoya 06/21/09 10,000 Nagoya 07/04/09 50,000 Tokyo 07/05/09 50,000 Tokyo 12/07/10 13,000 Tokyo 01/25/11 13,000 Tokyo 01/26/11 13,000 Tokyo 02/18/11 12,000 Yokohama 02/19/11 12,000 Yokohama 02/20/11 12,000 Yokohama 05/31/11 16,000 Osaka 06/01/11 16,000 Osaka 06/04/11 37,000 Saitama 06/05/11 37,000 Saitama 06/17/11 13,000 Tokyo 06/18/11 13,000 Tokyo 06/28/11 13,000 Tokyo 06/29/11 13,000 Tokyo 07/02/11 10,000 Hiroshima 07/03/11 10,000 Hiroshima 07/06/11 10,000 Nagoya 07/07/11 10,000 Nagoya 07/17/11 11,000 Fukuoka 07/18/11 11,000 Fukuoka 07/22/11 450 Fukuoka 07/22/11 450 Fukuoka 07/23/11 2,000 Kansai 07/23/11 2,000 Kansai 07/27/11 2,000 Tokyo 07/27/11 2,000 Tokyo 07/28/11 2,000 Tokyo 07/28/11 2,000 Tokyo 08/08/11 700 Sapporo 08/08/11 700 Sapporo 08/11/11 2,291 Nagoya 08/11/11 2,291 Nagoya 09/03/11 50,000 Tokyo 09/04/11 50,000 Tokyo 09/05/11 50,000 Tokyo 10/27/11 10,000 Nagoya 10/27/11 10,000 Nagoya 11/24/11 16,000 Osaka 11/24/11 16,000 Osaka 11/25/11 16,000 Osaka 11/25/11 16,000 Osaka 12/10/11 5,000 40,000 Osaka 12/11/11 5,000 40,000 Osaka 12/24/11 15,000 Tokyo 12/24/11 15,000 Tokyo 01/18/12 17,000 Yokohama

16 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

01/19/12 17,000 Yokohama 01/25/12 10,000 Nagoya 01/26/12 10,000 Nagoya 01/27/12 10,000 Nagoya 02/11/12 15,000 Fukuoka 02/12/12 15,000 Fukuoka 02/18/12 10,000 Niigata 02/19/12 10,000 Niigata 02/23/12 10,000 Sapporo 02/24/12 10,000 Sapporo 03/03/12 10,000 Hiroshima 03/04/12 10,000 Hiroshima 03/09/12 8,000 Fukui 03/10/12 8,000 Fukui 03/13/12 16,000 Osaka 03/14/12 16,000 Osaka 03/17/12 37,000 Saitama 03/18/12 37,000 Saitama 03/20/12 37,000 Saitama 04/14/12 50,000 Tokyo 04/15/12 50,000 Tokyo 04/16/12 50,000 Tokyo 04/21/12 45,000 Osaka 04/22/12 45,000 Osaka 04/23/12 45,000 Osaka 04/25/12 11,000 Fukuoka 04/29/12 11,000 Hokkaido 05/03/12 10,000 Nagoya 05/04/12 10,000 Nagoya 05/08/12 16,000 Osaka 05/09/12 16,000 Osaka 05/12/12 10,000 Hyogo 05/13/12 10,000 Hyogo 05/30/12 13,000 Tokyo 05/31/12 13,000 Tokyo 06/02/12 13,000 Tokyo 06/03/12 13,000 Tokyo 06/30/12 10,000 Hiroshima 07/01/12 10,000 Hiroshima 08/04/12 50,000 Tokyo 08/05/12 50,000 Tokyo 10/18/12 Tokyo 10/19/12 Tokyo 11/19/12 5,000 Yokohama 11/20/12 5,000 Yokohama 11/21/12 5,000 Yokohama 12/22/12 8,000 Kobe 12/23/12 8,000 Kobe 12/24/12 8,000 Kobe 01/01/13 15,000 Tokyo 02/09/13 9,000 Kobe 02/10/13 9,000 Kobe 02/16/13 37,000 Saitama 02/17/13 37,000 Saitama 02/23/13 10,000 Niigata 02/24/13 10,000 Niigata 02/27/13 15,000 Fukuoka 02/28/13 15,000 Fukuoka 03/09/13 10,000 Hiroshima 03/10/13 10,000 Hiroshima 03/19/13 37,000 Saitama

