LG Uplus (032640 KS ) Competitiveness continues to strengthen

Telecom Service Effects of unlimited LTE data plan gradually materializing Earnings Preview In February, LG Uplus unveiled a new W88,000/month unlimited LTE data plan that also June 15, 2018 allows subscribers to give 40GB of data for to friends and family. LG Uplus is able to offer competitive unlimited data plans because the telco has more spectrum per subscriber than its rivals—40% more than market leader SK Telecom (SKT) and 20% more than KT. Given that the amount of data that can be provided per subscriber is set in proportion to the spectrum held per subscriber, we think LG Uplus’ strategy of (Maintain) Buy attracting subscribers through unlimited plans will prove effective. Since February, the telco’s market share (new subscribers, upgrades, and mobile number porting Target Price (12M, W) 17,500 combined) has gradually risen to the mid-20% level, which we attribute to the effects of the unlimited data plan. Share Price (06/14/18, W) 13,950 Price competition could weaken regulatory push Expected Return 25% In response to LG Uplus’ new unlimited data plan, KT also rolled out several new plans last month, underscoring how LG Uplus’ unlimited plan is changing the market. Two of

KT’s four new plans—an W89,000/month unlimited LTE data plan and a OP (18F, Wbn) 808 W69,000/month plan that offers up to 100GB of LTE data without any speed Consensus OP (18F, Wbn) 834 restrictions (5Gbps thereafter)—are targeted at heavy data users. For light data users, KT released a basic LTE plan that provides unlimited talk and text and 1GB of data for EPS Growth (18F, %) -7.7 W33,000/month, or W24,750/month when opting for the 25% discount rate. We believe Market EPS Growth (18F, %) 13.0 the plan is essentially consistent with the government’s efforts at encouraging the P/E (18F, x) 12.1 introduction of affordable plans. With market competition spurring voluntary price Market P/E (18F, x) 9.5 cuts, we think the government’s regulatory push could lose steam. KOSPI 2,423.48 spectrum auction unlikely to get overheated Market Cap (Wbn) 6,091 Shares Outstanding (mn) 437 We do not expect any excessive competition in the 5G spectrum auction, as a total of Free Float (%) 63.9 280MHz in the 3.5GHz band is set to be auctioned off, with the available per Foreign Ownership (%) 37.5 carrier capped at 100MHz. While carriers like SKT that need more 5G spectrum may Beta (12M) 0.82 prefer contiguous bands that make it easier to gain additional data capacity , we do not 52-Week Low 11,700 think LG Uplus will aggressively pursue such bands. We thus see limited risks of the 5G 52-Week High 17,000 spectrum auction becoming overheated.

(%) 1M 6M 12M Maintain Buy and TP of W17,500 Absolute 10.7 -3.1 -12.8 We maintain our positive view on LG Uplus. We believe the company will attract a Relative 13.1 -1.3 -14.6 steady of quality customers on the back of its unlimited LTE data plan. The launch of new plans with price-lowering effects across the industry should weaken the 120 LG Uplus KOSPI 110 government’s regulatory push. We also expect LG Uplus to exhibit reasonable 100 spending in the 5G spectrum auction. 90

80 70 60 6.17 10.17 2.18 6.18

Mirae Asset Daewoo Co., Ltd.

[ Telecom Service/IoT ] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 10,795 11,451 12,279 12,015 12,103 12,315 Hakmoo Lee +822 -3774 -1785 OP (Wbn) 632 746 826 808 823 836 [email protected] OP margin (%) 5.9 6.5 6.7 6.7 6.8 6.8

NP (Wbn) 351 493 547 505 510 522 EPS (W) 805 1,129 1,253 1,157 1,167 1,195 ROE (%) 8.1 10.6 10.9 8.5 7.4 7.3

P/E (x) 12.9 10.1 11.2 12.1 12.0 11.7 P/B (x) 1.0 1.0 1.2 0.9 0.9 0.8 Dividend yield (%) 2.4 3.1 2.9 3.9 4.7 2.9 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

