April 12, 2011 Company Report

Electronic Parts Cheil Industries (001300 KS) and Materials

Growth engines remain intact Will Cho +822-768-4306 [email protected] Maintain Buy call with TP of W150,000 (vs. current share price of W117,000)

We reiterate our Buy call on Cheil Industries with a target price of W150,000. Cheil IndustriesÊ share price has underperformed the KOSPI by 10.2% over the last two

months, due to worries about weak 1Q earnings and delays in the companyÊs development of AMOLED materials. However, these weak 1Q earnings projections have already been priced in, and the company is anticipated to roll out AMOLED materials this year as scheduled. In light of rosy growth prospects for 2Q and beyond, we believe that now is the optimal time to buy Cheil Industries.

1Q11 Preview: OP to fall shy of market forecast, reaching W72.5bn Buy (Maintain) Cheil IndustriesÊ 1Q earnings are projected to fall shy of market consensus forecasts in the wake of the slow recovery of IT demand. Sales in 1Q are forecast Target Price (12M, W) 150,000 to remain flat QoQ at W1.31tr (down 0.1% QoQ; up 12.5% YoY), while operating Share Price (04/11/11, W) 117,000 profit is estimated to reach W72.5bn (up 28.3% QoQ; down 7.3% YoY; OP margin Expected Return (%): 28.2 28.2 of 5.5%), failing to meet the market consensus estimate of W83.5bn. EPS Growth (11F, %) 27.4 Market EPS Growth (11F, %) 23.2 Despite sluggish sales growth of polarizer and display materials from contraction in P/E (11F, x) 17.7 LCD TV demand, operating profit at the ECM division is forecast to jump 42.3% Market P/E (11F, x) 10.8 thanks to strong semiconductor materials sales. Operating profit at the chemicals KOSPI (04/11/11, p) 2,122.39 division is estimated to decline 7.4% QoQ, as the company failed to pass surging Market Cap (Wbn) 5,850 feedstock prices on to consumers amid weak IT demand. With high value-added Shares Outstanding (mn) 50 Avg Trading Volume (60D, '000) 481 EP sales shrinking, the chemicals division is thought to have experienced product Avg Trading Value (60D, Wbn) 56 mix deterioration. However, the fashion division is likely to post operating profit Dividend Yield (11F, %) 0.6 growth of 58.2% QoQ thanks to unusually cold weather and decline in marketing Free Float (%) 87.3 expenses. 52-Week Low 70,000 52-Week High 125,500 AMOLED materials to drive growth over the mid- to long-term Beta (12M, Daily Rate of Return) 0.8 Despite our projections for weaker-than-previously-expected 1Q earnings, we Price Return Volatility (12M Daily,%,SD) 2.3 remain optimistic about Cheil IndustriesÊ ECM division. As for AMOLED materials, Foreign Ownership (%) 26.3 Major Shareholder(s): HTL and ETL materials are forecast to generate sales starting in 3Q (after receiving Mirae Asset mgmt et al. (8.74%) approval in 2Q). Although the companyÊs AMOLED materials sales should be Card et al. (7.79%) minimal in 2011, sales are projected to skyrocket 879.2% to W110.2bn in 2012 and National Pension Service (7.77%) 192.6% to W322.3bn in 2013, driven by: 1) the projected surge in AMOLED panel Price Performance shipments, and 2) an increase in the companyÊs supply to Samsung Mobile Display. (%) 1M 6M 12M Absolute 3.5 28.3 63.2 Relative -5.0 16.0 40.1

§ Earnings & Valuation Metrics Share price OP EV/ 200 KOSPI Sales OP NP EPS EBITDA FCF ROE P/E P/B FY Margin EBITDA (Wbn) (Wbn) (Wbn) (W) (Wbn) (Wbn) (%) (x) (x) 180 (%) (x) 160 12/09 4,261 264 6.2 127 2,540 395 340 7.1 22.3 1.5 8.1 140 12/10 5,019 334 6.7 259 5,174 468 201 10.9 21.5 2.0 12.5 120 12/11F 5,912 438 7.4 330 6,593 599 35 11.3 17.7 1.9 10.1 100 12/12F 6,899 559 8.1 424 8,474 732 135 12.9 13.8 1.7 8.1 80 12/13F 7,865 733 9.3 558 11,155 912 345 14.9 10.5 1.5 6.1 4/10 8/10 12/10 4/11

Source: Company data, Daewoo Securities Research estimates

Please read carefully important disclosures at the end of this report. April 12, 2011 Cheil Industries

