September 19, 2018

Korea Morning Focus

Company News & Analysis Major Indices Close Chg Chg (%) (253450/Buy/TP: W150,000) KOSPI 2,308.98 5.97 0.26 Upsizing amid a favorable environment KOSPI 200 296.10 0.87 0.29 KOSDAQ 831.85 2.97 0.36

Turnover ('000 shares, Wbn) Volume Value KOSPI 301,522 5,516 KOSPI 200 72,109 3,893 KOSDAQ 695,059 5,124

Market Cap (Wbn) Value KOSPI 1,544,113 KOSDAQ 276,051

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,441 1,452 -11 Institutional 1,137 1,116 22 2,896 2,937 -41

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 393 379 13 Institutional 232 187 45 Retail 4,498 4,552 -54

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,212 1,268 -56 KOSDAQ 181 153 28

Advances & Declines Advances Declines Unchanged KOSPI 326 481 90 KOSDAQ 499 667 84

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Electronics 45,500 350 409 300,500 -2,000 262 KODEX KOSDAQ150 18,400 220 196 LEVERAGE Hynix 78,000 800 190 LG Electronics 69,000 -2,900 180

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samjung Packing & 8,870 1,350 311 Aluminum Hyundai IT 9,820 10 298 SillaJen 95,300 1,400 228 NATURECELL 14,600 -1,250 206 Daea TI 9,180 -610 122 Mirae Asset Daewoo Research Note: As of September 18, 2018 This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd. (“Mirae Asset 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. Mirae Asset 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. Mirae Asset 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.

Studio Dragon (253450 KQ) Upsizing amid a favorable environment

Downstream: Disney Play joins the global OTT battle Media We believe the downstream content market remains favorable to Studio Dragon, given CJ ENM’s stable programming and increasing overseas demand. Company Update 1) Disney recently unveiled the timeline for the launch of its OTT platform called Disney Play (2H19). During conference calls and other events, the company has repeatedly September 19, 2018 said the successful rollout of the streaming service will be its biggest priority for 2019. The entry of a traditional media giant like Disney into the OTT market increases the likelihood of global competition extending over the long term. That said, it remains to be seen which genres Disney’s service will focus on and how it will set itself apart from Hulu. (Maintain) Buy 2) Chinese OTTs Tencent Video and Baidu’s iQiyi are neck and neck in terms of key user indicators, demonstrating how intense competition is. For OTTs, the content library Target Price (12M, W) 150,000 may be the only meaningful differentiator. Until the final winner emerges, Chinese OTTs will continue to scramble to secure content to maintain/expand their market Share Price (09/18/18, W) shares. Indeed, this is evident in their recent moves to secure rights to several Korean 107,000 dramas in advance.

Expected Return 3) CJ ENM, Studio Dragon’s parent company and largest client, is likely to see its ad 40% business benefit strongly from the drama Mr. Sunshine (highest ad rate on record, and positive effects on digital services like platform-in-platform/Tving). The company has also shown potential for revenue diversification with the placement of its own products OP (18F, Wbn) 59 in the drama. As such, we expect aggressive investments in content to continue going forward. Consensus OP (18F, Wbn) 63

