[Korea] October 26, 2020

Conglomerates (Overweight/Maintain) Group ’s inheritance tax issue : What to expect

Mirae Asset Daewoo Co., Ltd. Dae-ro Jeong [email protected]

Inheritance taxes on listed W11tr likely to be paid in full ‰‰‰ A significant burden even if paid in long -term installments affiliate stakes to be around ó We estimate inheritance taxes on the late Chairman Lee Kun-hee’s stakes in publicly traded W11tr Samsung companies will be around W11tr (stakes valued at around W18.2tr). ó Even if the taxes are paid in long-term installments, (SEC) Vice Chairman Lee Jae-yong will have to come up with more than W1.8tr every year for up to six years to fund the taxes. ó In 2015, the group stated that it was committed to paying inheritance taxes in full . Given this, we do not expect the group to seek to avoid the taxes (e.g., through contributions to public interest/nonprofit corporations).

SEC stake sale inevitable given Even after partial sale of SEC stake, voting rights likely to remain unchanged huge tax bill ó To fund the inheritance taxes, we believe a sale of SEC shares is inevitable. ó Even though the group’s combined stake in SEC is 20.9%, the actual voting power the group can exercise is limited to 15% under the Monopoly Regulation and Fair Trade Act (MRFTA). ó Thus, the group can sell up to a 5.9% stake without affecting its voting rights.

Status quo to be maintained Pledge to end management succession drastically reduces need for ownership structure regarding group ownership overhaul structure ó Lee Jae-yong exercises stable control over the entire group through his stake in Samsung C&T. ó In his public apology in May, Lee pledged not to pass down managerial rights to his children. ó Given that there is less need for Lee to further tighten his grip on the group, we expect the status quo to be maintained regarding the group ownership structure.

Investment ideas High confidence in re -rating of Samsung Group stocks ó Samsung C&T (028260 KS): With most ownership structure-related uncertainties now removed, we expect the value of Samsung C&T’s affiliate stakes to be quickly reflected in its marke t value. ó SEC (005930 KS): Enhancing SEC’s corporate value is essential for the group to maintain control over the company. ó Samsung Life (032830 KS): Given that Samsung Life is the largest shareholder of SEC within the group, it is essential for Vice Chairman Lee to inherit his father’s stake in the insurer. The insurer is likely to expand its dividend payments. ó Samsung SDS (018260 KS): We believe the controlling family will be incentivized to dispose of some of its stake in Samsung SDS, which should prove favorable to the firm’s corporate value.

Even if Samsung Group sells some of its stake in SEC to fund inheritance taxes, its voting rights will likely remain at 15%

(%) 25 Controlling family/public interest corporations Samsung C&T Samsung F&M Samsung Life

20 Group can sell up to a 5.9% stake and 8.5 still maintain 15% voting rights 15 2.6 1.5 1.5 6.8 20.9% 15.0% 10 5.0 (Voting rights 5.0 1.5 restricted to 15% 5 under the MRFTA) 5.0 5.9 5.9 1.7 0 Stake Voting rights Voting rights if 4.2% stake is sold Source: DART, Mirae Asset Daewoo Research

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. October 26, 2020 Conglomerates

1. Inheritance taxes on listed affiliate stakes estimated at around W11tr

Inheritance taxes likely to be paid in full ‰‰‰ Significant burden even if paid in long- term installments

With the passing of Chairman Lee Kun-hee on Oct. 25, Samsung Group and its controlling family must now confront the issue of inheritance taxes. Back in 2015, the group told the press it intended to pay inheritance taxes in full. Accordingly, we do not expect the group to seek to avoid taxes (e.g., through contributions to public interest/nonprofit corporations).

The late chairman’s stakes in publicly traded Samsung companies are collectively valued at around W18.2tr, including a 4.2% stake in SEC, 20.8% in Samsung Life, and 2.9% in Samsung C&T. Inheritance taxes on those stakes (to be determined at a later date; calculated as the average daily closing price during the two-month periods before and after the assessment date) are estimated to reach around W11tr, with taxes on the 4.2% SEC stake accounting for the majority (roughly W9tr). Thus, even if SEC Vice Chairman Lee Jae-yong were to pay in long- term installments, he would have to come up with more than W1.8tr every year for up to six years to inherit all of his father’s stakes in listed affiliates.

