Mando (060980 KS) Auto Parts

December 20, 2011 Company Report

Mando (060980 KS) Auto parts

Daewoo Securities Co., Ltd. New orders are winning over investors Michael Yun +822-768-4169 Maintain Buy rating with TP of W250,000 [email protected]

We maintain our Buy rating on Mando with a 12-month target price of W250,000. Young-ho Park We forecast MandoÊs net profit to grow at a CAGR of 19% between 2011 and +822-768-3033 2016, outpacing the average growth (9.5%) of KOSPI manufacturers as well as the [email protected] growth of Hyundai Motor (HMC) and Kia Motors. In deriving our target price, we applied a target P/E of 15.3x to MandoÊs 2012F EPS of W16,382. We arrived at our target multiple of 15.3x using a PEG of 0.8x, which is the average PEG of manufacturers listed on the KOSPI.

Key investment points

1) Next-generation electronic parts. We believe that MandoÊs next-generation Buy (Maintain) electronic parts for use in braking and steering systems will be the core drivers of Target Price (12M, W) 250,000 medium- to long-term growth of quality earnings at the company. Indeed, with Share Price (12/19/11, W) 194,000 regard to braking and steering systems, the company has competitive edges in Expected Return (%) 28.9 know-how, technology, and customer diversification. EPS Growth (11F, %) 22.0 2) Backlog of new orders will serve as the backbone for MandoÊs long-term Market EPS Growth (11F, %) -2.0 P/E (11F, x) 14.5 growth. MandoÊs new orders for 2011 are expected to reach W6.1tr, which is Market P/E (11F, x) 10.1 equivalent to 132% of the companyÊs 2011F consolidated revenues (W4.6tr). We KOSPI 1,776.93 believe that the pace of new order-taking will continue to be solid, allowing the Market Cap (Wbn) 3,534 company to enjoy stellar sales CAGR of 12.9% during 2011~2016. Shares Outstanding (mn) 18 3) Customer diversification is likely to strengthen MandoÊs pricing power. We Avg Trading Volume (60D, '000) 120 Avg Trading Value (60D, Wbn) 23 believe that Mando will continue to diversify its customer base. We forecast the Dividend Yield (11F, %) 0.6 companyÊs non-Hyundai-Kia Automotive Group (HKAG) sales to increase to 60%, Free Float (%) 68.8 from the current 45%. This development should strengthen MandoÊs pricing power, 52-Week Low (W) 128,000 as it will make the company less dependent on one major customer. 52-Week High (W) 226,500 Beta (12M, Daily Rate of Return) 1.1 2012 Net profit expected to increase by 22.5% (2011~2016 CAGR of 19.0%) Price Return Volatility (12M Daily, %, SD) 3.0 Foreign Ownership (%) 30.7 We forecast MandoÊs 2011 net profit to increase by 27.3% to W243.6bn (CAGR of Major Shareholder (s) 51% from 2009). This robust figure should be largely attributable to the strong Jung Mong Won et al. (30.01%) growth of HKAG and the adoption of the companyÊs new system parts. Going PNS (8.62%) forward, we believe that new customers such as GM and Chinese auto makers, Mirae Asset Investments et al. (6.45%) along with next-generation system parts, will be the core drivers of MandoÊs Price Performance growth. In 2012, we expect net profit to increase by 22.5%. Furthermore, we (%) 1M 6M 12M forecast that net profit will show a CAGR of 19% between 2011 and 2016. Absolute 3.5 -11.2 43.7 Relative 6.9 1.3 56.0

§ Earnings & Valuation Metrics Share price 180 KOSPI FY Revenues OP OP Margin NP EPS EBITDAFCF ROE P/E P/B EV/EBITDA 160

(Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 140 12/09 2,727 177 6.5 107 6,653 322 132 13.1 - - - 120 12/10 3,624 262 7.2 191 10,961 391 70 18.2 11.8 2.0 6.5 100 12/11F 4,591 327 7.1 244 13,376 464 43 18.5 14.5 2.7 8.4 80 12/12F 5,232 399 7.6 298 16,386 583 126 19.2 11.8 2.2 6.5 60 12/13F 5,823 470 8.1 350 19,214 674 134 18.8 10.1 1.8 5.5 40 12/10 4/11 8/11 12/11 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates

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

I. Investment summary ...... 3

II. Valuation and investment strategy ...... 4 1. Valuation premium to be justified for Korea system parts makers ...... 4 2. Is Mando’s premium justified?...... 7 3. Maintain Buy rating with TP of W250,000...... 9

III. Why Mando now?...... 10 1. Mando’s profile ...... 10 2. The time has come for Mando ...... 13

IV. Investment points ...... 16 1. Mando’s competitive edge ...... 16 2. Next generation electronic parts ...... 17 3. Solid new order backlog...... 18 4. Customer diversification...... 18 5. FTAs with U.S. and EU to open more opportunities...... 19

V. Earnings preview and outlook ...... 20 1. 4Q Earnings preview...... 20 2. 2012 Earnings outlook ...... 20

December 20, 2011 Mando

I. Investment summary

A good reason for a We maintain our Buy rating on Mando with a 12-month target price of W250,000. We premium forecast MandoÊs net profit to grow at a CAGR of 19% between 2011 and 2016, outpacing the average growth (9.5%) of KOSPI manufacturers as well as the growth of Hyundai Motor (HMC) and Kia Motors. In deriving our target price, we applied a target P/E of 15.3x to MandoÊs 2012F EPS of W16,382. We arrived at our target multiple of 15.3x using a PEG of 0.8x, which is the average PEG of manufacturers listed on the KOSPI.

In the mid-to-long term outlook, we believe that the global auto industry will face over supply issues as global auto supply normalizes with additional capacity increase. Thus, we believe that large system auto parts makers, such as Mando, will be a better play, with more growth potential on back of customer diversification, compared to auto makers which face intensifying competition. In 2011, MandoÊs valuation was unattractive as its earnings growth and profitability was non-differentiated from HMC or Kia Motors. However, we believe that MandoÊs differentiated growth in 2012 will justify its valuation premium over its peers as well as auto makers.

Three investment points 1) Next-generation electronic parts. 1) Next-generation electronic parts. We believe that of Mando MandoÊs next-generation electronic parts for use in braking and steering systems will be the core drivers of medium- to long-term growth of quality earnings at the company. Indeed, with regard to braking and steering systems, the company has competitive edges in know- how, technology, and customer diversification.

2) Backlog of new orders will serve as the backbone for MandoÊs long-term growth. MandoÊs new orders for 2011 are expected to reach W6.1tr, which is equivalent to 132% of the companyÊs 2011F consolidated revenues (W4.6tr). We believe that the pace of new order-taking will continue to be solid, allowing the company to enjoy stellar sales CAGR of 12.9% during 2011~2016.

3) Customer diversification is likely to strengthen MandoÊs pricing power. We believe that Mando will continue to diversify its customer base. We forecast the companyÊs non- Hyundia-Kia Automotive Group (HKAG) sales to increase to 60%, from the current 45%. This development should strengthen MandoÊs pricing power, as it will make the company less dependent on one major customer.

Strong 4QF earnings MandoÊs 4Q consolidated revenue and operating profit is forecast to be strong at W1.3tr and W91.7bn, respectively. This is mainly due to the solid output from HKAGÊs domestic and overseas operations, and rising sales to their overseas customers. Operating profit and margins should also achieve historic highs.

