Industrials / Korea 086280 KS Industrials / Korea 2 April 2015

Hyundai Glovis

Hyundai Glovis Target (KRW): 240,000 Upside: 13.5% 086280 KS 2 Apr price (KRW): 211,500

Initiation: plenty of cars left on the carrier 1 Buy 2 Outperform (initiation) • The recent reduction in the major shareholder’s stake should 3 Hold lead to a rise in captive business from HMG longer term 4 Underperform • A rise in PCC’s coverage ratio for its overseas logistics business 5 Sell should provide impetus for earnings from 2016 onwards • Initiating coverage with an Outperform (2) rating and 12-month target price of KRW240, 000, based on a 2015E PER of 15.6x

How do we justify our view?

guidance of 4.3% YoY) for 2015, due global major peer average of 15.6x primarily to weak complete knock- and lower than the middle of its down (CKD) shipments YoY amid past-3-year range of 12.6-23.2x. the sluggish global shipment outlook for HMG. ■ Risks Sung Yop Chung The main risks to our call are weaker (82) 2 787 9157 However, we expect Glovis to record shipments from HMG and a rapid [email protected] stronger revenue growth from 2016 appreciation of the KRW against the onwards, driven by: 1) the coverage USD.

ratio of PCC transportation for HMG ■ Investment case rising to 75% in 2017E, 2) a rise in We initiate coverage of Hyundai third-party logistics (TPL) Share price performance Glovis (Glovis), a logistics unit of operations for its overseas car (KRW) (%) Hyundai Motor Group (HMG) (Not 330,000 130 transportation business to 55% in listed), with an Outperform (2) 297,500 118 2017, from 45% in 2014, and 3) rating and 12-month target price of 265,000 105 stronger CKD revenue growth with KRW240,000. Following the Chung 232,500 93 the start-up of Kia Motors’ (Kia) 200,000 80 Family’s recent selldown of its stake (000270 KS, KRW44,300, Hold [3]) Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 from 43.39% to 29.99%, we see a greenfield plant in Mexico. Hyund Glo (LHS) Relative to KOSPI (RHS) high probability of Glovis’s coverage ratio of pure car carriers (PCC) for Meanwhile, we believe Glovis’s HMG rising from 2016 onwards, 12-month range 211,500-327,500 market value will remain important Market cap (USDbn) 7.19 from 40% currently. for ES Chung to fund a purchase of 3m avg daily turnover (USDm) 77.85

Hyundai Mobis’s (Mobis) (012330 Shares outstanding (m) 38 This block deal could give HMG the Major shareholder ES CHUNG (23.3%) KS, KRW240,500, Buy [1]) stake impetus it needs to conduct more either from Kia or Hyundai Steel business with Glovis in the next few Financial summary (KRW) (HS) (004020 KS, KRW74,500, years, given that the owners’ stake, Year to 31 Dec 15E 16E 17E Outperform [2]). Of the current Revenue (bn) 14,914 16,589 18,019 at just less than 30%, now meets the value of KRW2.99tn for ES Chung’s Operating profit (bn) 708 835 914 Korea Fair Trade Commission’s holdings in listed/not listed Net profit (bn) 576 688 762 (FTC) regulatory requirements. Core EPS (fully-diluted) 15,364 18,337 20,321 companies of HMG, his Glovis stake EPS change (%) 7.4 19.4 10.8 has the highest value at KRW1.85tn. ■ Catalysts Daiwa vs Cons. EPS (%) 2.0 4.4 6.0 PER (x) 13.8 11.5 10.4 Glovis shares have been driven by ■ Valuation Dividend yield (%) 1.0 1.3 1.4 revenue growth. From 2011-14, the We initiate coverage of Glovis with a DPS 2,200 2,700 3,000 company’s revenue rose at a CAGR PBR (x) 2.4 2.0 1.7 12-month target price of of 13.4%. However, we forecast EV/EBITDA (x) 8.4 7.3 6.9 KRW240,000, based on a 2015E revenue growth of just 7.1% YoY (vs. ROE (%) 18.9 18.9 17.8 PER of 15.6x, in line with the 2015E Source: FactSet, Daiwa forecasts

See important disclosures, including any required research certifications, beginning on page 23 Industrials / Korea 086280 KS 2 April 2015

Contents

Plenty of cars left on the carrier ...... 6 Company description ...... 6 Logistics: expansion through shipping ...... 8 Distribution: CKD is the cash cow ...... 11 Glovis’s market value has more potential to rise till 2017 ...... 12 Valuation and recommendation ...... 13 Key risks to our call ...... 16

- 2 - Industrials / Korea 086280 KS 2 April 2015

1 Buy How do we justify our view? 2 Outperform (initiation)

3 Hold  Growth outlook

4 Underperform  Valuation 5 Sell  Earnings revisions

 Growth outlook  Glovis: revenue and operating profit (2012-17E) We forecast 2015-17 revenue and operating profit (KRWbn) (%) CAGRs of 9.9% and 13.6%, backed by: 1) stronger CKD 20,000 5.2 18,019 5.4 16,589 revenue growth from 2016 onwards, following the start 14,914 5.2 13,922 of production at Kia’s Mexico greenfield plant in 2016, 15,000 12,861 11,746 5.1 5.0 2) a rise in long-term contracts for bulk carriers that 5.0 5.0 could generate KRW300bn per year over the period, 3) 10,000 4.6 4.8 4.7 a rise in the coverage ratio for PCCs for HMG to 75% by 4.6 2017, from 40% currently, through a rise in its PCC 5,000 4.4 fleet to 78 vessels (owned: 40/chartered: 38), which 614 637 645 708 835 914 could generate more than KRW2tn per year from 2016 0 4.2 onwards, from KRW1.52tn in 2014, and 4) a rise in the 2012 2013 2014 2015E 2016E 2017E TPL revenue portion for its overseas car transportation Revenue Operating profit Operating profit margin (RHS) business to 55% in 2017, from 45% in 2014. Source: Company, Daiwa forecasts

 Valuation  Glovis: event-driven analysis (x) Since the first attempt by MK Chung and ES Chung to Apr 2007 Oct 2013 Apr 2014 28 Kia Motors Announced '2020 Glovis Hyundai-amco merged with partly sell off their combined stake on 13 January 2015, started operating business plan (vision)' Hyudai Engineering Glovis shares are down 29.5%, triggering market 24 Slovakia plant concerns about weaker top-line growth prospects, 20 underpinned by its conservative guidance for 2015. 16 Shares of Glovis are now trading at a 2015E PER of 12 13.8x, vs. both a global logistics peer average of 15.6x Dec 2007 Jan 2013 Jan 2015 8 PCC contracts between Korea's FTC introduced Chung family failed to divest and their own past-3-year range of 12.6-23.2x. EUKOR-HMG terminated antitrust policy 13.4% stake through block deal 4 As the regulatory risks from the FTC have dissipated 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 PER +1 STD +2 STD with the major shareholder’s stake having fallen below -1 STD -2 STD Average 30%, we believe Glovis’s top-line growth trajectory is Source: Fnguide, Daiwa intact. Thus, we envisage its valuation normalising over the next 12 months.

 Earnings revisions  Glovis: earnings revision cycle

We see Glovis’s upward earnings revision cycle (KRW) (x) resuming from 2Q15 onwards, as we expect a rise in 20,000 24 HMG’s global shipments. And we look for the upward 20 earnings revision cycle to become stronger from 2016 15,000 onwards, driven by: 1) the coverage ratio of PCC 16 transportation for HMG possibly rising to 75% in 2017E, 10,000 from 40% currently, and 2) a rise in the revenue 12 5,000 contribution from TPL for its overseas car 8 transportation to 55% in 2017E, from 45% in 2014. 0 4 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 FY15 EPS (LHS) FY15 PER (RHS)

Source: Bloomberg, Daiwa

- 3 - Industrials / Korea 086280 KS 2 April 2015

Financial summary

 Key assumptions Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Domestic's gross profit margin (%) n.a. 8.0 7.9 7.3 7.4 7.4 7.3 7.1 Overseas' gross profit margin (%) n.a. 6.8 3.8 7.4 7.5 7.8 7.9 8.0 CKD's gross profit margin (%) n.a. 9.6 9.2 9.9 9.4 9.8 9.7 9.8 Used Car's gross profit margin (%) n.a. 7.0 6.9 6.0 6.0 6.1 6.2 6.3 Others Logistics' gross profit margin n.a. n.a. 5.0 1.1 (0.8) (0.4) 0.9 0.4 (%)

 Profit and loss (KRWbn) Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Domestic 0 1,150 1,275 1,247 1,157 1,088 1,014 940 Overseas 0 2,377 5,148 5,498 6,006 6,519 7,467 8,234 Other Revenue 7,233 6,019 5,323 6,116 6,759 7,306 8,108 8,845 Total Revenue 7,233 9,546 11,746 12,861 13,922 14,914 16,589 18,019 Other income 00000000 COGS (6,620) (8,744) (10,763) (11,846) (12,902) (13,819) (15,367) (16,693) SG&A (292) (340) (369) (379) (375) (386) (387) (412) Other op.expenses 0 0 0 0 0 0 0 0 Operating profit 321 462 614 637 645 708 835 914 Net-interest inc./(exp.) (8) (1) (4) (1) (12) (14) (13) (11) Assoc/forex/extraord./others 41 25 58 66 79 44 60 74 Pre-tax profit 353 486 668 702 711 739 882 977 Tax (87) (127) (170) (221) (175) (163) (194) (215) Min. int./pref. div./others 0 0 0 0 0 0 0 0 Net profit (reported) 266 359 498 481 536 576 688 762 Net profit (adjusted) 266 359 498 481 536 576 688 762 EPS (reported)(KRW) 7,100 9,568 13,271 12,834 14,300 15,364 18,337 20,321 EPS (adjusted)(KRW) 7,100 9,568 13,271 12,834 14,300 15,364 18,337 20,321 EPS (adjusted fully-diluted)(KRW) 7,100 9,568 13,271 12,834 14,300 15,364 18,337 20,321 DPS (KRW) 1,500 700 1,500 1,500 2,000 2,200 2,700 3,000 EBIT 321 462 614 637 645 708 835 914 EBITDA 321 732 849 929 933 1,074 1,255 1,355

 Cash flow (KRWbn) Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Profit before tax 353 486 668 702 711 739 882 977 Depreciation and amortisation 7 276 245 303 299 377 432 454 Tax paid (87) (127) (170) (221) (175) (163) (194) (215) Change in working capital (101) (219) (224) (95) (220) (185) (307) (321) Other operational CF items (0) (142) (173) (282) (263) (155) (44) (35) Cash flow from operations 172 274 346 407 352 613 769 860 Capex (136) (262) (241) (626) (452) (565) (594) (623) Net (acquisitions)/disposals 10 (4) (27) (14) 8 4 0 (4) Other investing CF items (6) (1) (1) (2) (37) (20) (20) (20) Cash flow from investing (132) (268) (269) (643) (481) (581) (613) (647) Change in debt 123 197 86 295 224 362 476 495 Net share issues/(repurchases) 0 0 0 0 0 0 0 0 Dividends paid (33) (26) (56) (56) (56) (83) (101) (113) Other financing CF items 1 (0) (0) 0 1 (164) (163) (292) Cash flow from financing 90 171 30 239 168 116 212 91 Forex effect/others 0 0 0 0 0 0 0 0 Change in cash 131 178 107 3 39 148 368 304 Free cash flow 36 12 105 (219) (100) 48 175 237 Source: FactSet, Daiwa forecasts