Table 1. Samsung Group controlling family’s shareholdings (%, Wbn) Shareholder Title Stock No. of shares Stake Value Breakdown Lee Kun-hee SEC chairman SEC 249,273,200 4.2 15,006 82.3 (1942) SEC (P) 619,900 0.1 33 0.2 Samsung Life 41,519,180 20.8 2,620 14.4 Samsung C&T 5,425,733 2.9 564 3.1 Samsung SDS 9,701 0.0 2 0.0 Total 18,225 100.0 Hong Ra-hee Former director of Leeum SEC 54,153,600 0.9 3,260 100.0 (1945) Total 3,260 100.0 Lee Jae-yong SEC vice chairman SEC 42,020,150 0.7 2,530 35.1 (1968) Samsung C&T 32,674,500 17.2 3,398 47.2 Samsung SDS 7,116,555 9.2 1,228 17.0 3,024,038 1.5 33 0.5 Samsung Life 120,000 0.1 8 0.1 Samsung F&M 44,000 0.1 9 0.1 Total 7,205 100.0 Lee Boo-jin CEO Samsung C&T 10,456,450 5.5 1,087 67.6 (1970) Samsung SDS 3,018,859 3.9 521 32.4 Total 1,608 100.0 Lee Seo-hyun Director of Samsung Welfare Foundation Samsung C&T 10,456,450 5.5 1,087 67.6 (1973) Samsung SDS 3,018,859 3.9 521 32.4 Total 1,608 100.0 Note: Based on Oct. 23 closing prices Source: DART , Mirae Asset Daewoo Research

Table 2. Estimated inheritance taxes on Lee Kun-hee’s stakes in listed affiliates (%, Wbn) Stake in listed affiliates Inheritance tax Company No. of shares Stake Share price (W) Tax basis Tax (est.) SEC 249,273,200 4.2 60,200 15,006.2 9,003.3 SEC (P) 619,900 0.1 53,300 33.0 19.4 Samsung Life 41,519,180 20.8 63,100 2,619.9 1,571.5 Samsung C&T 5,425,733 2.9 104,000 564.3 338.1 Samsung SDS 9,701 0.0 172,500 1.7 0.7 Total 18,225.1 10,932.9 Notes: Based on Oct. 23 closing prices; potential deductions not reflected Source: D ART , Mirae Asset Daewoo Research

Table 3. Estimated inheritance tax payments (installment plan) (Wbn) Start +1Y +2Y +3Y +4Y +5Y Total 1,822 2,013 1,975 1,937 1,899 1,860 11,507 Note: Assuming 2.1% annual interest rate Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 2 October 26, 2020 Conglomerates

* Assessment of inheritance taxes on listed shares

In the assessment of inheritance taxes on listed shares in Korea, market prices refer to the value assessed based on the supplementary assessment methods pursuant to the Inheritance Tax and Gift Tax Act. In other words, inheritance taxes on listed shares are based on the average daily closing price (irrespective of whether trading was conducted) during the two-month periods before and after the assessment date. In cases where the assessment period falls short of four months, the assessed value is based on the average daily closing price during the period. When the base date of assessment is not a trading day (e.g., public holiday, suspended trading), the preceding day becomes the base date instead.

Figure 1. Assessment of listed shares under Inheritance Tax and Gift Tax Act

Source: Mirae Asset Daewoo Research

Inheritance taxes are calculated by applying a tax rate to the tax basis (taxable value minus deductions). The applied tax rate changes in a progressive manner along five brackets, ranging from 10% (for W100mn or lower) to 50% (for more than W3bn).

When a company’s shares are inherited or given to its largest shareholder, additional taxes are imposed to reflect a premium for management control.