KDB Daewoo Securities Research 17 April 16, 2013 Entertainment (Music)

03/20/13 37,000 Saitama 03/26/13 16,000 Osaka 03/27/13 16,000 Osaka 04/04/13 37,000 Saitama 04/05/13 37,000 Saitama 04/09/13 10,000 Nagoya 04/10/13 10,000 Nagoya 04/20/13 10,000 Osaka 04/21/13 10,000 Osaka 04/27/13 37,000 Saitama 04/28/13 37,000 Saitama 04/29/13 37,000 Saitama 05/05/13 40,000 Sapporo 05/10/13 40,000 Nagoya 05/11/13 40,000 Nagoya 05/22/13 40,000 Nagoya 05/25/13 35,000 Fukuoka 05/26/13 35,000 Fukuoka 05/29/13 10,000 Nagoya 05/30/13 10,000 Nagoya 06/01/13 10,000 Kobe 06/02/13 10,000 Kobe 06/05/13 45,000 Osaka 06/06/13 45,000 Osaka 06/08/13 45,000 Osaka 06/08/13 10,000 Sapporo 06/09/13 45,000 Osaka 06/15/13 50,000 Tokyo 06/16/13 50,000 Tokyo 06/17/13 50,000 Tokyo 06/18/13 12,000 Fukuoka 06/22/13 10,000 Hiroshima 06/28/13 37,000 Saitama 06/29/13 37,000 Saitama 06/30/13 37,000 Saitama 07/06/13 16,000 Osaka 07/07/13 16,000 Osaka 07/13/13 10,000 Niigata 07/27/13 50,000 Tokyo 07/28/13 50,000 Tokyo 2011 Total 654,882 2012 Total 903,000 2013 Total 1,369,000 Notes: Based on our estimates. Seating capacity depends on stage setting. Our estimates based on confirmed schedules as of April 14, 2013. Source: Company data, KDB Daewoo Securities Research