2012 NP to increase by We forecast MandoÊs 2011 net profit to increase by 27.3% to W243.6bn, for a CAGR of 22.5% 51% since 2009. This was mainly attributable to the strong growth of HKAG and the adoption of next generation system parts.

NP to show CAGR of Going forward, we believe the core driver of growth will be new customers such as GM and 19% over next five Chinese auto makers and next generation system parts. In 2012, we forecast net profit to years increase by 22.5% and show a CAGR of 19% over five years.

KDB Daewoo Securities Research 3 December 20, 2011 Mando

II. Valuation and investment strategy

1. Valuation premium to be justified for Korea system parts makers

Korean system parts If we look to the past, structural growth in the auto industry has come with large system makers will also enjoy auto parts makers receiving a premium over auto makers, and undergoing a rerating. valuation premium A good example of this is ToyotaÊs system parts maker Aisin Seiki. In 2003-2007, when the company actively diversified its customer base and increased overseas sales, shares of Aisin outperformed Toyota with an annual rerating of 26%.

Continental, JCI, and Borg Warner also underwent the same scenario as their shares outperformed VW.

Continental is a global leader in braking systems and safety related electronic parts. JCI is a leading manufacturer of interior system parts and has recently advanced into green car technology, including battery systems. Borg Warner is a leading supplier of core parts for engine and transmission systems.

We believe that Korean auto parts makers such as Mando, Hyundai Wia, and Hyundai Mobis will also follow in the footsteps of their global auto parts peers as they strive to go global. The large system parts makers in Korea will be driven by the growth prospects of recent new orders from overseas OEMs and structural growth of HKAG. Furthermore, we believe this would serve to rationalize their valuation premium over the OEMs in the long run.

Table 1. Global top system parts suppliers (Wbn) Current Region 2010 Revenue 2010 Net profit Main items market cap Climate control, Powertrain control system Denso Japan 27,916 42,131 1,924 Electronic parts, Motor, Telecommunications Body, Brake and chassis system Aisin Seiki Japan 9,837 30,371 937 Electronic parts, Transmission and powertrain Electronic brake system, Stability control Tire, Chassis system, Dafety system Continental AG Germany 14,920 39,931 883 Telematics, Interior module Dash board, Powertrain related electronic parts Seats, Interior related parts Johnson Controls U.S. 22,658 39,999 1,739 Door and instrument panels Hybrid battery Turbo charger, Engine parts BorgWarner U.S. 7,920 6,539 437 Transmission clutch, Transmission control All-wheel-drive system Source: Thomson Reuters, Ward's Automotive Yearbook, KDB Daewoo Securities Research

KDB Daewoo Securities Research 4 December 20, 2011 Mando

Figure 1. ToyotaÊs P/E band: Ê03-Ê07 annual increase of 15% Figure 2. AisinÊs P/E band: Ê03-Ê06 annual increase of 26%

(W) (W) 20.5X 15.5X 70,000 50,000 18.0X 13.0X

60,000 40,000 9.5X 50,000 16.3X 14.5X 30,000 40,000 13.0X 11.5X 20,000 30,000 9.7X

20,000 10,000 96 98 99 00 01 03 04 05 06 08 09 1011F 11 12F 96 98 99 00 01 03 04 05 06 08 09 1011F 11 12F

Source: Thomson Reuters, KDB Daewoo Securities Research Source: Thomson Reuters, KDB Daewoo Securities Research

Figure 3. Japanese parts makersÊ earnings and valuation against Figure 4. Denso and AisinÊs overseas revenue portion trend auto makers

Denso P/E premium (L) Aisin P/E premium (L) (%) (%) Denso earnings momentum (R) Aisin earnings momentum (R) (%) 55 Denso Aisin 70 60

50 40 45

30 20 35

10 0

25 -10 -20

-30 -40 15 92 94 96 98 00 02 04 06 97 98 99 00 01 02 03 04 05 06 07 08 09

Source: Thomson Reuters, KDB Daewoo Securities Research Source: Thomson Reuters, KDB Daewoo Securities Research

KDB Daewoo Securities Research 5 December 20, 2011 Mando

Figure 5. VWÊs P/E band: Ê04~Ê07 annual increase of 12% Figure 6. ContinentalÊs P/E band: Ê03~Ê07 annual increase of 20%

(W) (W) 16.0X 500,000 150,000 14.0X

21X 400,000 120,000 11.5X

14X 9.0X 300,000 90,000

11X 7.0X 200,000 60,000 8X

100,000 30,000

0 0 96 98 99 00 01 03 04 05 06 08 09 1011F 11 12F 96 98 99 00 01 03 04 05 06 08 09 1011F 11 12F

Source: Thomson Reuters, KDB Daewoo Securities Research Source: Thomson Reuters, KDB Daewoo Securities Research

Figure 7. JCIÊs P/E band: Ê03~Ê07 annual increase of 16% Figure 8. Borg Warners P/E band: Â05~Ê07 annual increase of 37%

(W) (W) 20.3X 17.5X 22X 19X 50,000 15.0X 100,000 16X 12.5X 40,000 80,000 13X 10.2X

30,000 60,000 10X

20,000 40,000

10,000 20,000

0 0 96 98 99 00 01 03 04 05 06 08 09 10 1111F 12F 96 98 99 00 01 03 04 05 06 08 09 1011F 11 12F

Source: Thomson Reuters, KDB Daewoo Securities Research Source: Thomson Reuters, KDB Daewoo Securities Research

KDB Daewoo Securities Research 6 December 20, 2011 Mando

2. Is Mando’s premium justified?

Reason why Mando Mando currently holds the highest P/E premium amongst its global peers based on 2012F deserves a premium earnings. However, its consolidated EV/EBTIDA multiple is more reasonable at 6.7x. As Mando prepares for its mid- to long-term growth with rising new orders, its depreciations will gradually rise in advance as its capex increases. Thus, MandoÊs EV/EBTIDA multiple will become increasingly attractive. MandoÊs EV/EBITDA multiple in 2011 was 8.6x, but is expected to respectively drop to 6.7x and 5.6x in 2012 and 2013.

While MandoÊs valuation premium in the sector may appear rich, we are confident that its long term growth prospects justify the premium.

If we compare Mando to other sectors that also experienced strong new order momentum and high valuation premium, MandoÊs premium does not appear particularly demanding. During 2006~2007, companies such as Hyundai E&C, Samsung Engineering, and Doosan Heavy traded with an average premium of 103% to 443% over the market due to their strong overseas new order momentum.

Another good example is the recently listed Korea Aerospace, which also received a 315% premium as its new orders exceeded 165% of annual sales. MandoÊs 2011 new orders of W6.1tr also exceed 2011F annual revenues by 133%. As such, we believe that MandoÊs 37% premium based on 2012F earnings is not excessive considering the scale and momentum of its new orders.

