NAVER (035420 KS) Chance to buy and Financial at par value Internet NAVER Webtoon takes US by storm; We present valuation of W5.7tr Company Report We believe the global growth story of NAVER Webtoon (wholly owned by NAVER) has September 17, 2019 just begun. The webtoon business, a “snack culture” platform created in Korea during the smartphone age, is spreading beyond Japan and Southeast Asia to the US and Europe. We expect NAVER Webtoon’s global growth to accelerate in 3Q19. According to app (Maintain) Buy market researcher Sensor Tower, NAVER Webtoon’s global transaction volume surged 175% YoY in August. By region, transaction volume was up 29% in Korea, 53% in Japan Target Price (12M, W) ▲ 230,000 ( ), 15,790% in the US, and 5,551% in other regions. In the US, monthly active user (MAU) growth is gathering momentum. NAVER Share Price (09/16/19, W) 154,500 Webtoon’s 2Q19 average revenue per paid user (ARPPU) was W3,681. For NAVER Webtoon, we present a target P/S of 7x, which is ’s (NFLX US/CP: US$294.29) Expected Return 49% multiple during its global expansion phase.

Growing e-commerce dominance and ad price increases point to 3Q19 OP (19F, Wbn) 723 earnings surprise Consensus OP (19F, Wbn) 759 NAVER’s dominance in the e-commerce market alongside Coupang is becoming more EPS Growth (19F, %) -50.8 evident. In 1H19, NAVER’s gross merchandise volume (GMV) grew an estimated 26%. In th Market EPS Growth (19F, %) -28.1 comparison, eBay Korea and 11 Street—key rivals in the C2C space—recorded P/E (19F, x) 79.8 negative growth of 1% and 9%, respectively. Market P/E (19F, x) 13.0 In the advertising segment, NAVER’s average price (ad revenue/total session length) KOSPI 2,062.22 was up 20% YoY in 2Q19. In the business platform segment (search engine and Market Cap (Wbn) 25,464 shopping search ads), average price was up 25% based on session length and up 24% Shares Outstanding (mn) 165 based on queries in 2Q19. Such trends suggest earnings will likely improve in 2H19. Free Float (%) 77.3 Furthermore, NAVER increased the prices of banner ads by 30% on average in July Foreign Ownership (%) 59.4 (based on the company’s “combined special display ad” offering), which points to Beta (12M) 0.58 additional earnings improvements. 52-Week Low 106,500 Raise TP to W230,000; NAVER Financial to be further added to our valuation 52-Week High 154,500 We raise our target price on NAVER from W181,000 to W230,000, as we incorporated (%) 1M 6M 12M NAVER Webtoon (W5.7tr, based on P/S of 7x 2020-21F average transaction volume) into Absolute 10.8 18.4 5.8 our valuation. We also plan to reflect NAVER Financial (which will be spun off on Relative 3.5 24.9 19.0 November 1st ), once we gain a clearer picture of the financial business.

110 NAVER KOSPI Our previous target price of W181,000, which is still higher than the current share 100 price, only reflected our valuation of the domestic business and the market value of

90 LINE. We believe the market has not yet priced in the values of NAVER Webtoon and

80 NAVER Financial, which are expected to go public in 2021 or later. In our view, buying NAVER right now is akin to buying NAVER Webtoon and NAVER Financial at par value. 70 60 9.18 1.19 5.19 9.19

Mirae Asset Daewoo Co., Ltd.

[Internet] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 4,023 4,678 5,587 6,654 7,764 8,882 Chang-kwean Kim +822-3774-1614 OP (Wbn) 1,102 1,179 943 723 1,486 1,860 [email protected] OP margin (%) 27.4 25.2 16.9 10.9 19.1 20.9 NP (Wbn) 749 773 649 319 859 1,182 EPS (W) 4,546 4,689 3,937 1,935 5,213 7,171 ROE (%) 26.2 18.5 13.0 5.9 14.5 17.1 P/E (x) 34.1 37.1 31.0 79.8 29.6 21.5 P/B (x) 5.2 4.8 3.1 3.7 3.3 2.9 Dividend yield (%) 0.1 0.2 0.3 0.2 0.2 0.2 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

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

September 17, 2019 NAVER

I.

