September 14, 2012

KOREA

Sector News & Analysis Major Indices Close Chg Chg (%) Food & Beverage (Overweight) KOSPI 2,007.58 56.89 2.92 Grain supply/demand report vs. F&B investment strategy KOSPI 200 265.02 8.15 3.17 KOSDAQ 519.14 -1.34 -0.26 Mobile Internet Traffic KakaoTalk's Game Center signals huge potential for Line Turnover ('000 shares, Wbn) Volume Value KOSPI 1,012,996 9,071 Economy & Strategy Update KOSPI 200 154,097 6,656 KOSDAQ 876,209 3,168 September FOMC Policy events' impact on Korean market Market Cap (Wbn) Value KOSPI 1,156,857 KOSDAQ 113,504

KOSPI Turnover (Wbn) Buy Sell Net Foreign 2,515 1,245 1,271 Institutional 2,070 1,867 203 Retail 4,440 5,892 -1,452

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 85 80 5 Institutional 109 149 -40 Retail 2,968 2,933 35

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 2,108 861 1,247 KOSDAQ 24 15 9

Advances & Declines Advances Declines Unchanged KOSPI 621 213 70 KOSDAQ 494 446 59

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 1,336,000 35,000 663 KODEX LEVERAGE 13,115 850 475 Mirae 1,765 -310 381 KODEX INVERSE 7,345 -250 273 Hynix 22,950 1,100 239

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value AHNLAB 129,300 6,000 202 BITComputer 9,360 -550 108 Seohee Construction 1,650 140 105 Agabang 14,150 -1,250 83 Openbase 3,350 70 50 Note: As of September 14, 2012

This document is a summary of a report prepared by Daewoo Securities Co., Ltd. („Daewoo‰) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose.

Industry September 14, 2012

Overweight Food & Beverage Daewoo Securities Co., Ltd. Woon-mok Baek Grain supply/demand report vs. F&B investment strategy +822-768-4158 [email protected] USDA announced its September grain supply/demand outlook report

The US Department of Agriculture (USDA) issued its monthly grain supply/demand outlook report on September 12. In the September report, the USDA forecast grain production growth for 2011/12 to reach 5.0%, higher than consumption growth

(2.9%). In addition, the USDA modestly lowered its grain production, consumption, and inventory forecasts for 2012/2013 (marketing year: 9/01/12~8/31/13) by 3.2%, 0.6%, and 9.5%, respectively from its August projections. In the August report, the USDA revised down its projections from July more sharply.

What is notable in the September report is that the inventory ratio for 2012/2013F rose to 18.9% from 18.8% in the August report as inventory estimate was raised by 0.2% from August. With the current inventory ratio higher than the 1996~1997 (around 15%) and 2007~2008 (16~17%) levels, a food crisis or agflation is unlikely to emerge for the time being.

Volatility in international grain prices to shrink CRB grain price index was flat for the past one month, as expectations of a modest downward revision to production forecast were already priced in. Going forward, CRB grain price index will likely become less volatile, as: 1) the September grain supply/demand outlook report eased uncertainty about inventories; 2) sowing in the southern hemisphere (Brazil, Argentina, Australia, etc.) which starts in September~October is likely to increase in light of strong grain prices; 3) crop conditions are not deteriorating any more; and 4) international organizations, including the UN, have demanded that the US cut its bioethanol production.

Steady hikes in prices since early August The recent jump in grain prices is unlikely to affect the bottom lines of F&B firms until November, given the typical 3~6 month lag between purchase and input. As such, changes in GRB grain prices are reflected in product prices 6~9 months later.

Since July, processed food prices have increased. Food stuff prices are expected to be raised around end-2012 ~ early 2013 to reflect for the recent surge in grain prices. The Korea Rural Economic Institute (based on September industry analysis estimates) forecasts that flour prices will jump 30.8%, starch 16.3%, vegetable oil 11.2%, and animal feed 10.2% in end-2012 ~ early 2013.

