POSCO Chemtech (003670 KQ ) New businesses poised for full -fledged growth

Non -ferrous metal Initiate coverage with Buy and TP of W18,500 We initiate our coverage of POSCO Chemtech with a Buy rating and target price of Company Report W18,500. Our Buy call is based on our expectation of full-fledged growth for the April 26, 2017 company’s new businesses (anode materials and subsidiary PMC Tech) starting in 2017. We derive d our target price using a residual income model (RIM) to reflect the value of the company’s medium/long-term growth. At present, the stock is trading below its post-2011 average multiple. We believe the stock will see a revival (Initiate) Buy as clearer signs of growth emerge.

Target Price (12M, W) 18,500 Full-fledged growth of anode materials for rechargeable batteries On February 24 th , POSCO Chemtech disclosed that it had signed a W300bn deal to Share Price (04/25/17, W) 14,800 supply anode materials to LG Chem until 2020. Given that the company’s 2016 anode materials revenue was W23bn, we estimate that this deal alone implies a Expected Return 25% CAGR of 55% through 2020. When also taking customer diversification into account, we forecast anode materials revenue of W190bn in 2020 (69% CAGR). Moreover, if the company succeeds in mass producing artificial graphite anode OP (17F, Wbn) 109 materials (currently under development), growth could outpace our expectations. Consensus OP (17F, Wbn) 115 PMC Tech to become global carbon materials maker EPS Growth (17F, %) 102.7 Market EPS Growth (17F, %) 33.0 We expect the company’s subsidiary PMC Tech to swing to profit this year and thus P/E (17F, x) 9.9 contribute to net profit growth (of note, the subsidiary is classified as a joint Market P/E (17F, x) 9.6 venture subject to equity-method accounting). We believe the operation of PMC KOSDAQ 632.57 Tech’s plant (launched in 2016) will normalize on the back of higher u tilization in 2017, supporting a turn to profit. We also expect the company to increase the Market Cap (Wbn) 874 production mix of coke over the medium and long term. In all, we think PMC Tech Shares Outstanding (mn) 59 is poised to begin full-fledged growth in 2017. Meanwhile, the needle coke Free Float (%) 35.0 manufactured by PMC Tech will be used as a raw material for the artificial graphite Foreign Ownership (%) 8.0 anode materials currently being developed by POSCO Chemtech, thus potentially Beta (12M) 0.21 creating synergies from vertical integration. 52-Week Low 9,620 52-Week High 15,550 POSCO’s coke plant replacement cycle to provide addi tional opportunities We expect the coke plant maintenance and reconstruction business to begin to (%) 1M 6M 12M generate revenue in 2019, serving as a steady cash cow, in addition to the Absolute 0.0 28.1 20.3 refractory and quicklime businesses. Considering the useful life of coke plants, Relative -3.9 29.7 33.9 POSCO is likely to begin a 20-year maintenance cycle in 2019, which we believe

130 POSCO Chemtech KOSDAQ represents a W2tr revenue opportunity (or annual average of W100bn). At present, 120 POSCO Chemtech is working on sourcing related technology from a foreign 110 engineering firm and is expected to have its own in-house technology by 2018. 100 90 80 70 4.16 8.16 12.16 4.17

FY (12) 12/14 12/15 12/16 12/17F 12/18F 12/19F Mirae Asset Daewoo Co., Ltd. Revenue (Wbn) 1,371 1,221 1,118 1,215 1,276 1,370

[Metals & Mining ] OP (Wbn) 95 56 85 109 108 120 OP Margin (%) 6.9 4.6 7.6 9.0 8.5 8.8 Jaekwang Rhee NP (Wbn) 73 35 44 89 90 99 +822 -3774 -6022 [email protected] EPS (W) 1,230 585 740 1,499 1,523 1,682 ROE (%) 15.3 6.7 8.0 14.7 13.4 13.4

P/E (x) 11.4 23.4 16.2 9.9 9.7 8.8

P/B (x) 1.6 1.5 1.3 1.4 1.2 1.1

Dividend Yield (%) 12.5 1.5 2.5 2.7 2.7 2.7

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

April 26, 2017 POSCO Chemtech

Investment point 1. Full-fledged growth of anode materials for LIBs

Since entering the anode materials (for use in LIBs) market in 2010, POSCO Chemtech has remained Korea’s sole producer of graphite anode materials. The company’s anode materials business is poised for full-fledged growth this year.

