August 20, 2015

August 20, 2015 KOREA Company News & Analysis Major Indices Close Chg Chg (%) Sungwoo Hitech (015750/Buy/TP: W10,500) Lower TP KOSPI 1,914.55 -24.83 -1.28 Key overseas operations’ earnings deteriorate KOSPI 200 231.59 -2.68 -1.14 KOSDAQ 656.71 -13.84 -2.06 Turnover ('000 shares, Wbn) Volume Value KOSPI 389,843 5,077 KOSPI 200 77,250 3,544 KOSDAQ 430,493 2,887 Market Cap (Wbn) Value KOSPI 1,196,328 KOSDAQ 182,390 KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,337 1,631 -295 Institutional 1,127 838 289 Retail 2,559 2,596 -38 KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 274 244 31 Institutional 192 179 13 Retail 2,423 2,469 -46 Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,141 1,247 -106 KOSDAQ 72 50 22 Advances & Declines Advances Declines Unchanged KOSPI 224 600 43 KOSDAQ 264 771 48 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 1,139,000 -15,000 248 KODEX LEVERAGE 9,050 -200 190 KODEX 200 23,120 -240 160 Hynix 33,050 50 151 KOREA AEROSPACE 86,000 -3,800 138 KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Celltrion 70,100 -3,500 109 KICA 10,500 1,090 86 ilShinbiobase Co., Ltd. 3,855 770 81 Sansung P&C 51,500 -3,300 68 Daum Communications 125,200 -1,200 61 Note: As of August 20, 2015 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. Sungwoo Hitech (015750 KQ) Key overseas operations’ earnings deteriorate Auto 2Q15 review: OP falls 33% YoY Sungwoo Hitech’s (Sungwoo) 2Q15 consolidated earnings came in weaker than our Results Comment estimates, with revenue of W852bn (+0.3% YoY, +0.2% QoQ ) and operating profit of August 20, 2015 W40bn (-32.9% YoY, -20.4% QoQ). The earnings miss was mostly attributable to Sungwoo’s operations in China; Hyundai Motor’s (HMC) and Kia Motors’ (Kia) operations there have gone south, leading to Sungwoo’s Beijing and Yancheng operations posting (Maintain) Buy respective net profit declines of 66% YoY and 85% YoY in the quarter. Besides China, Sungwoo’s Europe earnings significantly declined, in step with HMC’s and Kia’s sales mix Target Price (12M, W) 10,500 deterioration. In sum, weak earnings from Sungwoo’s two key regions—China and Europe—could not offset losses in India and at other new operations (WMU, Mexico). Share Price (08/19/15, W) 8,540 Meanwhile, Sungwoo’s net profit fell 75% YoY in 2Q15 due to huge equity-method losses from its two subsidiaries due to debt write-offs (MGL, construction company) and Expected Return 23% goodwill amortization (Lee & Han, formerly EXR Korea). Fortunately, we believe the write-offs from MGL are almost over, and that the goodwill amortization was a one-off OP (15F, Wbn) 170 event. Consensus OP (15F, Wbn) 199 China slowdown to continue to materialize in 2H EPS Growth (15F, %) -25.8 Given Sungwoo’s high dependency on Hyundai Motor Group (HMG) in China, we believe Market EPS Growth (15F, %) 25.1 that Sungwoo’s China earnings will see further downside, as we do not anticipate much P/E (15F, x) 6.3 of a rebound in HMC’s and Kia’s China sales over the next one to two quarters. In Market P/E (15F, x) 11.0 addition, HMC and Kia recently announced price cuts, and also plan to launch new KOSDAQ 670.55 models at more competitive prices, which will hurt parts makers. Market Cap (Wbn) 512 On the other hand, Sungwoo is preparing new plants in