CFA Institute Research Challenge Hosted by CFA Society Korea Sungkyunkwan University CJ Korea Express (000120, KS)

This report is published for educational purposes only by students Competing in The CFA Institute Research Challenge Date: 5/Jan/2017 Rely Only on the Cold, Hard Fact

Consensus Overly Positive Korea Stock Exchange (KRX) We initiate coverage with the only SELL rating, contrary to Sector : Industrials Bloomberg consensus, with the target price of 138,000 KRW as of th Industry : Transportation January 5 , 2017. Unlike consensus, we feel market growth is limited, it is difficult to raise ASP, and it will be extremely hard for CJ KX to be successful in China.

Recommendation : SELL Market Growth Maturing Korean courier services market has grown in tandem with the Current price (KRW) 175,500 rapid growth of the online shopping market. However, the growth 12M Price Target (KRW) 138,000 is peaking, because The penetration rate of smartphones in Korea reached 88% in 2015. Finally, the rapid growth of mobile shopping Downside (%) -21.4 is cannibalizing other channels, such as PC and TV home shopping.

th As of Jan. 5 , 2017 No Leverage To Raise ASP Competition within the industry has decreased average shipping rates for the past 10 years. Korea’s relatively small territory Stock Information makes it difficult for carriers to offer unique services, which can increase shipping rates. Catalyst to increase ASP is same-day- KOSPI (point) 2041.95 delivery, but the willingness to pay for this service is low. Market Cap (bn KRW) 4,049 Price (KRW) 175,500 Inevitable Lower Growth in China 12 M hi/lo (KRW) 234,000/173,000 CJ Rokin will underperform Chinese cold chain logistics industry. The growth of online fresh food market in China is favorable to Shares in Issue 22,812,344 distributors rather than logistics companies. Since foreign Free Float (%) 37.1 companies face many challenges in China, we expect deterioration Foreign Ownership (%) 13.23 of major clients’ revenue, thereby less revenue at the parent level. CJ Cheil Jedang (20.08%) Major Shareholders (%) KX holdings (20.08%) Why Bad Investment? Our target price is 138,000 KRW, derived from DCF valuation with SOTP. Despite of continuous margin improvements, the slowdown Share Price Performance (%) of revenue growth and huge CAPEX will lead to sluggish cash flow.

3M 6M 12M Absolute (16.5) (15.1) (13.2) Rel. to Korea SE Composite (0.8) 4.9 6.4 Financials 12/14 12/15 12/16E 12/17E 12/18E Team Team Team BB* BB BB (KRW) (Point) Estimate Estimate Estimate Revenue (bn KRW ) 4,560 5,056 6,051 5,972 6,765 6,442 7,408 6,894 250,000 2,200 Operating profit (bn KRW) 1,671 187 239 243 288 269 333 303 2,000 Net income (bn KRW) 595 46 90 75 150 109 180 139 200,000 OPM (%) 3.7 3.7 3.9 4.1 4.3 4.2 4.5 4.4 1,800 NPM (%) 1.3 0.9 1.5 1.3 2.2 1.7 2.4 2.0 150,000 1,600 ROE (%) 2.6 2.1 3.6 2.6 5.9 3.5 6.8 4.3 Jan-15 Jan-16 Jan-17 EPS (KRW) 2,510 2,012 3,628 2,408 6,113 4,373 7,567 6,094 BPS (KRW) 121,311 124,143 127,329 130,623 133,445 138,956 140,323 143,456 CJ KX KOSPI P/E (x) 78.09 94.8 49.34 53.8 29.28 37.3 23.65 29.2 P/B (x) 1.62 1.54 1.41 1.43 1.34 1.35 1.28 1.3 EV/EBITDA (x) 20.29 18.21 16.2 15.7 14.1 14.2 12.6 13.2 *BB – Bloomberg consensus Business Description

Figure 1 : Structure Map CJ Korea Express (CJ KX) is a total cargo delivery company, headquartered in Seoul, South Korea. It operates contract logistics, courier services, sea and air freight forwarding, stevedoring, supply chain 33.5% 100%

` management consulting and more. As of January 2017, CJ KX has ` CJ breached 78 branches/partners and 36 subsidiaries in 22 countries. With respect to its ownership structure, a holding company CJ owns 33.5% share of CJ Cheil Jedang, and 100% share of KX Holdings, which was CJ CHEIL KX specially formed for CJ to hold ownership on CJ KX. CJ Cheil Jedang and KX JEDANG Holdings Holdings has 20.1% of CJ KX’s share respectively. In this way, the CJ

group owns 26.8% of shares of CJ KX (Figure 1), (Appendix K). ` Company History 20.1%` CJ Korea 20.1% Korea Express was founded in 1930 as a private company, but turned into Express a state-owned enterprise in 1950. In 1956, it was listed on KOSPI, but re- privatized in 1968, as an affiliate of Dongah Group. After few additional Source : Company filing changes in ownership, CJ Group acquired Korean Express in 2011, and CJ group’s existing logistics division CJ GLS merged with Korea Express, and the two became CJ Korea Express in 2013. It currently manages three operating business divisions: Contract logistics, Courier service, and Global logistics (Figure 2).

