Showbox (086980 KQ) Tentpole strategy and overseas business to deliver positive results in 2016

Media 3Q15 review: Tentpole strategy pays off Earnings: reported record quarterly earnings in 3Q, with revenue of W66.1bn Results Comment and operating profit of W8.7bn. The robust performance was driven by the hit films Assassination and The Throne , which were successively released in the quarter. The November 17, 2015 company’s movies sold around 18.19mn tickets in 3Q, representing 58% of our full-year estimate. With no particular items on the non-operating side, the robust operating profit directly translated into a strong net profit. (Maintain) Buy Market: August is generally the biggest month for the domestic box-office market. This year, a string of domestic films performed strongly in 3Q, from Assassination (Showbox; Target Price (12M, W) 11,000 released in mid-July) to Veteran (CJ E&M; August) and The Throne (Showbox ; September). The strength of the box office throughout 3Q is likely to have a bearing on Share Price (11/16/15, W) 7,320 film distribution strategies, as it indicates that studios do not necessarily eat into each other’s ticket sales by releasing tentpoles (hit titles that provide a source of steady cash Expected Return 50% flow) around the same time, and rather can benefit from a seasonal increase in movie theater attendance during the period. As a result, next year’s film releases could be more concentrated in the peak season, and the quality and marketing strategies for tentpole films are likely to have greater importance. OP (15F, Wbn) 11 Consensus OP (15F, Wbn) 11 Watch 4Q earnings momentum and tentpole films/China co-productions in 2016

EPS Growth (15F, %) - Showbox’s cumulative earnings during 1Q-3Q have already surpassed last year’s full-year Market EPS Growth (15F, %) 21.1 figures. For the final quarter, we think the company will focus on maintaining margins . P/E (15F, x) 42.0 4Q variables: The two biggest variables in 4Q will be box-office revenue from The Market P/E (15F, x) 11.4 Throne and the box-office showing of the upcoming film The Insiders . For The Throne KOSDAQ 659.20 net profits above the breakeven point will be recognized in 4Q, providing additional earnings momentum in the quarter. The Insiders , which is set to hit theaters on Market Cap (Wbn) 458 November 19 th , is believed to have been made on an industry-average budget . The film Shares Outstanding (mn) 63 is a crime drama based on Yoon Tae-ho’s webtoon of the same name, directed by Woo Free Float (%) 42.2 Min-ho and starring Lee Byung-hun, Jo Seung-woo, and Baek Yoon-sik. Foreign Ownership (%) 2.4 2016 lineup: Showbox has around 10 domestic films lined up for 2016. Among them, we Beta (12M) 1.21 believe the company’s tentpoles will be A Violent Prosecutor (a crime drama starring 52-Week Low 4,310 Hwang Jung-min and Kang Dong-won) and The Tunnel (a disaster movie starring Ha 52-Week High 9,770 Jung-woo and Bae Doo-na). In China, the company is co-producing several films with Huayi Brothers and the first project could hit theaters as early as 1H16. The company’s (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M performance in China is likely to have an important impact on earnings and shares. Absolute -1.7 -3.8 58.6 Relative 1.6 2.9 30.4 Maintain Buy and TP of W11,000

The strong 3Q results confirmed the company’s potential to drive earnings through the 230 Showbox KOSDAQ distribution of tentpole films. In 2016, we expect the company to implement a similar

180 distribution strategy in the domestic market. Such a tentpole strategy, combined with the execution of co-production projects in China, should support the company’s structural growth story. We maintain our Buy rating and target price of W11,000 in 130 light of near-term margin expansion and mid/long-term growth prospects.

80 11.14 3.15 7.15 11.15

Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 88 107 72 121 125 130 [Telecom Service / Media] OP (Wbn) 10 5 2 11 11 12

Jee-hyun Moon OP margin (%) 11.4 4.7 2.8 9.1 8.8 9.2 +822-768-3615 NP (Wbn) -5 2 -2 11 9 10 [email protected] EPS (W) -79 38 -27 174 151 155 ROE (%) -4.7 2.3 -1.6 9.9 7.9 7.5 Nu-ri Ha +822-768-4130 P/E (x) - 84.3 - 42.0 48.6 47.4 [email protected] P/B (x) 1.0 1.9 2.8 4.0 3.7 3.4 Notes: 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 t he U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