Webtoon model presents more upside than Netflix in terms of ARPPU

Webtoons, or digital comics, are a type of mobile content that originated in Korea. They are not simply an extension of paper comics to an online platform, but rather a whole new type of content business, conceived and developed in the mobile web ecosystem.

We see strong upside for webtoons going forward. In Korea, webtoons already account for the second largest share of time spent on apps, after videos. Moreover, the business model is favorable compared to other content platforms; webtoons have only been partially monetized, with strong upside to ARPPU. In comparison, Netflix has monthly pricing plans, YouTube relies on advertising fees, and Spotify (SPOT US/CP: US$128.40) charges users for premium services only. NAVER Webtoon broke even at end-2018 domestically, and is expected to swing to profit globally by the end of this year.

Table 1. NAVER Webtoon: Quarterly and annual earnings (Wbn, %) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19F 4Q19F 1Q20F 2Q20F 3Q20F 4Q20F 2018 2019F 2020F 2021F 2022F Revenue 14 16 19 23 25 40 48 57 63 75 92 109 72 170 339 584 842 Content 9 11 12 15 17 32 40 48 54 66 82 98 46 137 300 540 795 Domestic 9 10 11 14 13 21 23 25 22 25 28 29 46 82 104 125 144 US 0 0 0 0 2 7 12 18 25 32 44 57 0 39 158 347 555 Other 0 0 0 0 2 4 5 6 7 9 10 12 0 17 38 69 96 Ad/IP/Other 5 6 8 8 8 8 8 8 9 10 10 11 26 32 39 43 48 * LINE Manga 14 18 25 27 31 32 34 35 38 40 42 42 85 131 162 185 204 Operating profit -10 -12 -12 -19 -15 -9 -6 -1 2 7 15 24 -54 -32 47 184 310 MAU (mn) 39.3 41.3 43.5 45.9 48.6 51.5 53.8 56.4 58.7 60.8 63.1 65.6 45.9 56.4 65.6 73.6 81.6 Monthly ARPPU (W) 3,346 3,349 3,393 2,717 2,308 3,681 4,087 4,348 4,219 4,709 5,316 5,788 2,147 3,269 4,567 5,833 6,528 YoY growth Content 89 191 233 220 218 106 105 104 198 119 80 47 Domestic 44 110 109 79 69 19 22 16 78 27 20 15 US 1150 357 267 217 305 120 60 Other 250 125 100 100 124 82 39 * LINE Manga 121 78 36 30 23 25 24 20 54 24 14 10 QoQ growth Content 22 9 25 13 88 25 20 13 22 24 20 Domestic 11 10 27 -7 62 10 9 -12 14 12 4 US 250 71 50 39 28 38 30 Other 100 25 20 17 29 11 20 * LINE Manga 29 39 8 15 3 6 3 9 5 5 0 Source: SensorTower, Mirae Asset Daewoo Research estimates

Table 2. NAVER Webtoon: Percentage of monthly revenue by country 4/18 5/18 6/18 7/18 8/18 9/18 10/18 11/18 12/18 1/19 2/19 3/19 4/19 5/19 6/19 7/19 Domestic 99.4% 99.5% 99.5% 99.5% 99.6% 99.5% 99.4% 99.5% 95.3% 89.1% 87.9% 85.7% 83.2% 78.6% 73.4% 70.1% US 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.3% 0.3% 2.0% 4.9% 4.8% 6.7% 9.8% 13.5% 18.4% 20.5% Thailand 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.9% 2.4% 3.1% 3.1% 2.9% 3.1% 3.1% 3.4% Taiwan 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.8% 1.5% 2.0% 2.0% 1.8% 1.9% 1.5% 2.3% Indonesia 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.4% 0.6% 0.7% 0.6% 0.6% 0.5% 0.6% Other 0.4% 0.2% 0.3% 0.3% 0.2% 0.3% 0.3% 0.3% 0.7% 1.7% 1.6% 1.7% 1.8% 2.4% 3.0% 3.1% Source: SensorTower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 2 September 17, 2019 NAVER

Figure 1. NAVER Webtoon: Quarterly revenue

(Wbn) 70 Full-scale introduction of new pay-as-you-go model in 2H19 60

50 +150% YoY 40 Paid mode introduction 30 (US, etc.) Paid mode introduction 20 (Domestic)