(KRW) CJ KX Share Price and News Flow Operating margin (KRW) increase by 693% 250,000 Acquired by Kumho Purchased by CJ Merged with CJ GLS 200,000 Asiana group Kumho group liquidity concern 150,000 Investment in 100,000 new hub terminal 50,000 3rd quarter earning shock 0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Contract Logistics (CL) CL is also called ‘Third Party Logistics’, which means the shipper consigns logistics company more than two procedures from procurement of raw Figure 2 : Revenue by Division materials, wrapping, storing, information technology, stevedoring, to customs. CJ KX provides ‘Full Line Service’, which deals with the whole procedure of logistics. Major shipments include steel, mineral resources, 27.7% automotive and wind power plant. 41.9% Courier Service Courier service division operates door-to-door parcel delivery service with couriers. 80% of packages of its revenue comes from sales in online 30.4% shopping industry. After the merger with CJ GLS in 2013, CJ KX became the biggest courier service provider in South Korea, having 5 hub terminals and more than 200 sub terminals throughout the country. Its market share CL Courier Global currently accounts for 45% by amount of packages delivered a day. Source : Company filing Forwarding Services (Global division) CJ KX operates both air and sea freight forwarding globally. Main customers are Korean companies, exporting and importing various goods. Figure 3 : M&A History When forwarder wants to forward cargo without having a form of transportation, it consigns collection, loading, insurance, and delivery to a YEAR Company Takeover Price forwarding company. 2011 Megastar 77.8bn KRW 2011 Korea Express 178bn KRW We believe courier and global divisions are the main driver of stock price, showing 5-year CAGR in operating margin of 5.26% from CL division, 2015 Rokin 45.5bn KRW 14.2% from courier division, and 10.45% from global division. 2016 Haide 36bn KRW 2016 Speedex 81.1bn KRW Strategies 2016 MARS Entertainment 79.11bn KRW Expanding Globally via Acquisitions 2016 Cofeed 35bn KRW One of the biggest conglomerates in Korea, the CJ group has many subsidiary companies, including CJ KX. It was ranked the most active Source : Company filing acquirer amongst 30 biggest companies in Korea, acquiring 36 companies since 2010 (Park, 2015). Major acquisitions are shown in the figure 3. Figure 4 : CJ KX’s M/S & ASP Trend March 2016, CJ KX acquired 37.4% of Rokin’s share, a Chinese logistics company through SPC. It established a joint venture ‘Speedex’ with (KRW) Chinese electronics manufacturer TCL group in August 2016. 2,200 60% 2,100 50% Raising Market Share by Predatory Pricing 2,000 For the past 3 years after merging with CJ GLS, CJ KX has gained market 1,900 40% share in courier service division through lowering average shipping rates of 1,800 packages. Leveraging superior cost efficiency than its competitors, we 1,700 30% assume that it will decrease average selling price (ASP) to make

competitors exit from the market.

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16

1Q17E 3Q17E 1Q18E 3Q18E

ASP M/S Source : Team estimates, Company filing Corporate Governance

Management - Currently it has 2 managing directors: Park Keun-tae, and Son Kwan-soo. Park has experience in the global market as the CEO of CJ China. By 2020 CJ KX has the optimistic vision of becoming a top 5 logistics Figure 5 : Inside & Outside Directors company and to become ‘SCM(Supply Chain Management) Innovator’. Their management performance was awarded in ‘Project Efficiency’ by Park Keun-tae CSV(Creation Shared Values) Porter Awards.

Inside Son Kwan-soo Board - CJ KX’s board of directors consists of three inside and four outside Koo Chang-keun directors. All seven directors do not have any relationships with the biggest shareholder or major shareholders, independent from the company. Kwon Do-yup Shareholder rights - One-share-one-vote policy; CJ KX has only common Bang Hui-seok Outside shares, with shareholders having rights to nominate candidate for the Yoon Young-seon board of directors, right of inspection, appraisal rights, and pre-emptive right. Choi Chan-mook Audit – CJ KX has received unqualified opinions for the past 3 fiscal years, Source : Company filing excluding a subsidiary company. Internal Accounting Control System is also written by the best practice guideline. Since the portion of the subsidiary company is slight, it can be said that they have an appropriate audit Figure 6 : Correlation between GDP system. and Logistical Cost

(tn KRW) (tn KRW) 2,000 200 Industry Overview and Competitive Positioning 1,500 150

1,000 100 Industry Overview 500 푅2 = 0.905456 50 - - Contract Logistics Industry The CL industry in Korea is highly related to GDP because its revenue generates from logistics from the overall industry (Figure 6). The growth of GDP (Left) this industry is expected to slow down gradually, especially for industrial Logistical cost (Right) materials due to the recent restructuring of the shipbuilding and shipping industry. Source : Statistics Korea Courier Delivery Service The total shipment volume of packages in Korea has been growing at a Figure 7 : Correlation between Online CAGR of 8.7% during 2011-2015, driven by the rapid growth of online Shopping Market and Courier Service Market shopping. In Korea, there is a strong positive correlation between the