November 17, 2015 Showbox

Earnings forecast

TableTableTable 111.1. Quarterly earnings trend (Wbn, %) 1Q141Q141Q14 2Q142Q142Q14 3Q143Q143Q14 4Q144Q144Q14 1Q151Q151Q15 2Q152Q152Q15 3Q153Q153Q15 Revenue 12 15 32 12 24 13 66 Operating profit 0 1 4 -2 2 0 9 OP margin -2.2 4.8 11.5 -19.1 8.9 2.8 13.213.213.2 Net profit 0 -2 4 -4 3 0 9 Number of admissions (‘000 persons) 2,730 3,320 8,710 1,310 7,410 2,730 18,190 Notes: All figures are based on non-consolidated K-IFRS Source: Company data, KOFIC, KDB Daewoo Securities Research

TableTableTable 222.2... Annual earnings trend and forecast (Wbn, %) 201220122012 201320132013 201420142014 2015F2015F2015F 2016F2016F2016F

Revenue 88 107 72 121 125 Domestic – Film screening 77 91 54 103 94 Domestic – IP 8 9 14 14 18 Exports 2 4 3 4 13 Other 1 3 1 0 0 Operating profit 10 5 2 11 11 OP margin 11.0 5.1 2.5 9.1 8.8 Net profit -5 2 -2 11 9 Net margin -5.6 2.2 -2.4 9.1 7.2 YoYYoYYoY Revenue 21.5 -32.6 68.4 3.3 Domestic – Film screening 17.9 -40.7 91.1 -8.3 Domestic – IP 9.4 54.7 -2.6 30.1 Exports 123.2 -29.6 50.0 200.0 Other 283.4 -58.8 -65.4 0.2 Operating profit -44.1 -66.5 498.0 4.6 Net profit TTB TTR TTB -13.2 Major assumptions Number of admissions 24,739 29,169 16,070 31,108 28,340 (‘000 persons) A Violent Prosecutor, , , Kundo: Age of the Assassination, The Tunnel Major titles Nameless Gangster: Mr. Go, Rampant, The Throne Co-productions with Rules of the Time Secretly, Greatly The Divine Move China and the US Notes: All figures are based on non-consolidated K-IFRS; TTB and TTR refer to “turning to black” and “turning to red,” respectively Source: Company data, KDB Daewoo Securities Research estimates

Table 333.3. Earnings forecast revisions (Wbn, W, %) Previous Revised % chg. NoteNoteNotesNote sss 2015F2015F2015F 2016F2016F2016F 2015F2015F2015F 2016F2016F2016F 2015F2015F2015F 2016F2016F2016F Revenue 125 126 121 125 -3.0 -0.5 - Reflects lineup trend Operating profit 11 11 11 11 -1.5 3.0 - Revised rate of cost of sales estimates Net profit 8 10 11 9 36.1 -5.5 - Reflects 3Q15 earnings detail EPS 126 152 174 151 38.1 -0.7 OP margin 8.7 8.8 9.1 8.8 Net margin 6.3 7.6 9.1 7.2 Notes: All figures are based on non-consolidated K-IFRS Source: KDB Daewoo Securities Research estimates

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November 17, 2015 Showbox

Main lineup

Figure 111.1. The InsidersInsider sss (to be released on NovNov.... 191919 ththth ) is based on a webtoon of the same name by Yoon TaeTae----hohohoho

Source: Company data, KDB Daewoo Securities Research

Figure 222.2. Expected 2016 tentpole movies: A Violent Prosecutor (((starring(starring KangKangKang DongDongDong-Dong ---wonwonwonwon)) and The Tunnel (((starring(starring Ha JungJung----woowoowoowoo))))

Source: Company data, KDB Daewoo Securities Research

TableTableTable 444.4. ShowboxShowbox’’’’ssss expected film lineup for 2016 Country TitleTitleTitle Director Main cast Korea In the Mood for Love Jo Kyu-jang Moon Chae-won, Yu Yeon-seok A Man and Woman Lee Yoon-gi Jeon Do-yeon, Gong Yu A Violent Prosecutor Lee Il-hyung Hwang Jung-min, Kang Dong-won Family Plan Kim Tae-gon Kim Hye-soo, Ma Dong-seok Key of Life Lee Gye-Byeok Yu Hae-jin, Lee Joon, Jo Yoon-hee A Murderer's Guide to Memorization Won Shin-yeon Kyung-gu Sol, Kim Nam-gil, Seolhyun The Tunnel Kim Sung-hoon Ha Jung-woo, Oh Dal-su Revival Kwak Kyung-taek Kim Rae-won, Kim Hae-sook, Sung Garyeojin Sigan Eom Tae-hwa Dong Kang -Dong-wonil The Prison (tentative) Na Hyun Tentative Six Chinese movies to be released China (Huayi Brothers) over a three-year period Korea Six Korean movies to be released (co-production (Blumhouse and Ivanhoe) over a five-year period with US) Notes: Described in order of approximate release date Source: Company data, media reports, KDB Daewoo Securities Research