Table 4. Tax brackets and rates for inheritance and gift taxes Tax base Rate Deduction Up to W100mn 10% - Over W100mn to W500mn 20% W10mn Over W500mn to W1bn 30% W60mn Over W1bn to W3bn 40% W160mn Over W3bn 50% W460mn Source: Article 26 of Inheritance Tax and Gift Tax Act, Mirae Asset Daewoo Research

Table 5. Additional taxation on major shareholders General enterprises SMEs Additional taxation 20% 0% Note: Excluding stakes in companies that have incurred losses in any of the three fiscal years preceding the assessment year Source: MOLEG , Mirae Asset Daewoo Research

An heir or a legatee is obligated to report the taxable value of the inheritance and file inheritance taxes to the tax office within six months from the last day of the month during which the inheritance commences (nine months if the predecessor or his/her heir has established a domicile in a foreign country). When the taxes exceed W20mn, the taxpayer can submit an application (alongside the inheritance tax return) to pay in annual installments; the applicant is notified in writing of whether permission is granted within six months from the last day of the month during which the return is filed. Once permission is granted, payments can be made in annual installments over five years.

An heir obligated to pay inheritance taxes can also request to make a payment in kind (e.g., property). In principle, shares of both listed and unlisted companies cannot be appropriated for payment in kind, except under limited circumstances (i.e., when shares are listed on the exchange for the first time and their disposal is limited, or when another inheritance does not exist for unlisted shares).

Mirae Asset Daewoo Research 3 October 26, 2020 Conglomerates

2. Sale of SEC shares inevitable given size of inheritance tax

Even after partial sale of SEC stake, voting rights likely to remain unchanged

To fund the inheritance taxes, we believe a sale of SEC shares is inevitable. If Lee Jae-yong sells some of his inherited shares in the company prior to filing his inheritance taxes or in the process of paying them, this would: 1) drastically reduce the burden of raising the needed funds; and 2) provide him with enough money to pay taxes on the rest of his inherited assets (including the 20.8% stake in Samsung Life).

While maintaining control over SEC is equally important as raising funds to cover the taxes, the group can afford to sell some of its shares in SEC, as the MRFTA limits the voting rights on SEC shares held by Samsung Life and Samsung F&M. At present, Samsung Group affiliates hold a combined 20.9% stake in SEC based on common shares (Samsung Life: 8.5%, Samsung C&T: 5.0%, Samsung F&M: 1.5%, controlling family and public interest corporations: 5.9%), but their voting rights are restricted to 15%. Article 11 of the MRFTA prohibits financial or insurance companies belonging to a group from exercising voting rights on shares in domestic affiliates. However, there are some key exceptions to this rule: for key matters (e.g., appointment or termination of executives, revisions to articles of incorporation, M&As), they can exercise voting rights up to 15% of total shares outstanding (including shares owned by related parties).

In other words, while Samsung’s financial affiliates own a 10% stake in SEC (Samsung Life: 8.5%, Samsung F&M: 1.5%), the 5.9% stake in excess of the 15% limit (including shares owned by related parties) is subject to voting power restrictions. As such, the group can sell up to a 5.9% stake in SEC and still maintain 15% voting power in SEC. Given the size of the inheritance taxes due, we believe that up to 5.9% of shares in SEC could be sold.

Table 6. SEC’s major shareholders (%, Wbn) Shareholder No. of shares Stake Value Lee Kun-hee 249,273,200 4.2 15,006 Hong Ra-hee 54,153,600 0.9 3,260 Controlling family (1) Lee Jae-yong 42,020,150 0.7 2,530 Subtotal 345,446,950 5.8 20,796 Samsung Life 508,157,148 8.5 30,591 Samsung C&T 298,818,100 5.0 17,989 Samsung F&M 88,802,052 1.5 5,346 Affiliates (2) Samsung Welfare Foundation 4,484,150 0.1 270 Samsung Foundation of Culture 1,880,750 0.0 113 Subtotal 902,142,200 15.1 54,309 Controlling family + affiliates (1) + (2) 1,247,589,150 20.9 75,105 Total issued shares 5,969,782,550 100.0 359,381 Note: Based on Oct. 23 closing prices Source: DART , Mirae Asset Daewoo Research

