Changes to corporate governance regulations Overweight (Maintain) End of circular shareholdings : For Korean conglomerates, circular shareholdings 2H16 Outlook Report are no longer a viable means for maintaining and expanding control over their vast business empires. Under the revision to the Monopoly Regulation and Fair Trade June 1, 2016 Act (MRFTA), large corporate groups are banne d from forming new circular shareholdings and strengthening existing ones. And ahead of the 2017 presidential
Mirae Asset Daewoo Co., Ltd. election, there will likely be calls for the direct regulation or mandatory untying of existing circular shareholdings. Against this backdrop, Korean conglomerates will [Holding Companies/IT Services ] likely endeavor to unwind existing circular shareholdings by adopting a holding
subsidiary ownership requirements. However, authorities could ban this practice given that it has the potential to distort the subsidiary’s post-spin-off shareholding structure. To address th ese uncertainties, conglomerates are likely to try to complete the conversion process before such a regulation is actually introduced.
Opportune timing for groups to convert into holding companies The government is introducing a plethora of policies to fa cilitate holding company conversions. If the intermediate financial holding company bill passes into law, large corporate groups will be able to become holding companies without being forced to dispose of stakes in financial subsidiaries.
Furthermore, under the revised Special Tax Treatment Control Act , the statutory grace period for the deferral of taxation on capital gains from tender offers/share swaps would be extended by three years, until end-2018. In our view, the next one and a half years mark the opportune timing for groups to convert into holding companies. Historically, it has taken an average of eight months from the announcement of conversion for a tender offer to be made.
Investment opportunities arising from the conversion process We note that the combined post-spin-off market cap of a holding company and its operating subsidiary tends to be larger than the pre-spin-off market cap. Once a holding structure is established, the operating subsidiary is usually the determinant of combined market cap.
Attention to shift to dividends Currently, controlling families are facing increasingly limited opportunities to expand their wealth through related-party transactions due to tightening regulations. When a group is organized via circular shareholdings, the controlling family views dividends as outflow of cash holdings. Going forward, however, corporate groups (that have successfully completed the holding company conversion process) will be encouraged to increase dividends, as they will nee d to acquire funds to pay inheritance and gift taxes related to the transfer of managerial control.
Major conglomerates’ circular shareholdings and financial subsidiaries Rank Name Head Circular Financial Rank Name Head Circular Financial 1 Samsung Lee Kun-hee shareholding○ subsidiaries○ 21 Hyosung Cho Seok-lae shareholdingX subsidiaries○ 2 HMG Chung Mong-koo ○ ○ 22 Dongkuk Steel Jang Se-joo X X 3 SK Chey Tae-won Converted to holding company 23 Youngpoong Jang Hyung-jin ○ X 4 LG Koo Bon-moo Converted(Jul. to holding3, 2007) company 24 Mirae Asset Park Hyeon-joo X ○ 5 Lotte Shin Kyuk-ho ○ (Apr. 3, 2001) ○ 25 Kolon Lee Woong-yul Converted to holding company 6 Hyundai Heavy Chung Mong - ○ ○ 26 Hanjin Heavy Cho Nam-ho Converted(Jan. to holding1, 2010) company 7 IndustriesGS Huh Chang-soojoon Converted to holding company 27 Industries KCC Jung Mong-jin X (Aug. 1, 2007) X 8 Hanjin Cho Yang-ho Converted(Jul. to holding7, 2004) company 28 Halla Jung Mong-won Converted to holding company 9 Hanwha Kim Seung-yeon X (Aug. 1, 2013) ○ 29 Hankook Tire Cho Yang-lae Converted(Sep. to holding 2, 2014) company 10 Doosan Park Yong-gon Converted to holding company 30 Taekwang Lee Ho-jin X (Jul. 6, 2013) ○ 11 Shinsegae Lee Myung-hee X (Jan. 1, 2009) X 31 Daesung Kim Young-dae Converted to holding company 12 CJ Lee Jae-hyun Converted to holding company 32 Hyundai Jung Mong-kyu ○ (Jan. 1, 2011) ○ 13 LS Ku Tae-hoi Converted(Sep. to holding 4, 2007) company 33 DevelopmentKyobo Life - Shin Chang-jae X ○ 14 Kumho Asiana Park Sam-gu ○ (Jul. 2, 2008) X 34 InsuranceSeAH Lee Soon-hyung Converted to holding company 15 Dongbu Kim Joon-gi X ○ 35 E-Land Park Sung-su X (Jul. 3, 2001) ○ 16 Daelim Lee Joon-young ○ X 36 Taeyoung Yoon Sae-young X X 17 Booyoung Lee Joong-geun Converted to holding company 37 HiteJinro Park Moon - Converted to holding company 18 Hyundai Hyun Jeong-eun ○ (Dec. 30, 2009)○ 38 AmorePacific Seo Kyung-baedeok Converted(Jul. to holding3, 2008) company 19 OCI Lee Soo-young X X 39 Samchully Lee Man-deuk X (Jul. 1, 2007) ○ 20 Hyundai Jeong Jee-sun ○ X 40 Hansol Lee In-hee Converted to holding company Note: ExcludesDepartment government-owned companies (Jan. 1, 2015) Source: FTC, Mirae Asset Daewoo Research
Changes in corporate governance regulations 5 1. Existing circular shareholdings likely to be directly regulated 5 2. Tightening debt ratio and subsidiary ownership requirements 6 3. Introduction of intermediate financial holding companies 7 4. Potential ban on allotment of new shares based on treasury stock 8
Overview of the conversion process 9 1. Means of transitioning into a holding company 9 2. Tax benefits to boost holding company conversions 10 3. Investment opportunities arising from the conversion process 11
Investment strategies for spin-offs and split-offs 12 1. Why separations and mergers? 12 2. Pre-separation market cap < post-separation market cap 13
Policy changes related to restructuring 14 1. Special Act on Corporate Revitalization 14 2. Corporate Restructuring Promotion Act 17 3. Commercial Act amendment 19
SK Holdings (034730 KS) 21 LG Corp. (003550 KS) 25
1. Existing circular shareholdings likely to be directly regulated
▶ Existing circular shareholdings could potentially become subject to mandatory unwinding.
(Status) Under the MRFTA, large corporate groups are banned from forming new circular shareholdings and strengthening existing ones.
Circular shareholdings allow owners of large corporate groups to 1) exercise voting rights in excess of their actual ownership, and 2) maintain/strengthen/transfer control of corporate groups. As such, many observers argue that existing circular shareholdings should be directly regulated, just as existing cross-shareholdings are.
In the run-up to the 2012 presidential election, the Minjoo Party’s Moon Jae-in made a pledge to ban subsidiaries of large corporate groups from forming new circular shareholdings and make them unwind existing ones within three years. Currently, under the revision to the MRFTA, which was passed in July 2014, large corporate groups are banned from forming new circular shareholdings or strengthening existing ones.
(Forecast) Calls to directly regulate existing circular shareholdings are likely to grow.
Ahead of the 2017 presidential election, there will likely be further calls for the direct regulation or mandatory untying of existing circular shareholdings. As such, the owners of large corporate groups are unlikely to utilize circular shareholdings to maintain/strengthen managerial control. Ultimately, large corporate groups will strive to improve corporate governance via the unwinding of existing circular shareholdings and the adoption of holding structures.
Table 1. Pledges by 2012 presidential election candidates Park Geun-hye Moon Jae-in Ahn Cheol-soo
New circular shareholdings Ban Ban Ban Voluntary unwinding followed by possible Existing circular shareholdings No new measures Complete unwinding after three-year grace period regulatory intervention Other - Violators subject to restrictions on voting rights and fines Violators subject to forced disposal Source: Mirae Asset Daewoo Research
Table 2. Major groups ’ cross-shareholdings (no.) Group 2013 2014 2015
Samsung 30 14 7 Holds financial affiliates Hyundai Motor 2 5 4 Holds financial affiliates Lotte 5,851 299 67 Holds financial affiliates Hyundai Heavy Ind. 1 1 1 Hanjin 2 3 0 Dongbu 5 0 0 Holds financial affiliates Daelim 1 1 1 Hyundai 4 6 0 Holds financial affiliates Hyundai Department Store 3 3 3 Youngpoong 9 6 6 Hyundai Development 4 4 4 Holds financial affiliates Notes: Based on cross-shareholdings over 1%, Source: Mirae Asset Daewoo Research
2. Tightening debt ratio and subsidiary ownership requirements
Mirae Asset Daewoo Saenuri Party Minjoo Party People’s Party Justice Party projection Position Oppose d In favor In favor In favor Could hurt holding Could defend against Could prevent controlling shareholders Could combat problems such Regulations are likely Reasons company insolvency and ease from amassing too much power and mark as pursuit of private interests to tighten conversion efforts concentration of power a return to initial standards and excessive control Source: The Citizens ´ Coalition for Economic Justice, Mirae Asset Daewoo Research
By law, holding companies are required to own a certain percentage of each of its subsidiaries to prevent excessive power grabs as well as conflicts between controlling and minority interests. The government has steadily introduced policies to encourage large corporate groups to switch to a holding company structure. However, deregulation (debt ratio, equity ownership requirements, etc.) in 2007 is being widely criticized for allowing holding companies to tighten control over subsidiaries with relatively small budgets.