10

0 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19(F) 4Q19F(F)

Source: SensorTower, Mirae Asset Daewoo Research estimates

Figure 2. NAVER Webtoon: Monthly revenue

(Wbn) 18

16

14 +175% YoY

12

10

8

6

4

2 8/18 10/18 12/18 2/19 4/19 6/19 8/19

Source: SensorTower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 3 September 17, 2019 NAVER

NAVER Webtoon, the world’s best webtoon platform

: Japan

- Line Webtoon is the largest webtoon platform in Japan. It is based on Line (3938 JP/CP: JPY4,080), a popular messaging app.

- Revenue is more than double that of the second largest webtoon provider.

- Transaction value has surged since monetization began (up 76% YoY in 2Q19).

: US

- Downloads have trended up since the service was launched in 2014; the US market accounts for approximately 40% of global downloads.

- Transaction value has soared since monetization began in November 2018. Revenue tripled QoQ in 2Q19.

- As of July 2019, the US’s share in global NAVER Webtoon revenue (excluding NAVER Series) stood at 20%, up from 5% only six months ago.

: Korea

- NAVER Webtoon far outperforms its domestic rivals in terms of desktop web traffic.

- In terms of mobile traffic, NAVER Webtoon still boasts the largest traffic, although the gap with its rivals is not as wide as on the desktop platform.

< Figures 17-19>: Taiwan and Southeast Asia

- No. 1 webtoon services provider in Taiwan and Southeast Asia

< Figures 20-25>: Subscribers by age and nation

- In all countries where NAVER Webtoon operates, the 24-or-under age group has the largest share.

- The share of subscribers aged 24 or under tends to be higher (60-80%) when the webtoon market is in the early stage of growth (the US and Southeast Asia).

- The mix of older age groups tends to increase as the market matures (Korea and Japan).

Figure 3. LINE Manga: Quarterly transaction volume Figure 4. LINE Manga: Monthly transaction volume

(Wbn) (Wbn) 80 +50% YoY 25

70 20

60 +36% QoQ 15 50 10 40 +29% QoQ

5 30

20 0 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19(F) 1/18 4/18 7/18 10/18 1/19 4/19 7/19

Source: SensorTower, Mirae Asset Daewoo Research estimates Source: SensorTower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 4 September 17, 2019 NAVER

Figure 5. NAVER Webtoon: US monthly downloads Figure 6. NAVER Webtoon: US monthly revenue

400,000 (Wbn) 1.8 350,000 1.6 300,000 1.4

250,000 1.2

200,000 1.0

0.8 150,000 0.6 100,000 0.4

50,000 0.2

0 0.0 1/16 7/16 1/17 7/17 1/18 7/18 1/19 7/19 11/18 1/19 3/19 5/19 7/19

Source: SensorTower, Mirae Asset Daewoo Research estimates Source: SensorTower, Mirae Asset Daewoo Research estimates

Figure 7. US CANVAS growth trends Figure 8. CANVAS homepage

('000 items) ('000 users) 70 Pieces of content (L) 500 Daily active users (R) 60 400 50

300 40

30 200

20 100 10

0 0 7/17 10/17 1/18 4/18 7/18 10/18 1/19 4/19

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

Figure 9. LINE Webtoon: US MAU trend Figure 10. LINE Webtoon: Japan MAU trend

+33% CAGR +76% CAGR

1/17 3/17 5/17 7/17 9/17 11/17 1/18 3/18 5/18 7/18 9/18 11/18 1/19 3/19 5/19 1/17 3/17 5/17 7/17 9/17 11/17 1/18 3/18 5/18 7/18 9/18 11/18 1/19 3/19 5/19

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

Mirae Asset Daewoo Research 5 September 17, 2019 NAVER

Figure 11. NAVER: Paid content transactions trend Figure 12. NAVER: Ads and IP business revenue trend

+108% +142%

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

Figure 13. Domestic: Number of monthly visits to major Figure 14. Domestic: MAU of major comics apps comics websites

x 1.5

x 4

x 9 x 14 x 18 x 50

NAVER Webtoon Company D Company L Company K NAVER Webtoon Company K Company D Company L