25% growth rates of online shopping and courier services industry (Figure 7). 20% The growth of online shopping itself has been driven by mobile shopping, 15% which quadrupled during 2013-2015 (Figure 14). 10% 푅2 = 0.957228 5% Forwarding Service 0% Given forwarding does not require the ownership of transportation, and thus little investment, it is easy for existing contract logistics companies to enter this business. Also there is a strong bargaining power of consumers Online shopping market growth (YoY) because of low switching cost, which makes the gross margin of forwarding Courier services market growth (YoY) (9%) relatively lower than contract logistics (13%). Source : Statistics Korea, Company filing Figure 8 : Working Age Population Projection Demographics and Disposable Income of Korea (mn According to Statistics Korea, the working age population of South Korea ) 40 will decline at the 10-year CAGR of -0.7% (Figure 8). Also, Statistics Korea 37.6 37.5 38 37.0 36.5 35.8 projects the number of single-household, who uses courier services 36 35.3 frequently, out of total household in Korea would reach 32.7% by 2030. 34 Growth rate of disposable income of South Korea in 2011-2015 showed 32 3.8%, and we believe further growth of disposable income will follow

30 Korea’s GDP growth, which is below 3%.

2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2016E China Cold Chain Logistics Industry Source : Statistics Korea As the demand for fresh food in China increases, the grocery market of China will grow at a CAGR of 17.6% from 28.5tn KRW in 2015 to 62.6tn Figure 9 : Growth of China’s Cold KRW in 2020 (China Logistics Institute, 2015). In order to transport fresh Chain Logistics Market food, China's cold chain logistics market will grow at a CAGR of 17.1% by (tn CNY) 2020 (China Cold Chain Federation, 2015). Currently, China's cold chain 565 600 493 usage rate is 19%, which is lower than 85%, the average of Japan, US, and 500 427 Western Europe (CJ KX, 2015). As the industry has a very high growth 366 400 309 potential, new competitors are entering the market. 257 300 200 Recent Trends 100 - Distribution Companies Penetrating Logistics Business 2015 2016E 2017E 2018E 2019E 2020E Distribution companies are entering logistics business. A typical example is Source : Company filing Amazon, which started its business as a distributor and now is investing heavily in the logistics network as it carries out its own delivery. In Korea Figure 10 : CAPEX Trends as well as overseas, many ecommerce companies are investing in the logistics network and proceeding to logistics. As distributors gradually (bn KRW) penetrate logistics industry, the bargaining power of professional logistics 80 companies such as CJ KX is expected to gradually weaken (Kim, 2016). 60 Continuous Price War 40 Courier service industry is characterized by its predatory pricing and 20 oligopoly. ASP decrease can stop only if a competitor is driven out from the market. However, considering major competitors’ CAPEX trends, this 0 competition will last at least five more years (Figure 10). 2013 2014 2015

CJ KX HL Hanjin Debut of Fresh Food in Online Shopping Growth in online shopping is likely to be led by food sales. Food accounts Source : Company filing for 30% of total retail sales, but it accounts for less than 10% of online shopping. However, online food product sales of 1Q16-3Q16 grew by 30% Figure 11 : Cost per Box compared to the same period of 2015. It is believed that increased online Comparison with Competitors shopping experience has improved the reliability of food purchase online. (KRW) 2,400 As a result, food is likely to take up a large portion of online shopping.

2,200 Competitive Positioning 2,000

1,800 Cost Efficiency from Economies of Scale - Although it has been 1,600 reducing its average shipping rates, the operating profit margin for the CJ KX Hanjin Hyundai courier services division has been stable (Appendix M). This was possible 2014 2015 2016E due to the economies of scale from the incremental growth in capacity, Source : Company filings, Team estimates reaching 4.4mn boxes in 2015. CJ KX has the largest number of couriers among its competitors, 16,000, which is 35.5% of entire couriers, and 4 Figure 12 : Cost Reduction Projection hub terminals and 200 sub terminals all over Korea. Taking advantage of (KRW) this, its cost per box is 1,880 KRW per box, which is lower than its competitors by 10% - 13% (Figure 11). 2,200 600

450 Additional Cost and Transit Time Reduction from the New Hub 1,800 Terminal - New mega hub terminal near Seoul area will reduce cost from 300 two perspectives. First, the automation system in the new hub is able to 1,400 150 replace labor of part-time workers. Secondly, it can reduce one transit procedure for 700,000 packages a day (Appendix Q). This will raise the 1,000 - operating margin of courier services division to 4.7% by 2021. Moreover, 2013 2015 2017E 2019E (RIGHT)2021E Fixed cost / box establishment of automation system throughout sub terminals is expected Cost / box to reduce some stages from the full delivery procedure (Appendix R). Variable cost / box Source : Company filing, Team estimates Figure 13 : Global Smartphone Exclusive Position of CL Division in Korea – Since CL business can only Penetration (2015) be achieved by establishing a nationwide logistics network, the economies of scale are important. Due to high initial investment, the entry barriers of 100% 88% this industry are high. As such, there are not many CL companies in Korea, 80% 72% 58% 60% and CJ KX has an exclusive position in the Korean CL industry. 60% 39% 40% Investment Summary 20% Market Growth Maturing 0% Korean courier services industry has been growing in tandem with the growth of online shopping, and online shopping growth was accelerated by the introduction of mobile shopping in 2013. However, we believe that courier services industry is peaking. Source : Pew Research Center Firstly, mobile shopping growth will slow down. The number of mobile Figure 14 : Growth of PC Shopping and TV Home Shopping Market in Korea after shopping users has hit the limit, without any room left for additional growth. Introduction of Mobile Shopping (YoY) (bn The smartphone penetration of Korea in 2015 is 88%, which exceeds any 30.0% KRW)30000 other countries in the world, with the average penetration of developed countries of 68% (Kang, 2016) (Figure 13). The growth rate of smartphone 22000 20.0% users in 2015 is 7.5%, which is far below than the 22.4% in 2013, showing 14000 10.0% lower-growth phase. 6000 0.0% -20000 Secondly, online shopping growth will not exceed mobile shopping growth, 2011 2012 2013 2014 2015 because mobile shopping is cannibalizing other channels, such as PC and -10.0% -10000 TV home shopping. During 2013-2015, when mobile shopping delivered a Mobile Shopping Market Size rapid growth, PC shopping in Korea decreased by average -4% per year.