Table 7. MRFTA: Limitation of voting rights of financial companies Article Details Neither financial nor insurance companies which belong to an enterprise group subject to the limitations on mutual investment shall exercise their voting rights in stocks of domestic affiliated companies, under their acquisition or ownership, provided that the same shall not apply to cases falling under the following subparagraphs:

1) Where the acquisition or ownership of stocks of the company is in order to carry on financial or insurance businesses; Article 11: 2) Where the acquisition or ownership of stocks of the company is obtained by approval pursuant to the Insurance Business Act in order Limitation of voting to ensure efficient operation and management of the insurance assets; rights of financial 3) Where the general meeting of stockholders of a relevant domestic affiliated company passes a resolution on matters falling under the companies or insurance following items. In such cases, the number of voting shares from among shares of the said affiliated company shall not exceed 15/100 of

the gross number of shares issued by the said affiliated company, including the number of shares to be exercised by the persons other than those as stipulated by presidential decree, from among the specially-related persons with the said affiliated company: (a) Appointment or dismissal of officers; (b) Alteration of the articles of incorporation; (c) Merger of the said affiliated company with an other company, or transfer of the whole or part of business to another compan y Source: MOLEG , Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 4 October 26, 2020 Conglomerates

Table 8. Group affiliates’ SEC voting rights should not exceed 15% (No. of shares, %) Common stock Voting rights Expected SEC stake after Voting rights chg. No. of shares Stake under the current MRFTA stake disposal (%p) Financial affiliates (1) 596,959,200 10.0 4.1 8.3 +4.2 Samsung Life 508,157,148 8.5 - - - Samsung F&M 88,802,052 1.5 - - - Other affiliates (2) 650,629,950 10.9 10.9 6.7 -4.2 Samsung C&T 298,818,100 5.0 5.0 5.0 0.0 Lee Kun-hee 249,273,200 4.2 4.2 0.0 -4.2 Hong Ra-hee 54,153,600 0.9 0.9 0.9 0.0 Lee Jae-yong 42,020,150 0.7 0.7 0.7 0.0 Samsung Welfare Foundation 4,484,150 0.1 0.1 0.1 0.0 Samsung Foundation of Culture 1,880,750 0.0 0.0 0.0 0.0 Controlling family + affiliates (1)+(2) 1,247,589,150 20.9 15.0 15.0 0.0 Source: DART , Mirae Asset Daewoo Research

Figure 2. SEC stake breakdown and voting rights

(%) 25 Controlling family/public interest corporations Samsung C&T Samsung F&M Samsung Life

20

8.5 8.5 8.5 8.2 15 7.6 7.2 3.3 2.9 2.6 2.6 2.6 2.6 1.6 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.4 10 1.3 1.3 4.7 4.9 4.6 5.0 5.0 5.0 5.0 5.0 5.0 5.0 4.1 4.2 5 4.8 5.5 5.0 5.7 5.5 5.9 5.9 5.9 5.9 5.9 5.9 5.9 0 Stake Voting Stake Voting Stake Voting Stake Voting Stake Voting Stake Voting rights rights rights rights rights rights 2015 2016 2017 2018 2019 2020 (present)

Source: DART, Mirae Asset Daewoo Research

Figure 3. Even if Samsung Group sells some of its SEC shares to fund inheritance taxes, its voting rights will likely remain at 15%

(%) 25 Controlling family/public interest corporations Samsung C&T Samsung F&M Samsung Life

20 Group can sell up to a 5.9% stake and 8.5 still maintain 15% voting rights 15 2.6 1.5 1.5 6.8 20.9% 15.0% 10 5.0 (Voting rights 5.0 1.5 restricted to 15% 5 under the MRFTA) 5.0 5.9 5.9 1.7 0 Stake Voting rights Voting rights if 4.2% stake is sold

Source: DART, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 5 October 26, 2020 Conglomerates

3. Group ownership structure: Status quo to remain intact

In a public apology made on May 6 th , Lee Jae-yong acknowledged that many of the controversies surrounding Samsung Group stemmed fundamentally from succession issues and vowed not to hand over managerial powers to his children. In other words, Lee announced his family’s intention to abandon any plans for fourth-generation succession.