- 4 - Industrials / Korea 086280 KS 2 April 2015

Financial summary continued …

 Balance sheet (KRWbn) As at 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Cash & short-term investment 455 638 742 736 768 917 1,286 1,591 Inventory 224 407 474 522 646 692 769 836 Accounts receivable 678 1,397 1,434 1,581 1,818 2,091 2,325 2,674 Other current assets 22 87 76 88 104 93 84 75 Total current assets 1,379 2,529 2,726 2,926 3,335 3,792 4,464 5,176 Fixed assets 580 814 977 1,515 2,116 2,617 3,149 3,723 Goodwill & intangibles 12 35 37 39 39 49 61 76 Other non-current assets 402 448 518 588 706 724 740 759 Total assets 2,373 3,827 4,258 5,069 6,196 7,182 8,414 9,735 Short-term debt 220 821 860 889 950 1,140 1,368 1,641 Accounts payable 586 1,008 929 973 1,113 1,193 1,327 1,441 Other current liabilities 212 120 132 164 151 154 157 160 Total current liabilities 1,018 1,949 1,921 2,026 2,214 2,486 2,852 3,243 Long-term debt 13 220 229 491 680 852 1,100 1,321 Other non-current liabilities 222 166 188 218 531 506 512 539 Total liabilities 1,253 2,335 2,339 2,735 3,425 3,845 4,464 5,102 Share capital 19 19 19 19 19 19 19 19 Reserves/R.E./others 1,102 1,473 1,901 2,315 2,752 3,318 3,932 4,614 Shareholders' equity 1,120 1,492 1,919 2,334 2,771 3,337 3,950 4,632 Minority interests 00000000 Total equity & liabilities 2,373 3,827 4,258 5,069 6,196 7,182 8,414 9,735 EV 7,709 8,334 8,279 8,576 8,793 9,006 9,114 9,303 Net debt/(cash) (222) 402 347 644 862 1,075 1,182 1,371 BVPS (KRW) 29,878 39,780 51,180 62,236 73,895 88,984 108,229 126,913

 Key ratios (%) Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Sales (YoY) 79.7 32.0 23.0 9.5 8.2 7.1 11.2 8.6 EBITDA (YoY) 65.1 128.1 16.1 9.4 0.4 15.1 16.8 8.0 Operating profit (YoY) 65.1 44.2 32.7 3.8 1.2 9.9 17.9 9.5 Net profit (YoY) 38.4 34.8 38.7 (3.3) 11.4 7.4 19.4 10.8 Core EPS (fully-diluted) (YoY) 38.4 34.8 38.7 (3.3) 11.4 7.4 19.4 10.8 Gross-profit margin 8.5 8.4 8.4 7.9 7.3 7.3 7.4 7.4 EBITDA margin 4.4 7.7 7.2 7.2 6.7 7.2 7.6 7.5 Operating-profit margin 4.4 4.8 5.2 5.0 4.6 4.7 5.0 5.1 Net profit margin 3.7 3.8 4.2 3.7 3.9 3.9 4.1 4.2 ROAE 27.2 27.5 29.2 22.6 21.0 18.9 18.9 17.8 ROAA 12.4 11.6 12.3 10.3 9.5 8.6 8.8 8.4 ROCE 28.2 23.8 22.2 18.9 15.9 14.6 14.2 13.0 ROIC 32.3 24.4 22.0 16.6 14.7 13.7 13.6 12.8 Net debt to equity n.a. 27.0 18.1 27.6 31.1 32.2 29.9 29.6 Effective tax rate 24.6 26.2 25.5 31.5 24.6 22.0 22.0 22.0 Accounts receivable (days) 31.0 39.7 44.0 42.8 44.6 47.8 48.6 50.6 Current ratio (x) 1.4 1.3 1.4 1.4 1.5 1.5 1.6 1.6 Net interest cover (x) 39.2 314.2 148.5 1,066.9 53.9 51.4 65.5 84.3 Net dividend payout 21.1 7.3 11.3 11.7 14.0 14.3 14.7 14.8 Free cash flow yield 0.5 0.2 1.3 n.a. n.a. 0.6 2.2 3.0 Source: FactSet, Daiwa forecasts

 Company profile Hyundai Glovis (Glovis) is the inhouse integrated logistics provider for Hyundai Motor Group (HMG). The major businesses are logistics (51.5% of 2014 revenue) and distribution (48.5% of 2014 revenue). The logistics business consists of domestic logistics and international logistics (pure-car carriers, bulk carriers and in-land transportation). The distribution business consists of complete-knock-down (CKD), used car sales, and other distribution activities. Glovis’ major shareholders are HMG’s chairman, MK Chung (6.7%), and his son, Vice Chairman ES Chung (23.3%).

- 5 - Industrials / Korea 086280 KS 2 April 2015

 Glovis: current business structure

LOGISTICS (KRW7,163bn / 51%)

Domestic inland Pure car carrier (PCC) transportation Crude Tanker (KRW1,516bn / 11%) Plenty of cars left on (KRW1,157bn / 8%)

Overseas Bulk shipping the carrier Dry Bulk (KRW6,006bn / 43%) (KRW1,112bn / 8%)

Overseas inland We initiate coverage of Glovis with an DISTRIBUTION transportation Others (KRW6,759bn / 49%) Outperform (2) rating and 12-month (KRW3,379bn / 24%) target price of KRW240,000. Stronger Complete-Knock-Down top-line growth from its overseas logistics (CKD) business and CKD shipments underpin (KRW5,083bn / 37%) our positive view. Used cars sales (KRW307bn / 2%)

Company description Others (KRW1,370bn / 10%)

In-house integrated logistics provider for Source: Company, Daiwa Hyundai Motor Group Glovis is the largest integrated logistics provider in From a distributor to an integrated Korea and the in-house integrated logistics provider for logistics provider HMG. As of 2014, HMG accounted for 72% of Glovis’s Glovis is transforming itself into an integrated logistics revenue. provider, from a distributor of CKD products and used cars. The company’s growth is centred on overseas  Market share of logistics providers in Korea logistics business, and we expect its shipping business Dongbang Hansol Logistics Hyundai Sebang to see strong revenue growth derived from both HMG 2.9% 2.1% Logistics 2.9% and non-captive customers for PCCs and other bulk 6.1% shipping (bulk carriers, very-large-crude-carriers Hanjin [VLCCs] and Liquefied Natural Gas Carriers [LNGCs]). 6.7% Samsung Logitech By 2020, Glovis aims to increase its shipping (PCCs 4.8% *Hyundai Glovis 52.4% and bulk shipping) revenue to KRW8.2tn, from Pantos KRW2tn in 2014. As such, the company is spending 9.2% KRW500bn per year on fleet expansion for both its *CJ Korea PCCs and bulk shipping businesses. Express 2013 KR logistics market KRW22.2tn 13.0% The company is planning to bolster its PCC and bulk Source: Companies, Daiwa Note: market share based on 2013 revenue, *logistics segment only shipping businesses to 100 and 400 vessels, respectively, by 2020, from the current 59 and 35 Glovis’s major businesses comprise logistics (51% of vessels, respectively. 2014 revenue) and distribution (49% of 2014 revenue). The logistics business consists of domestic logistics and Thus, its business model is transforming into a more international logistics (PCCs, along with bulk carriers asset-intensive model, from an asset-light model. In and in-land transportation). our view, more economies of scale, buoyed by securing more long-term contracts for its shipping business, The distribution business consists of CKD, used car could lead to an acceleration in Glovis’s long-term sales and other distribution activities, including the earnings growth. However, as a result we see its ROE trading and distribution of used/recycled cars. declining more than its net profit during the expansionary phase over the next 5 years.

- 6 - Industrials / Korea 086280 KS 2 April 2015

 Glovis: revenue breakdown by product Following these transactions, the major shareholders’ KRW9.5tn KRW11.7tn KRW12.9tn KRW13.9tn KRW24.3tn stake in Glovis, at 6.7% for MK Chung and 23.3% for 100% 3.4% 3.5% 7.0% 9.8% 7.4% ES Chung, is now at 29.99%. Other shareholders are 2.1% 2.2% 2.4% 2.2% 2.2% 80% now the MK Chung foundation (4.5%), Hyundai Motor 39.1% 38.4% 38.1% 36.5% 37.2% Company (HMC) [(005380KS, KRW165,000, Buy [1])] 60% (4.9%), Den Norske (9.5%) and Wihelmsen Lines AS 15.8% 40% 27.5% 26.6% 24.3% (2.5%). 43.3% 20% 16.3% 16.2% 18.9% 33.7%  Glovis: market capitalisation and shareholding structure 12.0% 10.9% 9.7% (before vs. after the block trade) 0% 8.3% 3.7% 2011 2012 2013 2014 2020E (KRWbn) 12,075 Domestic inland transportation PCC/Bulk shipping 14,000 Overseas inland transportation Complete Knock Down (CKD) 12,000 Used cars sales Others 7,931 Source: Company, Daiwa 10,000 31.9% Note: figures for 2020E represent management’s aspirational goals 8,000 11.5% 23.3% 6,000 10.0% 6.7%  Glovis: net profit vs. ROE growth 9.5% 4,000 (KRWbn) (%) 46.6% 60.5% 900 35 2,000 29.2 762 27.2 27.5 800 688 30 0 700 22.6 3Q14 2015-04-02 576 25 600 536 498 481 18.9 17.8 Others Den Norske MK Chung ES Chung 500 20 359 21.0 Source: Financial Supervisory Service , Daiwa 400 15 266 18.9 300 10  Glovis: key milestones 200 5 Feb 2001 “Korea Logitech Ltd.” established as a logistics company specialised in 100 handling volumes from HMC/Kia Motors 0 0 2010 2011 2012 2013 2014 2015E 2016E 2017E Aug 2002 Pyeongtaek port started commercial operation. Initiated oil-related logistics Net profit (LHS) ROE (RHS) business

Source: Company, Daiwa forecasts Nov 2002 Launched US affiliate

Recent changes in Glovis’s shareholding Jun 2003 Changed company name to “Glovis” structure Jul 2003 Acquired used car sales business from ‘Autoever dotcom’ According to Korea’s Fair Trade Act, large conglomerates groups’ affiliates (asset sizes of more Apr 2004 Initiated Complete-knock-down (CKD) business with HMMA than KRW5tn) or major shareholders are subject to pay 2005 Launched Slovakia/China/Australia affiliates penalties under the following conditions. 1) If family owners have more than a 30% stake (20%, Dec 2005 Listed on the Korea Stock Exchange

if unlisted) in the company. Feb 2006 Launched Europe/India affiliates 2) If the group affiliates’ interrelated business with the Jun 2007 Launched Turkey/Czech Rep. affiliates group is more than 12% of its current revenue, or if the revenue generated from the group exceeds Aug 2008 Launched Russia affiliate KRW200bn. 2009 Initiated Pure Car Carrier (PCC) service

As MK Chung (11.5%) and ES Chung’s (31.9%) Feb 2011 Launched Brazil affiliate combined stake was 43.39% in Glovis, both parties sold off a 13.4% combined stake in Glovis through a block Nov 2011 Changed company name to “Hyundai Glovis” trade with a 720-day lock-up on 6 February 2015 to avoid the penalties that could have potentially been Jul 2012 Entered into a contract with Boeing to transport F-15K levied. Nov 2014 Acquired ‘Adampol S.A.’ Source: Company, compiled by Daiwa On 20 March 2015, Den Norske, a shareholder in Glovis with a 10.04% stake, also sold off 0.5% of Glovis shares with a lock-up of 90 days.