PC shopping market Growth rate of TV home shopping also decreased from 15% in 2013 to -1% in 2015 (Kim, 2015) (Figure 14). TV homeshopping market Source : Statistic Korea, Korean Online Shopping Association Thirdly, growth in the courier market will slow down at a faster rate than the growth of online shopping (Appendix P). The next growth engine for the online shopping market, food, will benefit distributors rather than logistics Figure 15 : ASP Trends of Courier Industry companies, because they are already entering the fresh food logistics with (KRW) 4000 cost advantage. For example, E-Mart, Korea's biggest distributor, built two new food-optimized logistics centers in 2014 and 2015 (Yun, 2016). As a 3500 result, the proportion of fresh food sales in E-Mart's online sales increased 3000 from 27.7% in 2013 to 30.1% in 2015 (Suk and Kim, 2016). In terms of food being the most prosperous product, this threat will significantly limit 2500 the growth of the overall courier market. 2000 Difficult to Raise Price of Courier Services In Korea, the ASP of packages decreased by 20% for the past 10 years, Top5 Industry because there is a price war within the industry (figure 15). CJ KX is Source : Logistics Industry Comprehensive Survey currently unable to raise prices despite they are dominating the market

Figure 16 : Trend ASP of Yamato Holdings with 41% of market share. We believe that this will continue even when CJ KX secures more than half of market share. (JPY) 900 Top2 Generation Anyone Can Deliver within Two Days 800 South Korea being relatively small, every company can deliver general 700 ground packages in two-three days, and this is the case with Japan. In 600 Korea and Japan, the shipping rates depend on weight and distance and their ASPs continued to decline even after top companies dominated the

500 market (Figure 16). In US, where general ground package delivery takes

04 06 02 08 10 12 14

00 one-five days, it was easier for the carriers to offer different types of 80's service, segmented by transit times (Figure 17, 18) (Appendix W). Unless Source : Yamato Holdings CJ KX can offer a real unique service, we believe that it cannot raise the prices. Figure 17 : CJ KX Shipping Rates by Distance and Weight Figure 18 : FedEx Express Shipping Rates by Transit Times Size FedEx First FedEx Priority FedEx Standard FedEx FedEx FedEx 80cm 100cm 120cm 160cm Service name (x+y+z) Overnight Overnight Overnight 2Day A.M. 2Day Express Saver 2kg and 5kg and 15kg and 25kg and Delivery next day next day next day 2nd day 2nd day 3rd day weight less less less less commitment by 8 a.m. by 10:30 a.m. by 3 p.m. by 10:30 a.m. by 4:30 p.m. by 4:30 p.m. Zone1 1 lb. USD 54.09 USD 26.09 USD 23.83 USD 18.04 USD 15.69 USD 14.83 5‚000 7‚000 8‚000 9‚000 (KRW) 2 lbs. USD 54.43 USD 26.43 USD 25.17 USD 18.35 USD 15.96 USD 15.10 Weight Zone2 6‚000 8‚000 9‚000 10‚000 3 lbs. USD 57.59 USD 29.59 USD 27.36 USD 18.66 USD 16.23 USD 15.53 Zone3 9‚000 11‚000 12‚000 13‚000 4 lbs. USD 59.90 USD 31.90 USD 29.50 USD 19.23 USD 16.72 USD 15.80 Source : CJ Korea Express Source : FedEx Figure 19 : Same-day-delivery Service Withdrawals Willingness to Pay for Same-day-delivery Is Low Company Service Change Hoping to increase ASP, several distribution companies have launched Increased same-day-delivery, only to withdraw their services after a couple of years. Rocket- minimal order delivery (Figure 19). These withdrawals are due to low demand from customers. Coupang size by 100% Since there was not enough demand to spread the large fixed cost, 2-hour- Withdrawal consisting of inventory and labor costs, the companies had to stand large delivery amount of deficit and eventually abolished the service. Korean customers’ We make Order now Available only willingness to pay for the same-day-delivery is not high enough for the price get now for 4 products companies to maintain the service, so now the service is limited to certain 110 areas and goods only. Therefore, we believe that it is hard for CJ KX to minutes 11st Withdrawal make another unique service, which can raise the ASP. express delivery CJ Rokin’s Bad Product Mix Source : Hankyung, Company filing Currently, China's cold chain industry is growing mainly in the ecommerce, especially in fresh food sector. Online fresh food growth in China would be Figure 20 : China Online Fresh Food 70% which is higher than the overall online market growth rate of 17% in Consumption Growth Projection 2017 (Figure 20). Therefore, the growth of cold chain logistics market will 150% be focused on B2C. CJ Rokin is expected to see relatively slow growth as its business is centered on B2B cold chains. In addition, entries of large 117% ecommerce companies such as T-mall increase competition in the industry. 100% 82%