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

Figure 15. Japan: MAU of major comics apps Figure 16. US: MAU of major comics apps

LINE Manga Company P Company M Company S LINE Webtoon Company W Company T Company C

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

Mirae Asset Daewoo Research 6 September 17, 2019 NAVER

Figure 17. Indonesia: MAU of major Figure 18. Thailand: MAU of major Figure 19. Taiwan: MAU of major comics comics apps comics apps apps

LINE Webtoon Company C Company W LINE Webtoon Company C Company O LINE Webtoon Company C Company M

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

Figure 20. Domestic: NAVER Webtoon users by age group Figure 21. Japan: LINE Manga users by age group

21% 30%

0-24 42% 0-24 46% 25-34 25-34 35+ 35+

33% 28%

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

Figure 22. US: LINE Webtoon users by age group Figure 23. Indonesia: LINE Webtoon users by age group

4% 10% 19%

0-24 19% 0-24 25-34 25-34 35+ 35+

71% 77%

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

Mirae Asset Daewoo Research 7 September 17, 2019 NAVER

Figure 24. Thailand: LINE Webtoon users by age group Figure 25. Taiwan: LINE Webtoon users by age group

14% 7%

0-24 0-24 32% 25-34 25-34 27% 35+ 35+ 59% 61%

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

Mirae Asset Daewoo Research 8 September 17, 2019 NAVER

II. Advertising

Ad rate hikes in 2Q and 3Q; Earnings surprise likely in 2H

Advertising is NAVER’s main business, representing 54.5% of total revenue. Throughout 2018, the growing popularity of YouTube raised concerns over NAVER’s ad revenue. However, the business took a positive turn in 2Q19, as advertisers sharply increased their online ad spending, while NAVER maintained its dominance in search engines.

NAVER’s advertising sales are broken down in Tables 3 and 4. Banner ad revenue (divided by session length) was up 20% YoY in 2Q19, and mobile display ad revenue (divided by session length) was up 21% YoY in the same quarter.

In the business platform segment (search engine and shopping search ads), average price was up 25% based on session length and up 24% based on queries in 2Q19. Moreover, NAVER raised its mobile banner ad rate (based on the company’s “combined special display ad” offering) by around 30% in July, after raising the rate in 2Q. As such, we expect the company’s 3Q revenue to expand QoQ.

Table 3. Quarterly and annual ad revenue 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19F 4Q19F 2017 2018 2019F 2020F Ad revenue (Wbn) 100 118 114 130 133 149 136 155 142 167 161 171 461 573 640 691 Total time spent (bn min.) 72 71 72 68 73 74 72 70 69 69 70 68 284 289 277 265 Ad revenue/time spent (W) 1.4 1.6 1.6 1.9 1.8 2.0 1.9 2.2 2.1 2.4 2.3 2.5 1.6 2.0 2.3 2.6 YoY 31% 22% 20% 17% 13% 20% 21% 13% 22% 17% 13% QoQ 19% -4% 20% -4% 10% -6% 17% -7% 17% -4% 9% Source: Nielsen KoreanClick, Mirae Asset Daewoo Research estimates

Table 4. Quarterly and annual mobile display ad revenue 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19F 4Q19F 2017 2018 2019F 2020F Ad revenue (Wbn) 100 118 114 130 133 149 136 155 142 167 161 171 461 573 640 691 Mobile display ad revenue (Wbn) 42 49 48 54 56 62 57 65 60 70 68 72 194 241 269 290 Mobile total time spent (bn min.) 43 43 44 43 48 48 47 46 46 45 46 45 173 188 182 176 Mobile DA revenue/time spent (W) 0.97 1.16 1.09 1.26 1.17 1.30 1.21 1.43 1.30 1.57 1.47 1.59 1.12 1.28 1.48 1.65 YoY 21% 12% 11% 14% 11% 21% 21% 12% 15% 16% 11% QoQ 19% -6% 15% -6% 11% -7% 18% -9% 21% -7% 9% Source: Nielsen KoreanClick, Mirae Asset Daewoo Research estimates