- 7 - Industrials / Korea 086280 KS 2 April 2015

 Eukor Car Carriers: shareholding structure (as at end-1Q15) Logistics: expansion through Kia 8.0% shipping HMC 12.0% Wallenius For 2014, Glovis’s logistics business generated revenue Logistics AB of KRW7.16tn (51.5% of 2014 revenue). The domestic 40.0% logistics business (8.3% of 2014 revenue) focuses on inland transportation of HMC’s and Kia’s cars.

As the Korea auto industry has already entered the Wilhelmsen mature stage, we do not envisage strong top-line Ships Holding growth for this segment going forward. Malta Ltd. 40.0% On the other hand, we see strong revenue growth Source: DART potential for its overseas logistics business, which In October 2013, Glovis unveiled its “Vision 2020”, consists of PCC, bulk shipping and inland which highlighted its long-term strategy to increase its transportation and logistics for HMG’s overseas shipping revenue to KRW8.2tn by 2020. Glovis’s affiliates. shipping revenue totalled KRW2.6tn in 2014.

We forecast the revenue contribution of overseas The major aim for its aggressive expansion into the logistics to increase to 49.5% in 2020, from 43.2% in shipping business was to seek organic growth both 2014. We look for Glovis’s shipping business to play a within HMG and to further diversify its client base to pivotal role in transforming the company into a global become a globally integrated logistics provider. logistics service provider over the long term.

 Glovis: 2014 vs. 2020 revenue breakdown By 2020, the company plans to have increased its fleet to 500 vessels (PCC: 100 vessels, bulk: 400 vessels), KRW13.9tn KRW24.3tn 100% from the current 94 vessels (PCC: 59 vessels, bulk: 35 8.3% 3.7% vessels). 80% 18.9% 33.7% Overseas logistics 49.5% 60% 24.3% 43.2%  Glovis: PCC and bulk shipping capacity outlook 15.8% (Vessel) 40% 450 400 36.5% 37.2% 400 20% 2.2% 2.2% 350 9.8% 7.4% 0% 300 2014 2020E 250 Others Used cars sales Complete Knock Down (CKD) Overseas inland transportation 200 PCC/Bulk shipping Domestic inland transportation 150 100 Source: Company, Daiwa forecasts 100 59 35 50 0 Shipping: “Vision 2020” PCC Bulk In 2009, Glovis started a car carrier business for HMG 2014 2020E cars following the termination of HMG’s exclusive Source: Company, compiled by Daiwa service contract with EUKOR Car Carriers (EUKOR) in 2008. PCCs: plenty of wind left in the sails and earnings accretive Established in 2002, EUKOR is one of the largest shipping companies and specialises in the transport of Following the termination on 31 December 2015 of vehicles and other rolling cargo. It operates fleets of HMG’s long-term contract to maintain a 60% coverage PCCs and Pure Car and Truck Carriers (PCTCs) and ratio with EUKOR, we forecast Glovis’s coverage ratio annually transports 4m cars worldwide. EUKOR is a for PCCs to gradually move up to 80% by 2020, from joint venture with HMG (20%), Norwegian shipping the current 40%. company Whilhelmsen Lines (40%), and Swedish shipping group, Wallenius Lines (40%). The recent sell-off by MK Chung and ES Chung to below 30% to meet the anti-trust regulatory requirements of Korea’s FTC could pave the way for a

- 8 - Industrials / Korea 086280 KS 2 April 2015

faster-than-expected coverage ratio increase for  Glovis: PCC business earnings outlook Glovis’s PCC business, in our view. (Unit) 2013 2014 2015E 2016E 2017E PCC Revenue (KRWbn) 1,408 1,516 1,629 2,192 2,698 YoY (%) 6.8 7.7 7.5 34.6 23.1  Comparison of Glovis and EUKOR HMG portion (%) 70 70 71 78 81 Hyundai Glovis Eukor Car Carriers Revenue from HMG (KRWbn) 985 1,061 1,156 1,705 2,191 Capacity (CEU) 140,115 449,458 HMG Exports (K units) 2,319 2,436 2,479 2,510 2,530 Annual traffic ('000 vehicles) 1,334 - 2,184 3,332 - 4,919 Glovis PCC Coverage (%) 40 40 42 60 75 No. of ports 56 229 Glovis PCC Coverage (K units) 928 975 1,041 1,506 1,897 Annual voyages 372 - 492 636 - 780 PCC Revenue per unit (KRW) 1,062,073 1,088,512 1,110,262 1,132,448 1,155,078 PCC Operating profit (KRWbn) 110 123 148 217 283 Hyundai Glovis Eukor Car Carriers PCC OP margin (%) 7.8 8.1 9.1 9.9 10.5 Monthly Monthly Service routes Service routes % total revenue (%) 10.9 10.9 10.9 13.2 15.0 voyages voyages % total operating profit (%) 17.2 19.0 20.9 26.0 31.0 Mediterranean Sea & North U.S. West Coast 4 - 6 8 - 10 PCC Fleet Europe - Own (Vessels) 16 22 28 34 40 U.S. East Coast 1 - 2 The Red Sea 4 - 5 - Chartered (Vessels) 36 37 37 38 38 Central America 1 U.S. West Coast 6 - 8 Southern America West Source: Company, Daiwa forecasts 2 - 3 U.S. East Coast 3 - 4 Ocean Asia 2 South America West Coast 5 Bulk shipping: turning the tide China 4 South America East Coast 2 - 3 Australia 3 - 4 Central America & the Caribbean 1 For Glovis to achieve its 2020 vision of increasing its New Zealand/Pacific 3 - 4 Middle East 1 - 2 shipping revenue to KRW8.2tn in 2020, from Ocean KRW2.6tn in 2014, the revenue growth from its bulk Middle East 5 - 7 South & East Africa 2 - 3 Africa 2 - 3 South & West Africa 1 - 2 shipping will also be imperative, in our view. Red Sea 2 - 3 Europe to China & Korea 2 Europe to China & S.E Asia & Europe 2 2 We forecast Glovis’s bulk shipping revenue to rise to China KRW1.77tn in 2017, from KRW1.11tn in 2014, driven by Europe to China & Japan 2 Europe to Middle East & India 3 the following factors. Europe to East Africa 2 1) We forecast bulk shipping revenue for transporting U.S. East Coast to Panama, East 1 Asia HS’s iron-ore/coking coal and other raw materials U.S. East Coast to West Africa 1 - 2 to rise to KRW577bn in 2017, from KRW510bn U.S. West Coast/Canada to East 3 - 4 (46% of 2014 bulk shipping revenue) in 2014, Asia Caribbean Sea Shuttle 1 bolstered by a rise in utilisation rate for HS’s 3 blast Service ex India 3 furnaces. Source: Company, Clarkson, compiled by Daiwa 2) We look for Glovis to secure more non-captive long- term contracts, bolstered by a further expansion of As shown in the following table, we forecast Glovis to its fleet and also leveraging on its recent long-term claim the current market share of 60% from EUKOR contracts from both S-Oil (010950 KS, KRW67,000, from 2016 onwards. Hold [3]) and Hyundai Oilbank (Not listed).

This should result into Glovis’s PCC’s coverage ratio Contrary to the PCC business, earnings for the bulk rising to 60% in 2016 and 75% in 2017, respectively, shipping operation are more volatile and cyclical, as based on our forecasts, from the current 40%, with the they are determined by the Baltic Dry Index (BDI) and potential to generate revenue of KRW2.19tn in 2016E oil prices. In view of: 1) the current BDI of 596 points, and KRW2.70tn in 2017E, respectively, from and 2) higher number of long-term chartered vessels KRW1.52tn in 2014. (29 vessels out of 35 vessel fleets in 2014), we estimate Glovis’s operating-profit margin for its bulk shipping To achieve this, Glovis aims to expand its PCC fleet to segment was only 2% in 2014. 72 vessels in 2016, from 59 in 2014.

As EUKOR’s operating-profit margin, excluding amortisation of goodwill, has ranged from 10.7% to 15.9% over 2010-14, we forecast Glovis’s PCC operating-profit margin to increase further to 10.5% by 2017E, from 8.1% in 2014.

- 9 - Industrials / Korea 086280 KS 2 April 2015

 Glovis: outlook for bulk shipping revenue and number of Overseas subsidiaries: HMG’s capacity operating vessels expansion to provide impetus 598 676 1,112 1,336 1,578 1,765 (Vessels) 100% 300 Glovis’s overseas subsidiaries are mainly responsible 44% 45% 54% 59% 64% 67% for inland transportation. As shown in the following 250 80% table, its overseas subsidiaries recorded a strong 240 200 60% revenue CAGR of 10.9% for 2011-14, fuelled by a rise in 120 150 56% 55% both HMC’s and Kia’s global shipments. 40% 46% 41% 100 29 36% 33% 20% 16 20 With respect to the 70% stake acquisition of Adampol 65 70 50 11 S.A (Polish freight forwarding firm) in November 2014, 3 3 6 38 0% 0 we envisage the full-fledged impact of this acquisition 2012 2013 2014 2015E 2016E 2017E (Unit:KRWbn) Hyundai Steel Non-captive to become apparent from 2015 onwards.