1Q11 Preview: OP to grow 28.3% QoQ to W72.5bn

Sales and operating Cheil IndustriesÊ 1Q11 earnings are projected to fall shy of market consensus forecasts in profit in 1Q11 are the wake of the slow recovery of IT demand. Sales in 1Q are forecast to remain flat QoQ estimated at W1.3tr and at W1.31tr (down 0.1% QoQ; up 12.5% YoY), while operating profit is estimated to reach W72.5bn, respectively W72.5bn (up 28.3% QoQ; down 7.3% YoY; OP margin of 5.5%), failing to meet the market consensus estimate of W83.5bn. Despite lower than expected 1Q results, we believe that the companyÊs growth potential remains intact. Its profits are anticipated to improve in line with earnings growth at major customers, namely (SEC). Despite the sluggish growth of polarizer and display materials sales, Cheil IndustriesÊ ECM division is forecast to see its operating profit jump 42.3% QoQ thanks to strong semiconductor materials sales. The ECM division should see both top- and bottom-line expansion starting in 2Q, thanks to: 1) full-fledged growth of TV-use polarizer sales, and 2) an increase in the proportion of semiconductor patterning materials sales.

Operating profit at the chemicals division is projected to remain sluggish, as the company failed to pass surging feedstock prices on to consumers amid weak IT demand. With high value-added EP sales shrinking, the chemicals division is thought to have experienced product mix deterioration. However, earnings at the chemicals division should steadily grow on the back of improvements in ASP and product mix.

While the fashion divisionÊs sales are projected to decline 15% QoQ, operating profit is projected to grow 58.2% QoQ to W20.9bn (OP margin of 6.3%). Despite weak seasonality, unusually cold weather and decline in marketing expenses boosted operating profit, in our view. Table 1. Cheil IndustriesÊ earnings forecasts (on K-GAPP parent basis) (Wbn, %) 1Q11F 2Q11F 3Q11F 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 2010 2011F 2012F Sales 1,310 1,443 1,523 1,637 1,547 1,716 1,790 1,846 5,019 5,912 6,899 Chemical 572 620 660 650 652 719 766 709 2,231 2,502 2,846 Electronic Material 395 455 551 554 546 623 708 696 1,415 1,954 2,573 Fashion 331 347 291 417 338 355 299 427 1,298 1,387 1,418 Others 12 21 20 17 11 19 18 15 80 70 62 Operating Profit 73 110 132 123 119 146 161 133 334 438 559 Chemical 25 40 48 41 42 51 57 45 142 154 195 Electronic Material 27 50 68 58 58 76 87 72 131 203 294 Fashion 21 20 17 24 18 20 18 16 63 83 73 OP margin 5.5 7.6 8.7 7.5 7.7 8.5 9.0 7.2 6.7 7.4 8.1 Chemical 4.3 6.5 7.2 6.3 6.5 7.1 7.4 6.3 6.3 6.2 6.8 Electronic Material 6.9 11.0 12.3 10.5 10.7 12.2 12.3 10.4 9.3 10.4 11.4 Fashion 6.3 5.8 5.9 5.9 5.4 5.7 6.0 3.9 4.8 6.0 5.1 Pretax income 63 103 123 112 109 135 150 121 314 401 515 Net Profit 47 85 104 93 89 113 126 96 259 330 424 RP margin 4.8 7.1 8.1 6.9 7.1 7.9 8.4 6.5 6.3 6.8 7.5 NP margin 3.6 5.9 6.9 5.7 5.7 6.6 7.1 5.2 5.2 5.6 6.1 Growth (QoQ/YoY) Sales -0.1 10.1 5.5 7.5 -5.5 10.9 4.3 3.1 17.8 17.8 16.7 Chemical 3.8 8.3 6.6 -1.6 0.4 10.2 6.5 -7.5 22.1 12.2 13.7 Electronic Material 11.8 15.2 21.0 0.5 -1.3 14.0 13.7 -1.6 17.0 38.1 31.7 Fashion -15.0 4.9 -16.1 43.0 -19.0 5.3 -16.0 42.8 13.7 6.8 2.3 Others -37.2 73.7 -2.1 -18.2 -36.1 73.7 -2.1 -18.2 -3.7 -12.6 -11.0 Operating Profit 28.3 52.1 19.8 -6.7 -3.8 23.4 10.2 -17.6 26.7 31.1 27.7 Chemical -7.4 63.5 18.6 -13.8 3.0 19.7 11.7 -20.9 14.9 8.8 26.5 Electronic Material 42.3 83.7 35.3 -13.8 -0.2 30.5 14.9 -17.3 38.2 54.6 44.6 Fashion 58.2 -3.6 -14.4 41.8 -24.8 9.3 -11.1 -8.1 19.9 32.1 -12.0 Pretax income 15.5 63.5 19.4 -8.4 -2.9 24.0 10.8 -19.5 100.4 27.4 28.5 Net Profit 5.3 80.9 22.2 -11.3 -4.2 26.9 12.1 -23.8 101.3 27.4 28.5 Source: Daewoo Securities Research Daewoo Securities Research 2