Table 5. Quarterly and annual business platform revenue 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19F 4Q19F 2017 2018 2019F 2020F Business platform revenue (Wbn) 510 521 549 574 593 612 613 659 669 716 716 764 2153 2476 2866 3143 Total time spent (bn min.) 72 71 72 68 73 74 72 70 69 69 70 68 284 289 277 265 Business platform revenue/time spent (W) 7.1 7.3 7.6 8.4 8.1 8.2 8.5 9.4 9.7 10.3 10.2 11.2 7.6 8.6 10.4 11.9 YoY 14% 13% 12% 12% 19% 25% 20% 19% 13% 21% 14% QoQ 3% 4% 11% -3% 2% 3% 11% 3% 7% -1% 10% Source: Nielsen KoreanClick, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 9 September 17, 2019 NAVER

Table 6. Quarterly and annual business platform revenue per query 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19F 4Q19F 2017 2018 2019F 2020F Business platform revenue (Wbn) 510 521 549 574 593 612 613 659 669 716 716 764 2153 2476 2866 3143 Total number of queries (bn) 7.7 7.2 7.0 6.4 6.8 6.7 6.4 6.2 5.9 6.3 6.0 5.7 28.3 26.0 23.9 22.0 Business platform revenue/total 66.0 72.4 78.5 90.4 87.5 91.6 96.2 107.0 112.6 113.8 119.4 134.1 76.2 95.3 119.7 142.8 number of queries (W) YoY 33% 27% 23% 18% 29% 24% 24% 25% 25% 26% 19% QoQ 10% 8% 15% -3% 5% 5% 11% 5% 1% 5% 12% Source: Nielsen KoreanClick, Mirae Asset Daewoo Research estimates

Table 7. Unit price change of combined special display ad Time 12am-3am 3am-6am 6am-9am 9am-12pm 12pm-3pm 3pm-6pm 6pm-9pm 9pm-12am Base price (W) 20,000,000 8,000,000 27,000,000 38,000,000 42,000,000 43,000,000 45,000,000 44,000,000 Before price increase (April) Expected impressions 8,900,000 3,700,000 12,700,000 17,500,000 19,000,000 19,400,000 19,900,000 19,500,000 Base price (W) 26,000,000 10,000,000 34,000,000 51,000,000 56,000,000 57,000,000 58,000,000 57,000,000 Expected impressions 10,400,000 4,000,000 12,100,000 19,000,000 21,000,000 21,300,000 22,000,000 21,300,000 After price increase (July) Price increase (%) 30% 25% 26% 34% 33% 33% 29% 30% Expected increase 11% 16% 32% 24% 21% 21% 17% 19% (%)/impressions Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 10 September 17, 2019 NAVER

III. E-commerce

NAVER and Coupang cement grip on online market

According to Statistics Korea, Korean consumers bought one out of four items (24%) online in 2019, and this figure is expected to rise to 30%. While retail giants such as Lotte and Shinsegae (004170 KS/Buy/TP: W360,000/CP: W257,000) are making significant efforts to expand online, NAVER (C2C) and Coupang (B2C) continued to gain market share in 1H19 (Figures 28 and 29).

In 2019, we forecast NAVER Shopping to emerge as Korea’s largest e-commerce company in terms of total transaction value (Smart Store + NAVER Shopping, inclusive of sales made through NAVER), thanks to its dominance in shopping searches. Unlike its competitors, NAVER’s e-commerce revenue is advertising profit that does not incur any costs.

Figure 26. NAVER's GMV trend Figure 27. Coupang’s credit card transaction volume trend

(Wtr) GMV: +25% YoY (Wtr) 20 Smart Store: +50% YoY 1.4 GMV: +28% YoY Smart Store: +58% YoY 1.2 (40% of GMV) Doubled in one year 15 1.05 1 0.8 10

0.6 0.6 5

0 0.2 2016 2017 2018 2019(F) 1/18 3/18 5/18 7/18 9/18 11/18 1/19 2/19 3/19 Source: Mirae Asset Daewoo Research estimates Source: Press reports, Mirae Asset Daewoo Research

Figure 29. First-half GMV by Korean online shopping mall Figure 28. GMV by Korean online shopping mall (2017-18) (2018-19)

(Wtr) (Wtr) 20 2017 15 C2C 1H18 1H19 2018 C2C Smart Store GMV +50% YoY 15 +26% YoY 10 B2C -1% YoY B2C +64% YoY 10 +70% YoY -9% YoY 5 5 +18% YoY +12% YoY