We expect the government to tighten the debt ratio requirement from 200% to 100%, in order to prevent holding companies from using excessive leverage to expand their affiliate networks (thereby risking group-wide insolvency). However, given that the holding companies of large corporate groups are keeping their debt levels at around 50%, this level of tightening is unlikely to have any significant impact.
The requirements for share ownership in subsidiaries and second-tier subsidiaries are also likely to be strengthened (from 20% to 30% for listed subsidiaries, and from 40% to 50% for unlisted ones). Under the current system, the gap between the ownership levels and voting rights of controlling families cannot be closed, and the concentration of economic power in large corporations cannot be eased. Furthermore, there is a high risk of conflicts of interest arising between the minority shareholders of a holding company (subsidiary) and the subsidiary (second-tier subsidiary). Notably, more restrictive ownership rules may put financial strain on holding companies.
Table 3. Holding company requirements Details
Conversion Total assets Total assets > W100bn requirements Ownership stake Value of stakes in subsidiaries is over 50% of parent total assets Debt ratio Less than 200% Separation of non-financial/financial capital Barred from holding stakes in financial subsidiaries (second- and third-tier) Stakes in listed subsidiaries (second -tier subsidiaries): Over 20% Ownership stake Restrictions Stakes in unlisted subsidiaries (second -tier subsidiaries): Over 40% Third-tier subsidiaries Permitted only if second-tier subsidiary owns 100% of third-tier subsidiaries Stakes in non-affiliates Holding companies can own no more than 5% of non-affiliates Prohibited from joint investment Holding companies can invest only in affiliates Source: FTC, Mirae Asset Daewoo Research
Figure 1. Holding company requirements
3. Introduction of intermediate financial holding companies
projection Position - In favor Opposed Opposed It is currently difficult for groups holding financial and non- Could prevent major financial affiliates to Law is needed to Separation of financial Likely to be shareholder from Reason adopt holding solve the cross- and non-financial introduced amassing too much structures; shareholding issue capital needed power Intermediate financial holding compan ies needed Source: The Citizens ´ Coalition for Economic Justice, Mirae Asset Daewoo Research
(Current) Conglomerates aiming to establish non-financial holding companies have to unload shares in financial affiliates.
Many large conglomerates already own a number of financial and insurance companies. Under current law, they are prohibited from adopting a holding structure unless they sell their financial subsidiaries.
(Forecast) Intermediate financial holding companies are expected to be introduced, allowing non-financial holding companies to own financial affiliates.
The government remains firmly committed to allowing non-financial holding companies to own financial affiliates through intermediate financial holding companies. In other words, large conglomerates will be able to adopt holding structures without disposing of their stakes in financial subsidiaries by separating financial and non-financial activities via intermediate financial holding companies.
Currently, out of the 65 conglomerates subject to cross-shareholding restrictions (as designated by the FTC), 30 are based in manufacturing yet have financial companies as subsidiaries. Among them, Samsung, HMG, Lotte, Hanwha, and Dongbu would need to introduce intermediate financial holding companies if they were to pursue holding company conversions (as they each hold at least three financial affiliates, including insurance firms, or hold financial affiliates with total assets in excess of W20tr). Once non-financial holding companies are allowed to own financial subsidiaries, these conglomerates may switch to holding structures to solidify or transfer ownership while keeping their stakes in financial subsidiaries intact.
Figure 2. Introduction of intermediate financial holding Figure 3. Government to allow non -financial holding company companies to own financial subsidiaries Notes
Permission for holding companies to own financial Proposal to revise the subsidiaries; Introduction of intermediate financial holding Fair Trade Act companies to prevent movement of capital between financial (9/26/12) and non -financial companies Presidential transition committee ’s national Permission for holding companies to own financial agenda (3/21/13) subsidiaries; Obligation to establish intermediate financial FTC policy briefing holding company if certain criteria are met —e.g., companies (4/24/13) that own three or more financial subsidiaries (including Plan to promote insurers), or whose financial subsidiaries (including insurers) M&As hold total assets of at least W20tr (3/6/14) Prioritize the establishment of intermediate financial holding FTC report to National companies in order to encourage large conglomerates to Policy Committee improve corporate governance and separate financial and (7/2/14) non -financial capital New economic team ’s Passage of economic democratization agenda items policy direction (including requirements to establish intermediate financial (7/30/14) holding companies) 20 th National Assembly is trying to introduce intermediate Current
financial holding companies Source: Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research
4. Potential ban on allotment of new shares based on treasury stock
Mirae Asset Daewoo Saenuri Party Minjoo Party People’s Party Justice Party projection Position - In favor - - Treasury shares should not be taken Discussions expected Reason - into consideration when allocating - - shares of a new subsidiary Source: The Citizens ´ Coalition for Economic Justice, Mirae Asset Daewoo Research
(Current) Treasury stock is not excluded when calculating share allocation during spin-offs.
When a conglomerate engineers a spin-off to facilitate the adoption of a holding structure, the holding company receives shares of the new operating subsidiary equivalent to the shares in its treasury. As such, Korean conglomerates tend to buy back treasury shares before pursuing conversion in order to more easily meet subsidiary ownership requirements.
However, this practice has the potential to distort the subsidiary’s post-spin-off shareholding structure. Indeed, the allotment of shares based on treasury shares could lead to higher-than-appropriate ownership of the subsidiary by the controlling shareholder—and a relative contraction in the ownership of minority shareholders.
(Forecast) New share allotment based on treasury shares could be regulated.
Corporate entities are currently free to use treasury shares at their discretion in the process of a merger or a spin-off. However, allotting new shares of a spun-off subsidiary based on treasury shares could benefit controlling shareholders while damaging minority interests.
In Japan, under the Company Act (Article 453), treasury shares cannot be taken into account when shares of a newly spun-off firm are allocated. And Korea’s 19 th National Assembly has introduced various bills on regulating the practice amid large corporate groups’ drive to convert into holding companies. Related discussions are expected to continue to progress going forward. Legislation regulating allocation based on treasury shares should increase burdens for companies and controlling shareholders pursuing holding company conversions. Accordingly, corporate groups that have not yet adopted a holding company structure will likely speed up the conversion process before such regulations actually are enacted.
Table 4. 19 th National Assembly proposed various bills regarding treasury shares Revised law Details
Mandate that holding compan ies in corporate groups subject to the cross -shareholding regulations dispose of MRFTA Kim Ki-joon treasury shares when executing a spin-off for conversion to a holding company structure Commercial Act Ban allotment of new subsidiary shares based on the original firm ’s treasury shares Mandate t he disposal of treasury shares (based on the principle of equal treatment of shareholders ); Allow disposal Park Young- Commercial Act of treasury shares to certain parties only when necessary for achieving corporate goals, including the introduction of sun new technolog ies and financial structure improvement Corporate Tax Act Impose taxes on capital gains from new share allotment based on treasury shares Capital Market Act Companies can only buy back treasury shares for the purpose of retirement; Means of cancellation are limited Kim Ki-sik Commercial Act Companies can only buy back treasury shares for the purpose of retirement; Means of cancellation are limited Source: Mirae Asset Daewoo Research
1. Means of transitioning into a holding company
It takes eight months on average to progress from announcement to tender offer.
One method for transitioning into a holding company is a spin-off followed by a tender offer. In other words, once a company is separated into a holding company and a subsidiary, the holding company acquires additional shares in the subsidiary via a tender offer to meet regulatory requirements (20% stake in listed subsidiaries and 40% stake in unlisted subsidiaries). Then, shareholders receive new shares of the holding company in return for their shares in the subsidiary.
This is the most popular method among companies switching to a holding company structure, as it allows 1) controlling shareholders to increase ownership, and 2) holding companies to raise their stakes in subsidiaries. Acquiring shares of an affiliate in the open market would require a substantial amount of funds, whereas a tender offer followed by a rights offering/equity swap would enable a holding company to easily raise stakes in subsidiaries without having to invest sizable funds. Simply put, controlling shareholders can assert their ownership in holding companies at minimal cost, and holding companies can meet their regulatory requirements for ownership in subsidiaries.
Historically, it has taken an average of eight months to progress from the announcement of a holding company conversion to the tender offer (four months for the BOD meeting, shareholder meeting and relisting; another four months for the rights offering, equity swap, and listing of new shares). However, for cases characterized by weak subsidiary earnings, it has taken more than 12 months—to ensure more favorable share exchange ratios for controlling shareholders.