18 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

Table 15. SM's major ex-Japan concerts (seats) Girls’ Super Date BoA TVXQ SHINee Joint Performance City Country Generation Junior 08/15/08 55,000 SM Town Live: Shanghai Stadium Shanghai China 02/07/09 50,000 SM Town Live: Rajamangala Stadium Bangkok Thailand 01/23/10 18,000 Super Show: Beijing Wukesong Culture & Sports Center Beijing China 02/21/10 15,000 Super Show: Taipei Arena Taipei Taiwan 03/06/10 10,000 Super Show: Shanghai Indoor Stadium Shanghai China 03/07/10 10,000 Super Show: Shanghai Indoor Stadium Shanghai China Kuala 03/20/10 16,000 Super Show: Putra Indoor Stadium Malaysia Lumpur Philippine 04/10/10 16,000 Super Show: Araneta Coliseum Manila s 04/17/10 10,000 Into the New World: Shanghai Indoor Stadium Shanghai China 09/04/10 15,000 SM Town Live: Staples Center LA US 09/11/10 25,000 SM Town Live: Hongkou Stadium Shanghai China 10/16/10 15,000 Into the New World: Taipei Arena Taipei Taiwan 10/17/10 15,000 Into the New World: Taipei Arena Taipei Taiwan 11/13/10 13,000 Super Show: Nanjing Olympic Sports Center Gymnasium Nanjing China 12/25/10 30,000 Super Show: Yueziushan Stadium Guangzhou China 01/15/11 40,000 Super Show: Impact Arena Bangkok Thailand 01/16/11 40,000 Super Show: Impact Arena Bangkok Thailand 01/29/11 12,000 Super Show: Singapore Indoor Stadium Singapore Singapore 01/30/11 12,000 Super Show: Singapore Indoor Stadium Singapore Singapore Philippine 02/26/11 16,000 Super Show: Araneta Coliseum Manila s 03/05/11 18,000 Super Show: Mercedez-Benz Arena Shanghai China 03/11/11 15,000 Super Show: Taipei Arena Taipei Taiwan 03/12/11 15,000 Super Show: Taipei Arena Taipei Taiwan 03/13/11 15,000 Super Show: Taipei Arena Taipei Taiwan Kuala 03/19/11 16,000 Super Show: Putra Indoor Stadium Malaysia Lumpur 05/07/11 18,000 Super Show: Go Dau Stadium Binh Duong Vietnam 06/10/11 6,200 SM Town Live: Zenith de Paris Paris France 06/11/11 6,200 SM Town Live:Zenith de Paris Paris France SHINee Debut Premium Reception Tour: Abbey Road 06/19/11 1,000 London UK Studios 07/16/11 15,000 SHINee 1st concert: Taipei Arena Taipei Taiwan SHINee 1st concert: Nanjing Olympic Sports Center 08/20/11 13,000 Nanjing China Gymnasium 09/09/11 15,000 Girls Generation Tour: Taipei Arena Taipei Taiwan 09/10/11 15,000 Girls Generation Tour: Taipei Arena Taipei Taiwan 09/10/11 12,000 SHINee 1st concert: Singapore Indoor Stadium Singapore Singapore 09/11/11 15,000 Girls Generation Tour: Taipei Arena Taipei Taiwan 10/23/11 15,000 SM Town Live: Madison Square Garden NYC US 12/09/11 12,000 Girls Generation Tour: Singapore Indoor Stadium Singapore Singapore 12/10/11 12,000 Girls Generation Tour: Singapore Indoor Stadium Singapore Singapore Hong 01/15/12 16,000 Girls Generation Tour: AsiaWorld Arena Chek Lap Kok Kong 02/02/12 15,000 Super Show: Taipei Arena Taipei Taiwan 02/03/12 15,000 Super Show: Taipei Arena Taipei Taiwan 02/04/12 15,000 Super Show: Taipei Arena Taipei Taiwan 02/05/12 15,000 Super Show: Taipei Arena Taipei Taiwan 02/12/12 12,000 Girls Generation Tour: Impact Arena Bangkok Thailand 02/18/12 12,000 Super Show: Singapore Indoor Stadium Singapore Singapore 02/19/12 12,000 Super Show: Singapore Indoor Stadium Singapore Singapore 03/16/12 40,000 Super Show: Impact Arena Bangkok Thailand 03/17/12 40,000 Super Show: Impact Arena Bangkok Thailand 03/18/12 40,000 Super Show: Impact Arena Bangkok Thailand 04/06/12 6,200 Super Show: Zenith de Paris Paris France 04/14/12 18,000 Super Show: Mercedez-Benz Arena Shanghai China 04/27/12 20,000 Super Show: Meta Elang International Stadium Jakarta Indonesia 04/28/12 20,000 Super Show: Meta Elang International Stadium Jakarta Indonesia 04/29/12 20,000 Super Show: Meta Elang International Stadium Jakarta Indonesia 05/20/12 12,000 SM Town Live: Honda Center Anaheim US 06/09/12 15,000 SM Town Live: Hsinchu County Stadium Hsinchu Taiwan 09/15/12 15,000 SHINee World III: Taipei Arena Taipei Taiwan 09/16/12 15,000 SHINee World III: Taipei Arena Taipei Taiwan 09/22/12 80,000 SM Town Live: Gelora Bunb Karno Stadium Jakarta Indonesia