June 15, 2018 LG Uplus

Earnings and forecasts

Table 1. 2Q18 preview (Wbn, %, %p) 2Q18F Growth 2Q17 1Q18 Mirae Asset Daewoo Consensus YoY QoQ Revenue 3,010 2,980 2,970 3,041 -1.3 -0.3 Operating profit 208 188 196 215 -5.6 4.6 OP margin (%) 6.9 6.3 6.6 7.1 -0.3 0.3 Pretax profit 176 162 174 182 -0.7 7.6 Net profit 136 116 124 142 -8.8 7.6 Notes: All figures are based on consolidated K-IFRS; net profit is attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Table 2. Quarterly earnings and forecasts (Wbn, %) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18F 3Q18F 4Q18F Revenue 2,713 2,879 2,737 3,122 2,882 3,010 3,060 3,328 2,980 2,970 3,000 3,065 Operating revenue 2,175 2,240 2,259 2,353 2,291 2,334 2,377 2,404 2,270 2,282 2,311 2,340 1,321 1,358 1,358 1,396 1,366 1,402 1,406 1,396 1,335 1,333 1,329 1,332 TPS 382 384 401 417 421 430 450 469 441 449 457 466 Data 369 395 403 431 405 404 424 443 405 408 433 454 Telephony 95 95 92 101 89 90 88 87 83 86 84 82 Other 8 9 5 9 10 7 9 9 7 7 7 7 Handset revenue 538 639 478 769 591 676 682 924 710 688 689 725 Operating expenses 2,542 2,699 2,526 2,938 2,679 2,802 2,845 3,127 2,792 2,774 2,777 2,864 * Marketing expenses 478 507 487 480 527 545 552 547 476 500 501 507 Operating profit 171 180 211 184 203 208 214 201 188 196 223 201 OP margin (%) 6.3 6.3 7.7 5.9 7.0 6.9 7.0 6.0 6.3 6.6 7.4 6.6 Net profit 110 131 134 118 132 136 143 136 116 124 135 130 Net margin (%) 4.1 4.5 4.9 3.8 4.6 4.5 4.7 4.1 3.9 4.2 4.5 4.2 YoY Revenue 6.1 8.2 0.7 9.1 6.2 4.5 11.8 6.6 3.4 -1.3 -2.0 -7.9 Operating revenue 3.6 4.4 4.7 6.2 5.3 4.2 5.2 2.2 -0.9 -2.2 -2.8 -2.7 Wireless 1.7 2.1 1.8 3.4 3.4 3.2 3.6 0.0 -2.3 -4.9 -5.5 -4.6 TPS 9.4 6.8 10.8 12.1 10.2 12.0 12.2 12.3 4.6 4.3 1.7 -0.6 Data 5.8 12.2 13.0 11.0 9.7 2.4 5.2 2.9 0.0 1.0 2.1 2.4 Telephony -6.1 -10.0 -10.6 -3.8 -6.1 -4.8 -4.6 -13.1 -7.1 -5.2 -4.4 -6.7 Handset revenue 21.3 27.4 -13.8 19.8 9.9 5.8 42.8 20.1 20.1 1.8 1.0 -21.5 Operating expenses 5.9 9.3 -0.8 6.9 5.4 3.8 12.7 6.4 4.2 -1.0 -2.4 -8.4 * Marketing expenses -5.2 6.5 -0.6 -9.3 10.3 7.6 13.3 13.9 -9.8 -8.3 -9.2 -7.2 Operating profit 10.3 -6.4 22.8 63.0 18.9 15.5 1.3 9.2 -7.4 -5.6 4.2 -0.2 Net profit 33.8 12.8 17.9 198.4 20.4 4.2 6.6 14.9 -12.8 -8.8 -5.2 -4.2 Notes: All figures are based on consolidated K-IFRS; net profit is attributable to controlling and non-controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Table 3. Earnings forecast revisions (Wbn, W, %) Previous Revised % chg. Notes 18F 19F 18F 19F 18F 19F Revenue 12,666 12,823 12,015 12,103 -5.1 -5.6

Operating profit 840 861 808 823 -3.8 -4.4

Pretax profit 737 751 708 715 -3.9 -4.8 Net profit 571 582 505 510 -11.6 -12.4 EPS (W) 1,308 1,333 1,157 1,167 -11.6 -12.4 OP margin (%) 6.6 6.7 6.7 6.8 Net margin (%) 4.5 4.5 4.2 4.2 Notes: All figures are based on consolidated K-IFRS; net profit is attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 2 June 15, 2018 LG Uplus

LG Uplus (032640 KS/Buy/TP: W17,500)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/17 12/18F 12/19F 12/20F (Wbn) 12/17 12/18F 12/19F 12/20F Revenue 12,279 12,015 12,103 12,315 Current Assets 3,073 4,006 3,983 4,170 Cost of Sales 0 0 0 0 Cash and Cash Equivalents 450 1,590 1,542 1,698 Gross Profit 12,279 12,015 12,103 12,315 AR & Other Receivables 2,093 1,928 1,948 1,972 SG&A Expenses 11,453 11,207 11,280 11,479 Inventories 335 308 311 315 Operating Profit (Adj) 826 808 823 836 Other Current Assets 195 180 182 185 Operating Profit 826 808 823 836 Non-Current Assets 8,862 8,319 7,844 7,434 Non-Operating Profit -159 -100 -108 -104 Investments in Associates 38 35 35 36 Net Financial Income -91 -12 14 35 Property, Plant and Equipment 6,527 6,167 5,930 5,725 Net Gain from Inv in Associates -1 0 0 0 Intangible Assets 957 738 499 293 Pretax Profit 667 708 715 732 Total Assets 11,935 12,325 11,827 11,603 Income Tax 120 203 205 210 Current Liabilities 3,665 3,308 3,135 3,167 Profit from Continuing Operations 547 505 510 522 AP & Other Payables 1,452 1,338 1,352 1,368 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 881 744 544 544 Net Profit 547 505 510 522 Other Current Liabilities 1,332 1,226 1,239 1,255 Controlling Interests 547 505 510 522 Non-Current Liabilities 3,038 2,303 1,709 1,215 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 2,461 1,771 1,171 671 Total Comprehensive Profit 559 505 510 522 Other Non-Current Liabilities 577 532 538 544 Controlling Interests 560 505 510 522 Total Liabilities 6,702 5,611 4,843 4,382 Non-Controlling Interests 0 0 0 0 Controlling Interests 5,233 6,714 6,983 7,221 EBITDA 2,515 2,596 2,699 2,647 Capital Stock 2,574 2,574 2,574 2,574 FCF (Free Cash Flow) 1,097 2,229 993 942 Capital Surplus 837 837 837 837 EBITDA Margin (%) 20.5 21.6 22.3 21.5 Retained Earnings 1,821 3,301 3,570 3,808 Operating Profit Margin (%) 6.7 6.7 6.8 6.8 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 4.5 4.2 4.2 4.2 Stockholders' Equity 5,233 6,714 6,983 7,221