Table 5. Announcement of conversion ‰‰‰ Tender offer/rights offering: Average of eight months Tender offer / Announcement ‰‰‰ Tender Holding company Announcement date Split date Relisting date rights offering offer/rights offering Halla Holdings Apr. 7, 2014 Sep. 1, 2014 Oct. 6, 2014 Nov. 6, 2014 213 days Hanjin KAL Mar. 22, 2013 Aug. 1, 2013 Sep. 16, 2013 Sep. 23, 2014 550 days Korea Kolmar Holdings Jun. 4, 2012 Oct. 1, 2012 Oct. 19, 2012 Dec. 11, 2012 190 days Hankook Tire Worldwide Apr. 25, 2012 Sep. 1, 2012 Oct. 4, 2012 May 20, 2013 390 days AK Holdings Apr. 24, 2012 Sep. 1, 2012 Sep. 17, 2012 Nov. 14, 2012 204 days Samyang Holdings Aug. 10, 2011 Nov. 1, 2011 Dec. 05, 2011 Jun. 1 , 2012 296 days Kolon Oct. 15, 2009 Dec. 31, 2009 Feb. 01, 2010 May 24, 2010 221 days KC Green Holdings Sep. 28, 2009 Jan.1, 2010 Jan. 29, 2010 May 14, 2010 228 days Youngone Holdings Apr. 14, 2009 Jul. 1, 2009 Jul. 30, 2009 Aug. 31, 2009 139 days Iljin Holdings Apr. 16, 2008 Jul. 1, 2008 Aug. 01, 2008 Sep. 8, 2008 145 days HiteJinro Holdings Apr. 16, 2008 Jul. 1, 2008 Jul. 30, 2008 Jul. 22, 2009 462 days HHIC Holdings May 15, 2007 Aug. 1, 2007 Aug. 31, 2007 Oct. 8, 2007 146 days SK Holdings Apr. 11, 2007 Jul. 1, 2007 Jul. 25, 2007 Aug. 29, 2007 140 days Woongjin Feb. 15, 2007 May 1, 2007 May 31, 2007 Aug. 2, 2007 168 days CJ Corp. Jun. 12, 2007 Sep. 1, 2007 Oct. 04, 2007 Nov. 8, 2007 149 days AmorePacific Group Mar. 15, 2006 Jun. 1, 2006 Jun. 29, 2006 Oct. 9, 2006 208 days LG Corp. Nov. 15, 2000 Apr. 1, 2001 May 2, 2001 Nov. 08, 2001 358 days Average time until tender offer/rights offering 247 days Notes: Tender offer/rights offering date is based on date of public announcement Source: Mirae Asset Daewoo Research
2. Tax benefits to boost holding company conversions
Capital gains tax arising from the conversion process can be deferred.
Conversion to a holding company inevitably entails equity swaps and tax burdens. And the biggest tax burden is the capital gains tax (or corporate tax). In most of cases, capital gains on listed shares are not subject to taxes. However, major shareholders are subject to taxation.
Under the current tax law, major shareholders are those that meet certain ownership stake thresholds
. Of note, a shareholder’s stake is determined based not only on his or her own holdings but also on shares held by relatives and related parties. Thus, members of a listed firm’s controlling family are rarely free from capital gains taxes when they execute share swaps. In order to facilitate conversion to a holding company, the Korean government has provided holding companies with a deferral of taxation on capital gains arising from tender offers/share swaps until the disposal of holding companies’ shares. Specifically, under the Special Tax Treatment Control Act (Article 38-2), shareholders that receive shares in the holding company in return for their shares in the subsidiary are not subject to capital gains/income taxes until they dispose of the holding company shares. Given that such disposal rarely occurs, the tax burden is somewhat limited. Notably, these tax benefits will be effective only until December 31, 2018.
Table 6. Changes to determinants of major shareholder status and capital gains taxes KOSPI KOSDAQ
Stake 2% → 1% 4% → 2% Value Over W5bn → Over W2.5bn Over W4bn → Over W2bn Capital gains rate
Small businesses 10% → 20% Major Held over 1 year 20% KOSPI & KOSDAQ shareholders Large companies Held less than stocks 30% 1y ear Minority shareholders Tax -free Small businesses 10% Minority shareholders and major shareholders Unlisted stocks 20% Large companies (held over 1 year) Major shareholders (held less than 1 year) 30% Notes: New tax rates take effect April 2016 Source: Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 10 June 1, 2016 Holding Companies
3. Investment opportunities arising from the conversion process
Investors can capitalize on controlling shareholders’ efforts to raise their stakes during the conversion process.
After a corporate group announces its decision to convert to a holding company and subsequently splits off into a holding company and one or more subsidiaries, we advise investors to accumulate shares in subsidiaries during the conversion process until the holding company acquires subsidiary shares via a tender offer.
Following the tender offer, we recommend investors increase their exposure to the holding company, as the stock’s perceived undervaluation could trigger a sharp narrowing of its discount to NAV. It should go without saying that our investment strategy is premised on strong confidence in the operating value of the spun-off subsidiaries.
Controlling shareholders typically make efforts to raise the value of their subsidiary until the tender offer. The reason behind this is that, as shares of the subsidiary rise, controlling shareholders can secure more newly issued shares of the holding company in exchange for their stake in the subsidiary. After a tender offer is announced, the swap ratio will be determined, positively affecting shares of the holding company thanks to the lifting of uncertainties over new share issuance.
Figure 4. Conversion process: Spin-off ‰‰‰ Tender offer ‰‰‰ Rights offering ‰‰‰ Equity swap
Controlling ① Equity spin-off Controlling shareholders shareholders
20% 40% 20% 40%
Subsidiary A Subsidiary B Holding A Subsidiary B
15% of treasury shares 15%
Operating co. A 20%
Controlling ② shareholders Tender offer & 20%+α equity swap
Holding A
35% 40% Operating co. Subsidiary B A
Source: Mirae Asset Daewoo Research
Figure 5. Historical share performance during conversion process
(Stock price) 200 Tender offer/ Equity spin-off equity swap
150 Subsidiary Announcement of transition to holding company Holding 100 company
50
(Time) 0 07.9 07.12 08.3 08.6 08.9
Source: Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 11 June 1, 2016 Holding Companies
Investment strategies for spin-offs and split-offs
1. Why separations and mergers?
In today’s rapidly changing business environment, companies are striving to stay as efficient as possible in order to ensure survival and growth. In particular, domestic conglomerates, which have wide-ranging business portfolios, need to restructure to concentrate on specific business areas. We believe companies will look to split-offs/spin-offs and mergers as tools to rightsize their businesses and raise the efficiency of their disparate divisions with the explicit goal of achieving business specialization and enhanced corporate governance.
In our view, controlling shareholders opt for spin-offs or split-offs for one of the following three reasons:
First, separation could enhance businesses’ respective areas of specialty. On the back of improved competitiveness, the respective values of both the parent and new entities could increase.
Second, separation could help companies adopt holding structures, which could lead to improved corporate governance and provide protection against hostile takeovers.
Third, separation can be used as a way to shut down failing business units. In this case, the value of the parent would increase, boosting shareholder value.
Furthermore, we advise investors to pay special attention to a company’s motivations for pursuing separation, which could provide clues to the future value of new and existing entities.
Table 7. Number of spin-offs and split-offs listed companies (no.) Spin-offs Split-offs Total Holding company conversions 2016 2 1 8 10 (1/1 -5/23) 2015 1 0 9 10 2014 6 4 14 20 2013 11 7 10 21 2012 7 5 8 15 2011 3 1 10 13 Source: KRX, Mirae Asset Daewoo Research
Figure 6. Spin-off and split-off trends
(no.) 35 Spin-off Split-off 30
25
16 20 6 15 10 7 11 9 7 3 7 10 9 1 1 2 2 14 13 12 5 2 10 10 10 10 3 9 9 8 9 8 5 6 4 3 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 6/16
Source: Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 12 June 1, 2016 Holding Companies
2. Pre-separation market cap < post-separation market cap
Among the potential effects of corporate separation, we believe governance improvement leads to the steepest share price appreciation. Our comparison of market caps before and after holding structure conversions supports our claim. Despite the uncertainty arising from the suspension of trading, the combined market cap of surviving and new entities has historically exceeded pre-split value. As a result, shareholders who bought shares before the separation could benefit from market cap expansion.
Companies that announce business separation plans with the purpose of strengthening their corporate governance mostly do so to establish holding companies. In this case, business specialization is also part of the reason for switching to a holding structure. Under a holding structure, a company can efficiently allocate resources by separating its own businesses from investment assets. Furthermore, corporate governance can be improved, and management responsibilities become clearer. These positive effects should translate into valuation premiums.