Following his pledge to end hereditary succession, we believe that Lee is less incentivized to acquire more shares of Samsung C&T, the de facto holding company of Samsung Group. In other words, Samsung Group is unlikely to overhaul its ownership structure to enhance Lee’s grip and ensure the successful transfer of ownership to the fourth generation of the controlling family. Accordingly, we expect the status quo to remain intact for the foreseeable future.

Table 9. Details of Lee Jae-yong’s public apology Key issue Details - Acknowledged that many of the controversies surrounding Samsung stemmed fundamentally from succession issues and vowed that there would be no more such controversies - Pledged not to commit any actions that would violate the law or fail to meet ethical standards Succession - Promised to focus solely on enhancing company value - Vowed to focus on nurturing competitive businesses based on innovation/superior technologies while venturing into new businesses - Said that he would not hand over managerial rights to his children Source: Samsung Group , Mirae Asset Daewoo Research

Figure 4. Samsung Group ownership structure

Source: DART, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 6 October 26, 2020 Conglomerates

4. Other key considerations

1) Inheritance taxes can be funded through the disposal and/or pledging of shares

Generally speaking, the inheritance process begins after the heir secures some of the funds needed to cover inheritance taxes by putting up assets as collateral. After the commencement of the process, the heir can pledge inherited shares to raise additional funds. However, if an application for payment in annual installments is filed, the heir will need to provide security, which would limit the room for additional share pledges.

In order for a large conglomerate to ensure the successful transfer of ownership, it is critical for the heir to inherit shares of the companies that are at the center of the conglomerate group’s power structure. And to raise funds to pay massive inheritance taxes, the heir can sell non-core assets. However, if he/she has already obtained a sufficiently large stake in the affiliates at the center of the conglomerate’s power structure (together with related parties), he/she may opt to dispose of shares in these companies in order to raise funds. This should ultimately incentivize holding/controlling companies to boost shares through corporate value improvement.

Meanwhile, amid tighter regulations on related-party transactions and other unfair profits, group companies will likely consider increasing dividends/compensation to help controlling shareholders secure legitimate cash flows to cover their inheritance taxes.

Notably, following a revision to the Financial Investment Services and Capital Markets Act companies are now required to disclose the compensation (with rationales) of its five highest- paid executives/employees. Thus, the compensation paid to key controlling family members is likely to be disclosed going forward (irrespective of whether or not they are executives). High compensation without a reasonable basis should increasingly face resistance from shareholders and the public.

In light of the aforementioned regulatory tightening, group affiliates will likely be incentivized to increase dividends to ensure sufficient cash flows for controlling family members. Accordingly, these companies will have to focus on enhancing corporate value to facilitate higher dividend payouts.

2) Restrictions on the use of public interest corporations to facilitate inheritance

Large conglomerates have long been criticized for using affiliated public interest (nonprofit) corporations to strengthen management control, facilitate succession, support affiliates, and make unfair profits. In the past, controlling families of conglomerates often donated their shares in affiliates to public interest corporations to avoid paying inheritance and gift taxes while maintaining their voting rights (via control of the public interest corporations). However, going forward, using conglomerate-owned public interest corporations for inheritance and/or ownership succession should no longer be a viable option. Indeed, there are proposals under consideration for revising the MRFTA and limiting the voting rights of public interest corporations affiliated with conglomerates.