On February 24th, POSCO Chemtech disclosed that it had signed a W300bn (US$68.7m) deal to supply anode materials to LG Chem until 2020. Assuming a US$/W rate of 1,139, we estimate that the deal will allow the firm to generate revenue of W31bn in 2017; W51bn in 2018; W91.2bn in 2019; and W132.8bn in 2020. Given that the firm’s 2016 anode materials revenue was W23bn, we estimate that this deal alone implies a revenue CAGR of 55% through 2020.

While LG Chem is currently the de facto sole customer for POSCO Chemtech’s anode materials, POSCO Chemtech plans to diversify its customer base gradually, with the aim of increasing the proportion of non-LG Chem customers to 30% by end-2020. When taking into account customer diversification, in addition to the aforementioned deal with LG Chem, we forecast that anode materials revenue will reach W190bn in 2020 (69% CAGR), with the materials’ contribution to company-wide revenue to climb to 13% (from 2% in 2016).

If the firm succeeds in mass producing artificial graphite anode materials (currently under development) in 2018, in line with its plan, its top-line growth could outpace our expectations. Meanwhile, the firm will use needle coke manufactured by subsidiary PMC Tech as raw materials for the artificial graphite anode materials, thus potentially creating synergies from vertical integration.

In terms of anode materials, Korea is more dependent on imports, compared with other LIB materials. We think this hints at stronger growth potential for anode materials going forward. Notably, graphite anode materials (in which POSCO Chemtech now specializes) are highly likely to be the mainstream anode materials going forward, thanks to their superiority in terms of stability.

Graphite anode materials include natural and artificial graphite anode materials. Artificial graphite anode materials are used mainly in large-sized LIBs (for use in electric vehicles and energy storage systems), thanks to their greater stability and longer battery life versus natural graphite anode materials, which are used mainly in small/medium-sized LIBs, due to lower prices (despite having a shorter battery life).

Figure 1. Anode materials revenue (% of total revenue) Figure 2. Demand outlook for EV market and anode materials

(Wbn) (%) ('0000) ('000 tonnes) 200 Others (L) 14 800 EV market (L) 500 LG Chem (L) 12 Anode materials demand (R) Anode materials' % of total revenue (R) 150 400 10 600

8 300 100 400 6 200 4 50 200 100 2

0 0 0 0 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2015 2018 2020

Source: Mirae Asset Daewoo Research Source: SNE Research, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 2 April 26, 2017 POSCO Chemtech

Investment point 2. PMC Tech to become global carbon materials maker

POSCO Chemtech’s subsidiary PMC Tech posted net losses for 2016, weighing on the parent company’s net profit. In 2017, however, we expect PMC Tech to swing to a profit, and thus contribute to a pickup in its parent company’s net profit.

In 2012, in order to expand its carbon materials business, based on a byproduct (coal tar) from its Hwaseong plant, POSCO Chemtech established PMC Tech by forming a 60:40 joint venture between POSCO Chemtech and the Mitsubishi Group (Mitsubishi Chemical and Mitsubishi Corporation). While POSCO Chemtech has acted as a raw material supplier, Mitsubishi Chemical and Mitsubishi Corporation have been in charge of the development of the relevant technologies and distribution, respectively.

PMC Tech’s plant (launched in December 2015) is capable of producing 104,000 tonnes of coke (60,000 tonnes for needle coke and 44,000 tonnes for pitch coke) and 155,000 tonnes of oil per annum. Coke is a base material for carbon products, and should play a part in driving further advances of Korea’s carbon industry going forward. POSCO Chemtech plans to produce artificial graphite anode materials (for use in medium/large-sized LIBs), by using needle coke produced by subsidiary PMC Tech.

Figure 3. Demand outlook for needle coke Figure 4. Price outlook for needle coke

('000 tonnes) (USD/tonne) 850 700 Needle coke price Needle coke demand 830 650 630 600 800 550 760 500 750 450 460 720 400 350 350 700 300 250 650 200 2016 2018 2020 2016 2017 2019

Source: Mitsubishi, Mirae Asset Daewoo Research Source: Mitsubishi, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 3 April 26, 2017 POSCO Chemtech

Although POSCO Chemtech owns a 60% stake in PMC Tech, the company is barred from controlling the subsidiary, due to an agreement with other major shareholders. As such, the subsidiary is classified as a joint venture subject to equity-method accounting. Therefore, with regard to PMC Tech, POSCO Chemtech discloses only equity-method gains/losses (not its earnings or financial structure).