0 0 NAVER eBay Korea 11th street Coupang WeMakePrice TMON NAVER eBay Korea 11th street Coupang WemakePrice TMON

Notes: Business to consumer (B2C) refers to e-commerce conducted directly between a company and consumers; B2C companies sell their inventories on their own shopping malls; customer to customer (C2C) refers to e-commerce activities between customers; C2C platforms enable consumers to sell and buy products from other consumers (e.g., Gmarket, 11th Street, flea markets) Source: Media reports, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 11 September 17, 2019 NAVER

Figure 30. E-commerce overview by stage

Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 12 September 17, 2019 NAVER

IV.

Spin-off scheduled for November

NAVER plans to pass a resolution to spin off its payment business to NAVER Financial at its extraordinary meeting of shareholders on September 20th. Once the resolution is passed, NAVER Financial will launch officially on November 1st.

As the company explained at the recent Analyst Day event, NAVER Financial is modeled on the Alipay service of China’s Alibaba (BABA US/CP: US$117.07).

NAVER Financial will recommend financial products and increase subscribers by utilizing its online/offline payment database. Earnings projections and valuations will be conducted after the official launch of the business.

Figure 31. No. of users paying with NAVER Pay Figure 32. NAVER Pay: No. of monthly transactions per user

(mn users) 4.5 12 +20% YoY 4.0 4.0 +22% YoY 10 3.6 3.5 3.5 3.3 8 3.0

6 2.5

4 2.0 1/18 5/18 9/18 1/19 5/19 1/18 5/18 9/18 1/19 5/19

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

Figure 33. NAVER Pay: Monthly transaction value

(Wtr) 1.6 +41.4% YoY 1.4 1.4

1.2 0.99 1.0

0.8

0.6

0.4

0.2

0.0 1/18 3/18 5/18 7/18 9/18 11/18 1/19 3/19 5/19 7/19

Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 13 September 17, 2019 NAVER

Figure 34. Differentiating points for NAVER Pay

Source: Company data, Mirae Asset Daewoo Research

Figure 35. NAVER Financial is modeled on Alipay

Source: Company data, Mirae Asset Daewoo Research

Figure 36. Full-fledged expansion into financial space

Easy Designing Commerce- membership financial based finance process products

Mirae Asset Daewoo Database (e.g., addresses) Payment/commerce- ㅋㅋㅋ (more flexible than banking of 20mn subscribers based loan services products)

Account opening for card, Users → Deferred payment banking, insurance, and Capable of designing new brokerage services; easy Sellers → Advance payment financial products membership process (commerce-based credit DB) (successful commerce model)

Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 14 September 17, 2019 NAVER

V. Valuations

Raise TP to W230,000, from W181,000

Table 8. NAVER’s non-consolidated earnings and forecasts (Wbn, %) 2014 2015 2016 2017 2018 2019F 2020F Revenue 1,637 2,141 2,496 2,931 3,459 4,259 4,891 Operating profit 712 826 968 1,178 1,264 1,556 1,845 Net profit 461 643 652 849 919 1,144 1,363 YoY growth Revenue 30.8 16.6 17.4 18.0 23.1 14.8 Operating profit 16.1 17.2 21.7 7.2 23.1 18.6 Net profit 39.5 1.4 30.3 8.2 24.5 19.1 Source: Mirae Asset Daewoo Research estimates

Table 9. Valuation (Wbn, x, W) Section 2018 2019F Notes NAVER’s (HQ) value 1) Net profit 919 1,144 Weighted average P/E of global peers (ads: Alphabet, Facebook, Baidu, Applied P/E 26.7 23.7 Yahoo Japan; e-commerce: Amazon, Alibaba) Total market value 24,568 27,136 Value of the domestic NAVER portal (based on 2019F net profit) LINE's value 2) LINE’s market cap 10,645 Value of shares on the Japanese stock market NAVER's stake in LINE 72.86% Estimated value 5,429 30% discount to the value of NAVER's stake in LINE NAVER Webtoon's value 3) 5,723 Target PSR of 7x (Mirae Asset Daewoo’s media/entertainment sector analyst) NAVER's stake in NAVER Webtoon 100% Based on the 2020-21F average transaction value Sum = 1) + 2) + 3) 38,287 NAVER Financial’s value not reflected; set to be valued after November Target price 230,000 Source: Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 15 September 17, 2019 NAVER