54% 81% Unfavorable Market Condition in China 50% 70% CJ Rokin has a high proportion of multinational companies(MNC) customers. However, due to the unfavorable environment in China, the performance of 0% MNCs is deteriorating. The outlook for MNCs in the Chinese market is 2014 2015 2016E 2017E 2018E declining (Figure 21). As such, CJ Rokin's earnings will also deteriorate due Source : iResearch, KOTRA to sluggish earnings from MNCs. In addition, the revenue of the industry specialized service platform will be less than the company guideline, because there is few incentive for Chinese companies to use CJ KX's platform, considering their exclusive market environment.

Figure 21 : Outlook for MNCs in China

100%

80% 35% 52% 60%

40% 48% 34% 20% 14% 17% 0% 2015 2016E

Neutral Adverse Favourable Source : Merrill Lynch (KRW) Valuation

Valuation Summary Figure 22 : Equity Value Breakdown By 10-year DCF Valuation, we arrive at the fair stock price of 138,000 KRW 100% and suggest SELL recommendation. The stock is currently being traded at 175,500 KRW, overvalued by 21.4%. The target price implies P/B ratio of Century Speedex Logistics 81 bn 1.00 and P/E ratio of 31.7 as of 2017. CJ Rokin 37 bn 301 bn Discounted Cash Flow (DCF) Valuation We select 10-year DCF valuation, because the growth rate of free cash flow is expected to be similar with the terminal growth rate in 10 years. Intrinsic value of subsidiary companies such as CJ Rokin and Century Logistics is calculated with DCF individually. However, due to lack of information regarding Speedex, we assume that its book value equals to market value. CJ KX Our target price 138,300 KRW is decomposed by 120,000 KRW from CJ KX, 2,742 bn Total 3,161 bn 13,200 KRW from CJ Rokin, 3,500 KRW from Speedex, and 1,600 KRW Source : Team estimates from Century Logistics (Figure 22). Figure 23 : DCF Summary DCF summary CJ KX Revenue Projection Enterprise value 4,271 Courier Division: There is a strong linear relationship between the average Net debt 1,529 selling price (ASP) and market share (M/S). CJ KX will have to maintain Equity value 2,742 their predatory pricing policy to drive out its competitors from the market. CJ Rokin Through the sensitivity analysis between ASP of CJ KX and operating profit Enterprise value 861 Net debt 56 margin of its competitors, we can determine ASP of CJ KX at the level of Equity value 806 which its competitors will face an operating loss. M/S is derived from the Value of ownership(37.3%) 301 regression equation with the ASP. Then we can get total revenue by Century logistics multiplying M/S and market volume. CL Division: Sales of CL division is highly correlated with the growth of Enterprise value 129 front industries. We divide the revenue into two sections, industrials and Net debt 8 consumer goods. Then, we multiply growth rate of each sections by each Equity value 112 revenues to arrive at the total sales growth rate. Value of ownership(31.4%) 37 Global Division: The key factor in projecting sales of Global division is that Speedex of CJ KX. Revenues in cold chain logistics are projected to follow market Book value 81 Total equity value 3,161 growth rate of 17% (2016-2021), and revenue in non-cold chain is Intrinsic value per share 138,560 expected to grow at relatively slower rate of CAGR 5%. Revenue from Key assumption cross-selling within the Group’s subsidiaries and and revenue from Terminal growth 2.00% subsidiaries are added to total revenue (Appendix U). WACC ~6.54% Source : Team estimation Cost Reduction Cost reduction from the establishment of new mega hub terminal and Figure 24 : OPM of Courier Services Division automation system is the key investment risk to our view. It will have three impacts. Firstly, the part-time labor cost will be decreased. After the 4% full automation, it will reduce 1,000 workers’ labor a day, which equates 24.3bn KRW every year. Secondly, cost reduction from decreased delivery 2% procedure. The new hub will be able to eliminate one out of three handlings. As a result, it will save 30 KRW per box, which is 6.9bn KRW a year. Thirdly, 0% reduction of courier’s commission. If the transit time decreases, couriers -2% would be able to deliver more packages a day. As a result, it will cause a labor surplus, so CJ KX will be able to reduce approximately 30 KRW from -4% the courier’s commission per box. However, even if these three impacts are Source : Company Filings,Team estimates realized, the operating margin of courier services division will drop from 3.7% of 2018 to 2.4% of 2019, due to huge increase of fixed cost (Figure Figure 25 : Capex Projection 24). (bn KRW) 400 CAPEX and Depreciation Our CAPEX forecast through 2018 is based on the company’s plan, 300 subtracting revenue from sales of fixed assets on the basis of historical 200 discrepancy between company’s plan and the actual expenditure. From 100 2018 to 2026, we assume CAPEX would increase at the same rate of - increase in sales (Figure 25). We believe CAPEX in intangible asset would