Figure 7. Market cap changes after split: Before < After
(Wbn) (Wbn) (Wbn) 4,000 1,000 Asia Cement Asia Holdings 8,000 Hanjin KAL Korean Air Cosmax Cosmax BTI
Trading suspension Trading suspension 6,000 3,000 (2/27-4/4/14) 750 (9/27-11/5/14) Trading suspension (7/30-9/15/13) 4,000 2,000 500
2,000 1,000 250
0 0 0 1/12 1/13 1/14 1/15 1/16 1/13 1/14 1/15 1/16 1/13 1/14 1/15 1/16
(Wbn) (Wbn) (Wbn) 1,000 Hansol Paper Hansol Holdings 800 Duksan Neolux Duksan Hi-Metal 1,600 Wonik IPS Wonik Holdings
Trading suspension 800 Trading suspension Trading suspension (3/30-4/29/16) (12/29/14-1/25/15) 600 (12/26/14-2/25/15) 1,200
600
400 800 400
200 400 200
0 0 0 1/14 1/15 1/16 1/14 1/15 1/16 6/15 9/15 12/15 3/16 Source: Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 13 June 1, 2016 Holding Companies
Policy changes related to restructuring
1. Special Act on Corporate Revitalization
Tax benefits and simplified procedures for three-year period
The Special Act on Corporate Revitalization is designed to support companies that are voluntarily and preemptively seeking to restructure their businesses in order to eliminate overcapacity and enhance productivity. In particular, the act contains provisions on tax benefits and simplified procedures as well as exemptions from certain restrictions under the Commercial Act and MRFTA. The law will remain effective for a three-year period beginning August 13 th .
(1) Eligibility: Firms in oversupplied industries seeking business overhauls ① Type of business overhaul: Any structural modification or innovation initiative aimed at improving productivity, including mergers and splits.
② Oversupply criteria: A number of factors will be taken into consideration to assess whether an industry is oversupplied, including utilization, inventory ratios, OP margins, and changes in COGS.
* Oversupply can be applicable to all sectors, including manufacturing, financial services, and construction.
Our take: It is important to distinguish the new law from the existing Corporate Restructuring Promotion Act, which focuses on distressed companies in need of bailouts. We believe the Special Act on Corporate Revitalization will directly benefit small- and medium-sized businesses engaged in intense competition, rather than large firms with dominant market positions.
(2) Review/approval: Process to take 60 days ① Process flow: Consultation with relevant ministry → filing of business overhaul plan → review by relevant ministry (one month) → deliberation by review committee (one month) → approval by relevant ministry → business overhaul (three years).
② Productivity and financial health measures: Return on equity, value added per worker, debt ratio, and interest coverage ratio, among others.
③ Prevention of special treatment: The relevant ministry can reject or cancel the approval of any business overhaul plan deemed to be intended to ensure the transfer of control or increase the ownership of controlling shareholders. If an approval is canceled for this reason, a penalty equivalent to three times the amount of financial benefits received from the government will be imposed.
Our take: We believe the quick review and approval process reduces risks of delays. We also note that the law specifically prohibits controlling families from taking advantage of the law to strengthen their ownership.
Mirae Asset Daewoo Research 14 June 1, 2016 Holding Companies
Table 8. Details of Special Act on Corporate Revitalization (1) Details
*Companies undergoing restructuring in oversupplied sectors (e.g., shipbuilding, steel, petrochemical, auto, etc.) 1) Revenue and operating profit have fallen sharply for the past three years compared to 10-year average; Most recent three-year Targets price increase is lower than increase in raw material costs 2) Oversupply unlikely to ease for the time being due to the difficulty of cost reductions → MOTIE is currently preparing to issue ministerial decree Support period Support for companies undergoing restructuring for three years Composed of fewer than 20 members, including two chai rs Four economic experts (recommended by the National Assembly’s, trade, industry, and energy committee as well as officials from the Review committee MOSF, FTC, and FSC * Anyone who owns shares of companies subject to review must be excluded Submission of restructuring plan → Review by a private -public committee, the relevant ministry , and FTC → Approval /rejection (less than two months from application to decision) Approval process SMEs with assets worth W10bn or lower bypass the review committee and are reviewed only by the Small and Medium Business Administration Productivity target s (value added per worker +5% ; ROE +3%p ; tangible fixed asset turnover : +3%) Approval criteria Financial stability target (interest coverage ratio of at least 100% and current debt -to -equity ratio of less than 200%) If restructuring plan is designed to transfer own ership, strengthen controlling families ’ managerial control, or provide support to affiliates of conglomerates subject to cross-shareholding restrictions, the plan will not be approved Disapproval/ Even after approval, if it is confirmed that the plan is aimed at transferring ownership, strengthening controlling families ’ managerial Cancellation of control, or boosting related-party transactions, approval will be cancelled and a penalty will be imposed approval * Penalty is three times the financial support that a company receives from the government * Large corporations would be punished according to the MRFTA, as they do not receive government financial support * The review committee also considers whether a plan would undermine employees ’ interests Source: Mirae Asset Daewoo Research
Key benefits
(1) Relaxation of MRFTA regulations ① Holding company regulations: If the relevant entity is a holding company (or a subsidiary or second-tier subsidiary of a holding company) at the time of the submission of its business overhaul plan, it will be temporarily exempt from the following restrictions for three years:
- For holding companies: 200% debt ratio limit, 40% minimum ownership stake in unlisted subsidiaries (20% in listed subsidiaries), and 5% cap on non-affiliate stakes.
- For subsidiaries: 40% minimum ownership stake in unlisted second-tier subsidiaries (20% in listed second-tier subsidiaries), and ban on two subsidiaries investing in the same second- tier subsidiary.
- For second-tier subsidiaries: 100% ownership stake in third-tier subsidiaries (but the second-tier subsidiary must own at least 50% of the third-tier subsidiary for three years), and ban on two second-tier subsidiaries investing 50% each in a third-tier subsidiary.
② Merger review: If the business overhaul plan includes a proposed merger, it will be automatically reviewed by the FTC.
③ Cross/circular shareholdings restrictions: The grace period for unwinding cross/circular shareholdings will be extended from six months to one year.
④ Debt guarantee restrictions: Debt guarantees among group affiliates will be allowed for three years.
(2) Simplification of business restructuring procedures ① Board approval: Small-scale divestitures will be added to the list of corporate events that only require board approval, while the standards for small-scale mergers and simplified mergers will be eased.
② Simplified shareholder meeting procedures: A number of shareholder meeting procedures will be shortened, allowing companies to reduce the business restructuring cycle by up to 44 days.
③ Extension of share repurchase period: The share repurchase period will be lengthened from one to three months for listed companies and from two to six months for unlisted companies.
Mirae Asset Daewoo Research 15 June 1, 2016 Holding Companies
(3) Tax benefits ① Corporate taxes (24.2%) on capital gains from equity swaps will be deferred until the shares exchanged are unloaded. Securities transaction taxes (0.5%) will also be waived.
② If overlapping assets are liquidated and new assets are acquired following a merger, taxes on gains from the disposal of overlapping assets will be deferred for three years.
③ If the parent company assumes the debt of its subsidiary, the parent company will be eligible for tax deductions. Taxes on the subsidiary’s gains from the debt cancellation will be deferred for four years, and gift taxes (24.2%) will also be exempted.
④ Any equity increase resulting from a merger, equity issue, or incorporation will qualify for a 50% reduction in registration and license taxes (0.4% of equity increase).
Our take: The new law should be most beneficial for business portfolio overhauls that take place within an existing holding company structure. That said, companies will have to comply with the standard regulations upon the expiration of grace periods. Most of the tax benefits are in the form of deferrals, meaning companies will eventually have to pay the taxes.
Table 9. Details of Special Act on Corporate Revitalization (2) Regulatory items Details
For M&As, extend share repurchase period for dissenting shareholders (one month ‰ three months for Reduction of cost Appraisal rights listed firms; two months ‰ six months for unlisted firms); burdens Exercise of a ppraisal rights: within 20 days after shareholder meeting ‰ within 10 days Corporate registration tax 50% cut in corporate registration tax Central and local governments will provide financial support for SMEs ; Financial support will not be Financial support offered to large corporations Relax ation of holding Third -tier Ownership of third -tier subsidiary allowed if holding company owns a 50% or higher stake ( currently company regulations subsidiaries 100% ) Exten sion of timeframe for meeting holding company conversion requirements (currently two years, Period but can be extended by three years + one year ) Debt guarantees Debt guarantees allowed during restructuring Cross /circular Extension of grace period to unwind cross/circular shareholdings from six months to one year shareholding s Joint investment Subsidiaries allowed to jointly invest in a second-tier subsidiary during restructuring Shareholder resolution not required when newly issued shares for merger account for less than Simplification of 20% of total number of issued shares (currently less than 10%) Small-scale merger procedures Small-scale merger canceled in the event that 10% or more of the surviving company ’s shareholders oppose the merger (currently 20% or more) Shareho lder meeting Shorten the period for notice and financial disclosure, etc.: Two weeks ‰ One week Simplified merger Shareholder resolution not required when acquiring company buys more than 80% of acquired requirement s company ’s total issued shares (currently more than 90%) Shareholder resolution not required when a spun -off new entity ’s assets account for less than 10% of Small-scale company split those of pre -spin -off firm; Number of small -scale splits is limited to one If affiliates of conglomerates subject to cross -shareholding restrictions have a debt -to -equity ratio of Other Exceptions more than 200%, debt guarantee s will not be allowed Source: Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 16 June 1, 2016 Holding Companies
2. Corporate Restructuring Promotion Act
Legal support to facilitate restructuring of ailing companies
After expiring at end-2015, the Corporate Restructuring Promotion Act was extended by the National Assembly in March 2016. In late April, certain clauses of the act were revised and clarified during discussions on the act’s enforcement. Since its original enactment in 2001, the act has been extended four times. We note that the sunset provision of the act will kick in again on June 30, 2018.