Own (RHS) Long-term chartered (RHS) Source: Company, Daiwa forecasts Considering Adampol’s 2014 revenue of KRW100bn and taking into account the possible synergies with  Glovis: long-term onshore logistics contracts HMC’s Czech Republic plant and Kia’s Slovakia plant, Contract value we estimate this could generate additional revenue of Counterparty Starting date Ending date (KRWbn) KRW150bn for 2015. S-Oil Nov. 2014 Nov. 2019 132 Hyundai Oilbank Singapore 2014 2024 1,100 Hyundai Steel 2012 2032 446 From 2016 onwards, we see the revenue growth for Hyundai Steel 2011 2031 399 overseas subsidiaries accelerating with the planned Hyundai Steel 2011 2025 898 start-up of production at Kia’s Mexico plant in 2016, Hyundai Steel 2010 2030 1,340 KOSEP 2015 2025 ~100 and forecast Glovis Mexico to generate KRW40bn per Source: Company year in revenue from 2016 onwards.

According to Glovis, the company is mulling ways to We also see potential for earnings generated by Glovis further increase the revenue proportion of its less- America, the largest earnings contributor for its cyclical long-term contract business for its bulk overseas subsidiaries, to stage a stronger rebound from shipping business division. 2016 onwards, with a potential capacity increase at HMC’s Alabama plant to 660,000 units from 2H16, For instance, Mitsui O.S.K Line’s (9104 JP, JPY407, from the current 360,000 units. Outperform [2]) bulk shipping division has recorded higher current-profit margins in years when the long-  Glovis: snapshot of overseas subsidiaries (as at end-4Q14) (Unit: KRWbn) Initial acquisition date Share Book value Total asset Net income term contract portion was high. Glovis America 12/02/02 100% 75.7 375 74 Glovis Slovakia 04/07/05 100% 15.4 21 3  Mitsui O.S.K line’s bulk shipping: current-profit margin and Beijing Glovis 08/12/05 100% 5.5 89 14 long-term contracts (FY08-FY13) Glovis Europe 01/23/06 100% 12.2 139 27 (JPYbn) (%) Glovis Czech Rep. 07/05/07 100% 7.1 18 3 100% 5 25 Glovis India 04/06/06 100% 4.8 115 18 85 47 Glovis Russia 07/14/08 100% 3.4 34 10 21.4 20 50% 50 Glovis Turkey 06/25/07 100% 0.5 16 2 120 90 75 15 Glovis Australia 01/13/06 100% 0.5 10 1 55 50 0% 10 Glovis Brazil 02/28/11 100% 4.5 28 6 9.3 (66) Glovis Mongol 09/26/11 100% 0.5 0 0 9.0 (79) (79) 5 Glovis Mexico 04/04/14 100% 1.1 2 0 (50%) 6.8 (3.4) 0 Source: Company (100%) (1.0) (5) FY08 FY09 FY10 FY11 FY12 FY13 Other profit *Highly stable profit Bulkships current profit margin (RHS) Source: Company Note: 1) *Profits that are fixed from contracts of 2 years or more. Segments included in “highly stable profits” are bulkships businesses (ie, dry bulker, tanker, LNG carrier, offshore businesses), 2) Current profit = highly stable profit + other profit

- 10 - Industrials / Korea 086280 KS 2 April 2015

 Glovis’ overseas subsidiaries: revenue breakdown by region For 2015, we look for its CKD division’s revenue to (Unit: KRWbn) 2013 2014 2015E 2016E 2017E decline YoY for the first time, driven by: 1) weaker America 1,167 1,220 1,281 1,345 1,413 global shipment growth guidance of 2.5% YoY for Beijing 258 255 267 281 295 India 300 346 363 381 401 HMG, and 2) the full-fledged impact of losing its CKD Australia 47 47 49 51 54 engine transportation business, which generated Brazil 97 99 104 109 114 around KRW80bn in revenue for 2014. Mongol 2 2 2 2 3 Europe 475 486 510 535 562 Solovakia 63 60 63 66 70 However, we look for its 2016 CKD revenue to stage a Czech 56 53 56 58 61 rebound with the start-up of Kia’s Mexico factory in Russia 261 227 239 251 263 2016 with an annualised production capacity of Turkey 60 74 77 81 85 300,000 units. Mexico 0 6 6 41 43 Source: Company, Daiwa forecasts We also see upside potential for its CKD’s gross-profit margin to improve further, should the KRW weakness Distribution: CKD is the cash cow against the US persist over the next few years. This is due to the procurement of CKD products being settled in KRW, while revenue is paid in USD. Glovis’s CKD business consists of CKD cargo distribution and CKD product distribution. CKD cargo Considering that Glovis’s CKD division generates a distribution provides a total service of purchasing, high-single-digit gross-profit margin and as we packaging and delivering automobile parts for overseas envisage HMC and Kia’s combined production capacity car manufacturing plants. reaching 10.2m units in 2017E, from 7.9m units in

2014, we expect Glovis’s CKD business to generate Meanwhile, CKD product distribution provides an stable cash flow in the next few years. integrated service of purchasing, re-packing and delivering packed goods for overseas car  HMC and Kia: global production capacity expansion plans manufacturing. HMC

('000 units) As illustrated in the following chart, Glovis’s CKD 7,000 6,370 revenue growth is strongly correlated with HMC’s and 5,570 6,000 4,910 5,040 330 Kia’s combined overseas shipments (ex-China and 4,650 200 4,420 5,000 330 India). 3,918 200 1,050 3,660 300 330 300 200 200 800 4,000 300 200 300 100 600 600 100200 100 600 600 1,800 Backed by a steady rise in the combined shipments of 3,000 600 600 1,550 2,030 960 1,200 1,250 both HMC and Kia, Glovis’s CKD division recorded a 600 600 900 2,000 300 300 300 370 370 370 370 670 strong revenue CAGR of 10.8% from 2011-14. 1,000 1,770 1,860 1,868 1,870 1,870 1,870 1,870 1,870 1,870  HMC and Kia’s overseas shipments vs. CKD revenue growth 0 2003 2010 2011 2012 2013 2014 2015E 2016E 2017E (YoY growth,%) Postivie correlation of +80.9% between HMG overseas Korea US China India Turkey Czech Russia Brazil 60 shipment and Glovis CKD revenue 50 40 Kia Motors 30 ('000 units) 20 5,000 3,820 10 4,000 3,370 300 0 2,970 3,070 2,670 2,710 2,710 150 310 3,000 310 (10) 2,400 310 310 300 300 1,190 300 740 890 300 640 1,485 430 440 440 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 2,000 430 300 340 340 360 360 360 360 300 HMG overseas shipment Glovis CKD revenue 1300 1,000 1,640 1,630 1,630 1,660 1,660 1,660 1,660 Source: Companies, Daiwa 1,355 1,370 0 In 2014, CKD revenue growth decelerated due to a 2003 2010 2011 2012 2013 2014 2015E 2016E 2017E combination of weaker YoY overseas shipment growth Korea US China Slovakia Mexico for HMC and Kia, and losing its CKD engine Source: Companies, Daiwa forecasts transportation business for Kia’s Slovakia plant in 4Q14.

- 11 - Industrials / Korea 086280 KS 2 April 2015

 ES Chung’s stakes in HMG affiliates Glovis’s market value has more (KRWbn) *Market Cap ES Chung's stake Value (KRWbn) Kia 17,958 1.7% 305 potential to rise till 2017 Glovis 7,931 23.3% 1,848 Wia 3,699 2.0% 74 Since the first attempt by Glovis’s major shareholders Engineering* 5,681 11.7% 666 to divest their combined stake on 13 January 2015, Innocean* 1,000 10.0% 100 ES Chung- total 2,993 Glovis shares are down 29.5%. Although the purpose Tax levied at 20% 622 of the block deal was to avoid the anti-trust regulation Market Cap Kia's stake Value (KRWbn) from Korea’s FTC, the market seemed to think this Mobis 23,411 16.9% 3,952 could trigger a further selldown of ES Chung’s stake in (ES Chung's stake in affiliates) - (Kia's stake in Mobis) (1,557) Source: Bloomberg, Note: *We expect IPOs for Hyundai Engineering and Innocean in Glovis. 2015

According to Korea’s Fair Trade Act, large In 2014, ES Chung’s net dividend income from his conglomerate group affiliates (asset size of more than holdings in HMG’s affiliates amounted to KRW29bn; KRW5tn) or major shareholders are subject to pay and assuming a 10% rise in DPS for each affiliate till penalties on the following conditions. 2017, we estimate the total proceeds from 2014-17 1) If family owners have more than a 30% stake (20%, could amount to KRW140bn. if unlisted) in the company.  ES Chung: FY14 dividend income from affiliates 2) If the group affiliates’ interrelated business with the No. of shares ES Chung's FY14 dividend group is more than 12% of its current revenue, or if outstanding stake per share the revenue generated from the group exceeds (’000 shares) (%) (KRW) KRW200bn. Kia 404,985 1.7% 1,000 Glovis 37,500 23.3% 2,000 Wia 25,730 2.0% 800 However, on 6 February 2015, MK Chung and ES Engineering 7,272 11.7% 12,000 Chung successfully conducted a block trade, divesting Innocean 1,800 10.0% 4,000 their combined 13.4% stake, with a 720-day lock-up for Dividend income (KRWbn) 35.7 Tax levied at 15.4% 5.5 the remaining shares, and lowered their stake to Net dividend income (KRWbn) 30.2 29.99% (from 43.39%). Source: Companies, Bloomberg, Daiwa

As both MK Chung and ES Chung have a 720-day lock-  ES Chung: 2014-17E net dividend income up for their remaining combined 29.99% stake in (KRWbn) Glovis, we believe this should alleviate market concerns 45 40.2 40 36.6 about the owners further divesting their stakes in 33.2 Glovis. 35 30.2 30 We believe Glovis’s market value would be important 25 for ES Chung to fund a potential purchase of Mobis’ 20 stake from either Kia or HS. Of the current value of 15 KRW2.99tn for ES Chung’s holdings in listed/not listed 10 companies of HMG, Glovis has the highest value at 5 0 KRW1.85tn. As such, we believe it would be in the best 2014 2015E 2016E 2017E interests of ES Chung to see the market value of Glovis rise, at least until the lock-up expires in 6 February Source: Companies, Daiwa estimates

2017.