be the same as amortization expense (Appendix G). Depreciation cost is

2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2017E assumed to follow the growth rate of fixed assets in previous year. Capex from Courier Capex from the others Beta Total capex High risk from unstable capital structure is one of the key factors in Source : Team estimates evaluating CJ KX. To reflect high financial leverage effect on the risk side, Figure 26 : WACC Computation we use bottom-up beta, taking financial leverage and cash effect into consideration (Appendix J). We apply different betas as the weight of cash 2017E 2018E 2019E 2020E 2021E decreases and financial leverage increases to get 0.94. This is 6% higher WACC 6.82% 6.42% 6.53% 6.54% 6.54% than the adjusted 5-year regression beta (0.88). COE 9.12% 8.42% 8.45% 8.44% 8.44% Levered Beta 1.04 0.94 0.94 0.94 0.94 Weighted Average Cost of Capital (WACC) To estimate the cost of equity, we use CAPM model. We calculate historical Unlev. Beta 0.78 0.70 0.70 0.70 0.70 average of KOSPI to arrive at the market return, 8.82%. Market return No cash Beta 0.83 0.75 0.75 0.75 0.75 implied in current P/E ratio of KOSPI is 10.1%, validating our assumption BVD/MVE 44.5% 45.3% 45.5% 45.4% 45.3% (Appendix S). Supposing investment horizon to be 10 years, we use yield Cash/Equity 6.3% 6.3% 6.3% 6.3% 6.3% of 10-year Korean national bond as a risk free rate. Cost of debt is derived from adding credit default spread, based on AA- credit rating, to the risk Risk free rate 1.6% 2.1% 2.5% 2.5% 2.5% free rate. Marginal tax rate is projected to be statutory tax rate, 24.2%. By Mkt. Return 8.8% 8.8% 8.8% 8.8% 8.8% weight-averaging cost of equity and cost of debt after tax, we can come to COD 2.2% 2.7% 3.1% 3.1% 3.1% WACC. WACC after 2021 is projected to be the same as that of 2021, since We 69.2% 68.8% 68.7% 68.8% 68.8% the financial structure of the company is estimated to remain stable after Wd 30.8% 31.2% 31.3% 31.2% 31.2% 2021 (Appendix F). Source : Bloomberg, Team estimates Figure 27 : Acquisition Cost Terminal Growth Rate Derivation vs. Intrinsic Value We set terminal growth rate as the target inflation rate of Korea, 2%. Our (bn KRW) (bn KRW) Century Logistics terminal growth rate is cross checked with the formula of Growth = ROIC ∗ CJ Rokin 50 500 Reinvetment rate. We assume ROIC to converge into WACC, which is 6.54% and reinvestment ratio to be 31.7%, which is the average of Korean 300 30 -50% -27% corporations through 1998–2015. This gives us similar result of 2.07% of 100 455 301 10 47 37 terminal growth rate.

-100 Acquisition Intrinsic -10 Acquisition Intrinsic Cost Value Cost Value Calculation of Subsidiaries’ Value Source : Team estimates We derive the target price by calculating the equity value of CJ Rokin and Century Logistics independently with different discount rates. This is to measure the impact of acquisitions correctly. Each companies’ WACC is derived using CAPM model (Appendix F). Consequently, we conclude that (P/B x) Figure 28 : ROE – PBR Chart the acquisition cost of CJ Rokin and Century Logistics are overpriced by 3.70 51.3% and 27.4%, respectively (Figure 27)(Appendix C). 3.20 2.70 Relative Valuation 2.20 To cross-check the validity of our target price acquired by DCF valuation, we use relative valuation models as well. Multiplying target P/B ratio of 1.70 CJ KX 1.03 by BPS for 2017, we can get target price of CJ KX, 143,000 KRW. We 1.20 believe P/B ratio as a valid multiple to measure company’s value, because 0.70 first, multiples based on earnings are not appropriate to reflect cost 0.20 efficiency after 2019 (Figure 29). Second, due to industry features where - 5.00 10.00 15.00 economies of scale serve as a key factor, the value of fixed assets plays an (ROE, %) Source : Bloomberg, Team estimates important role in measuring the share’s intrinsic value. We derive the *We enlarged certain area for visibility target P/B ratio with regression analysis between ROE and P/B ratio with 45 global logistics companies. Comparing with the most comparable peer, our Figure 29 : Target Prices by target P/B ratio equates to a 35% discount to Yamato holdings. Considering Each Valuation Method (KRW) CJ KX showing lower ROE and market share, we believe our target P/B ratio is fair. Our relative valuation tells us current stock price is overvalued by EV/Sales 174,000 18.3%, supporting our SELL recommendation (Figure 28)(Appendix D).