In 2016, equity-method losses from PMC Tech reached W21.2bn, due to low utilization at its new plant (launched in 2016). However, we believe the operation of the new plant will normalize on the back of higher utilization in 2017, supporting a turn to profit. Indeed, equity-method losses shrank from W18.8bn in 1H16 to W2.3bn in 2H16.

PMC Tech plans to raise its utilization rate by increasing the production of oils (including creosote oil) that can be sold entirely in the domestic market. Although PMC Tech’s production facilities are built with annual capacities of 104,000 tonnes for coke and 155,000 tonnes for oil, the company can flexibly adjust capacity (by lowering coke capacity to 52,000 tonnes and raising oil capacity to 207,000 tonnes) depending on market conditions.

Figure 5. Annual equity-method gain/loss Figure 6. Quarterly equity-method gain/loss

(Wbn) Equity-method gain (PMC Tech) (Wbn) 5 Equity-method gain (POSCO Chemtech) 0

0 -2

-4 -5 -6 -10 -8 -15 -10

-20 -12 Equity-method gains (PMC Tech) Equity-method gains (POSCO Chemtech) -25 -14 2013 2014 2015 2016 1Q16 2Q16 3Q16 4Q16

Source: POSCO Chemtech, Mirae Asset Daewoo Research Source: POSCO Chemtech, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 4 April 26, 2017 POSCO Chemtech

Investment point 3: Coke plant reconstruction business to serve as cash cow

We expect the coke plant maintenance and reconstruction business to begin generating revenue in 2019, serving as a steady cash cow, in addition to the refractory and quicklime businesses. POSCO Chemtech is currently receiving technology transfer related to coke plant reconstruction from a foreign engineering firm, as the time for POSCO’s coke plant maintenance and reconstruction works is approaching.

Currently, POSCO has 10 coke plants (five each in Pohang and Gwangyang) in operation. The Pohang No.1 coke plant came online in 1973. Given that coke plants typically need maintenance and reconstruction work within 45 years of their start of operation, POSCO’s coke plants will likely have to perform such work starting in 2018. POSCO is likely to begin a 20-year maintenance cycle in 2018, with the exception of the Gwangyang No.5 coke plant, which came online the most recently (in 2010).

POSCO Chemtech is working on sourcing related technology from a foreign engineering firm and we expect it to have its own in-house technology by 2018, generating related revenue starting in 2019. We believe POSCO’s 20-year maintenance cycle represents a W2tr revenue opportunity (or annual average of W100bn, equivalent to 8.9% of POSCO Chemtech’s consolidated 2016 revenue).

Table 1. Re-construction and expected year of sales to POSCO (Wbn) Expected year Estimate sales

Pohang 1 2019 100 Pohang 2 2021 100 Pohang 3 2023 230 Pohang 4 2026 240 Pohang 5 2028 235 Gwangyang 1 2032 280 Gwangyang 2 2033 280 Gwangyang 3 2035 280 Gwangyang 4 2037 280 Source: Mirae Asset Daewoo Research

Figure 7. Planned expansion of coke plant reconstruction business

1st stage 2nd stage 3rd stage (~2017) (~2019) (2020~) Securing construction Development of unique solution Entry into overseas markets technology

Source: POSCO Chemtech, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 5 April 26, 2017 POSCO Chemtech

Corporate overview

A refractory manufacturer, established in 1963, and refractory maintenance service provider, established in 1971, were merged to create POSCO Chemtech in 1994. While engaging in the refractory manufacturing/maintenance businesses, POSCO Chemtech expanded its business scope to include quicklime in 2008, chemicals in 2010, and anode materials in 2012. As of 2016, the refractory business accounted for 38% of the company’s total revenue, followed by 33% for quicklime, 27% for chemicals, and 2% for anode materials.

We expect the refractory and quicklime businesses to continue to serve as POSCO Chemtech’s cash cow, as these materials are essential for POSCO’s crude steel production.