KDB Daewoo Securities Research 19 April 16, 2013 Entertainment (Music)

10/27/12 16,000 SHINee World III: AsiaWorld-Arena Hong Kong China 11/23/12 30,000 SM Town Live: The Float Marian Bay Singapore Singapore 11/25/12 21,000 SM Town Live: SCG Stadium Bangkok Thailand 12/08/12 12,000 SHINee World III: Singapore Indoor Stadium Singapore Singapore Hong 01/19/13 10,000 TVXQ! Live World Tour 'Catch Me', Asia World Arena Chek lap Kok Kong 03/30/13 10,000 TVXQ! Live World Tour 'Catch Me', Beijing Capital Stadium Beijing China 04/21/13 7,000 Super Show: Credicard Hall Sao Paulo Brazil 04/23/13 8,280 Super Show: Luna Park Buenos Aires Argentina 04/25/13 15,000 Super Show: Moviestar Arena Santiago Chile 04/27/13 25,000 Super Show: Jockey Club del Peru Lima Peru 05/18/13 40,000 TVXQ! Live World Tour 'Catch Me', Stadium Malawati Shah Alam Malaysia 2011 354,400 Total 2012 532,200 Total 2013 115,280 Total Notes: Based on our estimates. Seating capacity depends on stage setting. Our estimatesare based on confirmed schedules as of April 14, 2013. Source: Company data, KDB Daewoo Securities Research

Table 16. SM's annual overseas sales volume (copies, seats) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F CD 177,140 1,692,267 1,534,170 901,971 1,408,932 885,182 913,728 914,085 1,161,662 1,769,738 2,918,537 1,748,443 695,241 Japan Concert 37,424 171,000 106,000 41,400 159,520 337,039 374,126 13,000 654,882 903,000 1,369,000 - - Ex- Concert ------55,000 50,000 223,000 354,000 532,200 115,280 Japan Notes: Based on our estimates. Seating capacity depends on stage setting. Our estimates are based on confirmed schedules as of April 14, 2013. Source: Company data, KDB Daewoo Securities Research

20 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

YG Entertainment’s major overseas concerts

Table 17. YG's major Japanese concerts (seats) Date Se7en Big Bang G-Dragon Daesung 2NE1 Joint Location Performance 02/28/05 2,700 Tokyo 05/22/05 5,500 Tokyo 2005 SE7EN Style 05/23/05 Osaka 2005 SE7EN Style 05/24/05 Fukuoka 2005 SE7EN Style 05/25/05 Hiroshima 2005 SE7EN Style 05/26/05 Nagoya 2005 SE7EN Style 05/30/05 Sapporo 2005 SE7EN Style 06/01/05 Sendai 2005 SE7EN Style 10/22/05 10,000 Yokohama 2005 SE7ENism 04/15/06 12,000 Tokyo 2006 First SE7EN 04/16/06 12,000 Tokyo 2006 First SE7EN 05/03/06 3,000 Osaka 2006 First SE7EN (additional) 05/03/06 3,000 Osaka 2006 First SE7EN 09/08/06 3,000 Osaka YG Family 10th Anniversary World Tour 09/10/06 5,000 Tokyo YG Family 10th Anniversary World Tour (additional) 09/10/06 5,000 Tokyo YG Family 10th Anniversary World Tour 06/30/07 7,000 Nagoya 2007 7rhythm - "Are U Ready?" 07/02/07 8,000 Osaka 2007 7rhythm - "Are U Ready?" 07/07/07 15,000 Tokyo 2007 7rhythm - "Are U Ready?" 07/08/07 15,000 Tokyo 2007 7rhythm - "Are U Ready?" 03/28/08 3,000 Tokyo Global Warning Tour 2008 03/29/08 3,000 Tokyo Global Warning Tour 2008 (additional) 03/29/08 3,000 Tokyo Global Warning Tour 2008 10/28/08 2,500 Osaka Stand Up Tour 2008 10/29/08 2,500 Nagoya Stand Up Tour 2008 11/01/08 7,500 Tokyo Stand Up Tour 2008 (additional) 11/01/08 7,500 Tokyo Stand Up Tour 2008