Figure 9. P/E comparison of Mando and construction sector at times of new order momentum

(x) 20 Construction sector average Mando 18

16 11F

14 12F 12

4 03 04 05 06 07 08 09 10 11F

Source: Thomson Reuters, KDB Daewoo Securities Research

Table 2. Valuation comparison with companies who experienced new order momentum Hyundai E&C GS E&C Samsung Eng Doosan Heavy Korea Aerospace Mando (000720) (006360) (028050) (034020) (047810) (060980) 06 07 06 07 06 07 06 11F 12F New orders (Wbn) 9,223 11,757 9,130 10,638 2,941 4,846 9,112 2,200 7,044 Revenues (Wbn) 5,450 6,076 5,953 6,341 1,876 2,221 10,930 1,330 5,232 P/E (X) 16.0 33.6 10.9 20.2 16.1 25.4 66.9 41.5 12.2 Premium against market (%) 30 169 -11 61 31 103 443 315 37 Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 7 December 20, 2011 Mando

Figure 10. Global relative P/E valuation to market P/E

(%) 160

120

100

o a . o is er in in I tal iv a o r ia nd Wi Ind ns ob rn is OK ih JC en tol gn ale ea ec RW Ma ai ta De i M Wa A N Ke tin Au Ma V L ur T nd yo da g on Fa yu To un or C H Hy B

Source: Thomson Reuters, KDB Daewoo Securities Research

Table 3. Global auto parts makersÊ valuation comparison Absolute return (%) EPS (W, JPY, EUR, US$) OPM (%) EV/EBITDA (x) P/E (x) Relative P/E (%)

-1M -3M 11F 12F YoY % 11F 12F 11F 12F 11F 12F 11F 12F Mando 5.8 5 13,376 16,386 22.5 7.1 7.6 8.6 6.7 14.9 12.2 149 137.1 Hyundai Wia -9.5 -10.1 9,957 13,671 37.3 5.4 5.8 10 7.6 14.4 10.5 144 118 BorgWaner -1.2 -11.1 171 200 16.9 4.8 5.4 6.1 5.3 11.9 10.1 87.2 93.9 Mobis -6.6 -17.1 137 202 47.2 5.1 7.1 3.5 2.6 14.9 10.1 109.4 93.6 Toyota Ind. -5.3 -11.7 33,875 37,424 10.5 10.8 10.4 8.7 7.2 8.7 7.9 87 88.8 Denso -5 -10.2 5.3 6.5 21.6 11.4 11.9 8.4 6.8 11.7 9.7 91.7 83.2 NOK -5.7 -17.3 212 262 23.2 5.6 6.5 2.7 2.2 9.9 8 72.8 74.4 Aisin 0.6 -8.7 148 161 8.6 7.6 7.9 4.1 3.5 8.6 7.9 63 73.1 Continental 6.9 -13.9 83 157 88.8 5 7 2 1.3 14.4 7.6 106.1 70.8 JCI -6.9 -4.1 3 3.6 20.4 6.2 6.9 7 5.8 9.7 8 75.6 69.3 Keihin -13.3 -3.4 7.3 7.7 4.8 8.9 9.1 4.3 4 6.3 6 49.3 66.8 Autoliv -7.3 -8.3 6.7 6.6 -2.8 10.9 10.6 4.4 4.1 7.3 7.5 56.8 64.5 Valeo -5.2 -14 4.4 4.6 4.2 4.5 4.7 3.3 3.1 7.4 7.1 57.6 61 Magna Int. -10.4 -21.1 5.6 5.4 -4.4 6.4 6.2 2.7 2.6 5.1 5.4 55.3 59.1 Lear -12.3 -18.9 5.3 5.6 6.2 5.5 5.7 3.3 3.3 6.9 6.5 54.2 56.3 Faurecia -19.8 -30.2 3.1 2.9 -6.2 3.8 3.7 3 3.1 4.2 4.5 45.2 49.2 TRW -11.4 -24.7 7.1 6.3 -10.8 7.7 7.5 3.3 3.1 4.3 4.8 33.4 41.3 Source: Thomson Reuters, KDB Daewoo Securities Research

Figure 11. Global auto parts makersÊ P/E and EPS growth (2012F) Figure 12. Global auto parts makersÊ P/B and ROE (2012F)

(P/E, x) (P/B, x) 20 3.0

2.5 Hyundai Wia Mando 15 Mando Hyundai Wia 2.0 Hyundai Mobis Denso Borgwaner Hyundai Borgwaner 10 1.5 Mobis Toyota Ind. JCI Keihin Faurecia JCI NOK Valeo Lear Magna Aisin 1.0 Lear Aisin Denso TRW 5 Magna Autoliv Toyota Ind. NOK 0.5 Keihin

(EPSG, %) (ROE, %) 0 0.0 03060901200 5 10 15 20 25 30

Source: Thomson Reuters, KDB Daewoo Securities Research Source: Thomson Reuters, KDB Daewoo Securities Research

KDB Daewoo Securities Research 8 December 20, 2011 Mando

3. Maintain Buy rating with TP of W250,000

Premium justified by We maintain our Buy rating on Mando with a 12-month target price of W250,000. We forecast high growth prospects MandoÊs net profit to grow at a CAGR of 19% over five years (2011-2016F), exceeding the average 9.5% growth of KOSPI manufacturers as well as the growth of HMC and Kia Motors. In deriving our target price, we applied a target P/E of 15.3x to MandoÊs 2012F EPS of W16,382. We arrived at our target multiple of 15.3x by applying a PEG of 0.8x, which is the average PEG of KOSPI listed manufacturers.

Figure 13. Mando and Hyundai WiaÊs valuation premium over HMC and Kia (%) Mando/Wia P/E Premium (L) (%) 120 Mando/Wia excess earnings growth (R) 30 Mando, Wia 100 Target P/E premium level 20

80 10

60 0

40 -10

20 -20

0 -30 10 11F 12F 13F

Source: KDB Daewoo Securities Research

Figure 14. P/E band of Mando Figure 15. P/B band of Mando (W) (W) 300,000 18.5X 350,000

16.0X 250,000 3.2X 280,000 13.5X 2.8X 200,000 2.5X 210,000 11.0X 2.2X 150,000 140,000 100,000

70,000 50,000

0 0 1011F 1112F 12 1011F 1112F 12

Source: Thomson Reuters, KDB Daewoo Securities Research Source: Thomson Reuters, KDB Daewoo Securities Research

KDB Daewoo Securities Research 9 December 20, 2011 Mando

III. Why Mando now?

1. Mando’s profile

MandoÊs know-how in Mando was established in 1962 as Hyundai International Inc., and from the late 1980s they steering and braking started their steering and brake business. After the Korean economic crisis, with the systems acquired over bankruptcy of its parent Halla Group, Mando was sold to Sun Sage B.V. (a JP Morgan time consortium), just as Halla Climate Control was sold to Visteon Corp. Then in 2008, Halla and its consortium bought back Mando and re-incorporated the company into the Group.

Since then, Mando has grown to become KoreaÊs leading maker of steering and braking systems and the fourth in the world to develop next generation system parts such as ABS (Anti-lock Brake System), ESC (Electronic Stability Control), and EPS (Electric Power Steering). Mando was also the first to mass produce ABS, ESC, and EPS for Korean cars.

Pioneer in next Recently, MandoÊs safety related electronic parts such as SPAS (Smart Parking Assist generation system parts System) and SCC (Smart Cruise Control) have been installed on high end cars. Going forward, Mando will play a leading role in developing next generation system parts related to ASV (Advanced Safety Vehicles), which is expected to be adopted in near the future.

Meanwhile, after MandoÊs listing in 2010, there were concerns of overhang with the lockup on 47.1% of its shares held by Halla E&C, KCC and other related group scheduled to be lifted. Shortly after the end of lockup period, shares held by KCC were traded in the market as a block deal and 70% of MandoÊs ESOP (total of 1.2mn shares) shares also started to trade in the market. Thus, we believe Mando will not suffer from overhang.