EPS Growth (18F, %) 70.9 Upstream: Studio Dragon’s drama budget continues to grow Market EPS Growth (18F, %) 13.7 Asadal Chronicles, a drama produced by Studio Dragon, looks likely to cost more than P/E (18F, x) 59.6 previously expected. Yesterday, visual effects firm Dexter Studios disclosed that it signed an W8.4bn contract to provide visual effects for the drama, which is set to air in Market P/E (18F, x) 8.9 1H19. Even for a fantasy series set in ancient times, the drama’s visual effects budget is KOSDAQ 831.85 exceptionally large. Further taking into account the show’s high-profile cast (Song Joong-ki and Kim Ji-won) and writers, we think the drama will have the highest budget Market Cap (Wbn) 3,000 per episode on record, at over W1.6bn (or more than W25bn in total). Shares Outstanding (mn) 28 With global competition among old/new platforms leading to an increase in presale Free Float (%) 23.9 offers from major platforms, Studio Dragon’s major titles should continue to grow in Foreign Ownership (%) 2.1 scale. Indeed, this was the case with Mr. Sunshine, demand for which was so strong Beta (12M) 0.95 that offers were made during the drama’s planning stages. Visibility on the achievement of the drama’s target return was also secured early on. This, in turn, 52-Week Low 57,800 helped the company refine the drama’s production during the later stages and 52-Week High 119,800 increase its budget. In this context, we think Asadal Chronicles’ bigger budget signals the company’s confidence in licensing sales. (%) 1M 6M 12M Absolute 1.8 10.3 0.0 Positive on move to raise selling prices Relative -5.5 18.6 0.0 Favorable downstream market conditions are creating a virtuous cycle, in which higher selling prices are leading to bigger budgets, in turn driving better content quality. 190 Studio Dragon Corporation KOSDAQ Meanwhile, given the rarity of Korean big-budget dramas (five or fewer titles per year) 170 and their excellent value for cost by global standards, we believe the leverage effects of 150 higher selling prices will continue to exceed the increase in costs. In this sense, we 130 think Studio Dragon made the right decision in upsizing its budget per content. 110 We believe 1) competition among global platforms (including Chinese ones), 2) the 90 stabilization of parent company CJ ENM, and 3) the K-content frenzy triggered by BTS 70 provide attractive opportunities for Studio Dragon. As one of Asia’s leading studios, the 9.17 1.18 5.18 9.18 company should continue to strengthen its negotiating leverage in 2019 and beyond. We recommend buying the stock, focusing on the favorable changes in the business environment rather than on individual titles. Mirae Asset Daewoo Co., Ltd.

[Media] FY (Dec.) 12/14 12/15 12/16 12/17 12/18F 12/19F Revenue (Wbn) 0 0 196 287 394 559 Jeong-yeob Park +822-3774-1652 OP (Wbn) 0 0 0 33 59 103 [email protected] OP margin (%) - - 0.0 11.5 15.0 18.4 NP (Wbn) 0 0 0 24 50 84 EPS (W) 0 0 0 1,050 1,795 2,988 ROE (%) 0.0 0.0 0.0 9.5 12.8 18.2 P/E (x) - - - 61.9 59.6 35.8 P/B (x) - - - 4.9 7.2 6.0 Dividend yield (%) - - - 0.0 0.0 0.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

September 19, 2018 Studio Dragon

Table 1. Earnings and forecasts (Wbn, %, no.) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18F 4Q18F 2017 2018F 2019F Revenue 75 62 77 72 80 74 126 114 287 394 559 Programming 26 24 42 39 41 34 47 50 131 172 189 Licensing 36 26 23 26 32 29 63 46 112 169 250 Other 13 12 12 7 7 11 16 17 44 52 60 Original production 0 0 0 0 0 0 0 0 0 0 60 contracting Costs 59 50 67 64 66 64 95 92 240 317 434 Production costs (excl. 24 25 36 39 42 35 53 52 125 181 195 originals) Commission fees 7 5 5 5 6 6 13 9 22 34 50 Depreciation expenses on 8 9 10 11 12 13 14 16 38 57 77 tangible/intangible assets Other 19 11 16 9 6 9 16 14 55 46 63 Production costs for originals 0 0 0 0 0 0 0 0 0 0 48 SG&A 3 3 4 4 3 3 6 6 14 18 21 EBITDA 22 18 16 14 23 21 40 33 71 116 181 Operating profit 14 9 7 3 11 7 25 16 33 59 103 OP margin 18.5 14.3 8.6 4.8 13.3 9.9 19.8 14.1 11.5 15.0 18.5 Pretax profit 13 9 6 2 11 11 26 17 30 65 107 Net profit 13 3 6 2 8 9 20 13 24 50 84 Net margin 17.8 4.5 7.3 2.8 9.8 12.0 16.1 11.7 8.3 12.8 15.0 YoY Revenue 6.0 19.6 63.0 58.0 46.7 37.4 41.8 Programming 54.5 41.1 12.8 29.5 49.5 31.3 9.7 Licensing -12.0 9.5 169.6 77.7 48.3 51.5 47.3 Other -43.4 -1.9 31.7 142.2 35.3 19.4 15.0 EBITDA 2.2 17.0 144.0 128.4 - 63.6 56.4 Operating profit -23.7 -17.6 276.7 361.0 56.1 78.5 75.2 Net profit -41.3 217.3 258.8 563.8 83.8 111.0 66.5 Major assumptions No. of titles aired 4.0 4.5 6.5 7.0 7.7 5.3 6.3 6.8 22.0 26.0 29.0 No. of titles licensed to 0.0 1.0 1.0 1.1 2.0 0.5 1.0 1.0 3.1 4.5 6.0 Source: Mirae Asset Daewoo Research estimates