April 12, 2011 Cheil Industries

ECM: Promising mid- to long-term growth prospects

1) IT market recovery in 2Q to boost earnings Earnings to take off in Polarizer sales are anticipated to increase just 12.2% QoQ to W160bn although Cheil 2Q on SECÊs 1) LED TV Industries began to supply TV-use polarizers to customers. Shipment growth of TV- and model launches and 2) laptop/monitor-use polarizers was minimal due to weaker IT demand. Although product mix acceleration in improved slightly thanks to higher margin of TV-use polarizers, the amount of improvement semiconductor process was meager since sales volume of TV-use polarizers were small and their ASP cut was migration larger than for laptop/monitor-use polarizers.

Sales in the semiconductor division are projected to grow 22.4% QoQ to W86.3bn as SECÊs migration to finer process has been progressing rapidly.

Earnings in the ECM division are forecast to take off in 2Q as 1) SEC is scheduled to launch new low- to mid-end LED TV models and 2) SECÊs semiconductor process migration is expected to accelerate, both starting in April. Shipments of TV-use polarizers, which were sluggish in January and February, are anticipated to have improved sharply in March.

Table 2. ECM divisionÊs earnings forecast (on K-GAPP parent basis) (Wbn, %) 1Q11F 2Q11F 3Q11F 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 2010 2011F 2012F Sales 395 455 551 554 546 623 708 696 1,415 1,954 2,573 Polarizer 160 187 237 253 249 277 307 310 626 836 1,142 Display 149 165 188 181 176 200 228 222 510 683 826 Semiconductor 86 103 126 120 122 145 173 164 280 435 605 Sales contribution 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Polarizer 40.4 41.1 43.1 45.6 45.5 44.5 43.3 44.5 44.2 42.8 44.4 Display 37.7 36.3 34.1 32.7 32.1 32.2 32.2 31.9 36.0 34.9 32.1 Semiconductor 21.9 22.6 22.8 21.7 22.4 23.4 24.4 23.6 19.8 22.3 23.5 Operating Profit 27 50 68 58 58 76 87 72 131 203 294 OP margin 6.9 11.0 12.3 10.5 10.7 12.2 12.3 10.4 9.3 10.4 11.4 Growth (QoQ/YoY) Sales 11.8 15.2 21.0 0.5 -1.3 14.0 13.7 -1.6 17.0 38.1 31.7 Polarizer 12.2 17.1 27.0 6.5 -1.6 11.4 10.8 1.0 2.9 33.7 36.6 Display 6.0 11.0 13.7 -3.7 -2.9 14.0 13.9 -2.5 41.1 34.0 21.0 Semiconductor 22.4 19.2 22.1 -4.4 1.7 19.1 18.9 -5.0 35.7 55.5 39.0 Operating Profit 42.3 83.7 35.3 -13.8 -0.2 30.5 14.9 -17.3 38.2 54.6 44.6 Source: Daewoo Securities Research

Figure 1. ECM divisionÊs earnings trend and forecast Figure 2. SECÊs LCD panel shipment trend

(Wbn) (%) (mn units)Notebook (L) Monitor (L) (%) 800 Polarizer (L) Display (L) 20 15 TV (L) MoM growth (R) 100 Semiconductor (L) OP margin (R) YoY growth (R) 80 640 16 12 60

480 12 9 40

20 320 8 6

0 160 4 3 -20

0 0 0 -40 07 08 09 10 11F 12F 10/08 2/09 6/09 10/09 2/10 6/10 10/10

Source: Company data, Daewoo Securities Research Source: DisplaySearch

Daewoo Securities Research 3

April 12, 2011 Cheil Industries

2) AMOLED materials

AMOLED materials Cheil Industries is expected to complete mass production facilities for AMOLED materials in sales to pick up in 3Q April. The new facilities are likely to roll out HTL and ETL starting in 3Q, after receiving approval in 2Q.