Table 4. Company history Year Main facts 1962 Founded as Hyundai International Inc. 1988 Completed steering and brake system plants in Wonju and Pyeongtaek 1993 SOP of ABS 1999 Renamed as Mando Corporation 2001 Received first order from Daimler Chrysler for brake system 2003 Established Mando Beijing China 2004 Completed construction of Alabama plant in U.S. 2006 Established Mando India Steering 2008 Re-incorporate into Halla Group Established JV with GermanyÊs Hella (Mando Hella Electronics) Ranked 73rd in global top 100 auto parts companies 2009 Obtained supply agreement of PSA for caliper brake system Obtained supply agreement of GM R-EPS 2010 Developed SPAS and SCC SOP of ABS ECU from Mando Hella Electronics Listed on KRX Received new orders from BMW 2011 JV with ChinaÊs Geely on steering and braking system Received new orders from VW Established Mando Brose Awarded new contract from GM worth $520mn (starting from 2014) for brake system and EPS Source: Mando, KDB Daewoo Securities Research

KDB Daewoo Securities Research 10 December 20, 2011 Mando

Figure 16. Holding structure right after IPO Figure 17. Holding structure as of Nov. 2011

Chung MW 7.6% Chung MW 7.6% Others 27.4% Other 52.0% Halla E&C 22.6% Halla E&C 22.6&

ESOP 6.7% NPS 8.7% H&Q, NPS 6.0% KCC 17.1% Mirae Asset 6.5% ESOP 2.7% KDB PEF 12.7%

Source: Mando, KDB Daewoo Securities Research Source: Mando, KDB Daewoo Securities Research

Figure 18. Halla Group and Mando (Including MandoÊs affiliates)

100.0% Wori Engineering

100.0% Uriman Inc. Mando 100.0% Myster (060980) 100.0% Halla Myster China(Shanghai) 50.0% 22.5% Mando Hella Electronics 100.0% Halla Myster China 100.0% Mokpo new port Halla E&C 50.0% Mando Brose

46.7% Halla Dev. 100.0% 42.0% 100.0% Mando Material Mando Material China

80.0% 70.0% 100.0% Halla SF Halla SF China Halla dev. China

100.0% Mando (Beijing) R&D Center 70.0% Hyundai Medis Halla I&C 100.0% Mando (Beijing) Trading 32.2% 100.0% Wide Mando Softtech India 20.0% 100.0% Mando (Beijing) Automotive 100.0% 100.0% Mando Corporation Europe Halla Wealthtech Halla Encom GmbH 100.0% Mando Suzhou Chassis System 100.0% 100.0% Mando Corporation Daehan ind. do Brasil 80.0% Mando (Harbin) Automotive 100.0% Mando Corporation Former Halla group Poland 100.0% Mando Tianjin Automotive Parts 50.0% KYB-Mando do Brasil 65.0% Mando (Ningbo) Automotive Parts 50.0% Maysan Mando Otomotiv 100.0% Mando America Corp. 30.0% Autoventure Mando 67.0% Mando India Limted

100.0% Mando India Steering Systems

Source: Mando, KDB Daewoo Securities Research

KDB Daewoo Securities Research 11 December 20, 2011 Mando

Table 5. Company history Region Overseas office Est. year Holdings Production items Note Korea Mando Hella Electronics 2008 50% Radar, ECU, Sensor Gemany Hella JV Halla Stackpoll 2008 70% Powder metal(auto parts) Mando Brose 2011 50% Motor Germany Brose JV, SOP 2013 China Mando Suzhou Chassis System 2002 100% ABS, CSS, EPS Mando Harbin Automotive 2002 80% CBS Mando Beijing Automotive 2003 100% CBS, Suspension Mando Tianjin Automotive Parts 2004 100% Casting material Mando Ningbo Automotive Parts 2011 65% Geely JV, SOP 2012 Malaysia Autoventure Mando 1995 30% CSS India Mando India Limited 1997 67% CBS, Suspension Mando India Steering Systems 2006 100% EPS Turkey Maysan Mando Otomotiv 1995 30% CSS Mando America Corp. 1996 100% CBS, CSS, Suspension Poland Mando Corporation Poland 2011 100% CBS, ABS, EPS SOP 2013 Brazil Mando Corporation do Brasil 2010 100% ABS SOP 2012 KYB(Kayaba) Mando do Brasil 2011 50% Suspension Japan Kayaba JV, SOP 2012 Source: Mando, KDB Daewoo Securities Research

KDB Daewoo Securities Research 12 December 20, 2011 Mando

2. The time has come for Mando

Electronic parts are the Steering and braking systems are clearly two areas where electronic parts are moving mainstream for MandoÊs mainstream. Braking systems have especially come a long way on back of strengthening key products safety concerns.

The braking system has evolved from conventional braking systems to ABS/ESC integrated control systems. From 2012, the Korean government will require all new cars to be equipped with an ESC system, which will further expand the adoption of these electronic parts.

Steering systems are anticipated to take a little longer than the braking systems to integrate electronic parts. We should note that domestic cars started to replace conventional steering systems which use hydraulics with motorized EPS systems just last year.

EPS systems improve the safety and comfort of a vehicle as it 1) improves fuel efficiency by reducing weight, and 2) increases control of steering system. We believe that EPS systems will begin to gain wider acceptance and replace conventional hydraulic systems from 2013.

Table 6. Product lineups of Mando Functioning field Parts Function Braking system ABS (Anti-Lock Brake System) Prevents skidding when braking TCS (Traction Control System) ABS + traction improvement ESC (Electric Stability Control) ABS + improves safety in corners BCM (Brake Corner Module) Safe braking system with improved steering Master Cylinder and Booster Transfers driverÊs foot brake to actual braking system Caliper Brake Stops a car using hydraulics High Torque DIH Parking brake system Steering system CSS (Conventional Power Steering System) Power steering using hydraulics C EPS (Column type Electric Power Steering) Power steering using motors R EPS (Rack type Electric Power Steering) Power steering using the motor on the rack gear Suspension system Shock Absorber Controls the carÊs movement; Absorption of shock and vibrating energy Shock Absorber Spring Assembly Controls the carÊs movement; Suspension link function Suspension Struts Controls the carÊs movement; Suspension link function Mono Tube Damper Improves turning ability and roll safety Cabin Air Suspension Controls the carÊs cabin vibration with air spring ASV SCC (Smart Cruise Control) Vehicle cruise control system adapted to the high-speed route BSD (Blind Spot Detection) Blind spot detecting sensors LKAS (Line Keeping Assist System) Lane-keeping assistance system TPMS (Tire Pressure Monitoring System) Pressure warning system by monitoring the tireÊs pressure SPAS (Smart Parking Assist System) Automatic parking system TJA (Traffic Jam Assist) Automatic speed control during traffic jams Source: Company data, KDB Daewoo Securities Research

Table 7. Types of EPS Column type Pinion type Rack type Applied vehicles Small cars that are under 1,500cc Cars under 2,000cc Large cars, SUVs, RVs, commercial Core technology possession TRW Japanese ZF Motor is attached to steering column Motor is attached to steering gear box Motor is attached to steering gear box Characteristics (upper) (lower) (lower) Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 13 December 20, 2011 Mando

Steering and braking Thus, we believe that the wider integration of electronics in the braking and steering systems systems will pave the will be a core growth for Mando until 2015. Also, with ongoing cost reduction efforts taking growth until 2015 place at global auto makers, MandoÊs quality and price competitiveness should open more doors for new orders outside the HKAG.