Figure 8. Revenue by business Figure 9. Revenue contribution by business (2016)

(Wbn) Anode 1,400 Anode materials materials 2 Chemicals 1,200 Burned lime Refractories 1,000 Chemicals 800 27 Refractories 38 600

400

200 Burned lime 0 33 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: POSCO Chemtech, Mirae Asset Daewoo Research Source: POSCO Chemtech, Mirae Asset Daewoo Research

Figure 10 . POSCO ’s crude steel production & refractories Figure 11 . POSCO ’s crude steel production & calcium oxide revenue revenue

(mn tonnes) (Wbn) (mn tonnes) (Wbn) 39 POSCO crude steel production (L) 500 39 380

Refractories sales (R) 450 360 37 37 400 340 35 350 35 320 300 33 300 250 33 31 280 200 31 260 29 150 240 100 POSCO crude steel production (L) 27 29 50 Burned lime sales ® 220 25 0 27 200 2000 2002 2004 2006 2008 2010 2012 2014 2016 2009 2010 2011 2012 2013 2014 2015 2016 Source: POSCO Chemtech, Mirae Asset Daewoo Research Source: POSCO Chemtech, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 6 April 26, 2017 POSCO Chemtech

The chemicals business is broken down into: 1) the operation of POSCO’s Hwaseong plant and 2) the sale of by-products (e.g., coal tar, crude light oil, etc.) from coke oven gas (COS) produced at the Hwaseong plant.

The company enjoys a steady flow of revenue from the operation of POSCO’s plant. The business should serve as a stable cash cow going forward. Meanwhile, COS by-product sales tend to move line with oil prices, as coal tar and crude light oil are used for the production of carbon materials and coal chemical products.

The launches of carbon material and coal chemical businesses by POSCO Chemtech has been anticipated since 2011, when the company signed a contract with POSCO for the operation of the Hwaseong plant and the sale of COS by-products. However, the business launches were delayed, due to issues such as technology transfer. In 2016, the company commenced the commercial production of carbon materials based on coal tar, via PMC Tech. Meanwhile, due to the protracted oil price slump, the company is still mulling the commercial feasibility of a coal chemical business (based on crude light oil).

Figure 12. Chemical business plan

COG

Coal tar Light oil

Cokes B.T.X

Carbon material Coal chemical (PMC Tech) (Under review)

Source: Mirae Asset Daewoo Research

Figure 13. Chemical service revenue Figure 14. Coal chemical revenue & oil prices

(Wbn) (Wbn) (USD/bbl) 180 Chemical service revenue 400 Coal chemical revenue (L) Oil price (R) 120

160 350 100 140 300 120 80 250 100 200 60 80 150 60 40 100 40 20 20 50

0 0 0 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 Source: POSCO Chemtech, Mirae Asset Daewoo Research Source: POSCO Chemtech, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 7 April 26, 2017 POSCO Chemtech

Earnings outlook: Likely to exceed our conservative estimates

We expect full-fledged growth for POSCO Chemtech’s new businesses (anode materials and subsidiary PMC Tech) starting this year. As PMC Tech is classified as a joint venture with POSCO Chemtech under the IFRS, its earnings should be recognized under the equity method.

POSCO Chemtech’s earnings could beat our estimates. In forecasting anode materials earnings, we reflected only estimated earnings from natural graphite anode materials; however, if the company succeeds in mass producing artificial graphite anode materials (currently under development), anode materials earnings should outpace our expectations. The mass production should also push up PMC Tech’s earnings, as the subsidiary produces the needle coke that will be used as a raw material for artificial graphite anode materials. In addition, we did not reflect potential earnings from the coal chemical and coke plant maintenance and reconstruction businesses, which are currently under review. If such businesses actually generate revenue, the company’s earnings should further exceed our forecast.