02/10/10 10,000 Yokohama Electric Love Tour 2010 02/11/10 10,000 Yokohama Electric Love Tour 2010 02/13/10 40,000 Osaka Electric Love Tour 2010 02/14/10 40,000 Osaka Electric Love Tour 2010 (additional) 02/16/10 40,000 Tokyo Electric Love Tour 2010 02/17/10 40,000 Tokyo Electric Love Tour 2010 (additional) 05/10/11 9,000 Osaka Love & Hope Tour 2011 05/11/11 9,000 Osaka Love & Hope Tour 2011 05/13/11 18,000 Chiba Love & Hope Tour 2011 05/14/11 18,000 Chiba Love & Hope Tour 2011 05/15/11 18,000 Chiba Love & Hope Tour 2011 05/17/11 10,000 Nagoya Love & Hope Tour 2011 05/18/11 10,000 Nagoya Love & Hope Tour 2011 05/19/11 10,000 Nagoya Love & Hope Tour 2011 (additional) 09/19/11 12,000 Yokohama 1st Japan Tour "NOLZA in Japan" 09/20/11 12,000 Yokohama 1st Japan Tour "NOLZA in Japan" (additional) 09/24/11 8,000 Kobe 1st Japan Tour "NOLZA in Japan" 09/25/11 8,000 Kobe 1st Japan Tour "NOLZA in Japan" 10/01/11 15,000 Chiba 1st Japan Tour "NOLZA in Japan" 10/02/11 15,000 Chiba 1st Japan Tour "NOLZA in Japan" 11/06/11 1,500 Akasaka Hello SE7EN in Japan 11/06/11 1,500 Akasaka Hello SE7EN in Japan 01/07/12 40,000 Osaka YG Family Concert in Japan 01/08/12 40,000 Osaka YG Family Concert in Japan 01/21/12 40,000 Saitama YG Family Concert in Japan 01/22/12 40,000 Saitama YG Family Concert in Japan 03/31/12 8,000 Kobe SPRINGROOVE 04/01/12 15,000 Makuhari SPRINGROOVE

KDB Daewoo Securities Research 21 April 16, 2013 Entertainment (Music)

05/17/12 10,000 Nagoya Big Bang Alive Galaxy Tour 2012 05/18/12 10,000 Nagoya Big Bang Alive Galaxy Tour 2012 (additional) 05/25/12 10,000 Yokohama Big Bang Alive Galaxy Tour 2012 05/26/12 10,000 Yokohama Big Bang Alive Galaxy Tour 2012 05/27/12 10,000 Yokohama Big Bang Alive Galaxy Tour 2012 05/31/12 16,000 Osaka Big Bang Alive Galaxy Tour 2012 (additional) 06/01/12 16,000 Osaka Big Bang Alive Galaxy Tour 2012 06/02/12 16,000 Osaka Big Bang Alive Galaxy Tour 2012 06/03/12 16,000 Osaka Big Bang Alive Galaxy Tour 2012 (additional) 06/16/12 37,000 Saitama Big Bang Alive Galaxy Tour 2012 06/17/12 37,000 Saitama Big Bang Alive Galaxy Tour 2012 06/23/12 15,000 Fukuoka Big Bang Alive Galaxy Tour 2012 06/24/12 15,000 Fukuoka Big Bang Alive Galaxy Tour 2012 08/31/12 12,000 Osaka New Evolution 09/01/12 12,000 Osaka New Evolution 09/02/12 12,000 Osaka New Evolution 09/07/12 10,000 Nagoya New Evolution 09/08/12 10,000 Nagoya New Evolution 09/11/12 10,000 Yokohama New Evolution 09/12/12 10,000 Yokohama New Evolution 09/16/12 5,000 Tokyo SE7EN the Best Concert 2012 09/29/12 37,000 Saitama New Evolution (additional) 09/30/12 37,000 Saitama New Evolution (additional) 11/23/12 40,000 Osaka Big Bang Alive Galaxy Tour 2012 11/24/12 40,000 Osaka Big Bang Alive Galaxy Tour 2012 (additional) 12/05/12 50,000 Tokyo Big Bang Alive Galaxy Tour 2012 12/22/12 38,000 Fukuoka Big Bang Alive Galaxy Tour 2012 (additional)