The Corporate Restructuring Promotion Act is designed to ensure smooth restructuring of distressed companies. Under the act, creditors will support the resuscitation of companies through delays to debt payment dates and/or capital support. If creditors representing 75% of total outstanding debt of failing companies agree, they can push to revive ailing companies. However, if more than 75% of debt stems from a single institution, such support would require agreement from 40% of the number of financial creditors.
Following discussions on enforcement, coverage of the Corporate Restructuring Promotion Act was expanded. Previously, the act only covered large corporations with more than W50bn in debt. However, it now covers SMEs with more than W5bn in debt. After completing credit risk assessments, the FSC will decide on candidates for workout programs (early July for large corporations; early November for SMEs). Companies with C grades will be forced to undergo workout programs under the Corporate Restructuring Promotion Act with the agreement of creditors.
What is the most noteworthy about the most recent iteration of the Corporate Restructuring Promotion Act is the scope of its coverage. Not only does the act apply to all for-profit companies operating under the Commercial Act, it also applies to all financial institutions. (Previously, it only covered creditor financial institutions such as banks and insurers.) All in all, the act has laid a foundation for creditors and debtors to voluntarily pursue restructuring.
Table 10. Corporate Restructuring Promotion Act timeline Round Expiration date (sunset provision) Details Enacted in July 2001 July 2001-December 31, 2005 Creditor-driven workout program First extension December 31, 2010 Extended after workout programs of ailing companies failed Second extension December 31, 2013 Creditors were not allowed to file for workout programs Third extension December 31, 2015 No changes Fourth extension June 30, 2018 - Source: Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 17 June 1, 2016 Holding Companies
Table 11. Details of Corporate Restructuring Promotion Act Previous Revised
Expiration date December 31, 2015 June 30, 2018 (sunset provision) Includes all financial institutions (e.g., funds, foreign financial firms) Creditors Creditor financial institutions only (e.g., banks, insurers) - But principal creditor banks manages the process Limited to l arge companies with more than W50bn in Companies Include SMEs with more than W5bn in loans loans from creditor financial institutions Creditor financial institutions representing more than 75% of total outstanding debt must agree If more than 75% of debts come from a single institution, agreement by Requirements If a single creditor representing more than 75% of total more than 40% of financial creditors (by number) is required outstanding debt agrees Change in principal The FSC will give notice when there is a change in In the event of a change in principal creditor, the FSC will specify the reasons to creditor principal creditor the creditor group Financial creditor Meeting will be held within seven days of the meeting Conference will be held within 14 days of the meeting notice meeting notice Mediation The chief of the committee can serve consecutive terms The chief of the committee can serve two consecutive terms (two years each) committee (one year ) Debt types - Loans, promissory notes, bonds, property rent, and payment guarantees, etc. Assessment of restructuring after three years : Prevention of If restructuring is not completed within three years, the management prolonged - assessment committee will decide if it will continue to provide support (the restructuring decision will be reported to financial creditor group) A principal creditor bank will make public assessm ent results within seven days If consenting and dissenting creditors agree, the ailing company or a third Dissenting creditors’ party will be allowed to purchase bonds from dissenting creditors right to demand - If they do not agree, they may request that the mediation committee adjust the purchase of claims purchase price and /or terms and conditions Ombudsman Newly established ombudsman program to deal with the difficulties associated - program with failing companies Source: Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 18 June 1, 2016 Holding Companies
3. Commercial Act amendment
Legalization of new types of M&As
In November 2015, the National Assembly passed a bill to amend the Commercial Act to give companies more tools to expand into new businesses and facilitate restructuring.
Following the amendment, companies are now permitted to pursue triangular split mergers, which differ from ordinary triangular mergers in that the acquisition target is a business unit rather than a company. Under this model, a company establishes an acquiring subsidiary to buy another company’s business unit. Then, shares of the acquiring parent company are distributed to the target company’s shareholders. Also, the amendment facilitates triangular share swaps in which the target company becomes a wholly owned subsidiary of the merger subsidiary, and shares of the parent acquiring company are distributed to the shareholders of the target company. Furthermore, the limit for small-scale share swaps were eased (up to 5/100 of total issued shares ‰ up to 10/100 issued shares). And an acquiring company holding at least 90% of the total number of issued shares of a target company is allowed to sell/purchase assets to/from the target company under a BOD resolution.
Under the amended Commercial Act, companies (SMEs as well as large corporations) should be able to recoup their investments more easily through a wide variety of M&As. In addition, the amendment should also facilitate corporate groups’ restructuring and help them diversify their business portfolios in a more strategic and swift manner.
Figure 8. Triangular split merger and triangular share exchange
Source: Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 19 June 1, 2016 Holding Companies
Table 12. Small-scale share exchange cases Exchange ratio Decision date Acquirer Target Purpose (Target :Acquirer) Korea Integrated Freight Common stock Compl iance with MRFTA Oct. 2, 2015 CJ Korea Express Terminal 1:0.099291 Improving management efficiency, maximizing synergies Common stock Improving management efficiency by making Simpac Industries Jul. 20, 2015 Simpac Simpac Industries 1:0.753232 a wholly owned subsidiary Common stock Mar. 20, 2015 SK Telecom SK Broadband Improving management efficiency and creating synergies 1:0.016894 Common stock Securing future growth drivers , strengthen ing R&D and Mar. 16, 2015 NanoEntek Bio Focus 1:2.405620 manufacturing capabilities Common stock Jan. 27, 2014 SK Hynix SiliconFile Improving management efficiency and creating synergies 1:0.223244 Common stock 1:0.063871 Dec. 4, 2012 AmorePacific Group Aestura Corporation Aestura ‰ wholly owned subsidiary of AmorePacific Group Treasury stock 1:0.119622 Korea Investment Korea Investment Mutual Common stock Korea Investment Mutual Savings Bank ‰ wholl y owned Oct. 13, 2009 Holdings Savings Bank 1:0297283 subsidiary of Korea Investment Holdings Shinhan Financial Common stock May. 28, 2007 LG Card LG Card ‰ wholly owned subsidiary of Shinhan Financial Group Group 1:0.849320 Source: Dart, Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 20 June 1, 2016 Holding Companies
SK Holdings (034730 KS) Five growth strategies to drive up NAV
Holding Companies Five growth strategies to drive up NAV (Maintain) Buy 1) IT services (in-house): The company is seeking to raise its IT services profile to global standards, using cloud, big data, and IoT technologies. As part of such efforts, the company established FSK Holdings, a joint venture with Taiwan’s Target Price (12M, W) 330,000 Foxconn (Hon Hai Precision Industry). Through the joint venture (70% owned by Foxconn and 30% by SK Holdings), the company plans to acquire Daiwa Associate Share Price (5/31/16, W) 229,000 Holdings, a Hong Kong-based manufacturer of smart sensors and parts for IoT applications. Looking forward, we expect the company to gain various Expected Return 44% opportunities related to smart factory projects for Foxconn’s Chongqing plant. 2) ICT security convergence and smart logistics (in-house): The company is aiming to OP (16F, Wbn) 5,560 establish a security convergence platform (information/physical security) and expand Consensus OP (16F, Wbn) 5,144 into security devices (sensors, etc.) as well as biometrics- and video surveillance- EPS Growth (16F, %) -82.0 related software. The company is also looking to enter the business of smart logistics Market EPS Growth (16F, %) 17.0 using big data and IoT. The company will initially focus on bolstering its capabilities on the back of captive (affiliate) demand until 2016 and then work on broadening its P/E (16F, x) 13.5 global presence (especially in China) through its partnership with Hon Hai from 2017. Market P/E (16F, x) 10.7 KOSPI 1,983.40 3) Biotech/pharmaceuticals (SK Biopharmaceuticals and SK Biotek): SK Group plans to fully integrate its value chain (R&D, manufacturing, and marketing) by 2018. Market Cap (Wbn) 16,113 After this, SK Biopharmaceuticals will consider going public and acquire developers Shares Outstanding (mn) 71 with strong potential. Currently, SK Biopharmaceuticals is focusing its resources on Free Float (%) 48.4 developing central nervous system agents and seeking out-licensing deals with Foreign Ownership (%) 24.4 global companies. In particular, the drug company has successfully completed the Beta (12M) 1.46 Phase 2b clinical trial for its lead epilepsy treatment (YKP3089) and is expected to 52-Week Low 212,000 move onto Phase 3. Assuming manufacturing and sales begin in 2018, we estimate 52-Week High 320,500 annual revenue to reach W1tr. SK Biotek, which was spun off from SK Biopharmaceuticals in April, manufactures and sells active pharmaceutical (%) 1M 6M 12M ingredients (API) and intermediates to multinational drug companies. The company Absolute 2.2 -15.2 -8.2 plans to invest W70.1bn to expand its API capacity by 2019 with the aim of Relative 2.8 -14.8 -2.1 increasing its annual revenue to W100bn by 2020. 150 SK Holdings KOSPI 4) LNG (SK E&S): SK E&S is aiming to integrate its LNG value chain and expand its 130 LNG capacity to 5mn tonnes by 2020. The LNG business enjoys cost advantages due to direct access to cheap gas in the US and Australia. SK E&S is also expected to 110 secure new business opportunities in China through partnerships with local 90 companies like Huadian Group and China Gas Holdings.