Table 1. Recent F&B price hikes (since July 2012) Company Item % Notes CJCJ Hat-Ban 9.4% W1,280→W1,400 Dasida 7.9% W4,650→W5,020 (300g) Samyang Samyang ramen, Sutah ramen etc. 5.0~10.0% W700→W770, W680→W730 King bowl noodle, Dosirac etc. (Bowl Kingbowl noodle: W1,000→W1,050 Paldo 6.1% noodle) Dosirac noodle: W800→W850 Dongwon F&B Dongwon omega3 , Delcube tuna 8.0% W2,500→W2,700, W2,480→W2,650 Sajo group Sajo low-high tuna (150g) 8.4% W2,150→W2,380 Hitejinro Bottled beer, Canned beer, Pet beer etc. 5.9% W1019.17→W1079.62 (bottled beer) Lotte chilsung Chilsung cider, Pepsi 7.0% W1,000→W1,100, W800→W1,000 Gatorade, LetÊs be 5.0~7.0% Increased by W33, W17 Jung food Vegemil A,B (190ml), Vegemil A,B (1L) 13.3% W600→W680, W2,050→W2,300 Nongshim Saewoo kkang, Soomi-chip, Chip potato 6~8.1% W900→W1,000 Ottogi Tuna can, Ottogi bab 3.1~4.8% LG H&H Stripe, Coca-cola, Georgia original Increased by W20~40 Sunny10, Sunny10 blast, Pyungchang Price hikes for 46 of the total 182 Haitai Beverage 8.3~15.0% water products CJ Foodville Americano, Café latte, Café mocha 5.9% Increased by W300 OB Bottled beer(500ml), OB golden lager 5.9% W1,021→W1,082 Orion Nacho 21.0% W1,200→W1,450 (74g→92g) Choco-pie W3,200→W4,000 (1box) Haitai Matdongsan, Free time choco bar etc. 7.1% Confectionery Windsor, Johnnie Walker, Smirnoff, DIAGEO Korea 12year (350ml): W18,073→W19,063 Guinness Lotte ZEC 20.0% W1,000→W1,200 confectionery Seasoning, Soybean paste, Hongcho, Daesang 3~5% Spaghetti Source: Press release, KDB Daewoo Securities Research

Focus on companies with solid earnings or exports Grain prices are now stabilizing, and thus, are no longer a drag on F&B shares. If grain prices begin to fall, F&B shares could receive a boost.

We expect the F&B industry to undergo structural changes over the long term, due to slowing population growth, aging population, rising raw material prices, and limits on price hikes. In order for F&Bs to secure long-term growth, they should seek the following: 1) overseas expansion (exports), 2) strong branding and oligopolistic status, 3) restructuring (by product), and 4) M&As. Indeed, Binggrae, Maeil, Daesang, Dongwon Industries, Nongshim, and Nam Yang have led the recent rally in the F&B sector on: 1) possible overseas expansion, 2) a projected pick-up in 3Q and 4Q earnings, or 3) oligopolistic status in major products.

In 3Q~4Q, F&Bs that are forecast to report improved earnings are: Daesang (001680 KS/Buy/TP of W22,000), Dongwon Industries (006040 KS/ Buy /TP of W300,000), Nongshim (004370 KS/Buy /TP of W290,000), and KT&G (033780 KS/Buy /TP of W103,000).

We also like CJ CheilJedang (097950 KS/Buy/TP of W420,000) and Orion (001800 KS/Buy/TP of W1,080,000) despite their short-term negatives (rising lysine prices for CJCJ and renewal of Sports Toto for Orion), in light of steady growth in the overseas markets including China.

2 Industry September 14, 2012

Overweight Mobile Internet Traffic Daewoo Securities Co., Ltd. Chang-kwean Kim KakaoTalk’s Game Center signals huge potential for Line +822-768-4321 [email protected] KakaoTalk reshaping the mobile game market; Daily sales hit W100mn

KakaoTalkÊs Game Center, which launched on July 30, is already proving to be a massive hit in the mobile game market. Of the 12 games it released for Android, eight of them (including usersÊ favorite Ani Pang), ranked among the top 49 mobile

games for August based on unique visitors.