NAVER (035420 KS/Buy/TP: W230,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/18 12/19F 12/20F 12/21F (Wbn) 12/18 12/19F 12/20F 12/21F Revenue 5,587 6,654 7,764 8,882 Current Assets 5,386 6,192 7,497 9,084 Cost of Sales 0 0 0 0 Cash and Cash Equivalents 3,323 3,852 4,815 6,058 Gross Profit 5,587 6,654 7,764 8,882 AR & Other Receivables 1,079 1,225 1,430 1,635 SG&A Expenses 4,644 5,931 6,278 7,022 Inventories 57 68 80 91 Operating Profit (Adj) 943 723 1,486 1,860 Other Current Assets 927 1,047 1,172 1,300 Operating Profit 943 723 1,486 1,860 Non-Current Assets 4,496 4,479 4,509 4,572 Non-Operating Profit 169 -69 -57 -50 Investments in Associates 1,001 1,193 1,392 1,592 Net Financial Income 14 11 17 25 Property, Plant and Equipment 1,457 1,269 1,114 986 Net Gain from Inv in Associates -85 0 0 0 Intangible Assets 307 282 263 249 Pretax Profit 1,112 654 1,429 1,810 Total Assets 9,881 10,671 12,005 13,656 Income Tax 489 345 597 666 Current Liabilities 2,620 3,052 3,501 3,954 Profit from Continuing Operations 623 309 831 1,144 AP & Other Payables 595 708 826 945 Profit from Discontinued Operations 5 0 0 0 Short-Term Financial Liabilities 357 357 357 357 Net Profit 628 309 831 1,144 Other Current Liabilities 1,668 1,987 2,318 2,652 Controlling Interests 649 319 859 1,182 Non-Current Liabilities 1,312 1,407 1,506 1,606 Non-Controlling Interests -21 -10 -28 -38 Long-Term Financial Liabilities 814 814 814 814 Total Comprehensive Profit 634 309 831 1,144 Other Non-Current Liabilities 498 593 692 792 Controlling Interests 627 305 823 1,132 Total Liabilities 3,932 4,459 5,008 5,560 Non-Controlling Interests 7 3 9 12 Controlling Interests 5,240 5,513 6,327 7,463 EBITDA 1,204 936 1,661 2,002 Capital Stock 16 16 16 16 FCF (Free Cash Flow) 438 858 1,303 1,585 Capital Surplus 1,541 1,541 1,541 1,541 EBITDA Margin (%) 21.6 14.1 21.4 22.5 Retained Earnings 5,229 5,502 6,316 7,452 Operating Profit Margin (%) 16.9 10.9 19.1 20.9 Non-Controlling Interests 709 699 671 633 Net Profit Margin (%) 11.6 4.8 11.1 13.3 Stockholders' Equity 5,949 6,212 6,998 8,096