70 5) Semiconductor module (Essencore) and materials (M&A, JV, etc.): The 5.15 9.15 1.16 5.16 semiconductor module business (Essencore) aims to achieve W1.5tr in revenue by 2019. The semiconductor materials business is looking to acquire or form a joint venture with a company that holds world-class technology to tap into the fast- growing materials market.
FY (Dec,) 12/12 12/13 12/14 12/15 12/16F 12/17F Revenue (Wbn) 2,242 2,302 2,426 39,570 87,100 92,471 OP (Wbn) 201 225 272 1,403 5,560 5,362 OP margin (%) 9.0 9.8 11.2 3.5 6.4 5.8 NP (Wbn) 356 202 127 5,346 1,199 1,239 EPS (W) 7,122 4,045 2,546 93,713 16,903 17,466 ROE (%) 15.8 8.5 5.0 70.6 9.2 8.8 P/E (x) 14.5 33.4 83.9 2.6 13.5 13.1 P/B (x) 1.9 2.2 3.3 1.3 1.1 1.0 Notes: 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
Mirae Asset Daewoo Research 21 June 1, 2016 Holding Companies
Maintain Buy and TP of W330,000 As an operating holding company, SK Holdings is focusing on five key areas it believes are essential to ensuring sustainable growth. We believe the company is well positioned to implement its vision given its ample cash flow and ICT capabilities. As the company executes its growth strategies, we expect the value of the operating business and subsidiary stakes to increase, supporting a potential upward revision to our target price. We maintain our Buy call on SK Holdings with a target price of W330,000.
TablTablTableTabl e 131313.13 . SK GGGroupGrouprouproup’’’’ss strategstrategicic growth plansplansplans Relevant Growth areas 2020F target Details companies *Cloud Revenue: W600bn SK Holdings OP: W60bn - Extend coverage of IT services, establish overseas footholds through (1) IT services (in-house) *Smart Factory business partnerships, and broaden cloud-based offerings Revenue: W500bn OP: W50bn ICT *Smart logistics SK Revenue: W1tr - Security convergence platform (information/physical security) Holdings, OP: W60bn (2) ICT convergence - Expand into security devices (sensors, etc.) as well as biometrics- and Infosec, *AI video surveillance related software NSOK, etc. Revenue: W400bn OP: W80bn SK Revenue: W1tr - Integrate the pharmaceuticals value chain, including R&D, (3) Biopharm OP: W600bn manufacturing, and marketing, by 2018 Biotech/pharmaceuticals Revenue: W1.5tr - Take SK Biopharmaceuticals public in 2018 and acquire drug developers SK Biotek OP: W300bn with strong potential - Integrate and expand LNG value chain in the group and expand the capacity of LNG business to 5mn tonnes by 2020 New Revenue: W8.2tr - Benefit from cost advantages (due to direct access to cheap gas in the (4) LNG SK E&S growth OP: W840bn US and Australia) and captive demand portfolio - Expected to partner with a Chinese firm in the near future to secure new business opportunities SK Revenue: W2tr - Semiconductor module business (Essencore) aims to achieve W1.5tr in Holdings, (5) Semiconductor OP: W200bn revenue by 2019 Essencore modules/materials SK Revenue: W1.5tr - Plans to acquire a firm with global technology to secure stable footing in Materials OP: W500bn the market Source: Company data, Mirae Asset Daewoo Research
Table 14. SK Biopharmaceuticals’ pipeline Current stage Details
Signed out -licensing deal with Jazz Pharmaceuticals (US) with commercialization target of 2018 Will receive engineering fees during clinical trials Sleep-wake disorders Phase 3b clinical trial (under technology export deal with Jazz) and royalties (SKL-N05) Underway once drug goes on sale Secured licensing in 12 Asian countries with plans to engage in direct marketing Plan s to file for FDA approval in 2017 Completed phase 2b clinical Epilepsy Global release planned for 2018 trial, phase 3b clinical trial (YKP3089) Direct revenue (approximately W1tr annually) underway expected Chronic constipation/ Phase 2b clinical trial Plans to sign out-licensing deals with global drug irritable bowel syndrome Underway companies in 2016 (YKP10811) Signed out -licensing in 2010 with Acorda Therapeutics Acute seizures Submitted NDA (US supplier of drugs for central nervous system (PLUMIAZ) disorders) Dementia/cognitive Phase 2a clinical trial impairment Conducting phase 2a clinical trials independently underway (SKL 1 5508) Source: Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 22 June 1, 2016 Holding Companies
Figure 9. SK Group’s corporate governance
Chey Tae-won and Chey Chang-won related parties and related parties
▶▶▶ SK Chem’s major ▶ SK’s major shareholders 30.9% shareholders Chey Chang-won 17.0% 19.7% Chey Tae-won 23.4% Chey Shin-won 0.1% Chey Gi-won 7.5% 99.4% Treasury shares 13.3% Treasury shares 20.7% Infosec
SK C&C + SK Holdings. 50.0% [034730 KS] Encarsales.com SK Chemicals [006120 KS] 10.0% SK Securities [001510 KS] 28.2%
24.0% 25.2% 33.4%41.7% 39.1% 100% 83.1% 100%100% 100% 44.5%
SK Telecom SK Innovation SKC SK Networks SK Forest SK Shipping SK E&S SK Biotek SK Biopharm SK E&C [017670 KS] [096770 KS] [011790 KS] [001740 KS]
100% 20.1% 48.9% 64.5% 83.5% 100% 100% 66.0%50.0% 45.6%
SK SK Hynix iRiver SK Communications SK Gas SK Telink SK Planet SK Syntec Initz Entis Broadband [000660 KS] [060570 KQ] [066270 KQ] [018670 KS]
31.0%
SK D&D [210980 KS]
Source: Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 23 June 1, 2016 Holding Companies
SK Holdings (034730 KS/Buy/TP: W330,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15 12/16F 12/17F (Wbn) 12/14 12/15 12/16F 12/17F Revenue 2,426 39,570 87,100 92,471 Current Assets 927 29,765 27,947 30,933 Cost of Sales 2,143 35,495 78,183 83,694 Cash and Cash Equivalents 246 6,995 8,220 10,913 Gross Profit 283 4,075 8,917 8,777 AR & Other Receivables 456 11,833 12,000 12,289 SG&A Expenses 11 2,671 3,356 3,415 Inventories 142 5,643 5,723 5,861 Operating Profit (Adj) 272 1,403 5,560 5,362 Other Current Assets 83 5,294 2,004 1,870 Operating Profit 272 1,403 5,560 5,362 Non-Current Assets 4,380 66,869 54,608 46,928 Non-Operating Profit -85 4,836 -1,044 -1,120 Investments in Associates 3,315 11,158 3,602 0 Net Financial Income -55 -282 0 0 Property, Plant and Equipment 574 39,445 35,879 32,787 Net Gain from Inv in Associates -39 665 366 555 Intangible Assets 102 9,749 8,575 7,526 Pretax Profit 187 6,239 4,516 4,242 Total Assets 5,307 96,634 82,555 77,862 Income Tax 57 580 1,157 1,086 Current Liabilities 641 25,919 18,574 18,747 Profit from Continuing Operations 130 