The company plans to speed up the development of emission layers (EML), which should generate high margins in 2012. The ASP of EML is estimated to be three times higher than that of HTL. Currently, Universal Display Corporation of the U.S. holds core patents for EML. When Cheil Industries finishes EML development, the company will supply all organic materials needs of Samsung Mobile Display (SMD).

Although the companyÊs AMOLED materials sales should be minimal in 2011, sales are projected to skyrocket 879.2% to W110.2bn in 2012 and 192.6% to W322.3bn in 2013, driven by: 1) the projected surge in AMOLED panel shipments, and 2) an increase in the companyÊs supplies to SMD. Thus, investors should focus on the companyÊs progress in developing AMOLED materials in 2011, and then shift their focus to the strong growth potential of the AMOLED materials business from 2012.

Figure 3. AMOLED material supply chain at SMD

AMOLED materials AMOLED panel AMOLED set

Duksan SEC HTL Cheil Industries

Nokia Dopant (RGB) UDC

Red (phosphorescence) Dow Gracel EML SMD Green (fluorescence) Doosan Elec.

Blue (fluorescence) SFC i-River

LG Chem ETL Cheil Industries COWON

Source: Duksan Hi-metal, Daewoo Securities Research

Figure 4. Cheil IndustriesÊ AMOLED material sales forecast Figure 5. Structure of AMOLED panel

(Wbn) (%) 1,200 SMD's AMOLED material purchase (L) 70 Cheil Industries' AMOLED material sales (L) 60 1,000 Cheil Industries' M/S within SMD (R) 50 800 40 600 30 400 20

200 10

0 0 09 10 11F 12F 13F 14F

Source: Daewoo Securities Research Source: Industry data

Daewoo Securities Research 4

April 12, 2011 Cheil Industries

Chemicals: IT demand to determine earnings

Sluggish 1Q results are Earnings at the chemicals division are swayed by the IT market, rather than the chemical attributable to 1) a surge market, as 80% of the products are exterior materials for electronic products. A slowdown in feedstock prices and in the IT market leads to a decline in the companyÊs shipments and increases the difficulty of 2) product mix raising prices, weighing down on earnings. deterioration Earnings at the chemicals division are projected to remain sluggish. Although sales are estimated to inch up 3.8% QoQ to W572bn, operating profit is estimated to decline 7.4% QoQ to W24.6bn (OP margin of 4.3%), as the company failed to pass surging feedstock prices on to consumers amid weak IT demand. With high value-added EP sales shrinking, the chemicals division is thought to have experienced product mix deterioration.

However, the company should be able to raise product prices on the recovery of IT demand in 2Q and beyond. In addition, EP demand is expected to climb steadily as customers are scheduled to introduce high-end electronic appliances.

Table 3. Chemicals divisionÊs earnings forecasts (on K-GAPP parent basis) (Wbn, %) 1Q11F 2Q11F 3Q11F 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 2010 2011F 2012F Sales 572 620 660 650 652 719 766 709 2,231 2,502 2,846 ABS 249 248 230 207 198 220 225 198 785 934 842 PS 110 110 98 94 93 99 106 93 350 412 391 EP 181 226 294 309 324 357 392 373 954 1,010 1,446 Others 32 36 39 40 37 44 43 44 143 146 167 Sales contribution 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ABS 43.6 40.0 34.8 31.9 30.4 30.6 29.4 28.0 35.2 37.3 29.6 PS 19.3 17.7 14.8 14.5 14.3 13.7 13.8 13.2 15.7 16.5 13.7 EP 31.6 36.5 44.5 47.5 49.7 49.6 51.2 52.6 42.8 40.4 50.8 Others 5.5 5.8 5.9 6.1 5.6 6.1 5.6 6.2 6.4 5.8 5.9 Operating Profit 25 40 48 41 42 51 57 45 142 154 195 OP margin 4.3 6.5 7.2 6.3 6.5 7.1 7.4 6.3 6.3 6.2 6.8 Growth (QoQ/YoY) Sales 3.8 8.3 6.6 -1.6 0.4 10.2 6.5 -7.5 22.1 12.2 13.7 ABS 15.4 -0.6 -7.3 -9.7 -4.4 11.0 2.1 -11.7 29.5 19.0 -9.9 PS 11.5 -0.4 -11.2 -3.6 -0.9 6.0 6.9 -11.7 36.5 17.8 -5.1 EP -10.0 25.0 30.0 5.0 5.0 10.0 10.0 -5.0 14.1 5.9 43.1 Others -10.1 13.6 9.0 1.4 -7.5 18.8 -1.4 2.8 10.0 2.5 14.5 Operating Profit -7.4 63.5 18.6 -13.8 3.0 19.7 11.7 -20.9 14.9 8.8 26.5 Source: Daewoo Securities Research