Table 10. FTC’s proposal to revise the MRFTA Agenda Current Details Public interest corporations belonging to conglomerates with an asset value of W10tr or over shall not exercise voting rights in affiliates. Regulations on public However, they shall be allowed to exercise voting rights in listed affiliates for agenda items related to the No regulations interest corporations designation/removal of executives, revisions to the articles of incorporation, or M&As. Two-year grace period and gradual implementation (by 5% annually for three years) of the 15% voting interest cap. Source: FTC, Mirae Asset Daewoo R esearch

Mirae Asset Daewoo Research 7 October 26, 2020 Conglomerates

5. Investment ideas: High confidence in re-rating of Samsung Group stocks

1) Samsung C&T (028260 KS/Buy/TP: W152,000/CP: W104,000): Share price to fully reflect enterprise value

Lee Jae-yong exercises stable control over the entire group through his stake in Samsung C&T. As Lee’s pledge to end management succession has removed most uncertainties related to Samsung’s ownership structure, we expect the value of Samsung C&T’s affiliate stakes to be quickly reflected in its market value. We estimate affiliate holdings account for 89.8% of Samsung C&T’s value, with in-house businesses (E&C, etc.) making up just 10.2%. In particular, we believe the stakes in SEC (005930 KS; 5%) and (207940 KS/CP: W636,000; 43.4%) represent 42.2% and 42.9%, respectively, of the company’s value. Affiliate stake value has hit record levels but has yet to be priced into market value. As a result, Samsung C&T looks undervalued, currently trading at a record discount of 61% to NAV. We expect the stock to be re-rated, reflecting the value of its stakes in affiliates.

Meanwhile, we expect Samsung C&T to make aggressive moves to secure future growth engines using its cash reserves (e.g., new business investments and M&As) and pursue more shareholder-friendly policies (e.g., dividend increases and share cancellations).

2) SEC (005930 KS/Buy/TP: W76,000/CP: W60,200): Enhancement of corporate value to be essential

SEC currently has a market value of around W360tr, making it an unlikely target for a hostile takeover or battle over managerial control. While part of the late chairman’s 4.2% stake will likely be sold to fund inheritance taxes, we expect the group’s control over the company to remain virtually unchanged. Even if the group’s combined stake in SEC falls slightly from current levels, its voting rights will likely remain at 15%, and it should be able to maintain stable control by lifting the company’s market value. As such, we see a close alignment of large and minority shareholder interests (i.e., corporate value enhancement) for SEC.

3) Samsung Life (032830 KS/Trading Buy/TP: W81,000/CP: W63,100): Vice Chairman Lee likely to inherit his father’s entire stake in the insurer

Considering that Samsung Life is the largest shareholder of SEC within the group (8.5% stake), we expect Lee Jae-yong to become the sole inheritor of Lee Kun-hee’s 20.8% stake in Samsung Life. This should enable Lee Jae-yong to secure control over SEC and increase dividend income.

4) Samsung SDS (018260 KS/Buy/TP: W240,000/CP: W172,500): Controlling family to be incentivized to dispose of some of its stake ‰‰‰ Favorable to corporate value

Considering the group’s significant stake in Samsung SDS (with SEC holding 22.6% and Samsung C&T holding 17.1%), the controlling family is likely to consider disposing of some of its stake to fund inheritance taxes. Before doing so, the controlling family should have a strong incentive to drive up share prices by enhancing the firm’s corporate value.

Meanwhile, as Samsung SDS receives a large amount of business from group affiliates (due to the importance of IT security), the firm has been subject to concerns over related-party transaction regulations—especially due to the controlling family’s direct stake ownership. We believe a divestment by the controlling family would help to remove this discount factor and drive a re-rating of the company.

Mirae Asset Daewoo Research 8 October 26, 2020 Conglomerates

Table 11. Lee Jae-yong’s dividend income (2019) (%, W, Wbn) No. of shares DPS (2019) Dividend income SEC 42,020,150 1,416 59.5 Samsung C&T 32,674,500 2,000 65.3 Samsung SDS 7,116,555 2,400 17.1 Samsung Engineering 3,024,038 - 0.0 Samsung Life 120,000 2,650 0.3 Samsung F&M 44,000 8,500 0.4 Total 142.6 Source: DART, Mirae Asset Daewoo Research

Figure 5. Samsung C&T: Value of holdings in affiliates Figure 6. Samsung C&T: Discount to NAV at record levels recovers to historic-high levels

(Wtr) (%) 50 Value of affiliate stakes 70 Samsung C&T market cap 60 40 50 40 30 30 20

20 10 0 10 -10 -20 0 -30 1/16 7/16 1/17 7/17 1/18 7/18 1/19 7/19 1/20 7/20 1/16 7/16 1/17 7/17 1/18 7/18 1/19 7/19 1/20 7/20

Source: WISEfn, Mirae Asset Daewoo Research Source: WISEfn, Mirae Asset Daewoo Research

Figure 7. Typical inheritance case: LG Corp’s share Figure 8. Exceptional inheritance case: Hanjin KAL’s share performance performance

(W) (W) 100,000 LG Corp. share price 50,000 Hanjin KAL share price +69.2% during inheritance tax assessment period 90,000 -16.9% during inheritance tax 40,000 assessment period 80,000

30,000 70,000

-2MDeath of +2M -2M +2M Koo Bon-moo (5/20/18) Death of Cho Yang-ho (4/8/19) 60,000 20,000 3/18 4/18 5/18 6/18 7/18 2/19 3/19 4/19 5/19 6/19

Source: WISEfn, Mirae Asset Daewoo Research Source: WISEfn, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 9 October 26, 2020 Conglomerates

Appendix 1

Important disclosures and disclaimers Two-year rating and TP history

Company Date Rating TP (W) Company Date Rating TP (W) Samsung C&T (028260) 10/01/19 Buy 60,000 01/23/20 Buy 152,000 03/18/19 Buy 56,000 07/24/19 Buy 142,000 02/01/19 Buy 57,000 01/23/19 Buy 170,000 01/01/19 Buy 50,800 10/02/18 Buy 190,000 09/21/18 Buy 63,000 Samsung SDS (018260) Samsung Life (032830) 04/23/20 Buy 240,000 05/29/20 Hold 07/29/19 One year 290,000 08/13/19 Trading Buy 81,000 07/29/18 Buy 290,000 11/29/18 Trading Buy 100,000 Samsung Electronics (005930) 08/10/18 Trading Buy 125,000 07/31/20 Buy 76,000 05/13/20 Buy 68,000 12/26/19 Buy 70,000

(W) Samsung C&T (W) Samsung SDS (W) Samsung Electronics (W) Samsung Life 200,000 400,000 80,000 150,000

150,000 300,000 60,000 100,000

100,000 200,000 40,000

50,000 50,000 100,000 20,000

0 0 0 0 Oct 18 Oct 19 Oct 20 Oct 18 Oct 19 Oct 20 Oct 18 Oct 19 Oct 20 Oct 18 Oct 19 Oct 20

Stock ratings Sector ratings Buy Expected 12-month performance: +20% or greater Overweight Expected to outperform the market over 12 months Trading Buy Expected 12-month performance: +10% to +20% Neutral Expected to perform in line with the market over 12 months Hold Expected 12-month performance: -10% to +10% Underweight Expected to underperform the market over 12 months Sell Expected 12-month performance: -10% or worse

Rating and TP history: Share price ( ─), TP (▬), Not Rated ( ■), Buy ( ▲), Trading Buy ( ■), Hold ( ●), Sell ( ◆) * Our investment rating is a guide to the expected return of the stock over the next 12 months. * Outside of the official ratings of Mirae Asset Daewoo Co., Ltd., analysts may call trading opportunities should technical or short-term material developments arise. * The TP was determined by the research analyst through valuation methods discussed in this report, in part based on estimates of future earnings. * TP achievement may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Ratings distribution and investment banking services Buy Trading Buy Hold Sell Ratings distribution 73.62% 14.11% 11.04% 1.23% Investment banking services 72.22% 11.11% 16.67% 0.00% * Based on recommendations in the last 12-months (as of September 30, 2020)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of Samsung Electronics, Samsung SDS, Samsung C&T , Samsung Life as an underlying asset; other than this, Mirae Asset Daewoo has no other special interests in the covered companies.

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 or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) 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. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading, and private client divisions. 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 Mirae Asset Daewoo except as otherwise stated herein.

Disclaimers This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the . Information

Mirae Asset Daewoo Research 10 October 26, 2020 Conglomerates

and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset 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 . In case of 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. 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 or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person, and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates, and their directors, officers, employees, and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views, and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset 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. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making, or other financial services as are permitted under applicable laws and regulations. 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 Mirae Asset Daewoo. For further information regarding company-specific information as it pertains to the representations and disclosures in this Appendix 1, please contact [email protected] or +1 (212) 407-1000.

Distribution United Kingdom: This report is being distributed by (UK) 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: Mirae Asset Daewoo is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This report is distributed in the U.S. by Mirae Asset Securities (USA) Inc., a member of FINRA/SIPC, to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934, as amended. All U.S. persons that receive this document by their acceptance hereof represent and warrant that they are a major U.S. institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Mirae Asset 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 Mirae Asset Securities (USA) Inc. Mirae Asset Securities (USA) Inc. accepts responsibility for the contents of this report in the U.S., subject to the terms hereof, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Mirae Asset Daewoo. 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 report is distributed in Hong Kong by Mirae Asset Securities (HK) Limited, 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 Mirae Asset 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 Mirae Asset Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.

Mirae Asset Daewoo Research 11 October 26, 2020 Conglomerates

Mirae Asset Daewoo International Network

Mirae Asset Daewoo Co., Ltd. () Mirae Asset Securities (HK) Ltd. Mirae Asset Securities (UK) Ltd. One-Asia Equity Sales Team Units 8501, 8507-8508, 85/F 41st Floor, Tower 42 Mirae Asset Center 1 Building International Commerce Centre 25 Old Broad Street, 26 Eulji-ro 5-gil, Jung-gu, Seoul 04539 1 Austin Road West London EC2N 1HQ Korea Kowloon United Kingdom Hong Kong Tel: 82-2-3774-2124 Tel: 852-2845-6332 Tel: 44-20-7982-8000

Mirae Asset Securities (USA) Inc. Mirae Asset Wealth Management (USA) Inc. Mirae Asset Wealth Management (Brazil) CCTVM 810 Seventh Avenue, 37th Floor 555 S. Flower Street, Suite 4410, Rua Funchal, 418, 18th Floor, E-Tower Building New York, NY 10019 Los Angeles, California 90071 Vila Olimpia USA USA Sao Paulo - SP 04551-060 Brazil Tel: 1-212-407-1000 Tel: 1-213-262-3807 Tel: 55-11-2789-2100

PT. Mirae Asset Sekuritas Indonesia Mirae Asset Securities (Singapore) Pte. Ltd. Mirae Asset Securities () LLC Equity Tower Building Lt. 50 6 Battery Road, #11-01 7F, Saigon Royal Building Sudirman Central Business District Singapore 049909 91 Pasteur St. Jl. Jend. Sudirman, Kav. 52 -53 Republic of Singapore District 1, Ben Nghe Ward, Ho Chi Minh City Jakarta Selatan 12190 Vietnam Indonesia Tel: 62-21-515-3281 Tel: 65-6671-9845 Tel: 84-8-3911-0633 (ext.110) Mirae Asset Securities Mongolia UTsK LLC Mirae Asset Investment Advisory (Beijing) Co., Ltd Beijing Representative Office #406, Blue Sky Tower, Peace Avenue 17 2401B, 24th Floor, East Tower, Twin Towers 2401A, 24th Floor, East Tower, Twin Towers 1 Khoroo, Sukhbaatar District B12 Jianguomenwai Avenue, Chaoyang District B12 Jianguomenwai Avenue, Chaoyang District Ulaanbaatar 14240 Beijing 100022 Beijing 100022 Mongolia China China

Tel: 976-7011-0806 Tel: 86-10-6567-9699 Tel: 86-10-6567-9699 (ext. 3300) Shanghai Representative Office Ho Chi Minh Representative Office 38T31, 38F, Shanghai World Financial Center 7F, Saigon Royal Building 100 Century Avenue, Pudong New Area 91 Pasteur St. Shanghai 200120 District 1, Ben Nghe Ward, Ho Chi Minh City China Vietnam

Tel: 86-21-5013-6392 Tel: 84-8-3910-7715

Mirae Asset Daewoo Research 12