Table 2. (Wbn, %) 2015 2016 2017F 2018F 2019F 2020F

Sales 1,221 1,118 1,215 1,276 1,370 1,484 POSCO Chemtech (parent) 1,175 1,076 1,175 1,235 1,328 1,440 Subsidiaries 46 41 40 41 42 44 OP 56 85 109 108 120 135 POSCO Chemtech (parent) 53 79 103 102 114 129 Subsidiaries 3 7 6 6 6 7 Non-operating income (10) (21) 7 10 11 11 Interest income 1 1 1 1 1 1 FX gains (1) 0 0 0 0 0 Gain in equity method (8) (21) 6 9 9 10 Others (2) (1) 0 0 0 0 PTP 46 65 117 118 131 146 NP 32 45 89 90 99 111 Profitability (%)

OPM 4.6 7.6 9.0 8.5 8.8 9.1 POSCO Chemtech (parent) 4.5 7.3 8.8 8.3 8.6 8.9 Subsidiaries 5.6 15.8 15.0 15.0 15.0 15.0 PTPM 3.8 5.8 9.6 9.3 9.5 9.9 NPM 2.6 4.0 7.3 7.0 7.3 7.5 Source: Mirae Asset Daewoo Research

Table 3. (Wbn, %) (Parent) 2015 2016 2017F 2018F 2019F 2020F Sales Refractories 453 408 440 453 467 481 Lime 354 358 347 357 368 379 Chemical 359 287 357 368 379 390 Anode materials 9 23 31 57 114 190 Total 1,175 1,076 1,175 1,235 1,328 1,440

Refractories 39 38 37 37 35 33 Lime 30 33 30 29 28 26 Chemical 31 27 30 30 29 27 Anode materials 1 2 3 5 9 13 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 8 April 26, 2017 POSCO Chemtech

Valuation: Current share price at historic low level

We derived our target price using a residual income model (RIM), to reflect the value of the company’s medium/long-term growth. Our target price of W18,500 corresponds to a 2017F P/E of 12x and P/B of 1.7x, which is not demanding, in light of the fact that the new businesses will likely take off this year. At present, the stock is trading below its post-2011 average multiple. We believe the stock will find its way back up as clearer signs of growth emerge.

Table 4. RIM 2017F 2018F 2019F 2020F 2021F Sales 1,215 1,276 1,370 1,484 1,528 NP 89 90 99 111 114 Equity 639 706 781 869 955 ROE (%) 14.7 13.4 13.4 13.5 12.7 COE (%) 8.4 8.4 8.4 8.4 8.4 Residual income 41 35 39 44 42 Terminal value of RI 570 NPV of RI 158 PV of terminal value 381 Beta 1.1

Equity 563 Risk free rate 2.0

Equity value 1,102 Market risk premium 6.0

Shares 59,070 Cost of equity 8.4

Fair price 18,663 Long-term growth 1.0 Source: Mirae Asset Daewoo Research

Figure 15. P/E Figure 16. P/B

(x) (x) 26 12M fwd P/E 4.0 12M fwd P/B

3.5 21 3.0 +1 std 16 2.5 +1 std Avg. 2.0 Avg. 11 1.5 -1std -1std 1.0 6 0.5

1 0.0 11.1 12.1 13.1 14.1 15.1 16.1 17.1 11.1 12.1 13.1 14.1 15.1 16.1 17.1

Mirae Asset Daewoo Research 9 April 26, 2017 POSCO Chemtech

POSCO Chemtech (003670 KQ/Buy/TP: W18,500)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F Revenue 1,118 1,215 1,276 1,370 Current Assets 421 491 543 615 Cost of Sales 977 1,052 1,112 1,190 Cash and Cash Equivalents 118 177 219 268 Gross Profit 141 163 164 180 AR & Other Receivables 145 152 156 168 SG&A Expenses 55 53 56 60 Inventories 56 60 61 66 Operating Profit (Adj) 85 109 108 120 Other Current Assets 102 102 107 113 Operating Profit 85 109 108 120 Non-Current Assets 303 314 324 333 Non-Operating Profit -20 8 10 11 Investments in Associates 91 91 91 91 Net Financial Income 1 1 1 1 Property, Plant and Equipment 137 149 160 170 Net Gain from Inv in Associates -21 6 9 9 Intangible Assets 7 5 4 3 Pretax Profit 65 117 118 131 Total Assets 724 805 867 948 Income Tax 20 28 28 31 Current Liabilities 121 125 121 126 Profit from Continuing Operations 45 89 90 99 AP & Other Payables 67 71 72 78 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 6 6 0 0 Net Profit 45 89 90 99 Other Current Liabilities 48 48 49 48 Controlling Interests 44 89 90 99 Non-Current Liabilities 34 34 34 34 Non-Controlling Interests 1 0 0 0 Long-Term Financial Liabilities 31 31 31 31 Total Comprehensive Profit 45 89 90 99 Other Non-Current Liabilities 3 3 3 3 Controlling Interests 44 87 88 97 Total Liabilities 154 159 154 160 Non-Controlling Interests 1 2 2 2 Controlling Interests 562 639 705 781 EBITDA 100 124 123 136 Capital Stock 30 30 30 30 FCF (Free Cash Flow) 62 65 68 70 Capital Surplus 24 24 24 24 EBITDA Margin (%) 8.9 10.2 9.6 9.9 Retained Earnings 510 587 653 729 Operating Profit Margin (%) 7.6 9.0 8.5 8.8 Non-Controlling Interests 7 7 7 7 Net Profit Margin (%) 3.9 7.3 7.1 7.2 Stockholders' Equity 569 646 712 788