Figure 6. Chemicals divisionÊs earnings trend and forecast Figure 7. BPA (feedstock for EP) price trend

(Wbn)ABS (L) PS (L) (%) (US$/tonne) 800 EP (L) Others (L) 10 3,000 OP margin (R) 2,500 640 8

2,000 480 6 1,500 320 4 1,000

160 2 500

0 0 0 07 08 09 10 11F 12F 1/08 7/08 1/09 7/09 1/10 7/10 1/11

Source: Company data, Daewoo Securities Research Source: Cischem, Daewoo Securities Research

Daewoo Securities Research 5

April 12, 2011 Cheil Industries

Maintain Buy and TP of W150,000

Weaker 1Q earnings We reiterate our Buy call on Cheil Industries with a target price of W150,000. We derived have already been priced our target price based on a sum-of-the-parts methodology. While we lowered 2011F EPS by in 4.6% considering the slow recovery of IT demand, we raised 2012F EPS by 2.6% in light of the growth potential of AMOLED materials and semiconductor patterning materials. Cheil IndustriesÊ share price has underperformed the KOSPI by 10.2% over the last two months, due to worries about weak 1Q11 earnings and delays in the companyÊs development of AMOLED materials. However, these weak 1Q earnings projections have already been priced in, and the company is anticipated to roll out AMOLED materials this year as scheduled. In light of rosy growth prospects for 2Q11 and beyond, we believe that now is the optimal time to buy Cheil Industries.

Table 4. Cheil IndustriesÊ earnings revisions (on K-GAPP parent basis) (Wbn, %) Previous Revised % change 11F 12F 13F 11F 12F 13F 11F 12F 13F Sales 5,852 6,790 7,933 5,912 6,899 7,865 1.0 1.6 -0.9 Operating Profit 458 548 684 438 559 733 -4.4 2.1 7.1 Net profit 346 413 516 330 424 558 -4.6 2.6 8.2 EPS (W) 6,912 8,258 10,312 6,593 8,474 11,155 -4.6 2.6 8.2 OP margin 7.8 8.1 8.6 7.4 8.1 9.3 - - - Net margin 5.9 6.1 6.5 5.6 6.1 7.1 - - - Source: Daewoo Securities Research

Table 5. Calculation of Cheil IndustriesÊ target price (sum-of-the-parts) (Wbn, % ) 12M-fwd EBITDA Target EV/EBITDA Fair value Notes Chemicals 224 9.4 2,104 Average EV/EBITDA of peers ECM 292 11.4 3,338 10% premium to average EV/EBITDA of peers Fashion 121 4.8 578 Average EV/EBITDA of peers Operating value ① 6,020 Investment asset value ② 1,417 Value of stakes in affiliated companies Net debt ③ 213 2011 estimate Equity value (① + ② - ③) 7,224 # of shares ('000 shares) 47,969 Exclude treasury stock Target price (W) 150,587 Current price (W) 117,000 Closing price as of Apr. 11, 2011 Upside potential (%) 28.7% Source: Daewoo Securities Research

Table 6. Stake value of affiliated companies (%, Wbn) Company Stake Value Notes Marketable securities Samsung Engineering 13.1 972.5 20% discount to market value Samsung Fine Petrochemicals 3.2 54.7 Samsung Heavy Industries 0.4 35.5 Samsung Techwin 0.1 4.2 Samsung Electronics 0.0 6.9 iMarket Korea 2.8 20.5 Non-marketable securities Samsung Economics Research Institute 1.0 0.5 20% discount to fair value as of end-4Q10 Samsung Everland 4.0 170.4 Samsung General Petrochemicals 0.9 11.8 Samsung Lions 15.0 0.2 Investments under equity method Ace Digitech 23.4 68.3 20% discount to market value Samsung Petrochemical 21.4 65.0 20% discount to fair value as of end-3Q10 Gemi Plus Distribution 100.0 3.4 SD Flex 50.0 2.9 Total 1,416.7 Source: Daewoo Securities Research Daewoo Securities Research 6