Meanwhile, Mando is also leading the way, among domestic auto parts makers, for the next generation safety and ASV (Advanced Safety Vehicle) systems. These items include, LKAS (Lane Keeping Assist System), SPAS (Smart Parking Assist System), BSD (Blind Spot Detection), and Lane Change Assist systems.

For ASV systems, Mando is working to develop communication systems and DIS (Driver Information System).

Securing manufacturing In order to maintain its competitive edge, Mando is focusing on ECUs (Electronic Control abilities in core parts Unit), censors, and motors. So in 2008, Mando established a JV with GermanyÊs Hella to such as motors, ECUs, develop and manufacture ECUs, censors, and radars. In addition, Mando established a JV and censors with GermanyÊs Brose to start manufacturing motors for EPS from 2013.

Figure 19. MandoÊs core electronics business

90's 2000's 2010~

Conventional Electronic Control Collision & Preventive System System Safety System

0~1 Gen 2 Gen 2.5~3 Gen

'93 SOP ABS 2012 SOP LKAS, BSD '99 SOP ABS with 2004 SOP 2006 SOP 2010 SOP own tech ESC EPS SPAS, SCC

Source: KDB Daewoo Securities Research

Figure 20. ESC (Electric Stability Control) system Figure 21. Rack type EPS

Source: : KDB Daewoo Securities Research Source: : KDB Daewoo Securities Research

KDB Daewoo Securities Research 14 December 20, 2011 Mando

Figure 22. ASCC (Adaptive Smart Cruise Control) system Figure 23. SPAS (Smart Parking Assist System)

Source: : KDB Daewoo Securities Research Source: : KDB Daewoo Securities Research

Figure 24. LKAS (Lane Keeping Assist System) Figure 25. BSD (Blind Spot Detection) System

Source: : KDB Daewoo Securities Research Source: : KDB Daewoo Securities Research

KDB Daewoo Securities Research 15 December 20, 2011 Mando

IV. Investment points

1. Mando’s competitive edge

Global competitiveness Mando is the leading company in steering and braking systems among Korean auto parts in the fast growing manufacturers. Thus, we believe that Mando is benefiting from the recent trend of electronic steering and integrating electronics into the steering and braking systems. braking systems With the global trend towards electronic steering and braking systems, Mando is benefitting from the following:

1) unstable global parts supply due to the recent natural disasters

2) global auto makersÊ ongoing efforts to procure quality parts at competitive prices

3) Chinese auto makersÊ efforts to launch globally competitive cars on the back of globally authenticated parts

In light of such environment, we believe that Mando has a strong opportunity to diversify its customer base. Although over 50% of MandoÊs revenues are currently derived from HKAG, it is projected to soon fall below 50%.

Table 8. SWOT analysis for Mando Strength Weakness - Leading technology in steering and braking systems - Raising investment burden on new technology - Growth potential on customer diversification - High percentage of labor costs - New orders are exceeding current revenue levels - In house manufacture of core items remain small Opportunity Threat - New orders due to unstable global parts supply - Global auto demand to shrink - Global auto makersÊ efforts to lower their procurement costs - Hyundai MobisÊ role in HKAG - High potential growth from Chinese auto makers - Chinese marketÊs over supply issue leading to weaker earnings Source: KDB Daewoo Securities Research

Table 9. MandoÊs strength and weakness comparison Strength Weakness Hyundai Mobis - High margin business (A/S, CKD exports) - Relatively new comer in the core electronics business - Excellent cash generation - Cash outflow possibilities in group restructuring - Key supplier for HKAGÊs future auto parts - Margin deterioration with transition to more manufacturing - Huge potential to diversify customers on module business Mando - Producing core parts except for power trains - M/S to fall in HKAG - First to integrate core electronic parts for HKAG - Low margins compared to Hyundai Mobis - High percentage of non HKAG revenues - Valuation burden compared to Hyundai Mobis (40% premium) - Double digit growth for the next five years - More negatively impacted if global demand weakens Hyundai Wia - HKAGÊs key beneficiary of investments (equipment, plants) - Margin improvement to have limits - Double digit growth for the next five year - Lowest operating profit margin among large parts makers - Machine tool business another strong growth potential - Valuation burden compared to Hyundai Mobis (40% premium) Halla Climate - Has core technology for climate control systems (compressors) - Limitation of one core item - Potential to diversify customers with high margin business - Slow diversification of customers - Beneficiary of HKAGÊs overseas expansion Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 16 December 20, 2011 Mando

2. Next generation electronic parts

Electronic steering and We believe that next generation electronic parts in braking and steering systems will be the braking systems will core driver of quality earnings at Mando in the mid-to-long term. Mando holds a comparative guarantee quality growth edge on know-how, technology, and customer diversification in the braking and steering systems.

Figure 26. Environment measures for major countries

(mileage, km/L) 25 Japan Korea 2015 2015, 16.8km/L 17km/L, 140g/km

20 US 2016 Strengthening 15km/L, 155g/km 15

10 EU CO2 2015, 130g/km 5

0 0 50 100 150 200 Strengthening (CO2 , g/km)

Source: KDB Daewoo Securities Research

Table 10. Korean governmentÊs safety related regulations Content Application date Application type Basis Requirement to install ESC Jan 2012 All new passenger cars Increase safety - ESC (Electronic Stability Control) Requirement to install TPMS Jan 2013 All new passenger cars - TPMS (Tire Pressure Monitoring System) Source: KDB Daewoo Securities Research

Figure 27. Electronic steering and braking systemsÊ future Figure 28. Electronics and new car prices

100 Hydraulic Motor (Electronic) By wire Lower 20% rise 80 27% Steering CSS (Conventional Steering System)

Steer By 60 EPS(Electric Wire system Power Steering) Inflation 3% 40 CBS (Conventional Brake Brake system) ABS, TCS, ESC, EPB 20 Percentage of Brake by electronics wire system Percentage of electronics 0 2002 New car prices 2015 Wider adoption of Adjusted new car New car prices rise New car prices systems prices in 2015 Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 17 December 20, 2011 Mando

3. Solid new order backlog

Revenues to grow New orders, which far exceed its current consolidated revenues, will serve as the backbone 12.9% and NP to grow for MandoÊs long-term top line growth. MandoÊs new orders started to pick up from 2006 19.0% annually to 2016 with new orders from HKAG, GM Global and other non-Hyundai affiliated customers.

By end-2011, we believe MandoÊs new orders will reach W6.1tr. This is 132% of 2011F consolidated revenues of W4.6tr. As of 3Q, MandoÊs new orders reached W4.1tr and by end-2011, we believe Mando will win another important order from GM Global. In addition, recent new orders are showing that Mando is securing not only component supply deals, but deals that require Mando to supply the entire braking and steering systems.

We believe the pace of new orders will continue to be solid and allow Mando to enjoy stellar sales growth of 12.9% CAGR to 2016. Even if we factor in the limited margin improvement due to Mando being a supplier, we forecast its net profit at 19.0% CAGR.

4. Customer diversification

Portion of new orders Mando and Hyundai Mobis are the core parts suppliers for HKAGÊs braking and steering from HKAG falling to systems. This had previously posed serious risks for Mando as its sales portion to HKAG 40% levels was absolute. But even though MandoÊs consolidated revenue has shown strong growth in the past years, its sales to HKAG have fallen below 60% from 2010.

On back of strong orders from global customers and a widening base of customers, we believe that MandoÊs pricing power as a system parts manufacturer will improve. As of 2010, the portion of new orders from HKAG has fallen to 40% levels.