This clearly demonstrates that multimedia messaging services like KakaoTalk or

NHNÊs Line have the potential to serve as a major mobile game platform. Line, which is hugely popular in Japan with 60mn users (predominantly in Japan), is set to release a number of mobile games in October and November. We believe Line is well positioned to exploit JapanÊs mobile game market, which has an in-game purchase ratio that is four times higher than Korea, and an average ARPU of DeNA and GREE (Japanese SSN game providers) that is six times higher than Zynga (US).

Mobile advertisement era to begin next year Mobile traffic has now begun to outpace PC traffic, and mobile ads are accounting for an increasing percentage of revenues at NHN and Daum (1~7%). While market forecasts vary, the mobile advertising market is expected to grow between 70~170% YoY in 2013. We expect mobile ads to contribute 9.1% of revenues at NHN and 12.9% at Daum in 2013.

Top Picks are NHN and Daum; Line to serve as NHN’s mobile platform The success of KakaoTalkÊs Game Center is likely to draw attention to the potential of mobile game platforms. NHN is set to launch its mobile game platform in full swing in Japan via Line, while Daum plans to roll out around 70 mobile games in Korea through its Daum-Mobage platform. Given that mobile ad market growth is underpinned by mobile internet traffic, which is dominated by KakaoTalk (unlisted), NHN and Daum, we recommend NHN and Daum as our top picks in the mobile game and internet sector.

Daewoo Securities Co., Ltd. Yeo-sam Yoon September FOMC Sr. Fixed Income Strategist Policy events’ impact on Korean market +82-2-768-4124 [email protected] Risk-on sentiment to strengthen on QE3

On Thursday, the Fed decided to implement QE3 and other easing measures until the job market improves more tangibly. The full extent of QE3Ês positive impact remains to be

seen, but in the short term, the risk-on sentiment should strengthen on liquidity

expansion. If the FedÊs easing steps, along with the ECBÊs OMT and the German ratification of the ESM, stabilize financial markets across the globe, the Bank of Korea

may have to pause on its rate-cutting move. The bond market appears set to weaken in the short term.

The FedÊs supportive measures include: 1. The central bank will make open-ended purchases of US$40bn of agency

mortgage-backed securities a month until the job market improves. 2. It could still buy additional assets if the economy does not improve sufficiently.

3. It will continue the Operation Twist program until year-end, under which it buys US$45bn of long-term bonds each month with the proceeds from the sale of short-term bonds. 4. It will keep short-term interest rates at exceptionally low levels until mid-2015, instead of the previous deadline of end-2014. The new package of easing measures are largely in line with market expectations, but feared to stoke inflation risks down the road. Now, all eyes should be on whether liquidity injection arising from QE3 will lead to a pickup in the price indicators of industrial goods, including the LME Metals Index

. If the LME Metals Index rises above the level seen when the ECB implemented long-term refinancing operation (LTRO) in 1H, this would imply that economic conditions are indeed improving, and weaken the BoKÊs rationale to cut the base rate further.