April 12, 2011 Cheil Industries

Table 7. Valuation comparison of global peers (Wbn, %, x) Share performance OP margin P/E P/B EV/EBITDA ROE Sector Company Mkt Cap -1M -3M 10 11F 12F 10 11F 12F 10 11F 12F 10 11F 12F 10 11F 12F Cheil Industry 5,850 3.5 -2.1 6.7 7.3 7.9 21.7 17.6 14.6 2.0 2.1 1.9 12.0 10.5 8.9 10.9 12.2 13.3 Chemical LG Chem 31,512 22.4 14.4 14.9 15.2 15.8 17.7 13.4 11.8 4.3 3.5 2.8 7.1 8.1 7.3 29.8 29.3 26.1 Honam Petrochem 12,298 11.4 23.3 12.6 13.1 13.5 15.7 11.7 10.4 2.8 2.2 1.8 8.5 9.9 9.0 19.2 21.7 20.0 Hanhwa Chem 6,706 25.5 33.9 13.4 14.5 15.0 16.9 12.3 10.8 2.2 1.9 1.6 9.8 11.7 10.7 14.1 17.6 17.1 Dow Chemical 49,028 4.7 8.5 5.8 9.4 10.3 19.5 14.6 11.4 2.5 1.9 1.7 10.1 7.9 7.0 11.5 14.6 16.1 Chemical avg. 16.0 20.0 11.7 13.1 13.7 17.5 13.0 11.1 2.9 2.4 2.0 8.9 9.4 8.5 18.6 20.8 19.8 ECM OCI Materials 1,430 19.3 20.4 33.4 36.2 37.8 23.9 15.4 12.2 5.2 4.0 3.0 9.6 9.2 7.7 24.1 29.0 27.9 Duksan Hi-Metal 740 10.3 5.3 18.1 25.9 27.3 52.4 28.2 16.3 6.8 7.2 4.9 23.4 19.9 12.8 12.4 25.7 32.7 Shin-Etsu Chemical 22,682 -3.7 -12.3 14.3 15.0 16.1 15.5 14.9 13.2 1.2 1.1 1.1 6.2 5.8 5.2 7.7 7.7 8.2 Sumitomo Chemical 8,490 -2.4 -4.2 4.2 4.4 5.4 32.2 12.0 8.8 1.2 1.1 1.0 7.9 7.7 7.2 3.3 9.8 12.2 ECM avg. 5.9 2.3 17.5 20.4 21.6 31.0 17.6 12.6 3.6 3.4 2.5 11.8 10.6 8.2 11.9 18.1 20.3 Fashion LG Fashion 933 9.1 -3.5 10.7 11.6 12.1 10.1 8.3 7.0 1.5 1.3 1.1 5.2 4.7 4.2 15.4 16.4 16.7 Handsom 563 24.5 20.3 18.4 18.5 18.7 7.1 6.8 5.9 0.9 0.9 0.8 3.7 4.9 4.5 14.0 14.7 14.5 GAP 14,065 1.3 9.5 13.4 12.1 12.4 11.9 11.7 10.6 3.2 3.5 3.5 3.8 4.8 4.7 26.8 29.8 33.5 Fashion avg. 11.6 8.8 14.2 14.1 14.4 9.7 8.9 7.9 1.9 1.9 1.8 4.2 4.8 4.4 18.7 20.3 21.6 Source: Bloomberg

Figure 8. Share performances of global electronic material makers Figure 9. Share performances of global chemical makers

(1/1/10=100) (1/1/10=100) 250 Cheil Industries 450 Cheil Industries OCI Materials LG Chem Shin-Etsu Chem Honam Petrochem 200 Sumitomo Chem 350 Hanwha Chem Dow Chem

150 250

100 150

50 50 1/10 4/10 7/10 10/10 1/11 4/11 1/10 4/10 7/10 10/10 1/11 4/11

Source: Thomson Reuters Source: Thomson Reuters

Figure 10. Cheil IndustriesÊ 12-month forward P/E band Figure 11. Cheil IndustriesÊ 12-month forward P/B band

(Mkt cap, Wtr) 20.0x 16.0x (Mkt cap, Wtr) 2.2x 8 12.0x 8

1.8x

6 8.0x 6 1.4x

4 4 1.0x 4.0x 0.6x 2 2

0 0 96 98 00 02 04 06 08 1012F 12 96 98 00 02 04 06 08 1012F 12

Source: Daewoo Securities Research Source: Daewoo Securities Research

Daewoo Securities Research 7

April 12, 2011 Cheil Industries

Cheil Industries (001300 KS/Buy/TP: W150,000)