01/12/13 50,000 Osaka Big Bang Alive Galaxy Tour 2012 (additional) 01/13/13 50,000 Osaka Big Bang Alive Galaxy Tour 2012 (additional) 03/23/13 10,000 Kobe D-LITE D'scover Tour 2013 03/24/13 10,000 Kobe D-LITE D'scover Tour 2013 03/30/13 15,000 Tokyo D-LITE D'scover Tour 2013 03/31/13 15,000 Tokyo D-LITE D'scover Tour 2013 04/06/13 35,000 Fukuoka 2013 G-DRAGON WORLD TOUR 04/20/13 37,000 Saitama 2013 G-DRAGON WORLD TOUR 04/21/13 37,000 Saitama 2013 G-DRAGON WORLD TOUR 04/27/13 45,000 Osaka 2013 G-DRAGON WORLD TOUR 04/28/13 45,000 Osaka 2013 G-DRAGON WORLD TOUR 04/29/13 45,000 Osaka 2013 G-DRAGON WORLD TOUR 05/01/13 2,700 Chiba D-LITE D'scover Tour 2013 05/02/13 2,700 Chiba D-LITE D'scover Tour 2013 05/04/13 2,700 Niigata D-LITE D'scover Tour 2013 05/06/13 2,700 Aomori D-LITE D'scover Tour 2013 05/08/13 2,700 Hokkaido D-LITE D'scover Tour 2013 05/11/13 10,000 Osaka 2NE1 Super Live 2013 05/12/13 2,700 Miyagi D-LITE D'scover Tour 2013 05/14/13 2,500 Saitama D-LITE D'scover Tour 2013 05/16/13 2,700 Tokyo D-LITE D'scover Tour 2013 05/18/13 2,700 Aichi D-LITE D'scover Tour 2013 05/19/13 2,700 Aichi D-LITE D'scover Tour 2013 05/23/13 2,100 Kobe D-LITE D'scover Tour 2013 05/24/13 2,700 Kagawa D-LITE D'scover Tour 2013 05/26/13 2,700 Okayama D-LITE D'scover Tour 2013 05/27/13 2,700 Hiroshima D-LITE D'scover Tour 2013 06/01/13 40,000 Nagoya 2013 G-DRAGON WORLD TOUR 06/02/13 40,000 Nagoya 2013 G-DRAGON WORLD TOUR 06/04/13 2,700 Nagasaki D-LITE D'scover Tour 2013

22 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

06/06/13 2,300 Fukuoka D-LITE D'scover Tour 2013 06/07/13 2,300 Fukuoka D-LITE D'scover Tour 2013 06/13/13 2,700 Shiga D-LITE D'scover Tour 2013 06/15/13 2,800 Osaka D-LITE D'scover Tour 2013 06/16/13 2,800 Osaka D-LITE D'scover Tour 2013 06/18/13 17,000 Yokohama D-LITE D'scover Tour 2013 2011 Total 255,000 2012 Total 644,000 2013 Total 553,600 Notes: Based on our estimates. Seating capacity depends on stage setting. Our estimates are based on confirmed schedules as of April 14, 2013. Source: Company data, KDB Daewoo Securities Research

KDB Daewoo Securities Research 23 April 16, 2013 Entertainment (Music)