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F Cash Flows from Op Activities 85 90 93 95 P/E (x) 16.2 9.9 9.7 8.8 Net Profit 45 89 90 99 P/CF (x) 6.0 7.1 7.1 6.4 Non-Cash Income and Expense 73 35 33 37 P/B (x) 1.3 1.4 1.2 1.1 Depreciation 13 13 14 15 EV/EBITDA (x) 5.4 5.2 4.8 3.9 Amortization 2 1 1 1 EPS (W) 740 1,499 1,523 1,682 Others 58 21 18 21 CFPS (W) 1,992 2,092 2,085 2,301 Chg in Working Capital -13 -7 -4 -11 BPS (W) 9,523 10,823 11,946 13,227 Chg in AR & Other Receivables -3 -7 -4 -11 DPS (W) 300 400 400 400 Chg in Inventories 13 -4 -1 -4 Payout ratio (%) 39.8 26.7 26.3 23.8 Chg in AP & Other Payables -8 2 2 5 Dividend Yield (%) 2.5 2.7 2.7 2.7 Income Tax Paid -20 -28 -28 -31 Revenue Growth (%) -8.4 8.7 5.0 7.4 Cash Flows from Inv Activities -106 -25 -30 -32 EBITDA Growth (%) 40.8 24.0 -0.8 10.6 Chg in PP&E -23 -25 -25 -25 Operating Profit Growth (%) 51.8 28.2 -0.9 11.1 Chg in Intangible Assets 0 0 0 0 EPS Growth (%) 26.5 102.6 1.6 10.4 Chg in Financial Assets -86 0 -5 -7 Accounts Receivable Turnover (x) 7.9 8.2 8.3 8.5 Others 3 0 0 0 Inventory Turnover (x) 17.5 20.9 21.1 21.6 Cash Flows from Fin Activities -22 -12 -29 -24 Accounts Payable Turnover (x) 15.0 16.7 17.0 17.3 Chg in Financial Liabilities -23 0 -6 0 ROA (%) 6.2 11.6 10.8 10.9 Chg in Equity 0 0 0 0 ROE (%) 8.0 14.7 13.4 13.4 Dividends Paid -12 -12 -24 -24 ROIC (%) 19.0 26.8 25.2 26.7 Others 13 0 1 0 Liability to Equity Ratio (%) 27.1 24.6 21.7 20.3 Increase (Decrease) in Cash -43 59 42 48 Current Ratio (%) 347.9 391.9 449.2 487.1 Beginning Balance 161 118 177 219 Net Debt to Equity Ratio (%) -31.0 -36.5 -40.5 -43.7 Ending Balance 118 177 219 268 Interest Coverage Ratio (x) 43.6 71.0 70.2 78.1 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 10 April 26, 2017 POSCO Chemtech

APPENDIX 1

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

Company (Code) Date Rating Target Price (W) POSCO Chemtech POSCO Chemtech(003670) 04/25/2017 Buy 18,500 150,000

100,000

50,000

0 Apr 15 Apr 16 Apr 17

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 Buy Trading Buy Hold Sell 72.86% 15.58% 11.56% 0.00% * Based on recommendations in the last 12-months (as of March 31, 2017)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.

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. 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. 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 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.

Disclaimers This report is published by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the . 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 and regulations or subject Mirae Asset Daewoo and 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

Mirae Asset Daewoo Research 11 April 26, 2017 POSCO Chemtech

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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Mirae Asset Daewoo Research 12 April 26, 2017 POSCO Chemtech

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