5,659 3,359 3,155 AP & Other Payables 258 9,823 9,962 10,202 Profit from Discontinued Operations 0 -109 0 0 Short-Term Financial Liabilities 214 8,324 8,226 8,228 Net Profit 130 5,549 3,359 3,155 Other Current Liabilities 169 7,772 386 317 Controlling Interests 127 5,346 1,199 1,239 Non-Current Liabilities 2,064 30,637 20,736 12,907 Non-Controlling Interests 3 203 2,160 1,916 Long-Term Financial Liabilities 1,376 23,650 13,650 5,650 Total Comprehensive Profit 174 5,453 3,359 3,155 Other Non-Current Liabilities 688 6,987 7,086 7,257 Controlling Interests 171 5,363 -310 -291 Total Liabilities 2,705 56,557 39,310 31,654 Non-Controlling Interests 3 90 3,669 3,447 Controlling Interests 2,585 12,566 13,574 14,621 EBITDA 329 3,604 10,321 9,502 Capital Stock 10 15 15 15 FCF (Free Cash Flow) 31 2,351 699 7,166 Capital Surplus 81 5,678 5,678 5,678 EBITDA Margin (%) 13.6 9.1 11.8 10.3 Retained Earnings 3,179 7,802 8,809 9,856 Operating Profit Margin (%) 11.2 3.5 6.4 5.8 Non-Controlling Interests 17 27,511 29,671 31,587 Net Profit Margin (%) 5.2 13.5 1.4 1.3 Stockholders' Equity 2,602 40,077 43,245 46,208
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/14 12/15 12/16F 12/17F 12/14 12/15 12/16F 12/17F Cash Flows from Op Activities 185 4,589 699 7,166 P/E (x) 83.9 2.6 13.5 13.1 Net Profit 130 5,549 3,359 3,155 P/CF (x) 29.5 3.5 1.8 1.9 Non-Cash Income and Expense 232 -1,641 5,918 5,227 P/B (x) 3.3 1.3 1.1 1.0 Depreciation 43 1,713 3,567 3,091 EV/EBITDA (x) 36.4 18.3 5.7 5.3 Amortization 14 487 1,194 1,049 EPS (W) 2,546 93,713 16,903 17,466 Others 175 -3,841 1,157 1,087 CFPS (W) 7,234 68,519 130,794 118,175 Chg in Working Capital -118 1,504 -7,421 -130 BPS (W) 64,429 189,929 204,129 218,891 Chg in AR & Other Receivables 35 1,250 -144 -249 DPS (W) 2,000 3,400 3,400 3,400 Chg in Inventories -61 1,421 -80 -138 Payout ratio (%) 67.7 3.4 5.7 6.0 Chg in AP & Other Payables -69 -591 105 181 Dividend Yield (%) 0.9 1.4 1.5 1.5 Income Tax Paid -66 -553 -1,157 -1,086 Revenue Growth (%) 5.4 1,531.1 120.1 6.2 Cash Flows from Inv Activities -101 -4,033 3,260 115 EBITDA Growth (%) 17.9 995.4 186.4 -7.9 Chg in PP&E -153 -2,053 0 0 Operating Profit Growth (%) 20.9 415.8 296.3 -3.6 Chg in Intangible Assets -12 -210 -20 0 EPS Growth (%) -37.1 3,580.8 -82.0 3.3 Chg in Financial Assets 3 -5,616 3,280 115 Accounts Receivable Turnover (x) 5.2 7.4 8.5 8.9 Others 61 3,846 0 0 Inventory Turnover (x) 21.5 13.7 15.3 16.0 Cash Flows from Fin Activities -98 -2,225 -10,290 -8,189 Accounts Payable Turnover (x) 10.4 9.3 10.4 11.0 Chg in Financial Liabilities -47 30,384 -10,099 -7,997 ROA (%) 2.5 10.9 3.7 3.9 Chg in Equity 81 5,603 0 0 ROE (%) 5.0 70.6 9.2 8.8 Dividends Paid -67 -165 -192 -192 ROIC (%) 23.0 4.7 7.5 7.3 Others -65 -38,047 1 0 Liability to Equity Ratio (%) 103.9 141.1 90.9 68.5 Increase (Decrease) in Cash -13 6,749 1,225 2,693 Current Ratio (%) 144.7 114.8 150.5 165.0 Beginning Balance 259 246 6,995 8,220 Net Debt to Equity Ratio (%) 49.1 53.6 31.2 6.4 Ending Balance 246 6,995 8,220 10,913 Interest Coverage Ratio (x) 4.1 3.9 0.0 0.0 Source: Company data, Mirae Asset Daewoo Research estimates
Mirae Asset Daewoo Research 24 June 1, 2016 Holding Companies
LG Corp. (003550 KS) Valuation is attractive; Rebound to kick off soon
Holding Companies LG Group revamps its business portfolio
Vertical integration of automotive electronics: LG Electronics (LGE; infotainment, (Maintain) Buy motors) ‰ LG Chem (batteries) ‰ LG Innotek (sensors, LED) ‰ LG Display (auto display), etc.
Target Price (12M, W) 90,000 Completion of energy solutions value chain: LGE (solar modules, ESS) ‰ LG Chem (batteries) ‰ LG CNS (smart microgrids), etc. The 2017 revenue target for this Share Price (5/31/16, W) 65,900 segment is the upper-W4tr level.
Expected Return 37% Electronics to drive valuation recovery General investment points for holding companies include: 1) upside from the rising OP (16F, Wbn) 1,370 value of stakes in listed subsidiaries, 2) exposure to unlisted subsidiaries, and 3) Consensus OP (16F, Wbn) 1,412 positives arising from their holding structure (e.g., brand royalty income, dividends, EPS Growth (16F, %) 19.5 and transparent governance). Market EPS Growth (16F, %) 17.0 Among these three, we believe the first is most relevant for LG Corp. LG Group’s P/E (16F, x) 10.3 business portfolio includes electronics, chemicals, telecom, and other services, with Market P/E (16F, x) 10.7 electronics (mainly LGE) responsible for 50% of revenue and operating profit. As KOSPI 1,983.40 such, LG Corp.’s shares have been inextricably tied to the performance of the Market Cap (Wbn) 11,372 electronics business, despite a fall in the contribution of electronics to NAV in recent months. Thus, a recovery in automotive electronics equipment and parts Shares Outstanding (mn) 176 should help drive LG Corp.’s stock. In the past, LG Corp.’s valuation discount has Free Float (%) 51.5 eased when the contribution of LGE to NAV has increased. Foreign Ownership (%) 26.6 Beta (12M) 0.72 Maintain Buy with TP of W90,000 52-Week Low 53,100 52-Week High 76,100 We maintain Buy with a target price of W90,000. LG Corp’s current price corresponds to a 2016F P/E of 10.3x and a NAV discount of 51%. The stock tends to (%) 1M 6M 12M rebound after reaching a P/E of 10x and a three-year NAV discount of around 50%. Absolute -3.2 -10.5 5.8 In light of this, we believe that the stock is currently undervalued. Relative -2.7 -10.1 12.8 LG Corp. is the only holding company with a net cash position in the Mirae Asset 130 LG Corp. KOSPI Daewoo universe. The company typically generates annual free cash flow of around 120 W250bn from dividend income, brand royalties, rental income, etc. Notably, if the 110 brand royalty rate—which is revised annually and currently stands at 20bps of 100 revenue—is raised, the company will be able to secure additional cash flow of 90 W110bn per 10bps. Given that LG Corp. is a pure holding company that does not 80 incur capex, expectations for shareholder return policies, including higher dividend 70 5.15 9.15 1.16 5.16 payouts, are likely to increase steadily.
The company’s stable holding structure and corporate governance, combined with positive performances by new drivers such as auto parts, energy, eco-friendly household products, and healthcare, should further brighten its business prospects.