EV/EBIT 91,000 DA

PBR 143,000 Current (As of 2017) EV/EBITDA P/B P/E ROE OPM Market share in the industry(2015) price PER 68,000 175,500 Yamato holdings 7.88 1.68 x 22.45 x 7.5% 2.2% 45.4% CJ KX 14.27 1.28 x 37.3 x 3.5% 4.2% 41.2% DCF 138,000 - 100,000 200,000 Financial Analysis Source : Team estimates

2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E Growth Sale growth 20.2% 10.9% 18.1% 7.9% 7.0% 7.0% 6.5% 6.1% Operating profit growth 160.3% 11.7% 30.4% 10.3% 13.1% -2.4% 12.4% 11.7% Net income growth N/A -17.5% 53.9% 44.4% 27.6% -5.5% 22.4% 18.0% FCF growth N/A -8.5% N/A N/A -1.4% 282.5% 11.9% 9.7% Profitability Operating Profit Margin 1.7% 3.7% 3.7% 4.1% 4.2% 4.4% 4.0% 4.2% 4.5% Net Profit Margin -1.6% 1.3% 1.0% 1.3% 1.7% 2.0% 1.8% 2.0% 2.3% FCF margin -21.2% 5.0% 4.1% -1.2% 0.8% 0.7% 2.6% 2.8% 2.9% ROA 2.30% 3.3% 3.7% 3.3% 3.3% 3.6% 3.4% 3.7% 4.1% ROE 4.10% 2.6% 1.9% 2.6% 3.5% 4.3% 3.9% 4.5% 5.2% Liquidity Current Ratio 1.39 1.45 0.96 1.03 1.00 0.95 0.97 0.98 1.01 Quick Ratio 1.37 1.44 0.96 1.03 1.00 0.94 0.96 0.98 1.00 Cash Ratio 0.11 0.13 0.08 0.09 0.09 0.09 0.08 0.08 0.08 Activity Accounts Receivable Turnover 5.26 5.90 5.83 6.14 6.21 6.24 6.28 6.33 6.54 Total Asset Turnover 0.90 1.00 1.12 1.19 1.11 1.12 1.17 1.22 1.27 Fixed Asset Turnover 2.53 2.84 3.23 3.26 3.28 3.39 3.61 3.82 Financial Leverage Long-term debt to Assets 28.1% 27.3% 15.4% 22.1% 21.6% 21.1% 20.2% 19.0% 17.8% Debt to Capital 42.8% 40.3% 34.6% 41.4% 41.3% 40.7% 39.9% 38.8% 37.6% Debt to Equity 105.0% 99.2% 89.8% 109.6% 107.4% 104.7% 101.6% 97.5% 92.9% Interest Coverage Ratio 1.07 2.54 3.51 4.44 3.74 4.16 3.99 4.47 5.00 Figure 30 : Sales Growth Rate Breakdown

30.0% Limited Revenue Growth Revenue of CJ KX will constantly grow at a CAGR of 6.9% 2016-2021, 20.0% mainly driven by the revenue growth of courier service division, which is expected to grow at a CAGR of 11% 2016-2021 (Figure 30). However, the 10.0% pace of revenue growth will decrease overtime due to decreasing growth rate of courier service industry, unfavorable macroeconomic environment 0.0% and constant lower growth of CL division. In order to avoid these negative impacts, additional M&As and aggressive CAPEX are needed, which can make the financial position even worse. Total growth Growth in CL division Improving Margin Pushes Earnings Growth Growth in Courier division Growth in Global division The pace of total revenue growth is estimated to decrease gradually over Source : Company filing, Team estimates time, but thanks to the growing profit margin, we will see the constant increase in net income. From 2016 to 2021, the net profit margin rises Figure 31 : Operating Margin Breakdown from 1.3% to 2.3%. In the same period, net income of the company grows 8% at a CAGR of 20.3%. This rising profit margin is mostly caused by the economies of scale and decrease in interest burden after 2018. However, 6% operating margin barely improves due to the big hike in fixed costs from 4% the construction of new mega hub terminal (Figure 31).

2% Sluggish Cash Flow in Near Future 0% Despite the constant improvements in profitability, the FCF margin of the company is expected to stay below 0.8% until 2018 (Figure 32). The main -2% culprit is CAPEX, which is largely attributed to investment in the mega hub Total operating margin OPM in CL division terminal and the automation system. In addition, several overpricing in OPM in Courier division recent M&As made it worse. As a result, CJ KX will face liquidity problems OPM in Global division until 2018, because cash flow is expected to recover from CAPEX only after 2019 according to our analysis. Not until 2021 does the CJ KX redeem Source : Company filing, Team estimates current ratio of 100%. In the long term, CAPEX will consistently be needed due to the competitive industry environment.

Stumbling Balance Sheet (bn KRW) With the consecutive issues of bond payables and long-term borrowing, Figure 32 : Free Cash Flow Projection debt-to-equity ratio of CJ KX surges to 109.6% in 2016. Even though it 300 gradually reduces debt-to-equity ratio to 92.9%, it is still far higher than 200 the industry average of 77.2% (Figure 33). The result is difficulties in further CAPEX and future M&As, unless the company dilutes stockholder’s 100 equities by selling its treasury stocks. Growing financial burdens in the

- short term should be considered to be a concern as well. In addition, it is

likely that CJ KX would suffer from credit rating lowering, due to their 2015

(100) 2014 financial problems.