On the other hand, 30% of new orders are from GM Global and the other 30% are from Chinese and European auto makers. Thus, MandoÊs diversification of customer base will eventually strengthen its pricing power and minimize its dependence on a particular customer.

Figure 29. Breakdown of new orders by customer and long term revenue forecasts of Mando (Wbn) (Wbn) 7,500 HMC GM 8,000 2015 Chinese European Others Consolidated Rev.(R) 2014 6,000 2013 6,000 2012 4,500 2011

2010 4,000

3,000 2009

2,000 1,500

0 0 05 06 07 08 09 10 11F

Source: Mando, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 18 December 20, 2011 Mando

5. FTAs with U.S. and EU to open more opportunities

FTA to open more In 2011, Korea signed FTAs with the U.S. and EU. These FTAs will immediately abolish opportunities for Mando tariffs on auto parts, which is a long term positive for Korean auto parts makers.

We believe that the abolishment of tariffs on auto parts will have two benefits.

First, the auto parts makers which have followed HMC and Kia MotorsÊ overseas plants will benefit from cost improvement which will lead to profitability improvement.

Second, Korean auto parts makers, which are exporting parts to global auto manufacturers, will gain a cost advantage that will help them win new orders from overseas auto manufacturers in the long-term.

As Mando already conducts a lot of business with GM, Ford, and Chrysler through CKD exports from Korea, we believe the FTAs will have an immediate impact on their earnings improvement.

Table 11. Status of major FTAs Import tariffs Present condition Tariff reduction schedule Auto Auto parts 2.5% (Cars) No tariffs from 5th year U.S. 2~4% Effective from 2012 No tariffs from 10th year 25% (Pickups, commercial) Immediately for parts/Tires within 5 years 3~4% Immediately for parts /3 Years for mid-large cars E U 10% 2H 2011 (Estimated average of 3.4%) Within 5 years for small cars India (CEPA) 12.5% Effective from 2010 1~5% Reduction in 9 years China 25% Below 10% Negotiation stage - Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 19 December 20, 2011 Mando

V. Earnings preview and outlook

1. 4Q Earnings preview

4Q Earnings expected to We forecast MandoÊs 4Q consolidated revenues to increase by 25.1% to W1.3tr, exceeding be solid our previous estimate of W1.2tr. This is attributable mainly to 1) HMC and Kia MotorsÊ better than expected global output, 2) overseas auto makersÊ rapid recovery of production accompanied with new car launches, and 3) stellar growth of its Chinese operations.

Meanwhile, consolidated operating profit and pretax profit should also come in very solid at W91.7bn and W89.1bn, respectively, with OP margin of 7.1%. We believe that on back of solid revenue growth, Mando will be able to maintain its annual OP margin above 7%. 4Q Net profit is forecast to come in at W66.9bn, and 2011 annual net profit should come in at W243.6bn, which is a 27.3% increase from 2010.

2. 2012 Earnings outlook

2012 Net profit to We forecast MandoÊs 2012 consolidated revenues and operating profit at W5.2tr and increase by 22.5% W398.7bn, respectively. Revenue will continue to enjoy stellar growth on the back of solid new order backlog, and OP margin should improve another 0.5%p due to improvement in sales mix. Therefore, 2012 net profit is forecast to increase by 22.5% to W298bn. Meanwhile, 2012 new orders are forecast to increase by 16.3% and exceed W7tr.

Table 12. Quarterly earnings outlook for Mando (Wbn, %) 1Q11 2Q11 3Q11 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 2011F 2012F Revenue 1,028 1,109 1,154 1,299 1,215 1,313 1,283 1,421 4,591 5,232 Operating profit 70 83 83 92 90 108 91 110 327 399 Pretax profit 68 81 73 89 92 108 91 106 311 397 Net profit 57 61 59 67 69 82 68 80 244 298 OP margin 6.8 7.5 7.2 7.1 7.4 8.2 7.1 7.7 7.1 7.6 Pretax margin 6.6 7.3 6.3 6.9 7.5 8.3 7.1 7.5 6.8 7.6 Net margin 5.6 5.5 5.1 5.2 5.7 6.2 5.3 5.6 5.3 5.7 Source: Mando, KDB Daewoo Securities Research estimates

Table 13. Sales breakdown by region for Mando (Wbn, %) 1Q11 2Q11 3Q11 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 2011F 2012F Revenue Korea 696 775 838 939 871 928 1,009 1,044 3,249 3,852 China 205 215 229 257 242 257 274 289 907 1,061 U.S. 259 241 242 274 266 258 259 271 1,016 1,054 Others -132 -122 -155 -172 -176 -168 -193 -198 -581 -735 Consolidated 1,028 1,109 1,154 1,299 1,202 1,275 1,349 1,405 4,591 5,232 Operating Korea 28 49 53 58 49 60 52 66 188 227 Profit China 27 30 31 35 31 34 26 31 123 121 U.S. 7 2 5 5 8 11 11 12 19 41 Others 8 2 -6 -7 3 2 2 2 -2 9 Consolidated 70 83 83 92 90 108 91 110 327 399 OP margin Korea 4.0 6.3 6.3 6.2 5.6 6.5 5.2 6.3 5.8 5.9 China 13.3 13.8 13.7 13.6 12.9 13.2 9.4 10.6 13.6 11.4 U.S. 2.6 0.9 1.9 2.0 2.8 4.3 4.1 4.4 1.9 3.9 Others ------Consolidated 6.8 7.5 7.2 7.1 7.5 8.4 6.7 7.8 7.1 7.6 Source: Mando, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 20 December 20, 2011 Mando

Table 14. Earnings revisions for Mando (Wbn, W, %) Previous Revised % change

11F 12F 13F 11F 12F 13F 11F 12F 13F Revenue 4,538 5,232 5,823 4,591 5,232 5,823 1.2 - - - Revised up sales to major customers Operating 327 399 470 327 399 470 0.1 - - profit Pretax profit 310 397 471 311 397 472 0.5 0.0 0.1 - Improvement in cashflow leading Net profit 241 298 350 244 298 350 1.2 0.0 0.1 to EPS improvement EPS 13,213 16,382 19,189 13,376 16,385 19,214 1.2 0.0 0.1 OP margin 7.2 7.6 8.1 7.1 7.6 8.1 Pretax margin 6.8 7.6 8.1 6.8 7.6 8.1 Net margin 5.3 5.7 6.0 5.3 5.7 6.0 Source: KDB Daewoo Securities Research estimates

Figure 30. MandoÊs quarterly revenue outlook

(Wbn) 2,200

2,000

1,800

1,600

1,400

1,200

1,000

800

600 10E 11F 12F 13F 14F 15F

Source: KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 21 December 20, 2011 Mando