Table 2. Earnings forecast revisions (Wbn, %, %p) Previous Revised Change Notes 18F 19F 18F 19F 18F 19F Revenue 394 559 394 559 0.0 0.0 - No changes Operating profit 59 103 59 103 0.0 0.0 Net profit 50 84 50 84 0.0 0.0 OP margin 15.0 18.5 15.0 18.5 0.0 0.0 Net margin 12.8 15.0 12.8 15.0 0.0 0.0 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Key Universe Valuations September 19, 2018

※All data as of close September 17, 2018, unless otherwise noted.

18F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F 005930 292,079 45,500 3.1 23.2 3.2 28.8 8.5 6.5 6.0 1.3 1.1 22.4 20.3 000660 SK Hynix 56,784 78,000 1.3 62.2 2.4 59.2 4.1 3.4 3.2 1.1 0.8 40.5 30.2 068270 Celltrion 37,681 300,500 - - - - 0.0 0.0 207940 33,546 507,000 4.5 277.0 - 375.1 647.8 136.3 8.3 7.8 1.3 5.9 051910 LG Chem 25,907 367,000 1.6 -17.7 17.4 -10.5 21.2 16.5 13.6 1.6 1.5 10.5 11.7 005490 POSCO 25,851 296,500 2.7 19.3 3.5 21.5 10.4 7.6 6.9 0.5 0.5 7.6 7.9 028260 Samsung C&T Corporation 23,901 126,000 1.6 26.8 7.7 96.0 2.2 19.2 18.8 0.9 0.9 5.4 5.2 017670 SK Telecom 22,367 277,000 3.6 -13.2 5.1 29.7 4.8 6.6 6.3 0.9 0.8 17.0 15.2 105560 KB Financial Group 21,031 50,300 22.1 5.0 8.1 3.7 5.8 5.6 0.6 0.5 10.3 10.0 055550 19,916 42,000 23.2 2.2 16.6 2.6 5.9 5.7 0.6 0.5 9.9 9.4 034730 SK Holdings 19,736 280,500 1.4 4.6 7.0 26.5 6.1 9.4 8.8 1.2 1.1 14.5 13.6 015760 KEPCO 18,938 29,500 - - - - - 22.8 0.3 0.3 - 1.2 096770 SK Innovation 18,724 202,500 4.0 -8.0 -6.3 -3.8 -2.0 9.4 9.6 1.0 0.9 11.1 10.4 018260 Samsung SDS 18,493 239,000 1.0 24.5 13.4 31.7 12.1 26.5 23.6 3.1 2.8 12.0 12.3 032830 Samsung Life 18,220 91,100 - - - - 0.0 0.0 006400 Samsung SDI 17,535 255,000 0.4 455.6 41.0 10.3 45.5 24.8 17.0 1.5 1.4 6.2 8.5 010950 S-Oil 14,636 130,000 3.5 10.1 29.0 -23.3 55.1 15.9 10.2 2.3 2.0 14.2 21.0 033780 KT&G 14,072 102,500 4.5 -8.2 16.7 -13.6 13.3 14.0 12.4 1.7 1.6 13.0 14.2 091990 Celltrion Healthcare 13,912 99,000 45.8 63.6 39.9 27.0 56.4 44.4 7.1 6.4 13.5 15.1 086790 12,625 42,050 24.8 9.6 18.1 9.7 5.2 4.7 0.5 0.4 9.7 9.7 003550 LG Corp. 12,355 71,600 1.8 0.5 8.3 -23.0 10.4 6.8 6.2 0.7 0.6 10.9 10.8 000810 Samsung F&M 12,199 257,500 - - - - 0.0 0.0 009150 Samsung Electro-Mechanics 11,316 151,500 0.5 196.0 30.7 254.7 29.9 20.5 15.8 2.4 2.1 12.7 14.5 066570 LG Electronics 11,292 69,000 1.0 34.6 14.0 -5.0 35.1 7.6 5.6 0.8 0.7 11.7 14.0 011170 Lotte Chemical 9,803 286,000 3.7 -19.6 -0.8 -14.0 4.5 5.1 4.9 0.8 0.7 15.7 14.6 024110 8,120 14,500 24.2 6.2 20.5 6.0 5.3 5.0 0.5 0.4 8.9 8.8 030200 KT 7,807 29,900 3.3 4.0 -1.1 37.6 14.9 11.9 10.4 0.6 0.6 5.4 5.8 032640 LG Uplus 7,728 17,700 3.1 0.5 13.8 -3.5 14.9 14.6 12.7 1.1 1.1 8.8 8.8 010130 Korea Zinc 7,718 409,000 2.4 -8.6 2.9 -1.2 9.5 12.4 11.3 1.2 1.1 10.1 10.3 000720 Hyundai E&C 7,461 67,000 0.7 9.7 15.9 171.2 14.2 13.7 12.0 1.2 1.1 8.4 9.3 004020 7,286 54,600 1.4 1.1 2.5 8.3 7.0 9.4 8.8 0.4 0.4 4.6 4.7 034220 LG Display 7,031 19,650 2.5 ------0.5 0.5 - - 128940 5,727 503,000 0.1 -1.8 108.0 -14.0 129.7 110.2 48.0 7.4 6.5 7.1 14.6 023530 Lotte Shopping 5,615 198,500 2.6 7.5 36.2 - - - 11.9 0.4 0.4 - 3.7 139480 Emart 5,394 193,500 0.9 -5.8 18.1 -28.5 7.9 12.2 11.3 0.6 0.6 5.3 5.6 036460 KOGAS 5,243 56,800 1.8 25.0 10.6 - 8.1 7.5 6.9 0.6 0.6 8.6 8.6 097950 CJ CheilJedang 4,900 325,500 0.9 6.8 11.7 134.7 -64.2 5.4 15.2 1.1 1.0 23.4 7.0 078930 GS Holdings 4,878 52,500 3.4 -8.0 4.8 -2.6 5.3 5.2 4.9 0.6 0.5 11.8 11.3 086280 4,725 126,000 2.4 -5.1 5.6 -37.4 29.3 11.1 8.6 1.1 1.0 10.4 12.6 005830 DB Insurance 4,432 62,600 - - - - 0.0 0.0 088350 Hanwha Life 4,221 4,860 - - - - 0.0 0.0 029780 4,119 35,550 -33.2 -16.8 -8.9 3.9 11.7 11.2 0.6 0.6 1.5 1.5 003670 POSCO Chemtech 4,082 69,100 0.5 -10.4 17.2 26.9 11.2 31.0 27.9 5.5 4.7 19.0 18.3 271560 Orion 4,072 103,000 0.7 137.1 10.0 33.5 14.3 23.7 20.7 2.8 2.5 12.4 12.7 006360 GS E&C 4,042 51,700 0.6 242.8 -25.8 - -16.1 5.9 7.0 1.1 1.0 19.9 15.4 071050 Korea Investment Holdings 3,901 70,000 - - - - 0.0 0.0 086900 Medytox 3,773 667,000 0.4 18.8 30.1 16.2 33.5 44.3 33.2 11.4 8.8 36.0 35.2 005940 NH Investment & Securities 3,771 13,400 - - - - 0.0 0.0 000120 CJ Logistics 3,696 162,000 -1.5 24.5 192.5 37.0 40.1 29.3 1.2 1.2 3.7 4.8 004170 3,554 361,000 0.3 22.0 3.2 53.6 3.7 12.7 12.2 1.0 0.9 8.0 7.8 Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research Market Data September 19, 2018