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November 17, 2015 Showbox

Showbox (086980 KQ/Buy/TP: W11,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F (Wbn) 12/14 12/15F 12/16F 12/17F Revenue 727272 121121121 125125125 130130130 Current Assets 919191 105105105 115115115 123123123 Cost of Sales 626262 101101101 105105105 109109109 Cash and Cash Equivalents 17 47 52 56 Gross Profit 101010 202020 202020 212121 AR & Other Receivables 8 13 13 14 SG&A Expenses 888 999 999 101010 Inventories 0 0 0 0 Operating Profit (Adj) 222 111111 111111 121212 Other Current Assets 66 45 50 53 Operating Profit 222 111111 111111 121212 NonNonNon-Non ---CurrentCurrent Assets 505050 727272 747474 787878 NonNonNon-Non ---OperatingOperating Profit ---4 -444 000 000 000 Investments in Associates 21 36 37 39 Net Financial Income 1 0 0 0 Property, Plant and Equipment 0 0 0 0 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 1 0 0 1 Pretax Profit -2 11 11 12 Total Assets 141141141 178178178 189189189 201201201 Income Tax 0 0 2 2 Current Liabilities 373737 626262 646464 676767 Profit from Continuing Operations -2 11 9 10 AP & Other Payables 6 10 10 11 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0 Net Profit -2 11 9 10 Other Current Liabilities 31 52 54 56 Controlling Interests -2 11 9 10 NonNonNon-Non ---CurrentCurrent Liabilities 000 000 000 000 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0 Total Comprehensive Profit ---1 -111 111111 999 101010 Other Non-Current Liabilities 0 0 0 0 Controlling Interests -1 11 9 10 Total Liabilities 373737 626262 646464 676767 Non-Controlling Interests 0 0 0 0 Controlling Interests 104104104 115115115 125125125 134134134 EBITDA 51 60 60 60 Capital Stock 31 31 31 31 FCF (Free Cash Flow) -45 105 56 57 Capital Surplus 36 36 36 36 EBITDA Margin (%) 70.8 49.6 48.0 46.2 Retained Earnings 37 48 58 67 Operating Profit Margin (%) 2.8 9.1 8.8 9.2 NonNonNon-Non ---ControllingControlling Interests 000 000 000 000 Net Profit Margin (%) -2.8 9.1 7.2 7.7 Stockholders' Equity 104104104 115115115 125125125 134134134

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F 12/14 12/15F 12/16F 12/17F Cash Flows from Op Activities -44 105 56 57 P/E (x) - 42.0 48.6 47.4 Net Profit -2 11 9 10 P/CF (x) 5.6 7.7 7.6 7.6 Non-Cash Income and Expense 54 49 51 51 P/B (x) 2.8 4.0 3.7 3.4 Depreciation 0 0 0 0 EV/EBITDA (x) 5.4 6.7 6.6 6.5 Amortization 49 49 49 49 EPS (W) -27 174 151 155 Others 5 0 2 2 CFPS (W) 834 954 961 966 Chg in Working Capital -98 45 -2 -2 BPS (W) 1,672 1,846 1,997 2,151 Chg in AR & Other Receivables 6 -3 0 0 DPS (W) 0 0 0 0 Chg in Inventories 0 0 0 0 Payout ratio (%) 0.0 0.0 0.0 0.0 Chg in AP & Other Payables -17 2 0 0 Dividend Yield (%) 0.0 0.0 0.0 0.0 Income Tax Paid 000 000 ---2-222 ---2-222 Revenue Growth (%) -32.7 68.1 3.3 4.0 Cash Flows from Inv Activities 32 -60 -50 -51 EBITDA Growth (%) -17.7 17.6 0.0 0.0 Chg in PP&E 0 0 0 0 Operating Profit Growth (%) -60.0 450.0 0.0 9.1 Chg in Intangible Assets 0 -48 -49 -50 EPS Growth (%) - - -13.2 2.6 Chg in Financial Assets 35 -12 -1 -1 Accounts Receivable Turnover (x) 8.2 19.0 15.4 15.4 Others ---3 -333 000 000 000 Inventory Turnover (x) 0.0 0.0 0.0 0.0 Cash Flows from Fin Activities 0 0 0 0 Accounts Payable Turnover (x) 6.3 23.9 19.3 19.5 Chg in Financial Liabilities - - - - ROA (%) -1.1 6.8 5.1 5.0 Chg in Equity 0 0 0 0 ROE (%) -1.6 9.9 7.9 7.5 Dividends Paid 0 0 0 0 ROIC (%) 7.2 42.1 223.2 139.9 Others ------Liability to Equity Ratio (%) 35.5 54.2 51.7 49.9 Increase (Decrease) in Cash -13 30 5 4 Current Ratio (%) 246.3 168.9 178.2 184.4 Beginning Balance 30 17 47 52 Net Debt to Equity Ratio (%) -21.2 -48.2 -48.9 -48.5 Ending Balance 171717 474747 525252 565656 Interest Coverage Ratio (x) 0.0 0.0 0.0 0.0 Source: Company data, KDB Daewoo Securities Research estimates

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November 17, 2015 Showbox

APPENDIX 1

Important Disclosures & Disclaimers 222-2---YearYear Rating and Target Price History

Company (((Code)(Code)Code)Code) DateDateDate RatingRatingRating Target Price (W) Showbox Showbox(086980) 09/30/2015 Buy 11,000 12,000 07/26/2015 Trading Buy 10,000 10,000

8,000

6,000 4,000 2,000

0 Nov 13 Nov 14 Nov 15

Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% Ratings and Target Price History (Share price ( ─), Target price ( ▬), Not covered ( ■), Buy ( ▲), Trading Buy ( ■), Hold ( ●), Sell ( ◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at 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 analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Equity Ratings Distribution BuyBuyBuy Trading Buy HoldHoldHold SellSellSell 72.77% 13.86% 13.37% 0.00% * Based on recommendations in the last 12-months (as of September 30, 2015)

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

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 Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. 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 business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.

Disclaimers This report is published by Daewoo Securities Co., Ltd. (“Daewoo”), a broker-dealer registered in the Republic of Korea and a member of the . Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the . If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment

KDB Daewoo Securities Research 5

November 17, 2015 Showbox

banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.

Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.

KDB Daewoo Securities International Network

Daewoo Securities Co. Ltd. () Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 320 Park Avenue 34-3 Yeouido-dong, Yeongdeungpo-gu Suites 2005-2012 31st Floor

Seoul 150-716 8 Finance Street, Central New York, NY 10022 Korea Hong Kong, China United States Tel: 82-2-768-3026 Tel: 85-2-2845-6332 Tel: 1-212-407-1000 Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Ltd. Tokyo Branch 41st Floor, Tower 42 Six Battery Road #11-01 7th Floor, Yusen Building 25 Old Broad St. Singapore, 049909 2-3-2 Marunouchi, Chiyoda-ku London EC2N 1HQ Tokyo 100-0005 United Kingdom Tel: 44-20-7982-8000 Tel: 65-6671-9845 Tel: 81-3- 3211-5511

Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office 2401A, 24th Floor, East Tower, Twin Towers Room 38T31, 38F SWFC Suite 2103, Saigon Trade Center B-12 Jianguomenwai Avenue 100 Century Avenue 37 Ton Duc Thang St,

Chaoyang District, Beijing 100022 Pudong New Area, Shanghai 200120 Dist. 1, Ho Chi Minh City, China China Vietnam Tel: 86-10-6567-9299 Tel: 86-21-5013-6392 Tel: 84-8-3910-6000 Daewoo Investment Advisory (Beijing) Co., Ltd. Daewoo Securities (Mongolia) LLC PT. Daewoo Securities Indonesia 2401B, 24th Floor, East Tower, Twin Towers #406, Blue Sky Tower, Peace Avenue 17 Equity Tower Building Lt.50 B-12 Jianguomenwai Avenue, 1 Khoroo, Sukhbaatar District Sudirman Central Business District Jl.

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