Mando (060980 KS/Buy/TP: W250,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/10 12/11F 12/12F 12/13F (Wbn) 12/10 12/11F 12/12F 12/13F Revenues 3,624 4,591 5,232 5,823 Current Assets 1,224 1,917 2,070 2,183 Cost of Sales 3,031 3,896 4,456 4,938 Cash and Cash Equivalents 124 399 519 515 Gross Profit 593 695 776 885 AR & Other Receivables 764 1,055 1,072 1,158 SG&A Expenses 331 371 347 380 Inventories 275 379 392 419 Operating Profit (Adj) 262 324 429 505 Other Current Assets 20 68 71 75 Operating Profit 262 327 399 470 Non-Current Assets 1,288 1,580 1,802 2,009 Non-Operating Profit -7 -9 -2 2 Investments in Associates 34 50 53 57 Net Financial Income 7 9 11 9 Property, Plant and Equipment 1,096 1,353 1,564 1,768 Net Gain from Inv in Associates -4 1 3 4 Intangible Assets 65 76 79 82 Pretax Profit 255 311 397 472 Total Assets 2,512 3,497 3,872 4,192 Income Tax 60 64 93 116 Current Liabilities 954 1,254 1,418 1,338 Profit from Continuing Operations 195 247 304 356 AP & Other Payables 757 920 938 973 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 104 258 407 288 Net Profit 195 247 304 356 Other Current Liabilities 93 76 73 76 Controlling Interests 191 244 298 350 Non-Current Liabilities 309 779 697 755 Non-Controlling Interests 3 4 6 6 Long-Term Financial Liabilities 118 325 166 137 Total Comprehensive Profit 195 231 314 364 Other Non-Current Liabilities 77 322 371 426 Controlling Interests 191 226 307 357 Total Liabilities 1,262 2,034 2,115 2,092 Non-Controlling Interests 3 5 7 7 Controlling Interests 1,227 1,412 1,699 2,034 EBITDA 391 464 583 674 Capital Stock 91 91 91 91 FCF (Free Cash Flow) 70 43 126 134 Capital Surplus 240 240 240 240 EBITDA Margin (%) 10.8 10.1 11.2 11.6 Retained Earnings 738 1,093 1,371 1,700 Operating Profit Margin (%) 7.2 7.1 7.6 8.1 Non-Controlling Interests 23 51 58 66 Net Profit Margin (%) 5.3 5.3 5.7 6.0 Stockholders' Equity 1,249 1,463 1,757 2,100

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/10 12/11F 12/12F 12/13F 12/10 12/11F 12/12F 12/13F Cash Flows from Op Activities 364 450 529 550 P/E (x) 11.8 14.5 11.8 10.1 Net Profit 195 290 304 356 P/CF (x) 7.0 9.2 7.8 6.8 Non-Cash Income and Expense 187 206 279 319 P/B (x) 2.0 2.7 2.2 1.8 Depreciation 114 125 139 153 EV/EBITDA (x) 6.5 8.4 6.5 5.5 Amortization 15 15 16 16 EPS (W) 10,961 13,376 16,386 19,214 Others -56 -47 -5 -12 CFPS (W) 18,368 21,032 24,862 28,491 Chg in Working Capital -17 21 39 -9 BPS (W) 64,066 73,325 88,944 107,161 Chg in AR & Other Receivables -126 -248 -17 -86 DPS (W) 1,000 1,100 1,200 1,300 Chg in Inventories -51 -84 -13 -27 Payout ratio (%) 9.5 8.1 7.2 6.7 Chg in AP & Other Payables 164 117 18 36 Dividend Yield (%) 0.8 0.6 0.6 0.7 Income Tax Paid 0 -67 -93 -116 Revenue Growth (%) 32.9 26.7 14.0 11.3 Cash Flows from Inv Activities -310 -423 -363 -371 EBITDA Growth (%) 21.5 18.5 25.8 15.6 Chg in PP&E -252 -370 -350 -356 Operating Profit Growth (%) 48.0 25.1 21.8 17.8 Chg in Intangible Assets -21 -16 -18 -20 EPS Growth (%) 64.8 22.0 22.5 17.3 Chg in Financial Assets -22 -6 0 0 Accounts Receivable Turnover (x) 5.7 5.4 5.0 5.3 Others -15 -30 5 5 Inventory Turnover (x) 14.5 14.0 13.6 14.4 Cash Flows from Fin Activities -106 242 -46 -183 Accounts Payable Turnover (x) 6.8 6.1 5.6 6.1 Chg in Financial Liabilities -271 273 -10 -148 ROA (%) 8.2 8.2 8.3 8.8 Chg in Equity 172 -13 0 0 ROE (%) 18.2 18.5 19.2 18.8 Dividends Paid 0 -18 -20 -22 ROIC (%) 15.1 17.1 19.0 19.6 Others -6 -18 -16 -14 Liability to Equity Ratio (%) 101.1 139.0 120.4 99.7 Increase (Decrease) in Cash -51 276 120 -5 Current Ratio (%) 128.3 152.8 146.0 163.2 Beginning Balance 174 124 399 519 Net Debt to Equity Ratio (%) 4.6 11.5 2.1 -5.1 Ending Balance 124 399 519 515 Interest Coverage Ratio (x) 15.3 22.7 24.7 33.5 Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 22 December 20, 2011 Mando

Mando (060980 KS/Buy/TP: W250,000)

Comprehensive Income Statement (Wbn) 12/08 12/09 12/10 12/11F 12/12F 12/13F 09/11 12/11F 03/12F 06/12F Revenues 1,575 2,727 3,624 4,591 5,232 5,823 1,154 1,299 1,215 1,313 Cost of Sales 1,379 2,302 3,031 3,896 4,456 4,938 982 1,096 1,031 1,111 Gross Profit 196 425 593 695 776 885 172 203 184 202 SG&A Expenses 171 248 331 371 347 380 109 107 86 84 Operating Profit (Adj) 25 177 262 324 429 505 64 96 98 117 Operating Profit 25 177 262 327 399 470 83 92 90 108 Non-Operating Profit -8 -45 -7 -9 -2 2 9 -3 11 Net Financial Income 11 25 7 911 9 2 3 23 Net Foreign Currency Related Gains (Losses) 57 -14 -2 1-18-17 14 -3 -3 -5 Net Gains from Inv in Associates 26 -3 -4 134 0 1 11 Other Non-Operating Profit -79 -5 8 22524 -1 2 78 Pretax Profit from Continuing Operations 17 132 255 311 397 472 73 89 92 108 Income Tax -24 23 60 64 93 116 15 21 22 25 Profit from Continuing Operations 41 109 195 247 304 356 58 68 70 83 Profit from Discontinued Operations 0 00000 0 0 00 Tax Effect 0 00000 0 0 00 Net Profit 41 109 195 247 304 356 58 68 70 83 Controlling Interests 41 107 191 244 298 350 59 67 69 82 Non-Controlling Interests 0 23466 -1 1 11 Total Comprehensive Profit 41 109 195 231 314 364 38 71 72 86 Controlling Interests 41 107 191 226 307 357 36 70 71 85 Non-Controlling Interests 0 23577 2 1 11 EPS (W) 2,556 6,653 10,961 13,376 16,386 19,214 3,229 3,675 3,771 4,479 EBITDA 120 322 391 464 583 674 99 132 136 155 Depreciation 85 130 114 125 139 153 32 32 34 34 Amortization 10 15 15 15 16 16 4 4 44 Profitability Gross Profit Margin (%) 12.4 15.6 16.4 15.1 14.8 15.2 14.9 15.6 15.1 15.4 Operating Profit Margin (%) 1.6 6.5 7.2 7.1 7.6 8.1 7.2 7.1 7.4 8.2 EBITDA Margin (%) 7.6 11.8 10.8 10.1 11.2 11.6 8.6 10.2 11.2 11.8 Net Profit Margin (%) 2.6 3.9 5.3 5.3 5.7 6.0 5.1 5.2 5.7 6.2 Growth Rate (YoY) Revenues (%) -6.0 73.2 32.9 26.7 14.0 11.3 18.1 18.3 Operating Profit (%) -63.9 612.2 48.0 25.1 21.8 17.8 29.7 29.7 EBITDA (%) -29.7 169.0 21.5 18.5 25.8 15.6 25.9 25.1 Net Profit (%) -65.9 160.3 78.1 27.4 22.5 17.3 20.3 34.2 EPS (%) -65.9 160.3 64.8 22.0 22.5 17.3 20.3 34.2 Other Ratios SG&A/Revenues (%) 10.9 9.1 9.1 8.1 6.6 6.5 9.4 8.2 7.0 6.4 Tax Rate (%) -137.8 17.5 23.6 20.6 23.5 24.6 20.3 23.4 23.5 23.4 Interest Coverage Ratio (%) 2.2 7.0 36.3 37.1 39.6 57.2 27.6 34.5 40.7 38.9 Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 23 December 20, 2011 Mando