※All data as of close September 18, 2018, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 482.10 -7.98 -1.63 -13.00 USD/KRW 1,126.20 1,119.20 1,130.70 1,133.50 KOSPI 2,308.98 5.97 0.26 -6.88 JPY100/KRW 1,008.15 999.42 1,019.02 1,020.53 KOSDAQ 831.85 2.97 0.36 2.39 EUR/KRW 1,314.61 1,301.07 1,285.89 1,353.91 Dow Jones* 26,062.12 -92.55 -0.35 4.99 3Y Treasury 1.98 1.97 2.00 1.74 S&P 500* 2,888.80 -16.18 -0.56 7.16 3Y Corporate 2.42 2.41 2.66 2.29 NASDAQ* 7,895.79 -114.25 -1.43 12.69 DDR2 1Gb* 1.30 1.30 1.33 1.22 Philadelphia Semicon* 1,357.48 -19.83 -1.44 5.42 NAND 16Gb* 2.82 2.82 2.83 3.11 FTSE 100* 7,302.10 -1.94 -0.03 -4.52 Oil (Dubai)* 76.43 76.31 70.38 53.64 Nikkei 225 23,420.54 325.87 1.41 -0.36 Gold* 1,201.20 1,196.20 1,176.50 1,321.30 Hang Seng* 26,932.85 -353.56 -1.30 -11.74 Customer deposits (Wbn)* 24,904 24,587 24,921 24,383 Taiwan (Weighted) 10,760.21 -68.40 -0.63 0.46 Equity type BC (Wbn)(Sep. 14) 82,194 81,854 80,806 70,353 Note: * as of September 17, 2018 Source: KSDA, Wisefn, 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 48.01 Celltrion 44.19 Samsung SDI 30.85 LG Electronics 48.96 SAMSUNG BIOLOGICS 20.65 LG Electronics 38.88 LG Chem 29.36 Hyundai Eng. & Cosnt. 13.85 Hyundai Elevator 20.08 SEMCO 11.58 SAMSUNG BIOLOGICS 25.41 LG Innotek 9.16 Samsung SDI 16.32 Amore Pacific 11.52 KODEX LEVERAGE 19.77 emart 9.16 S-Oil 12.35 Shinhan Financial Group 10.86 Shinsegae 16.35 GS Construction 9.15 LG Uplus 10.83 SK Telecom 9.48 LG Household & Health Care 11.99 LG Uplus 8.40 Hyundai Eng. & Cosnt. 9.94 emart 8.33 SK Telecom 10.78 7.98 9.37 SAMSUNG C&T 7.89 SEMCO 10.66 KODEX KOSDAQ150 INVERSE 7.57 Hynix 8.96 Shinsegae 5.28 KT 10.54 Samsung Electronics 7.21 KOREA AEROSPACE 5.35 5.05 SAMSUNG C&T 8.32 KODEX 200 Futures Inverse 2X 6.70 Source: KSDA, Wisefn