- 12 - Industrials / Korea 086280 KS 2 April 2015

 HMG: shareholding structure (as of 30 March 2015)

Source: Company, Note: Market capitalisation of each listed company is in KRW as of 2 April 2015

 Major B2B logistics companies: 2015 PERs Valuation and recommendation (x) 25 We initiate coverage of Glovis with an Outperform (2) 20 Industry average: 15.6x rating and a 12-month target price of KRW240,000. 15 We arrive at our target price by applying a target PER of 15.6x to our 2015E EPS of KRW15,364. 10 5 Our target 2015E PER is in line with a global peer 0

average of 15.6x based on the Bloomberg-consensus DSV *NYK *MOL forecasts, and is lower than the middle of its own past- Fedex Deutsche… *"K" Lines *"K" CSX Corp CSX Yang Ming Yang AP Moeller TNT Express 3-year PER range of 12.6-23.2x. Pacific Union Nor. Southern Nor. United Parcels United Robinson C.H. *Hyundai Glovis Hanshin Hankyu As shown in the following chart, we highlight that Source: Bloomberg, *Daiwa forecasts Glovis’s shares have been driven by strong top-line growth over the past few years. Since 2010, Glovis has  Glovis: price-to-sales graph (x) traded at a price-to-sales ratio of 0.5-1.0x, with an 1.1 average price-to-sales ratio of 0.7x, compared with the 1.0 0.94x : KRW374,222 current level of 0.6x. As we envisage stronger top-line 0.9 growth from 2016 onwards, we expect Glovis’s price- 0.84x : KRW334,330 0.8 to-sales ratio to stage a strong rebound over the next 12 0.74x : KRW294,438 0.7 months. 0.6 0.64x : KRW254,546 0.5 0.54x : KRW214,755 0.4 Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14 Sep-14 Apr-15 PSR +1 STD +2 STD -1 STD -2 STD Average Source: Companies, Bloomberg Daiwa

- 13 - Industrials / Korea 086280 KS 2 April 2015

 Major B2B logistics companies globally: valuation data Absolute Relative EV/ Div. EPS Share Daiwa Mcap Performance (%) Performance (%) P/E (x) PBR (x) EBITDA (x) ROE (%) Yield (%) growth (%) Company Ticker Curr. Price Rating (USDm) YTD 1M 3M 12M 1M 3M 15E 16E 15E 16E 15E 16E 15E 16E 15E 16E 15E 16E *Hyundai Glovis 086280 KS KRW 211,500 Outperform 7,193 (27.4) (8.0) (31.4) (16.8) (9.7) (36.8) 13.8 11.5 2.4 2.0 8.4 7.3 18.9 18.9 1.0 1.3 7.4 19.4 Logistics United Parcels UPS US USD 97 Not rated 87,105 (12.8) (4.7) (12.8) (9.6) (2.6) (12.8) 18.6 17.0 18.7 18.0 9.9 9.2 120.9 227.5 2.9 3.2 8.7 10.7 Fedex FDX US USD 165 Not rated 47,172 (4.7) (6.5) (4.7) 14.1 (4.4) (4.8) 18.5 15.2 2.8 2.5 7.8 6.4 15.9 17.6 0.5 0.6 32.4 21.6 C.H. Robinson CHRW US USD 73 Not rated 10,644 (2.2) (1.5) (2.2) 31.1 0.7 (2.3) 21.4 19.4 10.5 9.3 14.3 12.1 46.7 49.5 2.1 2.2 12.0 10.3 Deutsche Post-RG DPW GR EUR 29 Not rated 37,985 7.6 (4.1) 7.6 (17.9) (9.3) (14.8) 15.1 14.6 3.3 3.0 8.2 7.5 21.6 21.8 3.2 3.5 5.4 10.7 TNT Express TNTE NA EUR 6 Not rated 3,541 6.9 8.4 6.9 (38.5) 7.2 (8.6) 20.1 16.6 1.4 1.3 7.7 6.3 6.2 8.6 1.9 2.4 n.m. 23.1 Sub-average 37,289 (1.1) (1.7) (1.1) (4.2) (1.7) (8.7) 18.7 16.5 7.4 6.8 9.6 8.3 42.3 65.0 2.1 2.4 14.7 15.3 Marine transport AP Moeller MAERSKB DC DKK 14,540 Not rated 46,010 17.5 (5.4) 17.5 (23.7) (14.7) (12.1) 11.0 9.5 1.1 1.0 5.7 4.6 10.3 10.8 0.5 0.4 66.0 16.1 *Nippon Yusen 9101 JP JPY 346 Hold 4,950 1.2 (3.6) 1.2 (13.5) (5.5) (9.1) 13.3 9.2 0.8 0.7 8.9 7.7 6.1 7.7 1.6 2.2 33.8 43.6 *Mitsui O.S.K. Lines 9104 JP JPY 407 Outperform 4,106 13.4 (4.7) 13.4 (29.6) (6.5) 3.1 13.2 9.4 0.7 0.6 13.9 10.7 5.4 7.1 1.4 1.8 (35.8) 40.8 *"K" Lines 9107 JP JPY 323 Hold 2,546 (0.6) (11.3) (0.6) 16.0 (13.1) (10.9) 11.6 8.7 0.7 0.7 6.5 5.4 6.5 8.2 1.7 2.4 56.6 34.0 Yang Ming 2609 TT TWD 18 Not rated 1,625 5.6 1.7 5.6 30.2 1.7 2.5 11.4 10.1 1.3 1.2 7.9 7.0 11.5 12.2 2.2 2.3 1,100.0 13.5 Sub-average 11,847 7.4 (4.7) 7.4 (4.2) (7.6) (5.3) 12.1 9.4 0.9 0.8 8.6 7.1 8.0 9.2 1.5 1.8 30.1 29.6 Road & rail transport Union Pacific UNP US USD 108 Not rated 94,328 (9.1) (9.9) (9.1) 5.7 (7.8) (9.1) 15.6 14.6 4.4 4.0 8.9 8.2 26.5 28.5 2.0 2.3 13.4 13.6 CSX Corp CSX US USD 33 Not rated 33,169 (8.6) (3.5) (8.6) 4.5 (1.3) (8.6) 15.5 13.9 2.7 2.5 8.4 7.7 18.2 18.8 2.1 2.2 11.0 12.0 Norfolk Southern NSC US USD 103 Not rated 31,539 (6.1) (5.7) (6.1) (4.3) (3.6) (6.1) 15.2 13.7 2.5 2.3 8.2 7.8 16.4 16.8 2.3 2.4 6.1 10.9 DSV DSV DC DKK 216 Not rated 5,594 14.9 0.4 14.9 (12.8) (8.8) (14.7) 17.9 16.9 5.7 5.0 12.9 12.6 31.5 33.6 0.9 1.0 10.5 11.6 Hankyu Hanshin 9042 JP JPY 738 Not rated 8,007 13.7 (2.5) 13.7 3.4 (4.4) 3.4 18.1 19.5 1.4 1.3 13.3 13.2 7.8 7.0 0.8 0.8 5.0 (1.8) Sub-average 34,527.6 1.0 (4.2) 1.0 (0.7) (5.2) (7.0) 16.5 15.7 3.3 3.0 10.3 9.9 20.1 21.0 1.6 1.7 9.2 9.2 Average 26,596.6 0.6 (3.8) 0.3 (3.9) (5.1) (8.9) 15.6 13.7 3.8 3.5 9.4 8.3 23.1 30.9 1.7 1.9 16.6 18.1 Source: Bloomberg, *Daiwa forecasts Note: 1) share prices are as of 2 April 2015 (US & others as on 1 April 2015), 2) **Relative to each country index

Cross-checking our valuation: SOTP  Glovis: SOTP valuation – peer selection Company BBG Ticker Mkt. Cap (USDm) 2015E EV/EBITDA (x) Given the various types of businesses within Glovis, we Inland transportation have also calculated the stock’s valuation using SOTP Union Pacific UNP US 94,328 8.9 methodology. We believe the most significant revenue CSX Corp CSX US 33,169 8.4 generators for Glovis are inland transportation, marine Norfolk Southern NSC US 31,539 8.2 DSV DSV DC 5,594 12.9 transportation (shipping) and other logistics Hankyu Hanshin 9042 JP 8,007 13.3 businesses. Sub-average 10.3 Marine transportation We assign the industry average EV/EBITDA multiple AP Moeller MAERSKB DC 46,010 5.7 for each business, as shown in the following table. We *Nippon Yusen 9101 JP 4,950 8.9 *Mitsui O.S.K. Lines 9104 JP 4,106 13.9 assign an EV/EBITDA multiple of 10.3x for Glovis’s *"K" Lines 9107 JP 2,546 6.5 inland transportation business and 8.6x and 9.6x for Yang Ming 2609 TT 1,625 7.9 its marine transportation and other logistics Sub-average 8.6 operations, respectively. Other logistics United Parcels UPS US 87,105 9.9 Fedex FDX US 47,172 7.8 C.H. Robinson CHRW US 10,644 14.3 Deutsche Post-RG DPW GR 37,985 8.2 TNT Express TNTE NA 3,541 7.7 Sub-average 9.6 Source: Bloomberg,*Daiwa forecasts

We also valued the major investment securities and affiliates held by Glovis and added these to the above mentioned valuations for the 3 most significant businesses.

- 14 - Industrials / Korea 086280 KS 2 April 2015

 Glovis: SOTP valuation – non-operating assets  Glovis: event-driven analysis Stake Book Value (x) Oct 2013 Apr 2014 Affiliates/investment securities (%) (KRWbn) 25.0 Announced '2020 Glovis Hyundai-amco merged with Affiliates as of end-4Q14 business plan (vision)' Hyudai Engineering Hyundai Engineering 11.7 280.7 22.0 Joongdo Glovis 40.0 7.3 19.0 Sichuan Glovis 51.0 6.8 Hi-gold Glovis Shipping Trust No.11 20.0 57.5 16.0 Total 352.3 Jan 2013 Investment securities as of end-4Q14 13.0 Jan 2015 Hyundai A&I 16.2 18.6 Korea's FTC introduced Chung family failed to divest antitrust policy 13.4% stake through block deal *Hyundai Mobis 0.7 156.9 10.0 *Hyundai Greenfood 4.7 87.6 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Total 263.1 PER +1 STD +2 STD Source: Company -1 STD -2 STD Average Note: *Market capitalisation based, as listed on the Korea Exchange Source: Fnguide, Daiwa

As a result, we derive an SOTP valuation of 2015 revenue growth on track to beat KRW250,000/share, which is 4.2% higher than our 12- month PER-based valuation of KRW240,000. guidance Glovis guides for moderate 2015 revenue growth of  Glovis: SOTP valuation 4.3% YoY to KRW14.52tn, compared with its 2011-14 2015E EBITDA Multiple Fair Value revenue CAGR of 13.4%. Management expects this Segment (KRWbn) (x) (KRWbn) revenue growth to be driven by: 1) HMG’s conservative Core Business Value [A] 1,074 9.2 9,854 Inland transportation 79 10.3 813 global-shipment-growth guidance of 2.5% YoY, and 2) Marine transportation 499 8.6 4,285 a 5.6% YoY decline in CKD business revenue (34% of Other logistics 496 9.6 4,756 2015E consolidated revenue), as Glovis lost its engine Non-core asset [B] 615 transportation CKD business from HMG in 2014 Affiliates 352 (KRW80bn-90bn annually). Investment securities 263 Total Firm value [C=A+B] 10,470 Net Debt [D] 1,075  Glovis: 2015 revenue guidance Total Equity Value [E=C-D] 9,395 (KRWbn) 2013 2014 2015E Shares Outstanding (mn shares) [F] 37.5 Domestic inland transportation 1,247 1,157 1,202 Fair Value per share (KRW) [E/F] 250,525 YoY (%) -2.2 -7.3 4.0 SOTP valuation (KRW) 250,000 % revenue 9.7 8.3 8.3 Current share price (KRW) 211,500 Oversea 5,498 6,006 6,933 Upside Potential to our SOTP (%) 18.2 YoY (%) 6.8 9.2 15.4 Source: Bloomberg, DART, Daiwa forecasts % revenue 42.7 43.1 47.8 PCC 1,407 1,516 YoY (%) 6.8 7.7 Valuation to stage a mean reversion % revenue 10.9 10.9 Since the first attempt by its major shareholders (MK Bulk shipping 676 1,112 Chung and ES Chung) to partially sell off their YoY (%) 13.0 64.5 % revenue 5.3 8.0 combined stake on 13 January 2015, Glovis shares are Overseas inland transportation 3,415 3,379 down 29.5%, triggering market concerns about weaker YoY (%) 5.7 -1.1 top-line growth prospects, also underpinned by its % revenue 26.6 24.3 conservative guidance for 2015. CKD 4,901 5,083 4,798 YoY (%) 5.2 3.7 -5.6 % revenue 38.1 36.5 33.1 As such, Glovis stock is now trading at a 2015E PER of Used cars 311 307 340 13.8x, compared to the global logistics’ peers average of YoY (%) 22.8 -1.3 10.7 15.6x, and at the lower end of its past-3 year PER range % revenue 2.4 2.2 2.3 of 12.6-23.2x. As the regulatory risks from Korea’s FTC Others 905 1,370 1,242 YoY (%) 119.0 51.4 -9.3 have now dissipated, with the major shareholder’s % revenue 7.0 9.8 8.6 stake now reduced to below 30%, we believe Glovis’s Total 12,861 13,922 14,515 top-line growth trajectory remains intact. YoY (%) 9.5 8.2 4.3 Source: Company Thus, we envisage Glovis’s valuation multiple normalising to its 3-year average of 17.6x from the However, we forecast Glovis to record revenue growth current -1.5SD. of 7.1% YoY for 2015, outstripping management’s revenue growth guidance of 4.3% YoY.

- 15 - Industrials / Korea 086280 KS 2 April 2015

We look for this revenue growth to be driven by the We expect a further upward earnings revision cycle following factors: 1) our USD/KRW rate assumptions from 2Q15 onwards, driven by a rise in HMG’s global of 1,085 for 2015, vs. company’s USD/KRW rate shipments, and also as we forecast a rise in PCC assumption of 1,050, and considering Glovis’s net demand for Glovis, triggered by higher export exposure to the US is about 6.0% of its 2015E revenue, shipments for HMG. 2) stronger-than-expected revenue growth for its bulk- shipping business, as we believe the company has more  HMC and Kia: global shipments (1Q13-4Q15) potential to generate more revenue through short-term ('000 units) chartered bulk-carrier vessels at the current BDI, and 3) 2,400 the stronger CKD revenue outlook of KRW5.00tn, vs. 2,000 851 the company’s guidance of KRW4.80tn – we forecast 782 823

1,600 775 772 752 764 743 751 702 712

3.0% YoY global shipment growth for HMC and Kia 630 combined to 8.24m units in 2015E, vs. HMC and Kia’s 1,200 combined guidance of 2.5% YoY global shipment 800 1,363 1,337 1,289 1,269 1,228 1,227 1,219 1,217 1,183

growth to 8.20m units. 1,169 1,129 400 1,107

0 Moderate upward earnings revision cycle 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E3Q15E4Q15E for 2015, stronger in 2016 Hyundai Kia Glovis is scheduled to report its 1Q15 preliminary Source: Company, Daiwa results on 24 April 2015. We anticipate Glovis’s upward earnings revision cycle Despite a -4.1% YoY decline in HMG’s 1Q15 global to become stronger from 2016 onwards, bolstered by: shipments (ex-China and India) to 1.35m units, we look 1) the coverage ratio of PCC transportation for HMG for Glovis’s operating-profit margin to expand by 0.2pp rising to 75% in 2017E, from 40% currently, and 2) a YoY to 4.9%, bolstered by: 1) the weak KRW against the further rise in the TPL revenue portion for its overseas USD (1Q15 average USD:KRW rate of 1,100, vs. the car transportation business to 55% in 2017E, from 45% 1Q14 rate of 1,069) and considering 6% of its net in 2014. exposure (in terms of 2015E revenues) is in USD, and 2) higher-than-expected CKD shipments YoY, as  Glovis: quarterly revenue and operating-profit (1Q14-4Q16E) (KRWbn)5.3 (%) advised by management, as some of the CKD 5.0 5.2 5.1 6,000 4.7 4.7 4.9 4.9 5.5 shipments in 4Q14 were deferred. 4.5 4.6 4.5 4.2 5,000 4.4 We look for Glovis’s 1Q15 revenue and operating-profit 4,000 to come in at KRW3.54tn and KRW173bn, respectively, 3.3 3,000 with the potential to beat the current Bloomberg- 2.2 2,000 4,242 4,245 4,073 4,029 3,857

consensus revenue and operating-profit forecasts of 3,828 3,690 3,568 3,549 3,538 3,520 1,000 3,284 1.1

KRW3.51tn and KRW168bn, respectively, by 0.8% and 225 209 210 195 192 180 173 168 165 161 157 154 3.3%. 0 0.0

1Q14 2Q14 3Q14 4Q14

■ Glovis: 1Q15 earnings preview 1Q15E 2Q15E 3Q15E 4Q15E 1Q16E 2Q16E 3Q16E 4Q16E 1Q15E- 1Q15E- Revenue Operating profit Operating profit margin (RHS) (in KRWbn) Daiwa Bbg Diff (%) 1Q14 YoY (%) 4Q14 QoQ (%) Source: Company, Daiwa forecasts USD/KRW 1,100.0 1,100.0 1,069.0 2.9 1,086.6 1.2 Revenue 3,538 3,508 0.8 3,284 7.7 3,568 (0.9) COGS 3,278 3,043 3,303 Gross Profit 260 241 7.6 265 (2.1) Key risks to our call GP margin (%) 7.3 7.4 7.3 SG&A 87 87 100 The key risk to our call would be a rapid appreciation of Op. profit 173 168 3.3 154 12.2 165 4.8 OP margin (%) 4.9 4.8 4.7 4.6 the KRW against the USD, considering Glovis’s net Recur. Profit 174 166 4.9 123 41.6 exposure of KRW895bn (6% of 2015E revenue). RP margin (%) 4.9 5.1 5.1 According to our sensitivity analysis, a 1% appreciation Tax 38 47 175 of the KRW against the USD would result in a 1.3% Tax rate (%) 22.0 28.3 24.6 Net profit 136 131 3.6 119 14.1 81 68.6 decline and 0.05pp decline in our base-case operating NP margin (%) 3.8 3.7 3.6 3.9 profit and operating-profit margin assumptions of Source: Company, Bloomberg, Daiwa forecasts KRW708bn and 4.75%, respectively.

- 16 - Industrials / Korea 086280 KS 2 April 2015

 Glovis: FX sensitivity analysis KRW/USD % chg. Sales % chg Op. profit % chg OPM 1,155 5.0% 15,064 1.0% 753 6.4% 5.00% 1,144 4.0% 15,034 0.8% 744 5.1% 4.95% 1,133 3.0% 15,004 0.6% 735 3.8% 4.90% 1,122 2.0% 14,974 0.4% 726 2.5% 4.85% 1,111 1.0% 14,944 0.2% 717 1.3% 4.80% Base case 1,100 0.0% 14,914 0.0% 708 0.0% 4.75% 1,089 -1.0% 14,884 -0.2% 699 -1.3% 4.70% 1,078 -2.0% 14,854 -0.4% 690 -2.5% 4.65% 1,067 -3.0% 14,824 -0.6% 681 -3.8% 4.60% 1,056 -4.0% 14,794 -0.8% 672 -5.1% 4.54% 1,045 -5.0% 14,764 -1.0% 663 -6.4% 4.49% Key assumptions 1. *% USD-denominated revenue 20.1% 2. **Naked exposure_USD 30.0% Source: Daiwa forecasts Note: 1)*Approx. 60% of CKD annual revenue (34% of 2015E consolidated revenue) is exposed to USD:KRW movement, 2)** 53% of CKD operating cost(KRW4.5tn for 2015E) is naked USD exposure. FX hedge ratio is assumed to be 0% for conservative analysis.

A secondary risk would be a faster-than-expected shareholder restructuring at HMG, with ES Chung acquiring HS’s 5.7% stake in Mobis, which is currently valued at KRW1.33tn, by divesting his shares in affiliates other than Glovis, and using the proceeds from the recent block trade. This could be lead to negative sentiment toward the stock as it could undermine the rationale for the scenario of a further rise in Glovis’s market value.

Another risk to our call would be the potential disposal by Den Norske (not rated), a Norwegian maritime firm, of its remaining 9.5% stake in Glovis. Based on today’s closing price, Den Norske’s stake in Glovis is worth KRW753bn (USD688m), compared with Glovis’3- month average daily turnover of USD78.32m. Given the 90-day lock-up period for Den Norske, after the sale of a 0.5% stake on 20 March 2015, we believe there is potential share price overhang for Glovis. However, Glovis’ management indicated that Den Norske, the second largest shareholder in the company, said they would not be looking to divest their remaining 9.5% stake within 2015. Therefore, we believe the chances of a potential disposal by Den Norske in 2015 are quite low.