Mando (060980 KS/Buy/TP: W250,000)

Statement of Financial Condition (Wbn) 12/08 12/09 12/10 12/11F 12/12F 12/13F Current Assets 582 1,097 1,224 1,917 2,070 2,183 Cash and Cash Equivalents 51 174 124 399 519 515 AR & Other Receivables 402 636 764 1,055 1,072 1,158 Inventories 75 224 275 379 392 419 Other Current Assets 3 15 20 68 71 75 Non-Current Assets 991 1,117 1,288 1,580 1,802 2,009 Investments in Associates 308 32 34 50 53 57 Property, Plant and Equipment 607 960 1,096 1,353 1,564 1,768 Intangible Assets 40 58 65 76 79 82 Other Non-Current Assets 35 52 57 33 39 35 Total Assets 1,573 2,214 2,512 3,497 3,872 4,192 Current Liabilities 344 796 954 1,254 1,418 1,338 AP & Other Payables 260 590 757 920 938 973 Short-term Financial Liabilities 55 145 104 258 407 288 Other Current Liabilities 29 61 93 76 73 76 Non-Current Liabilities 456 527 309 779 697 755 Long-term Financial Liabilities 324 364 118 325 166 137 Other Non-Current Liabilities 48 61 77 322 371 426 Total Liabilities 800 1,323 1,262 2,034 2,115 2,092 Controlling Interests 773 872 1,227 1,412 1,699 2,034 Capital Stock 37 81 91 91 91 91 Capital Surplus 128 84 240 240 240 240 Other Components of Equity -5 -7 -9 -21 -21 -21 Retained Earnings 445 547 738 1,093 1,371 1,700 Non-Controlling Interests 0 19 23 51 58 66 Stockholders' Equity 773 891 1,249 1,463 1,757 2,100 Weighted Average Shares (Â000) 7,448 16,145 17,455 18,214 18,214 18,214 Activities Accounts Receivable Turnover (x) 4.2 5.7 5.7 5.4 5.0 5.3 Inventory Turnover (x) 18.5 18.3 14.5 14.0 13.6 14.4 Accounts Payable Turnover (x) 6.9 8.3 6.8 6.1 5.6 6.1 Net Working Capital Turnover (x) 11.2 13.2 16.8 12.9 10.2 10.3 Total Asset Turnover (x) 1.1 1.4 1.5 1.5 1.4 1.4 Stabilities Cash Equivalents to Assets (%) 3.3 7.9 4.9 11.4 13.4 12.3 Current Ratio (%) 168.9 137.9 128.3 152.8 146.0 163.2 Debt to Equity Ratio (%) 103.5 148.5 101.1 139.0 120.4 99.7 Net Debt to Equity Ratio (%) 35.9 32.0 4.6 11.5 2.1 -5.1 Profitabilities ROA (%) 2.7 5.8 8.2 8.2 8.3 8.8 ROE (%) 6.2 13.1 18.2 18.5 19.2 18.8 ROIC (%) 7.9 13.9 15.1 17.1 19.0 19.6 Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 24 December 20, 2011 Mando

Mando (060980 KS/Buy/TP: W250,000)

Cash Flows (Wbn) 12/08 12/09 12/10 12/11F 12/12F 12/13F Cash Flows from Operating Activities 56 364 364 450 529 550 Net Profit 41 109 195 290 304 356 Additions and Deductions of Non-Cash Flows 167 204 187 206 279 319 Depreciation 85 130 114 125 139 153 Amortization 10 15 15 15 16 16 Others -106 -54 -56 -47 -5 -12 Changes in Working Capital -306 101 -34 41 77 -17 Decrease (Increase) in AR & Other Receivables 26 -134 -126 -248 -17 -86 Decrease (Increase) in Inventories 20 24 -51 -84 -13 -27 Increase (Decrease) in AP & Other Payables -106 178 164 117 18 36 Changes in Other Current Assets from Operating Activities -93 -19 -4 235 51 69 Income Tax Paid 0 00-67 -93 -116 Cash Flows from Investing Activities -164 -148 -310 -423 -363 -371 Chg in Property, Plant and Equipment -62 -106 -252 -370 -350 -356 Chg in Intangible Assets -8 -13 -21 -16 -18 -20 Chg in Long-Term Financial Assets -2 -3 -22 -18 0 0 Chg in Short-Term Financial Assets 0 0012 0 0 Other Investing Cash Flows -93 -25 -15 -30 5 5 Cash Flows from Financing Activities 16 -127 -106 242 -46 -183 Increase (Decrease) in Financial Liabilities 17 -119 -271 273 -10 -148 Chg in Equity 0 -2 172 -13 0 0 Dividends Paid 0 -6 0 -18 -20 -22 Other Financing Cash Flows 0 0-6-18 -16 -14 Increase (Decrease) in Cash -92 79 -51 276 120 -5 Beginning Balance 143 95 174 124 399 519 Ending Balance 51 174 124 399 519 515

EBITDA 120 322 391 464 583 674 (-) CAPEX 62 106 252 370 350 356 (-) Taxes on Pretax Profit from Continuing Operations -24 23 60 64 93 116 (-) Net Financial Expenses 11 25 7 9 11 9 (-) Increase in Net Working Capital -306 101 -34 41 77 -17 (=) FCF (Free Cash Flow) -10 132 70 43 126 134

Per Share Data EPS (W) 2,556 6,653 10,961 13,376 16,386 19,214 BPS (W) 98,388 50,794 64,066 73,325 88,944 107,161 CFPS (W) 18,273 15,638 18,368 21,032 24,862 28,491 DPS (W) 0 0 1,000 1,100 1,200 1,300 Valuation P/E (x) 0.0 0.0 11.8 14.5 11.8 10.1 P/CR (x) 0.0 0.0 7.0 9.2 7.8 6.8 P/B (x) 0.0 0.0 2.0 2.7 2.2 1.8 EV/EBITDA (x) 3.1 1.3 6.5 8.4 6.5 5.5 Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 25 December 20, 2011 Mando

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

Buy Relative performance of 20% or greater (W) MA NDO Stock Trading Buy Relative performance of 10% or greater, but with volatility 300,000 250,000 Ratings Hold Relative performance of -10% and 10% 200,000 Sell Relative performance of -10% 150,000 Overweight Fundamentals are favorable or improving 100,000 Industry 50,000 Neutral Fundamentals are steady without any material changes Ratings 0 12/09 6/10 12/10 6/11 12/11 Underweight Fundamentals are unfavorable or worsening * Ratings and Target Price History (Share price (----), Target price (----), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analystÊs estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Analyst Certification The research analysts who prepared this report (the „Analysts‰) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the AnalystÊs area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other bu