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/18 12/19F 12/20F 12/21F 12/18 12/19F 12/20F 12/21F Cash Flows from Op Activities 974 858 1,303 1,585 P/E (x) 31.0 79.8 29.6 21.5 Net Profit 628 309 831 1,144 P/CF (x) 16.3 30.7 16.3 13.4 Non-Cash Income and Expense 607 520 726 755 P/B (x) 3.1 3.7 3.3 2.9 Depreciation 228 188 155 128 EV/EBITDA (x) 14.9 24.2 13.0 10.1 Amortization 33 25 19 14 EPS (W) 3,937 1,935 5,213 7,171 Others 346 307 552 613 CFPS (W) 7,493 5,027 9,451 11,523 Chg in Working Capital 220 336 297 299 BPS (W) 39,663 41,319 46,255 53,149 Chg in AR & Other Receivables 49 -112 -116 -117 DPS (W) 314 314 314 314 Chg in Inventories 0 -11 -11 -11 Payout ratio (%) 7.3 14.8 5.5 4.0 Chg in AP & Other Payables 52 0 0 0 Dividend Yield (%) 0.3 0.2 0.2 0.2 Income Tax Paid -526 -345 -597 -666 Revenue Growth (%) 19.4 19.1 16.7 14.4 Cash Flows from Inv Activities -388 -91 -95 -96 EBITDA Growth (%) -13.1 -22.3 77.5 20.5 Chg in PP&E -517 0 0 0 Operating Profit Growth (%) -20.0 -23.3 105.5 25.2 Chg in Intangible Assets -42 0 0 0 EPS Growth (%) -16.0 -50.9 169.4 37.6 Chg in Financial Assets 2,318 -91 -95 -96 Accounts Receivable Turnover (x) 9.3 10.4 10.3 10.2 Others -2,147 0 00 Inventory Turnover (x) 119.3 105.7 104.8 103.8 Cash Flows from Fin Activities 751 -46 -46 -46 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0 Chg in Financial Liabilities 751 0 0 0 ROA (%) 7.0 3.0 7.3 8.9 Chg in Equity 33 0 0 0 ROE (%) 13.0 5.9 14.5 17.1 Dividends Paid -42 -46 -46 -46 ROIC (%) - - - - Others 9 0 00 Liability to Equity Ratio (%) 66.1 71.8 71.6 68.7 Increase (Decrease) in Cash 1,415 529 963 1,243 Current Ratio (%) 205.6 202.9 214.1 229.7 Beginning Balance 1,908 3,323 3,852 4,815 Net Debt to Equity Ratio (%) -48.7 -56.5 -65.2 -72.9 Ending Balance 3,323 3,852 4,815 6,058 Interest Coverage Ratio (x) 68.7 35.7 73.4 91.8 Source: Company data, Mirae Asset Daewoo Research estimates

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APPENDIX 1

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

Company (Code) Date Rating Target Price (W) NAVER NAVER(035420) 09/17/2019 Buy 230,000 300,000 08/11/2019 Buy 181,000 250,000 07/16/2019 Buy 172,000 200,000 01/23/2019 Buy 176,000 150,000 11/26/2018 Buy 141,000 08/27/2018 No Coverage 100,000 04/26/2018 Buy 200,000 50,000

10/26/2017 Buy 240,000 0 Sep 17 Sep 18 Sep 19 04/04/2017 Buy 232,000

Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Equity Ratings Distribution & Investment Banking Services Buy Trading Buy Hold Sell Equity Ratings Distribution 83.14% 8.72% 8.14% 0.00% Investment Banking Services 77.78% 11.11% 11.11% 0.00% * Based on recommendations in the last 12-months (as of June 30, 2019)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates own 1% or more of NAVER`s shares outstanding. As of the publication date, Mirae Asset Daewoo Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of NAVER as an underlying asset; other than this, Mirae Asset Daewoo has no other special interests in the covered companies.

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

Disclaimers This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the . In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and it is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person and such person shall not be treated as a

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client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo.

Distribution United Kingdom: This report is being distributed by Mirae Asset Securities (UK) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: Mirae Asset Daewoo is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This report is distributed in the U.S. by Mirae Asset Securities (USA) Inc., a member of FINRA/SIPC, to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934, as amended. All U.S. persons that receive this document by their acceptance hereof represent and warrant that they are a major U.S. institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Mirae Asset Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Mirae Asset Securities (USA) Inc. Mirae Asset Securities (USA) Inc. accepts responsibility for the contents of this report in the U.S., subject to the terms hereof, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Mirae Asset Daewoo. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This report is distributed in Hong Kong by Mirae Asset Securities (HK) Limited, which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Mirae Asset Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Mirae Asset Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.

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Mirae Asset Daewoo International Network

Mirae Asset Daewoo Co., Ltd. (Seoul) Mirae Asset Securities (HK) Ltd. Mirae Asset Securities (UK) Ltd. Global Equity Sales Team Suites 1109-1114, 11th Floor 41st Floor, Tower 42 Mirae Asset Center 1 Building Two International Finance Centre 25 Old Broad Street, 26 Eulji-ro 5-gil, Jung-gu, Seoul 04539 8 Finance Street, Central London EC2N 1HQ Korea Hong Kong United Kingdom China Tel: 82-2-3774-2124 Tel: 852-2845-6332 Tel: 44-20-7982-8000

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