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 SillaJen 11.38 Celltrion Healthcare 7.01 Kolon TissueGene(Reg.S) 7.66 Medy-tox 8.03 ViroMed 8.95 Medy-tox 5.54 Sam Chun Dang Pharm 6.66 UNION KOREA PHARM 3.86 Medipost 4.51 PearlAbyss 5.04 CJ O Shopping 6.50 Icure Pharm. Inc. 3.39 Sam Chun Dang Pharm 3.87 Eugene Corporation 3.12 Celltrion Healthcare 5.41 Dae Yu 3.23 HANS BIOMED 2.81 Seohee Construction 2.83 ECOPRO 4.41 SMC 3.20 Kolon TissueGene(Reg.S) 2.70 Daea TI 2.37 PearlAbyss 4.39 ISPLUS 3.16 Posco Chemtech 1.92 Samjung Packing & Aluminum 2.28 DoubleUGames 3.39 Optomagic CO. 3.09 Koh Young 1.68 CJ O Shopping 2.08 HLB 2.60 Eugene Corporation 2.33 Crystal Genomics 1.67 Puloon Technology 1.71 Posco Chemtech 2.47 Studio Dragon 2.31 BH,LTD. 1.66 Texcell-Netcom 1.60 SillaJen 2.22 SK Materials 1.65 Source: KSDA, Wisefn

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 45,500 350 292,079 Celltrion Healthcare 99,000 0 13,912 Hynix 78,000 800 56,784 SillaJen 95,300 1,400 6,646 Celltrion 300,500 -2,000 37,681 CJ O Shopping 247,300 5,100 5,422 SAMSUNG BIOLOGICS 507,000 21,000 33,546 HLB 112,700 2,800 4,372 Samsung Electronics (P) 36,500 500 32,982 Posco Chemtech 69,100 2,100 4,082 Hyundai Motor 128,000 -500 27,350 NANOS 8,000 0 3,927 LG Chem 367,000 13,000 25,907 ViroMed 243,000 1,700 3,877 POSCO 296,500 3,500 25,851 Medy-tox 667,000 -14,900 3,773 SAMSUNG C&T 126,000 500 23,901 Kolon TissueGene(Reg.S) 49,650 3,200 3,026 NHN 725,000 -3,000 23,898 Studio Dragon 107,000 -1,000 3,000 Source: