Index Watcher: KOSPI 200 Free-float ratio of Cheil Industries to be raised

KRX disclosed on August 19 th that it will raise Cheil Industries’ free-float ratio

Our August 19 th Index Watcher report, entitled “Special reconstitution: C&T AI Report out, Hyundai Green Food in,” was based on there being no adjustments to free-float ratios, as the KRX had not announced any such change up to that point. August 21, 2015 th After market closing on August 19 , however, the KRX disclosed that it will raise the free-float ratio of Cheil Industries from 30% to 45%. As such, we are publishing this Daewoo Securities CCo.,o., Ltd. report to update the August 19 th report in line with the free-float ratio change.

[Derivatives] There are two areas in particular that require updating in light of the change in free-float

Youngsung Kim ratio: 1) the selling volume of Samsung C&T shares by index funds, and 2) the impact of +822-768-4120 the KOSPI 200 and MSCI rebalancing. [email protected] Weight of merged entity to decrease by 0.01%p

The revised free-float ratio will be reflected in the index on September 1 st , when the special reconstitution is scheduled to take effect.

Based on August 20 th closing prices, the weight of the merged entity in the KOSPI 200—

after the free-float ratio adjustment—is forecast to decrease 0.01%p to 1.86%.

(Currently, the combined weight of Cheil Industries and Samsung C&T stands at 1.87%.) Meanwhile, selling by KOPSI 200-tracking index funds (estimated at KRW35tr) of Samsung C&T is projected at KRW4.1bn, equivalent to about 5% of the daily average trading value of the stock. The expected selling demand is significantly lower than our prior estimate of KRW224.4bn (2.99 times the daily trading value).

Given the small scale of the selling pressures from index trackers (and given that selling pressure could shift to Cheil Industries if Samsung C&T remains undervalued relative to Cheil Industries), the market impact will likely be significantly smaller than the pre-ratio revision level.

KOSPI 200 and MSCI rebalancing to result in KRW174bn in stock selloffs In our previous report, we forecast buying demand of KRW152bn for existing KOSPI 200 constituents (excluding Samsung C&T and Hyundai Green Food) as a result of the KOSPI 200 rebalancing, and selling pressure of KRW92.2bn (excluding added/deleted stocks) following MSCI’s quarterly rebalancing. For large caps, we predicted a particularly small impact, given the similarities between the KOSPI 200 and the MSCI series in terms of weighting and constituents (and thus the likelih ood of purchases and selloffs being canceled out).

However, in light of the KRX’s upward adjustment to Cheil Industries’ free-float ratio, we now expect both the KOSPI 200 rebalancing and the MSCI rebalancing to result in selling demand, and thus the impacts will not be offset . Specifically, we expect selling pressures for existing KOSPI 200 constituents to reach KRW72bn, while MSCI’s rebalancing will likely cause KRW101.9bn in selling demand for existing constituents (excluding added/deleted stocks), based on August 20 th closing prices. We anticipate that this selling will pose a burden to large-cap stocks on August 31 st .

Meanwhile, with regard to newly added and deleted constituents of the KOSPI 200 and MSCI Standard Index, we maintain o ur previous views. (For detailed information, refer to our August 19 th report, “Special reconstitution: Samsung C&T out, Hyundai Green Food in”).

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

August 21, 2015 Index Watcher: KOSPI 200

Table 111.1. Estimates of index fund demand for additions to aandnd deletions from the KOSPI 200 and MSCI Mkt. cap Potential demand from index funds (KRWbn(KRWbn)))) 20TD avg. TV Impact Tickers StockStockStock (KRWtr) KOSPI 200 MSCIMSCIMSCI KOSPI 200 + MSCI (A) (KRWbn, B) (A/B)(A/B)(A/B) KOSPI 200 additions 005440 KS Hyundai Green Food 2.50 76.1 0.0 76.1 12.4 6.16 027410 KS BGF Retail 4.73 0.0 114.8 114.8 29.9 3.84 MSCI Standard additions 026960 KQ Dongsuh 4.23 0.0 101.9 101.9 16.4 6.20 008930 KS Hanmi Science 7.69 0.0 102.7 102.7 146.9 0.70 KOSPI 200 deletions 000830 KS Samsung C&T 7.34 -4.1 -1.5 -5.7 70.6 -0.08 010620 KS Hyundai Mipo Dockyard 0.97 -0.1 -37.1 -37.2 9.8 -3.81 MSCI Standard deletions 006260 KS LS 0.94 -0.1 -36.1 -36.2 9.8 -3.69 Notes: As of August 20, 2015; data related to MSCI indices are estimates Source: KDB Daewoo Securities Research