FY (Dec.) 12/12 12/13 12/14 12/15 12/16F 12/17F Revenue (Wbn) 9,695 9,799 9,865 9,968 9,935 10,238 OP (Wbn) 1,232 1,154 1,044 1,138 1,370 1,422 OP Margin (%) 12.7 11.8 10.6 11.4 13.8 13.9 NP (Wbn) 938 896 845 944 1,129 1,164 EPS (W) 5,334 5,095 4,802 5,369 6,418 6,621 ROE (%) 8.7 7.8 7.0 7.5 8.4 8.1 P/E (x) 12.2 12.6 12.7 13.2 10.3 10.0 P/B (x) 1.0 1.0 0.9 1.0 0.8 0.8 Notes: 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
Mirae Asset Daewoo Research 25 June 1, 2016 Holding Companies
Figure 10. Discount to NAV Figure 11. P/E band
(%) (Wtr) 70 25
60 20 50 14.0x 15 40 12.0x 10.0x 30 10 8.0x
20 6.0x 5 10
0 0 06 07 08 09 10 11 12 13 14 15 16 03 04 05 06 07 08 09 10 11 12 13 14 15 1616F
Source: Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research
Figure 12. NAV breakdown Figure 13. Cash flow
(Wbn) 11 12 13 14 15 Real estate 5.2% LGE Cash inflow 589.5 616.6 568.0 575.7 574.1 13.4% Brand royalties Dividends 260.9 252.6 200.3 209.4 214.4 8.7% Brand royalties 264.9 271.1 269.1 264.9 256.8 Lease income 63.7 92.9 98.7 101.5 102.8
Other Cash outflow 434.1 376.1 399.1 376.3 392.6 22.5% LG Chem 26.0% Admin costs (ex-depreciation) 107.5 131.3 141.3 141.5 161.5 Corporate taxes 64.2 68.8 67.7 60.6 57.3 Dividend payout 175.9 175.9 175.9 175.9 175.9 Investment - tangible/intangible assets 88.0 3.1 20.6 5.5 3.2 Net financial expenses -1.5 -3.1 -6.5 -7.2 -5.4 LG H&H 24.2% Net cash inflow 155.4 240.5 169.0 199.4 181.5
Source: Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research
Figure 14. LG Group’s EV business value chain Figure 15. LG Group’s EV business ecosystem
LG Corp. (003550 KS)
30.1% 33.7% 30.1% 85.0%
LG Chem LGE LG Hausys LG CNS (051910 KS) (066570 KS) (108670 KS)
37.9% 40.8%
LG Display LG Innotek (034220 KS) (011070 KS)
Source: Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research
Mirae Asset Daewoo Research 26 June 1, 2016 Holding Companies
LG (003550 KS/Buy/TP: W90,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15 12/16F 12/17F (Wbn) 12/14 12/15 12/16F 12/17F Revenue 9,865 9,968 9,935 10,238 Current Assets 3,851 4,156 5,028 5,901 Cost of Sales 8,362 8,341 8,132 8,378 Cash and Cash Equivalents 497 870 2,444 3,197 Gross Profit 1,503 1,627 1,803 1,860 AR & Other Receivables 2,317 2,222 1,952 2,042 SG&A Expenses 459 489 433 438 Inventories 308 344 302 316 Operating Profit (Adj) 1,044 1,138 1,370 1,422 Other Current Assets 729 720 330 346 Operating Profit 1,044 1,138 1,370 1,422 Non-Current Assets 13,482 13,968 12,423 12,613 Non-Operating Profit -88 -63 -73 -69 Investments in Associates 9,815 10,346 9,089 9,510 Net Financial Income -60 -61 -24 0 Property, Plant and Equipment 2,478 2,471 2,218 2,002 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 134 117 93 75 Pretax Profit 956 1,075 1,297 1,353 Total Assets 17,333 18,123 17,451 18,514 Income Tax 127 132 155 169 Current Liabilities 2,897 2,713 2,042 2,133 Profit from Continuing Operations 829 944 1,142 1,184 AP & Other Payables 1,605 1,536 1,349 1,412 Profit from Discontinued Operations 6 0 0 0 Short-Term Financial Liabilities 686 492 92 92 Net Profit 834 944 1,142 1,184 Other Current Liabilities 606 685 601 629 Controlling Interests 845 944 1,129 1,164 Non-Current Liabilities 1,850 2,103 1,187 1,204 Non-Controlling Interests -10 0 14 20 Long-Term Financial Liabilities 1,196 1,428 828 828 Total Comprehensive Profit 659 900 1,142 1,184 Other Non-Current Liabilities 654 675 359 376 Controlling Interests 674 901 905 938 Total Liabilities 4,747 4,815 3,229 3,337 Non-Controlling Interests -15 0 238 247 Controlling Interests 12,252 12,975 13,876 14,812 EBITDA 1,347 1,447 1,646 1,657 Capital Stock 879 879 879 879 FCF (Free Cash Flow) 239 623 1,488 1,422 Capital Surplus 2,363 2,362 2,362 2,362 EBITDA Margin (%) 13.7 14.5 16.6 16.2 Retained Earnings 9,153 9,872 10,772 11,708 Operating Profit Margin (%) 10.6 11.4 13.8 13.9 Non-Controlling Interests 334 333 346 366 Net Profit Margin (%) 8.6 9.5 11.4 11.4 Stockholders' Equity 12,586 13,308 14,222 15,178
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/14 12/15 12/16F 12/17F 12/14 12/15 12/16F 12/17F Cash Flows from Op Activities 600 886 1,488 1,422 P/E (x) 12.7 13.2 10.3 10.0 Net Profit 834 944 1,142 1,184 P/CF (x) 13.0 15.0 7.3 7.3 Non-Cash Income and Expense -7 -113 455 404 P/B (x) 0.9 1.0 0.8 0.8 Depreciation 274 282 253 217 EV/EBITDA (x) 9.0 9.2 6.1 5.6 Amortization 29 27 23 19 EPS (W) 4,802 5,369 6,418 6,621 Others -310 -422 179 168 CFPS (W) 4,701 4,723 9,081 9,033 Chg in Working Capital -223 53 69 3 BPS (W) 69,678 73,792 78,910 84,230 Chg in AR & Other Receivables -252 72 267 -90 DPS (W) 1,000 1,300 1,300 1,300 Chg in Inventories 30 -47 42 -14 Payout ratio (%) 20.7 23.8 19.6 18.9 Chg in AP & Other Payables 108 -25 -164 55 Dividend Yield (%) 1.6 1.8 2.0 2.0 Income Tax Paid -128 -134 -155 -169 Revenue Growth (%) 0.7 1.0 -0.3 3.0 Cash Flows from Inv Activities -721 -368 57 -19 EBITDA Growth (%) -8.9 7.4 13.8 0.7 Chg in PP&E -356 -256 0 0 Operating Profit Growth (%) -9.5 9.0 20.4 3.8 Chg in Intangible Assets -27 -10 0 0 EPS Growth (%) -5.8 11.8 19.5 3.2 Chg in Financial Assets -21 -29 57 -19 Accounts Receivable Turnover (x) 4.6 4.5 4.8 5.2 Others -317 -73 0 0 Inventory Turnover (x) 30.9 30.6 30.8 33.2 Cash Flows from Fin Activities -60 -145 -1,229 -229 Accounts Payable Turnover (x) 6.4 6.1 6.4 6.9 Chg in Financial Liabilities 129 37 -1,000 0 ROA (%) 4.9 5.3 6.4 6.6 Chg in Equity -3 -1 0 0 ROE (%) 7.0 7.5 8.4 8.1 Dividends Paid -179 -179 -229 -229 ROIC (%) 26.2 28.7 39.3 47.3 Others -7 -2 0 0 Liability to Equity Ratio (%) 37.7 36.2 22.7 22.0 Increase (Decrease) in Cash -185 373 1,573 753 Current Ratio (%) 132.9 153.2 246.2 276.7 Beginning Balance 682 498 870 2,444 Net Debt to Equity Ratio (%) 8.3 5.1 -13.0 -17.3 Ending Balance 498 870 2,444 3,197 Interest Coverage Ratio (x) 12.2 14.2 32.3 38.0 Source: Company data, Mirae Asset Daewoo Research estimates
Mirae Asset Daewoo Research 27 June 1, 2016 Holding Companies
APPENDIX 1
Important Disclosures & Disclaimers 2-Year Rating and Target Price History
Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price SK Holdings (034730) 08/30/2015 Buy 330,000 05/08/2014 Buy 170,000 04/27/2015 Buy 290,000 LG Corp .(003550) 12/02/2013 Buy 90,000 03/08/2015 Buy 270,000
(W) (W) SK Holdings LG Corp. 350,000 100,000 300,000 80,000 250,000 60,000 200,000 150,000 40,000 100,000 20,000 50,000 0 0 Jun 14 Jun 15 May 16 Jun 14 Jun 15 May 16
Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% Ratings and Target Price History (Share price ( ─), Target price ( ▬), Not covered ( ■), Buy ( ▲), Trading Buy ( ■), Hold ( ●), Sell ( ◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.
Equity Ratings Distribution BuyBuyBuy Trading Buy HoldHoldHold SellSellSell 68.29% 17.56% 14.15% 0.00% * Based on recommendations in the last 12-months (as of March 31, 2016)
Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates do not have any special interest with the subj ect company and do not own 1% or more of the subject company's shares outstanding.
Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. 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. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein.
Disclaimers This report is published by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and 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 Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws
Mirae Asset Daewoo Research 28 June 1, 2016 Holding Companies
and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Mirae Asset Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo. 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. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.
Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to 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 Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact 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 International Network
Daewoo Securities Co., Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 320 Park Avenue 34-3 Yeouido-dong, Yeongdeungpo-gu Suites 2005-2012 31st Floor
Seoul 150-716 8 Finance Street, Central New York, NY 10022 Korea Hong Kong, China United States Tel: 82-2-768-3026 Tel: 85-2-2845-6332 Tel: 1-212-407-1000
Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte., Ltd. Tokyo Representative Office 41st Floor, Tower 42 Six Battery Road #11-01 7th Floor, Yusen Building 25 Old Broad St. Singapore, 049909 2-3-2 Marunouchi, Chiyoda-ku London EC2N 1HQ Tokyo 100-0005 United Kingdom Japan Tel: 44-20-7982-8000 Tel: 65-6671-9845 Tel: 81-3- 3211-5511
Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office 2401A, 24th Floor, East Tower, Twin Towers Room 38T31, 38F SWFC Suite 2103, Saigon Trade Center B-12 Jianguomenwai Avenue 100 Century Avenue 37 Ton Duc Thang St,
Chaoyang District, Beijing 100022 Pudong New Area, Shanghai 200120 Dist. 1, Ho Chi Minh City, China China Vietnam Tel: 86-10-6567-9299 Tel: 86-21-5013-6392 Tel: 84-8-3910-6000 Daewoo Investment Advisory (Beijing) Co., Ltd. Daewoo Securities (Mongolia) LLC PT. Daewoo Securities Indonesia 2401B, 24th Floor, East Tower, Twin Towers #406, Blue Sky Tower, Peace Avenue 17 Equity Tower Building Lt.50 B-12 Jianguomenwai Avenue, 1 Khoroo, Sukhbaatar District Sudirman Central Business District Jl.
Chaoyang District, Beijing 100022 Ulaanbaatar 14240 Jendral Sudirman Kav. 52 -53, Jakarta Selatan China Mongolia Indonesia 12190 Tel: 86-10-6567-9699 Tel: 976-7011-0807 Tel: 62-21-515-1140
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