Income Statement (Summarized) Balance Sheet (Summarized) (Wbn) 12/10 12/11F 12/12F 12/13F (Wbn) 12/10 12/11F 12/12F 12/13F Sales 5,019 5,912 6,899 7,865 Current Assets 1,200 1,324 1,655 2,155 Cost of Goods Sold 3,534 4,239 5,028 5,743 Cash and Cash Equivalents 18 130 262 567 Gross Profit 1,484 1,673 1,872 2,121 Accounts Receivable 461 443 517 590 SG&A 1,150 1,235 1,312 1,388 Inventories 562 562 655 747 Operating Profit 334 438 559 733 Other Current Assets 159 189 220 251 Non-Operating Income -20 -38 -45 -55 Non-Current Assets 2,815 3,231 3,469 3,632 Interest Income/Expense -25 -17 -9 9 Investment Assets 1,682 1,785 1,892 2,000 F/X-Related Gain/Loss -1 0 0 0 Property, Plant and Equipment 1,104 1,418 1,550 1,605 Equity Method Gain/Loss 23 83 84 86 Intangible Assets 29 28 27 27 Asset Disposal Gain/Loss -3 0 0 0 Total Assets 4,015 4,555 5,123 5,788 Other Non-Operating Profit/Loss -12 -103 -120 -151 Current Liabilities 809 969 1,061 1,160 Pretax Profit 314 401 515 678 Accounts Payable 344 405 473 539 Tax 56 71 91 120 Short-Term Debt 0 50 20 0 Profit from Continuing Operation 259 330 424 558 Current Long-Term Debt 191 191 191 191 Profit from Discontinued Operation 0 0 0 0 Other Current Liabilities 275 324 378 430 Tax Effect 0 0 0 0 Non-Current Liabilities 444 505 572 638 Net Profit 259 330 424 558 Bonds 100 100 100 100 Residual Income 259 330 424 558 Long-Term Debt 3 3 3 3 EBITDA 468 599 732 912 Other Non-Current Liabilities 342 403 470 536 Free Cash Flow 201 35 135 345 Total Liabilities 1,253 1,475 1,633 1,798 Gross Profit Margin (%) 29.6 28.3 27.1 27.0 Paid-In Capital 250 250 250 250 EBITDA Margin (%) 9.3 10.1 10.6 11.6 Capital Surplus 429 429 429 429 Operating Margin (%) 6.7 7.4 8.1 9.3 Retained Earnings 1,149 1,479 1,866 2,388 Net Margin (%) 5.2 5.6 6.1 7.1 Stockholders' Equity 2,761 3,091 3,479 4,001

Cash Flow (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/10 12/11F 12/12F 12/13F 12/10 12/11F 12/12F 12/13F Cash Flow from Operating Activities 448 505 435 575 P/E (x) 21.5 17.7 13.8 10.5 Net Profit 259 330 424 558 P/CF (x) 14.4 11.6 9.6 7.7 Non-Cash Income and Expense 200 78 89 93 P/B (x) 2.0 1.9 1.7 1.5 Tangible Assets Depreciation 126 156 168 175 EV/EBITDA (x) 12.5 10.1 8.1 6.1 Intangible Assets Depreciation 8 5 5 5 EPS (W) 5,174 6,593 8,474 11,155 Others 66 -83 -84 -86 CFPS (W) 7,693 9,706 11,838 14,646 Chg in Working Capital -11 98 -78 -76 BPS (W) 54,643 61,264 69,033 79,471 Chg in Accounts Receivable -24 17 -74 -72 DPS (W) 750 750 750 750 Chg in Inventories -74 0 -94 -92 Payout Ratio (%) 13.9 10.9 8.5 6.5 Chg in Accounts Payable 53 61 68 66 Dividend Yield (%) 0.7 0.6 0.6 0.6 Others 34 19 22 22 Sales Growth (%) 17.8 17.8 16.7 14.0 Cash Flow from Investment Activities -274 -494 -326 -256 EBITDA Growth (%) 18.6 28.0 22.3 24.6 Chg in Tangible Assets -247 -470 -300 -230 Operating Profit Growth (%) 26.7 31.1 27.7 31.0 Chg in Intangible Assets -12 -4 -4 -5 EPS Growth (%) 103.7 27.4 28.5 31.6 Chg in Investment Assets -27 -20 -22 -22 Accounts Receivable Turnover (x) 11.1 13.1 14.4 14.2 Others 12 0 0 0 Inventory Turnover (x) 9.6 10.5 11.3 11.2 Cash Flow from Financing Activities -235 111 1 10 Accounts Payable Turnover (x) 15.8 15.8 15.7 15.6 Chg in Borrowings -150 111 37 46 ROA (%) 7.3 7.7 8.8 10.2 Chg in Equity -36 0 -36 -36 ROE (%) 10.9 11.3 12.9 14.9 Dividends -36 0 -36 -36 ROIC (%) 16.3 22.6 26.1 31.8 Others -49 0 0 0 Liability to Equity Ratio (%) 45.4 47.7 47.0 45.0 Chg in Cash -61 122 110 328 Current Ratio (%) 148.3 136.5 156.0 185.8 Beginning Cash Balance 80 18 130 262 Net Debt to Equity Ratio (%) 10.0 6.9 1.5 -6.9 Ending Cash Balance 18 141 239 590 Interest Coverage Ratio (x) 12.5 18.9 23.4 33.2 Source: Daewoo Securities Research