Table 222.2. Buying/selling demand for other KOSPI 200 and MSCMSCII stocks Mkt. capcapcap Potential demand from index funds (KRWbn) 20TD avg. TV Impact Tickers Companies (KRWtr) KOSPI 200 MSCIMSCIMSCI KOSPI 200 + MSCI (A) (KRWbn, B) (A/B)(A/B)(A/B) 035720 KQ Daum 7.50 0.0 27.6 27.6 101.5 0.27 Greatest 086790 KS Inc. 8.35 -0.9 9.8 8.9 24.0 0.37 buying 068270 KQ Celltrion, Inc. 7.85 0.0 5.6 5.6 73.6 0.08 demand 003490 KS Korean Air Lines 2.35 -0.1 3.1 3.0 30.1 0.10 005930 KS 167.77 -14.6 -33.0 -47.6 299.0 -0.16 005380 KS Hyundai Motor 32.82 -2.7 -6.0 -8.7 119.7 -0.07 Greatest 000660 KS SK Hynix 24.06 -2.2 -5.0 -7.3 164.3 -0.04 selling 055550 KS 19.89 -2.1 -4.7 -6.8 39.2 -0.17 demand 035420 KS NAVER 17.17 -1.6 -3.8 -5.4 83.2 -0.07 015760 KS KEPCO 33.19 -1.9 -3.5 -5.4 51.6 -0.10 Notes: As of August 20, 2015; data related to MSCI indices are estimates Source: KDB Daewoo Securities Research

Table 333.3. Buying/selling impact for other KOSPI 200 and MSCI stocks Mkt. cap Potential demand from index funds (KRWbn) 20TD avg. TV Impact Tickers Companies (KRWtr) KOSPI 200 MSCIMSCIMSCI KOSPI 200 + MSCI (A) (KRWbn, B) (A/B)(A/B)(A/B) 086790 KS Hana Financial Group 8.35 -0.9 9.8 8.9 24.0 0.37 Greatest 035720 KQ Daum Kakao 7.50 0.0 27.6 27.6 101.5 0.27 buying 003490 KS Korean Air 2.35 -0.1 3.1 3.0 30.1 0.10 impact 068270 KQ Celltrion 7.85 0.0 5.6 5.6 73.6 0.08 055550 KS Shinhan Financial Group 19.89 -2.1 -4.7 -6.8 39.2 -0.17 005930 KS Samsung Electronics 167.77 -14.6 -33.0 -47.6 299.0 -0.16 Greatest 088350 KS Hanwha Life Insurance 7.30 -0.4 -0.5 -0.9 5.7 -0.16 selling 105560 KS KB Financial Group 14.14 -1.6 -3.7 -5.3 36.1 -0.15 impact 033780 KS KT&G 15.38 -1.4 -3.2 -4.7 32.0 -0.15 032830 KS 20.10 -1.2 -2.1 -3.3 22.8 -0.14 Notes: As of August 20, 2015; data related to MSCI indices are estimates Source: KDB Daewoo Securities Research

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August 21, 2015 Index Watcher: KOSPI 200

Table 444.4. Changes in weights of existing KOSPI 200 constituconstituentsents after merger between Samsung C&T and Cheil IndIndustriesustries FreFreFreeFre eee----float mkt cap Weights in KKOSPIOSPI 200 (%, %p) Tickers Companies PricePricePrice (KRWtr) Current Revised Change 005440 KS Hyundai Green Food 25,600 1.38 0.00 0.22 0.22 028260 KS Samsung C&T + Cheil Industries 134,000 11.44 1.87 1.79 -0.09 005930 KS Samsung Electronics 1,139,000 125.83 19.94 19.89 -0.04 005380 KS Hyundai Motor 149,000 22.97 3.64 3.63 -0.01 000660 KS SK Hynix 33,050 19.25 3.05 3.04 -0.01 055550 KS Shinhan Financial Group 41,950 17.90 2.84 2.83 -0.01 015760 KS KEPCO 51,700 16.59 2.63 2.62 -0.01 017670 KS SK Telecom 258,000 14.58 2.31 2.31 0.00 012330 KS 204,500 13.93 2.21 2.20 0.00 005490 KS POSCO 183,000 13.56 2.15 2.14 0.00 035420 KS NAVER 521,000 13.74 2.18 2.17 0.00 105560 KS KB Financial Group 36,600 13.43 2.13 2.12 0.00 000270 KS Motors 46,500 12.25 1.94 1.94 0.00 033780 KS KT&G 112,000 12.30 1.95 1.94 0.00 090430 KS AmorePacific 340,000 10.93 1.73 1.73 0.00 051910 KS LG Chem 221,000 10.25 1.62 1.62 0.00 032830 KS Samsung Life Insurance 100,500 10.05 1.59 1.59 0.00 034730 KS SK Holdings 256,000 9.01 1.43 1.42 0.00 000810 KS Samsung F&M. 268,000 9.52 1.51 1.51 0.00 086790 KS Hana Financial Group 28,200 7.93 1.26 1.25 0.00 018260 KS Samsung SDS 245,500 7.60 1.20 1.20 0.00 051900 KS LG Household & Health Care 780,000 7.31 1.16 1.16 0.00 030200 KS KT 29,950 6.65 1.05 1.05 0.00 096770 KS SK Innovation 95,000 6.59 1.04 1.04 0.00 035250 KS . 45,250 6.29 1.00 0.99 0.00 047810 KS Korea Aerospace Industries 86,000 5.87 0.93 0.93 0.00 003550 KS LG 56,900 5.40 0.86 0.85 0.00 Note: As of August 20, 2015 Source: KDB Daewoo Securities Research

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August 21, 2015 Index Watcher: KOSPI 200

APPENDIX 1

Important Disclosures & Disclaimers Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Associatio n and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analyst s primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Ana lyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. E xcept as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 month s and have not been promised the same in connection with this report. No part of the compensation of t he Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensa tion that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any ac tual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.

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August 21, 2015 Index Watcher: KOSPI 200

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