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/17 12/18F 12/19F 12/20F 12/17 12/18F 12/19F 12/20F Cash Flows from Op Activities 2,279 3,475 2,393 2,342 P/E (x) 11.2 12.1 12.0 11.7 Net Profit 547 505 510 522 P/CF (x) 2.3 2.0 2.4 2.4 Non-Cash Income and Expense 2,134 2,468 2,067 1,987 P/B (x) 1.2 0.9 0.9 0.8 Depreciation 1,444 1,568 1,637 1,605 EV/EBITDA (x) 3.6 2.7 2.3 2.1 Amortization 245 219 239 206 EPS (W) 1,253 1,157 1,167 1,195 Others 445 681 191 176 CFPS (W) 6,140 6,810 5,901 5,745 Chg in Working Capital -160 673 8 9 BPS (W) 11,985 15,377 15,994 16,539 Chg in AR & Other Receivables -525 -139 -19 -22 DPS (W) 400 550 650 400 Chg in Inventories -77 26 -3 -4 Payout ratio (%) 31.9 47.5 55.7 33.5 Chg in AP & Other Payables 218 -71 5 6 Dividend Yield (%) 2.9 3.9 4.7 2.9 Income Tax Paid -151 -157 -205 -210 Revenue Growth (%) 7.2 -2.2 0.7 1.8 Cash Flows from Inv Activities -1,358 -1,358 -1,401 -1,401 EBITDA Growth (%) 4.8 3.2 4.0 -1.9 Chg in PP&E -1,173 -1,244 -1,400 -1,400 Operating Profit Growth (%) 10.7 -2.2 1.9 1.6 Chg in Intangible Assets -148 -136 0 0 EPS Growth (%) 11.0 -7.7 0.9 2.4 Chg in Financial Assets -10 8 -1 -1 Accounts Receivable Turnover (x) 7.0 6.5 6.7 6.8 Others -27 14 0 0 Inventory Turnover (x) 41.2 37.4 39.1 39.3 Cash Flows from Fin Activities -789 -979 -1,040 -784 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0 Chg in Financial Liabilities -638 -826 -800 -500 ROA (%) 4.6 4.2 4.2 4.5 Chg in Equity 0 0 0 0 ROE (%) 10.9 8.5 7.4 7.3 Dividends Paid -153 -153 -240 -284 ROIC (%) 8.1 12.2 7.6 8.1 Others 2 0 0 0 Liability to Equity Ratio (%) 128.1 83.6 69.4 60.7 Increase (Decrease) in Cash 133 1,140 -48 157 Current Ratio (%) 83.9 121.1 127.1 131.7 Beginning Balance 317 450 1,590 1,542 Net Debt to Equity Ratio (%) 54.0 12.9 1.6 -7.5 Ending Balance 450 1,590 1,542 1,698 Interest Coverage Ratio (x) 7.1 7.7 10.5 15.6 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 3 June 15, 2018 LG Uplus

APPENDIX 1

Important Disclosures & Disclaimers 2-Year Rating and Target Price History

Company (Code) Date Rating Target Price (W) LG Uplus LG Uplus (032640) 04/26/2018 Buy 17,500 20,000 07/10/2017 Buy 19,000 04/12/2017 Buy 16,500 15,000 01/26/2017 Buy 15,000 01/02/2017 No Coverage 10,000 10/31/2016 Buy 15,000 5,000 04/05/2016 Buy 14,000

0 6 16 6 17 6 18

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 & Investment Banking Services Buy Trading Buy Hold Sell Equity Ratings Distribution 74.13% 15.92% 9.95% 0.00% Investment Banking Services 75.00% 11.11% 13.89% 0.00% * Based on recommendations in the last 12-months (as of March 31, 2018)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of LG Uplus as an underlying asset, and other than this, Mirae Asset Daewoo has no other special interests in the covered companies.

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client 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 was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the . Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and it is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial

Mirae Asset Daewoo Research 4 June 15, 2018 LG Uplus

situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo.

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Mirae Asset Daewoo Research 5 June 15, 2018 LG Uplus

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Mirae Asset Daewoo Research 6