Table 18. YG’s major ex-Japan concerts (seats) Big Date Seven G-Dragon Daesung 2NE1 Performance Location City Bang Washington 10/18/06 3,700 YG Family 10th Anniversary World TourDar Constitution Hall, Washington D.C. D.C. 10/20/06 5,600 YG Family 10th Anniversary World TourMadison Square Garden NYC 10/21/06 7,000 YG Family 10th Anniversary World TourGrand Olympic Auditorium, LA LA 03/02/12 10,000 Big Bang Alive Tour 2012 Olympic Gymnastic Hall, Seoul Seoul 03/03/12 10,000 Big Bang Alive Tour 2012 Olympic Gymnastic Hall, Seoul Seoul 03/04/12 10,000 Big Bang Alive Tour 2012 Olympic Gymnastic Hall, Seoul Seoul 07/21/12 18,000 Big Bang Alive Tour 2012 Mercedez Benz Center, Shanghai Shanghai 07/28/12 18,000 Big Bang Alive Tour 2012 International Sports Arena, Guangzhou Guangzhou 08/04/12 18,000 Big Bang Alive Tour 2012 Mastercard Center, Beijing Beijing 08/17/12 19,500 New Evolution World Tour 2012 NJ Prudential Center, Newark Newark 08/24/12 7,100 New Evolution World Tour 2012 Nokia Theater LA Live Anaheim 09/28/12 12,000 Big Bang Alive Galaxy Tour 2012 Singapore indoor stadium Singapore 09/29/12 12,000 Big Bang Alive Galaxy Tour 2012 Singapore indoor stadium Singapore 10/05/12 40,000 Big Bang Alive Galaxy Tour 2012 Impact Arena, Bangkok Bangkok 10/06/12 40,000 Big Bang Alive Galaxy Tour 2012 Impact Arena, Bangkok Bangkok 10/12/12 20,000 Big Bang Alive Galaxy Tour 2012 MEIS, Jakarta Jakarta 10/13/12 20,000 Big Bang Alive Galaxy Tour 2012 MEIS, Jakarta Jakarta 10/20/12 15,000 Big Bang Alive Galaxy Tour 2012 Taipei Arena Taipei 10/21/12 15,000 Big Bang Alive Galaxy Tour 2012 Taipei Arena Taipei 10/24/12 20,000 Big Bang Alive Galaxy Tour 2012 Mall of Asia Arena, Manila Phillipines 10/27/12 20,000 Big Bang Alive Galaxy Tour 2012 Stadium Merdeka, Kuala lumpur Kuala lumpur 11/02/12 18,300 Big Bang Alive Galaxy Tour 2012 LA Honda Center, Anaheim Anaheim 11/03/12 18,300 Big Bang Alive Galaxy Tour 2012 LA Honda Center, Anaheim Anaheim 11/08/12 19,500 Big Bang Alive Galaxy Tour 2012 NJ Prudential Center, Newark Newark 11/09/12 19,500 Big Bang Alive Galaxy Tour 2012 NJ Prudential Center, Newark Newark 11/14/12 10,000 Big Bang Alive Galaxy Tour 2012 Jockey Club de Peru, Lima Lima 11/16/12 15,000 New Evolution World Tour 2012 Taipei Arena Taipei Central Plaza Chaengwattana Hall, 11/17/12 2,500 2012 SE7EN Fan Tour in Bangkok Bangkok Bangkok 11/24/12 20,000 New Evolution World Tour 2012 MEIS, Jakarta Jakarta 12/01/12 12,000 New Evolution World Tour 2012 Singapore indoor stadium Singapore 12/08/12 20,000 New Evolution World Tour 2012 Stadium Merdeka, Kuala lumpur Kuala lumpur 12/08/12 14,000 Big Bang Alive Galaxy Tour 2012 Asia World EXPO, Hong Kong Hong Kong 12/09/12 14,000 Big Bang Alive Galaxy Tour 2012 Asia World EXPO, Hong Kong Hong Kong 12/15/12 12,000 Big Bang Alive Galaxy Tour 2012 Wembley Arena, London London 12/10/12 14,000 Big Bang Alive Galaxy Tour 2012 Asia World EXPO, Hong Kong Hong Kong 01/25/13 10,000 Big Bang Alive Galaxy Tour 2012 Olympic Gymnastic Hall, Seoul Seoul 01/26/13 10,000 Big Bang Alive Galaxy Tour 2012 Olympic Gymnastic Hall, Seoul Seoul 01/27/13 10,000 Big Bang Alive Galaxy Tour 2012 Olympic Gymnastic Hall, Seoul Seoul 03/30/13 10,000 2013 G-DRAGON WORLD TOUR Olympic Gymnastic Hall, Seoul Seoul 03/31/13 10,000 2013 G-DRAGON WORLD TOUR Olympic Gymnastic Hall, Seoul Seoul 05/04/13 18,000 2013 G-DRAGON WORLD TOUR Master Card Arena, Beijing Beijing 05/05/13 18,000 2013 G-DRAGON WORLD TOUR Master Card Arena, Beijing Beijing 05/17/13 14,000 2013 G-DRAGON WORLD TOUR Asia World EXPO, Hong Kong Hong Kong 05/18/13 14,000 2013 G-DRAGON WORLD TOUR Asia World EXPO, Hong Kong Hong Kong 06/07/13 40,000 2013 G-DRAGON WORLD TOUR Impact Arena, Bangkok Bangkok 06/08/13 40,000 2013 G-DRAGON WORLD TOUR Impact Arena, Bangkok Bangkok 06/15/13 20,000 2013 G-DRAGON WORLD TOUR MEIS, Jakarta Jakarta 06/16/13 20,000 2013 G-DRAGON WORLD TOUR MEIS, Jakarta Jakarta 06/29/13 12,000 2013 G-DRAGON WORLD TOUR Singapore indoor stadium Singapore 06/30/13 12,000 2013 G-DRAGON WORLD TOUR Singapore indoor stadium Singapore 2012 Total 533,700 2013 Total 258,000 Notes: Based on our estimates. Seating capacity could change depending on stage setting. Our estimates based on confirmed schedules as of April 14, 2013. Source: Company data, KDB Daewoo Securities Research