- 17 - Industrials / Korea 086280 KS 2 April 2015

Daiwa’s Asia Pacific Research Directory

HONG KONG SOUTH KOREA Hiroaki KATO (852) 2532 4121 [email protected] Sung Yop CHUNG (82) 2 787 9157 [email protected] Regional Research Head Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Kosuke MIZUNO (852) 2848 4949 / [email protected] Shipbuilding; Steel (852) 2773 8273 Mike OH (82) 2 787 9179 [email protected] Regional Research Co-head Banking; Capital Goods (Construction and Machinery) John HETHERINGTON (852) 2773 8787 [email protected] Iris PARK (82) 2 787 9165 [email protected] Regional Deputy Head of Asia Pacific Research Consumer/Retail Rohan DALZIELL (852) 2848 4938 [email protected] Jun Yong BANG (82) 2 787 9168 [email protected] Regional Head of Product Management Oil; Chemicals; Tyres Kevin LAI (852) 2848 4926 [email protected] Thomas Y KWON (82) 2 787 9181 [email protected] Chief Economist for Asia ex-Japan; Macro Economics (Regional) Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Game Christie CHIEN (852) 2848 4482 [email protected] Macro Economics (Regional) TAIWAN Junjie TANG (852) 2773 8736 [email protected] Rick HSU (886) 2 8758 6261 [email protected] Macro Economics (China) Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design Jonas KAN (852) 2848 4439 [email protected] (Regional) Head of Hong Kong and China Property Steven TSENG (886) 2 8758 6252 [email protected] Leon QI (852) 2532 4381 [email protected] IT/Technology Hardware (PC Hardware) Banking (Hong Kong, China); Broker (China); Insurance (China) Christine WANG (886) 2 8758 6249 [email protected] Anson CHAN (852) 2532 4350 [email protected] IT/Technology Hardware (Automation); Pharmaceuticals and Healthcare; Consumer Consumer (Hong Kong/China) Kylie HUANG (886) 2 8758 6248 [email protected] Jamie SOO (852) 2773 8529 [email protected] IT/Technology Hardware (Handsets and Components) Gaming and Leisure (Hong Kong/China) Helen CHIEN (886) 2 8758 6254 [email protected] Dennis IP (852) 2848 4068 [email protected] Small/Mid Cap Power; Utilities; Renewables and Environment (Hong Kong/China) John CHOI (852) 2773 8730 [email protected] INDIA Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Becky HAN (852) 2848 4464 [email protected] Head of India Research; Strategy; Banking/Finance Small/Mid Cap (Regional) Saurabh MEHTA (91) 22 6622 1009 [email protected] Joey CHEN (852) 2848 4483 [email protected] Capital Goods; Utilities Steel (China) Kelvin LAU (852) 2848 4467 [email protected] SINGAPORE Head of Transportation (Hong Kong/China); Transportation (Regional) Ramakrishna MARUVADA (65) 6499 6543 [email protected] Brian LAM (852) 2532 4341 [email protected] Head of Singapore Research; Telecommunications (China/ASEAN/India) Transportation – Aviation (Hong Kong/China); Railway; Construction and Engineering Royston TAN (65) 6321 3086 [email protected] (China) Oil and Gas; Capital Goods Jibo MA (852) 2848 4489 [email protected] David LUM (65) 6329 2102 [email protected] Head of Custom Products Group Property and REITs Thomas HO (852) 2773 8716 [email protected] Evon TAN (65) 6499 6546 [email protected] Custom Products Group Property and REITs

Jame OSMAN (65) 6321 3092 [email protected] PHILIPPINES Telecommunications (ASEAN/India); Pharmaceuticals and Healthcare; Consumer Bianca SOLEMA (63) 2 737 3023 [email protected] (Singapore)

Utilities and Energy

- 18 - Industrials / Korea 086280 KS 2 April 2015

Daiwa’s Offices Office / Branch / Affiliate Address Tel Fax DAIWA SECURITIES GROUP INC HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661 Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726 Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129 Daiwa Europe Trustees (Ireland) Ltd Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469

Daiwa Capital Markets America Inc Financial Square, 32 Old Slip, New York, NY10005, U.S.A. (1) 212 612 7000 (1) 212 612 7100 Daiwa Capital Markets America Inc. San Francisco Branch 555 California Street, Suite 3360, San Francisco, CA 94104, U.S.A. (1) 415 955 8100 (1) 415 956 1935 Daiwa Capital Markets Europe Limited 5 King William Street, London EC4N 7AX, United Kingdom (44) 20 7597 8000 (44) 20 7597 8600 Daiwa Capital Markets Europe Limited, Frankfurt Branch Trianon Building, Mainzer Landstrasse 16, 60325 Frankfurt am Main, (49) 69 717 080 (49) 69 723 340 Federal Republic of Germany Daiwa Capital Markets Europe Limited, Paris Representative Office 36, rue de Naples, 75008 Paris, France (33) 1 56 262 200 (33) 1 47 550 808 Daiwa Capital Markets Europe Limited, Geneva Branch 50 rue du Rhône, P.O.Box 3198, 1211 Geneva 3, Switzerland (41) 22 818 7400 (41) 22 818 7441 Daiwa Capital Markets Europe Limited, Midland Plaza 7th Floor, 10 Arbat Street, Moscow 119002, (7) 495 641 3416 (7) 495 775 6238 Moscow Representative Office Russian Federation Daiwa Capital Markets Europe Limited, Bahrain Branch 7th Floor, The Tower, Bahrain Commercial Complex, P.O. Box 30069, (973) 17 534 452 (973) 17 535 113 Manama, Bahrain Daiwa Capital Markets Hong Kong Limited Level 28, One Pacific Place, 88 Queensway, Hong Kong (852) 2525 0121 (852) 2845 1621 Daiwa Capital Markets Singapore Limited 6 Shenton Way #26-08, DBS Building Tower Two, Singapore 068809, (65) 6220 3666 (65) 6223 6198 Republic of Singapore Daiwa Capital Markets Australia Limited Level 34, Rialto North Tower, 525 Collins Street, Melbourne, (61) 3 9916 1300 (61) 3 9916 1330 Victoria 3000, Australia DBP-Daiwa Capital Markets Philippines, Inc 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, (632) 813 7344 (632) 848 0105 Makati City, Republic of the Philippines Daiwa-Cathay Capital Markets Co Ltd 14/F, 200, Keelung Road, Sec 1, Taipei, Taiwan, R.O.C. (886) 2 2723 9698 (886) 2 2345 3638 Daiwa Securities Capital Markets Korea Co., Ltd. One IFC, 10 Gukjegeumyung-Ro, Yeouido-dong, Yeongdeungpo-gu, (82) 2 787 9100 (82) 2 787 9191 Seoul, 150-876, Korea Daiwa Securities Capital Markets Co Ltd, Room 301/302，Kerry Center， (86) 10 6500 6688 (86) 10 6500 3594 Beijing Representative Office 1 Guanghua Road，Chaoyang District， Beijing 100020, People’s Republic of China Daiwa SSC Securities Co Ltd 45/F, Hang Seng Tower, 1000 Lujiazui Ring Road, (86) 21 3858 2000 (86) 21 3858 2111 Pudong, Shanghai 200120, People’s Republic of China Daiwa Securities Capital Markets Co. Ltd, 18th Floor, M Thai Tower, All Seasons Place, 87 Wireless Road, (66) 2 252 5650 (66) 2 252 5665 Bangkok Representative Office Lumpini, Pathumwan, Bangkok 10330, Thailand Daiwa Capital Markets India Private Ltd 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, (91) 22 6622 1000 (91) 22 6622 1019 Bandra East, Mumbai – 400051, India Daiwa Securities Capital Markets Co. Ltd, Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, (84) 4 3946 0460 (84) 4 3946 0461 Hanoi Representative Office Hoan Kiem Dist. Hanoi, Vietnam

DAIWA INSTITUTE OF RESEARCH LTD HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603 MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021

New York Research Center 11th Floor, Financial Square, 32 Old Slip, NY, NY 10005-3504, U.S.A. (1) 212 612 6100 (1) 212 612 8417 London Research Centre 3/F, 5 King William Street, London, EC4N 7AX, United Kingdom (44) 207 597 8000 (44) 207 597 8550

- 19 - Industrials / Korea 086280 KS 2 April 2015

Share price and Daiwa recommendation trend

 Kia Motors: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating 27/04/12 96,000 Buy 10/04/13 60,000 Outperform 31/03/14 68,000 Outperform 20/06/12 100,000 Buy 31/05/13 69,000 Outperform 07/07/14 61,000 Outperform 19/09/12 84,000 Outperform 25/09/13 78,000 Outperform 12/08/14 68,000 Outperform 26/10/12 66,000 Hold 27/11/13 72,000 Outperform 24/09/14 60,000 Outperform 15/01/13 55,000 Hold 14/01/14 60,000 Outperform 09/01/15 54,000 Hold

100,000 100,000 96,000 93,000 90,000 84,000 80,000 81,000 78,000 72,000 70,000 69,000 68,000 68,000 66,000 60,000 60,000 60,000 61,000 60,000 55,000 54,000 50,000

40,000 Jul-12 Jul-13 Jul-14 Apr-12 Apr-13 Apr-14 Apr-15 Oct-12 Oct-13 Oct-14 Jun-12 Jan-13 Jun-13 Jan-14 Jun-14 Jan-15 Feb-13 Mar-13 Feb-14 Mar-14 Feb-15 Mar-15 Aug-12 Sep-12 Nov-12 Dec-12 Aug-13 Sep-13 Nov-13 Dec-13 Aug-14 Sep-14 Nov-14 Dec-14 May-12 May-13 May-14

Target price (KRW) Closing Price (KRW)

Source: Daiwa

 Hyundai Mobis: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating 12/07/12 310,000 Outperform 26/04/13 290,000 Outperform 10/06/14 320,000 Outperform 27/08/12 310,000 Hold 28/06/13 270,000 Hold 24/09/14 280,000 Outperform 27/10/12 290,000 Hold 29/10/13 290,000 Hold 11/12/14 320,000 Buy 01/02/13 340,000 Buy 19/03/14 280,000 Hold 17/03/15 310,000 Buy

360,000 350,000 340,000 340,000

320,000 320,000 320,000 310,000 310,000 300,000 290,000 290,000 290,000 280,000 280,000 280,000 270,000 260,000

240,000

220,000 Jul-14 Jul-13 Jul-12 Apr-15 Apr-14 Apr-13 Apr-12 Oct-14 Oct-13 Oct-12 Jan-15 Jan-14 Jun-14 Jan-13 Jun-13 Jun-12 Feb-15 Mar-15 Feb-14 Mar-14 Feb-13 Mar-13 Aug-14 Sep-14 Nov-14 Dec-14 Aug-13 Sep-13 Nov-13 Dec-13 Aug-12 Sep-12 Nov-12 Dec-12 May-14 May-13 May-12

Target price (KRW) Closing Price (KRW)

Source: Daiwa

- 20 - Industrials / Korea 086280 KS 2 April 2015

 Hyundai Motor: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating 08/10/12 310,000 Buy 24/10/13 320,000 Buy 24/09/14 250,000 Buy 14/01/13 290,000 Buy 13/01/14 290,000 Buy 23/10/14 220,000 Buy 02/04/13 270,000 Buy 17/02/14 310,000 Buy 06/01/15 210,000 Buy 27/09/13 300,000 Buy 17/09/14 300,000 Buy 12/03/15 230,000 Buy

340,000 330,000 320,000 320,000 310,000 310,000 300,000 300,000 300,000 300,000 290,000 290,000 280,000 270,000 260,000 250,000 240,000 230,000 220,000 220,000 210,000 200,000 180,000 160,000 140,000 Jul-12 Jul-13 Jul-14 Apr-12 Apr-13 Apr-14 Apr-15 Oct-12 Oct-13 Oct-14 Jun-12 Jan-13 Jun-13 Jan-14 Jun-14 Jan-15 Feb-13 Mar-13 Feb-14 Mar-14 Feb-15 Mar-15 Aug-12 Sep-12 Nov-12 Dec-12 Aug-13 Sep-13 Nov-13 Dec-13 Aug-14 Sep-14 Nov-14 Dec-14 May-12 May-13 May-14

Target price (KRW) Closing Price (KRW)