Daewoo Securities Research 8

April 12, 2011 Cheil Industries

Important Disclosures & Disclaimers As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of Cheil Industries as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. As of the publication date, Daewoo Securities Co., Ltd. issued equity-linked warrants with Cheil Industries as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. Analyst of the subject company or member of the analyst's household does not have any financial interest in the securities of the subject company and the nature of the financial interest (including without limitation, whether it consists of any option, right, warrant, future, long or short position). This report reflects the sole opinion of the analyst without any external influences by third parties.

Buy Relative performance of 20% or greater (W) CheilInd Stock Trading Buy Relative performance of 10% or greater, but with volatility 200,000 Ratings Hold Relative performance of -10% and 10% 150,000

Sell Relative performance of -10% 100,000

Overweight Fundamentals are favorable or improving 50,000 Industry Neutral Fundamentals are steady without any material changes Ratings 0 4/09 10/09 4/10 10/10 4/11 Underweight Fundamentals are unfavorable or worsening * 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.

This report has been provided by the research division of Daewoo Securities Co., Ltd. The stock ratings, target prices, estimates and overall viewpoints are from the research division of Daewoo Securities. Investors can access Daewoo SecuritiesÊ research directly through our website (www.bestez.com), FirstCall Research, Reuters, FnGuide, WiseFn, FactSet and Bloomberg (DWIR). This document was prepared by Daewoo Securities Co., Ltd. („Daewoo‰). Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith. The information has not been independently verified. Daewoo makes no guarantee, representation or warranty, express or implied, is made 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 information 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. Daewoo and/or other affiliate companies, their directors, representatives, or employees may have long or short positions in any of the securities or other financial instruments mentioned in this document or issuers described herein at any time and may purchase and/or sale, or offer to purchase and/or sale such securities or other financial instruments in the open market or otherwise, in each case either as principal or agent. This document is for distribution within the United Kingdom to persons authorized under the Financial Services Act 1986. Daewoo Securities is the sole provider of information contained in this document. DaewooÊs U.S. affiliate, Daewoo Securities (America) Inc., a member of FINRA/SIPC, is the sole distributor of this document within the U.S. This document may be distributed in the U.S. only to major U.S. institutional investors as defined in Rule 15a-6 of the U.S. Securities Exchange Act of 1934. Any U.S. recipient of this document wishing to effect any transactions in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc.

Daewoo Securities International Network

Daewoo Securities Co. Ltd. () Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 600 Lexington Avenue 31-3 Yeouido-dong, Yeengdeungpo-gu Suites 2005-2012 Suite 301 Seoul 150-716 8 Finance Street, Central New York, NY 10022 Korea Hong Kong United States Tel: 82-2-768-3026 Tel: 85-2-2514-1304 Tel: 1-212-407-1022

Daewoo Securities (Europe) Ltd. Tokyo Representative Office Beijing Representative Office Tower 42, Level 41 7th Floor, Yusen Building Suite 2602, Twin Towers (East) 25 Old Broad Street 2-3-2 Marunouchi, Chiyoda-ku B-12 Jianguomenwai Avenue London EC2N 1HQ Tokyo 100-0005 Chaoyang District, Beijing 100022 United Kingdom Japan China Tel: 44-20-7982-8016 Tel: 81-3- 3211-5511 Tel: 86-10-6567-9699

Ho Chi Minh Representative Office Centec Tower 72-74 Nguyen Thi Minh Khai Street Ward 6, District 3, Ho Chi Minh City Vietnam Tel: 84-8-3910-6000

Daewoo Securities Research 9