24 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

Table 19. YG's annual overseas sales volume (copes, seats) 2005 2006 2007 2008 2009 2010 2011 2012 2013F CD 49,488 29,922 19,701 64,002 173,946 154,702 295,917 599,231 49,022 Japan Concert 15,500 43,000 24,000 29,000 - 180,000 255,000 644,000 533,600 Ex-Japan Concert 16,300 533,700 258,000 Notes: Based on our estimates. Seating capacity depends on stage setting. Our estimates are based on confirmed schedules as of April 14, 2013. Source: Company data, KDB Daewoo Securities Research

KDB Daewoo Securities Research 25 April 16, 2013 Entertainment (Music)

Important Disclosures & Disclaimers Disclosures As of the publication date, Daewoo Securities Co., Ltd. has been acting as a financial advisor to SM Entertainment for its treasury stock trust, and other than this, Daewoo Securities has no other special interests in the companies covered in this report.

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 Daewoo Securities, 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.

(W) SM Entertainment (W) YG Entertainment 100,000 120,000

80,000 100,000 80,000 60,000 60,000 40,000 40,000 20,000 20,000 0 0 4/11 10/11 4/12 10/12 4/13 4/11 10/11 4/12 10/12 4/13

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 and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. 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. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted 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 Daewoo Securities Co., Ltd. except as otherwise stated herein.

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26 KDB Daewoo Securities Research April 16, 2013 Entertainment (Music)

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KDB Daewoo Securities Research 27