Mexico and China for HMG , Shares Outstanding (mn) 60 though their earnings contribution will take at least a year to materialize, and the plants Free Float (%) 54.7 will continue to make losses in the meantime. The only bright spot ahead appears to be Foreign Ownership (%) 21.4 Europe, where we forecast HMC’s and Kia’s new model launches in 2H will improve Beta (12M) 0.56 52-Week Low 8,150 Sungwoo’s earnings. On an annual basis, we forecast Sungwoo’s operating profit to 52-Week High 17,950 decline 11.7% YoY. (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M Lower TP to W10,500 Absolute 4.4 -28.2 -45.3 We lower our 12-month target price on Sungwoo by 31.4% to W10,500 (from Relative 20.4 -34.8 -54.1 W15,300), as we lower our 2015F and 2016F EPS by 30.8% and 15.3%, respectively. As mentioned, the remainder of 2015 looks unattractive; concerns in China will likely 160 Sungwoo Hitech KOSDAQ 140 continue throughout the year, and until new plants commence operations, their losses 120 will eat away at earnings. 100 80 60 40 8.14 12.14 4.15 8.15 Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 3,011 3,106 3,273 3,485 4,017 4,289 [Auto/Auto Parts/Tire] OP (Wbn) 200 213 193 170 218 250 Michael Yun OP margin (%) 6.6 6.9 5.9 4.9 5.4 5.8 +822-768-4169 NP (Wbn) 134 131 110 82 131 145 [email protected] EPS (W) 2,231 2,178 1,833 1,361 2,175 2,424 ROE (%) 19.0 16.5 12.6 8.7 13.0 13.1 Young-ho Park +822-768-3033 P/E (x) 4.4 5.9 6.4 6.3 3.9 3.5 [email protected] P/B (x) 0.8 0.9 0.8 0.5 0.5 0.4 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. Key Universe Valuations August 20, 2015 ※All data as of close August 19, 2015, unless otherwise noted. 15F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 15F 16F 15F 16F 15F 16F 15F 16F 15F 16F 005930 Samsung Electronics 167,774 1,139,000 1.4 8.7 6.2 -6.9 8.5 9.0 8.3 1.0 0.9 12.6 12.3 015760 KEPCO 33,190 51,700 2.1 56.6 4.5 266.6 -47.6 3.4 6.4 0.5 0.5 16.9 7.9 005380 Hyundai Motor 32,821 149,000 2.4 -11.9 8.0 -7.1 2.1 6.2 6.1 0.7 0.6 11.4 10.7 000660 SK Hynix 24,060 33,050 1.2 13.1 0.6 8.5 2.8 5.2 5.1 1.1 0.9 22.9 19.4 017670 SK Telecom 20,832 258,000 3.9 3.5 7.3 5.2 5.1 11.0 10.5 1.2 1.1 12.8 12.6 032830 Samsung Life 20,100 100,500 - - - - 0.0 0.0 012330 Hyundai Mobis 19,907 204,500 1.6 -10.7 11.1 -10.7 15.1 6.5 5.7 0.8 0.7 12.4 12.8 055550 Shinhan Financial Group 19,893 41,950 - - - - 0.0 0.0 090430 AmorePacific 19,876 340,000 0.3 42.2 37.5 56.2 35.3 39.6 29.3 7.1 5.8 19.2 21.7 018260 Samsung SDS 18,996 245,500 0.2 14.3 13.8 12.4 12.2 40.9 36.5 4.2 3.8 10.8 11.0 000270 Kia Motors 18,849 46,500 2.5 -4.4 25.0 -0.3 14.9 6.3 5.5 0.8 0.7 13.0 13.7 034730 SK Holdings 18,012 256,000 0.8 23.2 9.0 356.4 4.3 22.0 21.1 3.7 3.2 22.7 19.8 035420 NAVER 17,174 521,000 0.2 12.7 34.4 32.0 35.5 28.6 21.1 5.3 4.2 28.8 29.4 005490 POSCO 15,955 183,000 4.4 -9.6 30.8 124.5 65.9 11.4 6.8 0.4 0.4 3.4 5.5 033780 KT&G 15,377 112,000 3.1 14.8 -6.3 22.9 -10.5 15.2 16.9 2.3 2.2 17.1 14.1 051910 LG Chem 14,646 221,000 1.8 53.5 26.1 61.5 35.5 11.6 8.6 1.3 1.1 11.2 13.8 105560 KB Financial Group 14,140 36,600 - - - - 0.0 0.0 000810 Samsung F&M 12,696 268,000 - - - - 0.0 0.0 051900 LG Household & Health Care 12,182 780,000 0.6 34.8 20.3 34.4 22.6 29.4 24.0 6.8 5.5 26.1 26.0 003550 LG Corp.

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