Source: Daiwa

 Hyundai Steel: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating 12/06/12 105,000 Buy 01/07/13 70,000 Hold 19/06/14 85,000 Buy 02/01/13 100,000 Outperform 10/10/13 93,000 Outperform 20/09/14 91,000 Buy 19/02/13 90,000 Hold 08/02/14 98,000 Buy 06/11/14 75,000 Buy 26/04/13 78,000 Hold 27/02/14 83,000 Buy 16/01/15 72,000 Outperform

110,000 105,000 105,000 100,000 100,000 98,000 95,000 93,000 90,000 90,000 91,000 85,000 85,000 83,000 80,000 78,000 75,000 75,000 72,000 70,000 70,000 65,000 60,000 Jul-14 Jul-13 Jul-12 Apr-15 Apr-14 Oct-14 Apr-13 Oct-13 Apr-12 Oct-12 Jun-14 Jan-15 Jun-13 Jan-14 Jun-12 Jan-13 Feb-15 Mar-15 Feb-14 Mar-14 Feb-13 Mar-13 Aug-14 Sep-14 Nov-14 Dec-14 Aug-13 Sep-13 Nov-13 Dec-13 Aug-12 Sep-12 Nov-12 Dec-12 May-14 May-13 May-12

Target price (KRW) Closing Price (KRW)

Source: Daiwa

- 21 - Industrials / Korea 086280 KS 2 April 2015

 S-Oil Corp: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating 28/10/13 89,000 Outperform 25/07/14 56,000 Hold

120,000

110,000

100,000

90,000 89,000 80,000

70,000

60,000 56,000 50,000

40,000

30,000 Jul-12 Jul-13 Jul-14 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Jun-12 Jan-13 Jun-13 Jan-14 Jun-14 Jan-15 Feb-13 Mar-13 Feb-14 Mar-14 Feb-15 Mar-15 Aug-12 Sep-12 Nov-12 Dec-12 Aug-13 Sep-13 Nov-13 Dec-13 Aug-14 Sep-14 Nov-14 Dec-14 May-12 May-13 May-14

Target price (KRW) Closing Price (KRW)

Source: Daiwa

 Hyundai Glovis: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating Date Target price Rating

340,000 320,000 300,000 280,000 260,000 240,000 220,000 200,000 180,000 160,000 140,000 Jul-12 Jul-13 Jul-14 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Jun-12 Jan-13 Jun-13 Jan-14 Jun-14 Jan-15 Feb-13 Mar-13 Feb-14 Mar-14 Feb-15 Mar-15 Aug-12 Sep-12 Nov-12 Dec-12 Aug-13 Sep-13 Nov-13 Dec-13 Aug-14 Sep-14 Nov-14 Dec-14 May-12 May-13 May-14

Target price (KRW) Closing Price (KRW)

Source: Daiwa

- 22 - Industrials / Korea 086280 KS 2 April 2015

Disclaimer

This publication is produced by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Capital Markets Co. Ltd., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person.

Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. The following are additional disclosures.

Japan Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc. Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc. Investment Banking Relationship Within the preceding 12 months, The subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: Modern Land (China) Co. Ltd (1107 HK); econtext Asia Ltd (1390 HK); Lotte Shopping Co (023530 KS); Rexlot Holdings Ltd (555 HK); Neo Solar Power Corp (3576_TT); Accordia Golf Trust (AGT SP); Hua Hong Semiconductor Ltd (1347 HK). *Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司), Daiwa Capital Markets Singapore Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd.

Hong Kong This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationship For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. DHK market making DHK may from time to time make a market in securities covered by this research.

Korea The developing analyst of this research and analysis material hereby states and confirms that the contents of this material correctly reflect the analyst’s views and opinions and that the analyst has not been placed under inappropriate pressure or interruption by an external party.

Name of Analyst : Sung Yop Chung

Disclosure of Analysts’ Interests If an analyst engaging in or a person who exercises influences on the preparation or publication of a Research Report containing recommendations for general investors to trade financial investment instruments with regard to which the analyst or the influential person has personal interests and if the recommendations contained in the Report may have impacts on the personal interests, Daiwa Securities Capital Markets Korea Co., Ltd.(“Daiwa Securities Korea”)shall ensure that the Analyst or the influential person notifies that he/she has personal interests with regard to:

1. The equity, the equity-linked bonds and the instruments with the subscription right to the equity issued by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); 2. The stock option granted by the legal entity covered in the Research Report (or the legal entity subject to the investment recommendations); or 3. The equity futures, the equity options and the equity-linked warrants backed by the equity prescribed in the preceding Paragraph 1 as the underlying assets.

Legal Entities subject to Research Report Coverage Restrictions Daiwa Securities Korea hereby states and confirms that Daiwa Securities Korea has no conflicts of interests with the legal entity covered in this Research Report:

1. In that Daiwa Securities Korea does NOT offer direct or indirect payment guarantee for the legal entity by means of, for instance, guarantee, endorsement, provision of collaterals or the acquisition of debts; 2. In that Daiwa Securities Korea does NOT own one-hundredth (or 1/100) or more of the total number of outstanding equities issued by the legal entity; 3. In that The legal entity is NOT an affiliated company of Daiwa Securities Korea pursuant to Sub-paragraph 3, Article 2 of the Monopoly Regulation and Fair Trade Act of Korea; 4. In that, although Daiwa Securities Korea offers advisory services for the legal entity with regard to an M&A deal, the size of the M&A deal does NOT exceed five-hundredths (or 5/100) of the total asset size or the total number of equities issued and outstanding of the legal entity; 5. In that, although Daiwa Securities Korea acted in the capacity of a Lead Underwriter for the initial public offering of the legal entity, more than one-year has passed since the IPO date; 6. In that Daiwa Securities Korea is NOT designated by the legal entity as the ‘tender offer agent’ pursuant to the Paragraph 2, Article 133 of the Financial Services and Capital Market Act or the legal entity is NOT the issuer of the equity subject to the proposed tender offer; this requirement, however applies until the maturity of the tender offer period; or 7. In that Daiwa Securities Korea does NOT have significant or material interests with regard to the legal entity.

Disclosure of Prior Distribution to Third Party This report has not been distributed to the third party in advance prior to public release.

The following explains the rating system in the report as compared to KOSPI, based on the beliefs of the author(s) of this report.

"1": the security could outperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated. "2": the security is expected to outperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated. "3": the security is expected to perform within 5% of the KOSPI (better or worse) over the next 12 months, unless otherwise stated. "4": the security is expected to underperform the KOSPI by 5-15% over the next 12 months, unless otherwise stated. "5": the security could underperform the KOSPI by more than 15% over the next 12 months, unless otherwise stated.

“Positive” means that the analyst expects the sector to outperform the KOSPI over the next 12 months, unless otherwise stated. “Neutral” means that the analyst expects the sector to be in-line with the KOSPI over the next 12 months, unless otherwise stated. “Negative” means that the analyst expects the sector to underperform the KOSPI over the next 12 months, unless otherwise stated.

Additional information may be available upon request.

- 23 - Industrials / Korea 086280 KS 2 April 2015

Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research.

Australia This research is distributed in Australia by Daiwa Capital Markets Stockbroking Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research. Ownership of Securities For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

India This research is distributed by Daiwa Capital Markets India Private Limited (DAIWA) which is an intermediary registered with Securities & Exchange Board of India. This report is not to be considered as an offer or solicitation for any dealings in securities. While the information in this report has been compiled by DAIWA in good faith from sources believed to be reliable, no representation or warranty, express of implied, is made or given as to its accuracy, completeness or correctness. DAIWA its officers, employees, representatives and agents accept no liability whatsoever for any loss or damage whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of or reliance on the contents of and/or omissions from this document. Consequently DAIWA expressly disclaims any and all liability for, or based on or relating to any such information contained in or errors in or omissions in this report. Accordingly, you are recommended to seek your own legal, tax or other advice and should rely solely on your own judgment, review and analysis, in evaluating the information in this document. The data contained in this document is subject to change without any prior notice DAIWA reserves its right to modify this report as maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to, or use by any person, citizen or entity which is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analyst’s personal views about the securities and issuers that are subject of the Report, and that no part of the analyst’s compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report. This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non – US affiliates to effect trades in any securities and is not supplied with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited.

Taiwan This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research.

Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Philippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities. For relevant securities and trading rules please visit SEC and PSE Link at http://www.sec.gov.ph/irr/AmendedIRRfinalversion.pdf and http://www.pse.com.ph/ respectively.

Thailand This research is distributed to only institutional investors in Thailand primarily by Thanachart Securities Public Company Limited (“TNS”). This report is prepared by analysts who are employed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates. While the information is from sources believed to be reliable, neither the information nor the forecasts shall be taken as a representation or warranty for which Thanachart Securities Public Company Limited, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees incur any responsibility. This report is provided to you for informational purposes only and it is not, and is not to be construed as, an offer or an invitation to make an offer to sell or buy any securities. Neither Thanachart Securities Public Company Limited, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees accept any liability whatsoever for any direct or consequential loss arising from any use of this research or its contents. The information and opinions contained herein have been compiled or arrived at from sources believed reliable. However, Thanachart Securities Public Company Limited, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees make no representation or warranty, express or implied, as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. The use of any information, forecasts and opinions contained in this report shall be at the sole discretion and risk of the user. Daiwa Securities Group Inc. and/or its non-U.S. affiliates perform and seek to perform business with companies covered in this research. Thanachart Securities Public Company Limited, Daiwa Securities Group Inc., their respective parent, holding, subsidiaries or affiliates, their respective directors, officers, servants and employees may have positions and financial interest in securities mentioned in this research. Thanachart Securities Public Company Limited, Daiwa Securities Group Inc., their respective parent, holding, subsidiaries or affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this research. Therefore, investors should be aware of conflict of interest that may affect the objectivity of this research.

United Kingdom This research report is produced by Daiwa Capital Markets Europe Limited and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and/or its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and/or its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory . Regulatory disclosures of investment banking relationships are available at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Germany This document is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.

Bahrain This research material is distributed by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113 This material is provided as a reference for making investment decisions and is not intended to be a solicitation for investment. Investment decisions should be made at your own discretion and risk. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document, Content herein is based on information available at the time the research material was prepared and may be amended or otherwise changed in the future without notice. All information is intended for the private use of the person to whom it is provided without any liability whatsoever on the part of Daiwa Capital Markets - 24 - Industrials / Korea 086280 KS 2 April 2015

Europe Limited, Bahrain Branch, any associated company or the employees thereof. If you are in doubt about the suitability of the product or the research material itself, please consult your own financial adviser. Daiwa Capital Markets Europe Limited, Bahrain Branch retains all rights related to the content of this material, which may not be redistributed or otherwise transmitted without prior consent.

United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000).

Ownership of Securities For “Ownership of Securities” information please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Investment Banking Relationships For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

DCMA Market Making For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.

Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.

The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months.

Additional information may be available upon request.

Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)

If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. • In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. • In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. • For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. • There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. • There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. • Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.

Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association

- 25 -