Market Data September 14, 2012

※All data as of close September 14, 2012, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 395.05 -0.93 -0.23 10.29 USD/KRW 1,127.80 1,126.20 1,131.20 1,076.00 KOSPI 2,007.58 56.89 2.92 9.92 JPY100/KRW 1,453.63 1,446.35 1,444.05 1,398.13 KOSDAQ 519.14 -1.34 -0.26 2.44 EUR/KRW 1,465.52 1,452.63 1,395.05 1,472.34 Dow Jones* 13,539.86 206.51 1.55 10.82 3Y Treasury 2.86 2.87 2.87 3.31 S&P 500* 1,459.99 23.43 1.63 14.32 3Y Corporate 3.36 3.37 3.46 4.10 NASDAQ* 3,155.83 41.52 1.33 19.15 DDR2 1Gb* 1.20 1.20 1.22 1.12 Philadelphia Semicon* 401.79 3.84 0.96 9.00 NAND 16Gb* 1.78 1.78 1.82 2.88 FTSE 100* 5,819.92 37.84 0.65 2.11 Oil (Dubai)* 113.89 114.08 109.38 105.98 Nikkei 225 9,159.39 164.24 1.83 7.00 Gold* 1,769.50 1,731.10 1,609.60 1,827.50 Hang Seng* 20,047.63 -27.76 -0.14 6.20 Customer deposits (Wbn)* 17,840 17,752 18,299 18,846 Taiwan (Weighted) 7,738.05 159.25 2.10 11.30 Equity type BC (Wbn)(Sep. 12) 98,353 98,253 99,703 102,665 Note: * as of September 13, 2012 Source: KSDA, FnGuide, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Samsung Electronics 200.79 Samsung Securities 12.81 KODEX LEVERAGE 134.83 KODEX INVERSE 59.22 Kia Motors 94.99 Woori Investment Securities 12.05 Hyundai Heavy Industries 63.54 SK Corp. 36.56 Hyundai Mobis 79.08 Samsung Electronics (P) 7.51 LG Chem 43.07 Korean Air Lines 22.86 Hyundai Motor 77.13 Industrial Bank of Korea 6.52 Hynix 35.66 Hyundai Mobis 21.01 POSCO 43.23 KODEX LEVERAGE 4.78 Honam Petrochemical 25.93 SK Telecom 20.76 LG Chem 42.20 NHN 3.87 KB Financial Group 25.28 Korea Zinc 20.05 Hynix 39.20 HYUNDAIHOMESHOP 3.58 Hanjin Shipping 24.85 CJ Cheiljedang 15.72 Hyundai Steel 37.29 Hyundai Mipo Dockyard 3.46 Samsung Corp. 23.46 KT 14.67 LG Display 35.17 Able C&C 3.36 Hana Financial Group 22.87 Daewoo Securities 14.52 LG Electronics 34.73 LG Fashion 3.31 Shinhan Financial Group 22.30 Asiana Airlines 13.79 Source: KSDA, FnGuide

KOSDAQ Top 10 Foreign Net Buy / Net Sell (Wbn) KOSDAQ Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell SM 3.47 JNK Heaters 2.43 Genic 4.12 SM 10.40 Sung Kwang Bend 2.26 Kornic Systems 2.20 Seoul Semiconductor 3.26 Com2us 7.65 Celltrion 2.16 Suprema 1.88 Sung Woo HiTech 2.39 YG Entertainment 4.75 Melfas 1.43 OCI Materials 1.60 S-MAC 2.05 Medy-tox 4.34 TK Corp. 1.33 Medy-tox 1.52 KCP 1.83 SEEGENE 3.97 SBS Contents Hub 1.07 Megastudy 1.24 KH Vatec 1.77 Paradise 2.88 INTEROJO 0.89 Seoul Semiconductor 1.06 ACTOZ SOFT 1.66 JCE 2.50 Atinum Investment 0.86 AHNLAB 1.05 Suprema 1.49 Interflex 2.40 Partrion 0.85 Silicon Works 1.05 ELK 1.11 NEPES 2.20 Koh Young 0.84 Wemade 0.87 Maeil Dairy Industry 1.03 Silicon Works 2.01 Source: KSDA, FnGuide

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 1,336,000 35,000 196,792 Celltrion 29,350 350 5,126 Hyundai Motor 246,000 11,500 54,188 Paradise 16,350 -550 1,487 POSCO 380,000 11,500 33,131 Daum Communications 109,600 1,100 1,480 Hyundai Mobis 319,500 12,500 31,101 CJ O Shopping 227,500 -600 1,411 Kia Motors 76,100 2,700 30,848 Seoul Semiconductor 23,250 -50 1,356 LG Chem 326,000 12,500 21,604 AHNLAB 129,300 6,000 1,295 Hyundai Heavy Industries 260,000 15,500 19,760 SM 56,400 -1,000 1,152 Samsung Life Insurance 97,900 1,000 19,580 CJ E&M 29,950 -800 1,136 Samsung Electronics (P) 788,000 9,000 17,993 SK Broadband 3,630 5 1,074 Shinhan Financial Group 37,450 1,450 17,759 POSCO ICT 7,470 110 1,024 Source: Korea Exchange