2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

(200) ROE Decomposition (300)

(400) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E

(500) ROE Decomposition 4.10% 2.55% 1.94% 2.63% 3.50% 4.28% 3.87% 4.51% 5.18% Source : Company filing, Team estimates Net Profit Margin -1.6% 1.3% 1.0% 1.3% 1.7% 2.0% 1.8% 2.0% 2.3%

Asset Turnover 0.90 1.00 1.12 1.19 1.11 1.12 1.17 1.22 1.27

Figure 33 : Debt-to-Equity Ratio Financial Leverage 2.05 1.99 1.90 2.05 1.99 1.96 1.92 1.86 1.81 120% Return on equity of CJ KX is estimated to increase continually from 2.6% to 110% 5.2% through 2016-2021. Constant improvement in financial structure 100% after 2018 will decrease the financial leverage. However, the increasing 90% total asset turnover caused by new automation system will offset the effect of decreasing financial leverage. The main driver of change is improvement 80% in net profit margin from economies of scale and decreasing interest 70% Industrial Average 77.2% burden. However, ROE of the company will not exceed the cost of equity of 60% 8.4% or ROE implied in the P/B ratio as of 2021, 9.5%.

Source : Company filing, Team estimates Figure 34 : Contribution of Investment Risks 2.0% Reflected Benefit to CL’s OP Reflected Benefit from Hanjin Shipping 1.5% With Hanjin Shipping, which is the biggest Korean shipping company, jeopardizing their shipping business, there are expectations that CJ KX’s 1.0% forwarding business will benefit from this situation. However, most of Hanjin Shipping’s volume went to the shipping giant, M2 Alliance (MSC, 0.5% MAERSK). Since there is no reason for foreign container lines to make new contracts with CJ KX’s forwarding, there should not be any significant 0.0% amount of reflected benefit. If CJ KX were to take 20% of forwarding share, 2016E 2017E 2018E 2019E 2020E 2021E contribution to CL division’s OP is only 1% (Figure 34), (Appendix W). Source : Team estimates Liquidation of Treasury Shares Figure 35 : Stress Test by CJ KX owns 23% of treasury shares out of total outstanding shares issued. Liquidation Rate of Treasury Stocks If these shares are liquidated at the rate of current market capitalization, the price amount to 1tn KRW. However, possibility of liquidation is minimal 100% 178,500 KRW for the following reasons: First, it is difficult to sell a such a massive scale Liquidation 1.7%, Hold of treasury shares in the market. Second, CJ KX has to protect the controlling power, which is related with the voting shares. Third, liquidation 60% 162,500 KRW is the last means to finance for additional unexpected expenditure (Figure Liquidation -7.4%, Hold 35), (Appendix W).

Competitors’ Earlier Exit from the Industry 30% 150,500 KRW -14.2%, Sell Liquidation We project that major competitors in courier service division such as Hyundai Logistics and Hanjin would not withdraw their business at least for 138,000 KRW five years because they are putting continuous CAPEX. However, if this Base -21.4% Sell scenario changes, and they will exit from the industry earlier than our Source : Team estimates projection, it is possible for CJ KX to raise its ASP based on their dominant power in the industry. However, we believe that it cannot raise ASP even after it secures more than half of M/S because of market changes. Figure 36 : Distributors’ Investment into Logistics Constant High Online Shopping Growth Company Investment Date The main demand driver of courier service industry is online shopping, Building 2015.11 including mobile shopping. If online shopping delivers continuous high logistics center growth unlike our projection, CJ KX will also continuously generate higher Lotte Acquisition of 2014.9 Hyundai Logistics revenue from courier service division than our estimation. However, we Operation of Lotte believe that the growth of online shopping has started to slow down, so the 2014.12 Super Fresh Center possibility of constant high online shopping is not high. Building 2014.6 logistics center1 Shinsegae Building Same-day-delivery with Distribution Companies 2015.12 logistics center2 The prerequisite for the same-day-delivery is inventory. If CJ KX and a Expansion of Homeplus 2014.6 distributor makes an alliance and introduce the same-day-delivery together, logistics center it is possible for CJ KX to raise its ASP. However, the biggest domestic Hyundai Expansion of 2014.8 Homeshopping logistics center distributor “E-mart” is delivering their products for themselves. We believe Operation of that there is a minimal possibility that another distributor makes an ally GS shop 2014.4 logistic center with CJ KX because distributors are already investing into their own Operation of Ebay Korea 2014.12 logistics network (Figure 36). logistic center Launch of Coupang 2014.3 Rocket-Delivery Synergy from Global Division Source : Team estimates CJ groups’ subsidiaries aggressively entering Southeast Asian region makes it possible for CJ KX to generate revenue from taking their shipping. The Figure 37 : Risk Mitigation reflected benefit from the shipping costs of the two most active enterer CJ Risk Mitigating Factors Cheil Jedang and CJ Freshway is expected to reach 34bn KRW in 2020, however, this figure is only 1.5% of global division’s revenue. Thus, we Reflected benefit from Ha No incentive to use believe that the impact of this potential is insignificant, (Appendix W). njin shipping CJ KX’s forwarding

Liquidation of Low possibility Reduction of Delivery Commission Fee treasury shares CJ KX is able to save cost by reducing couriers’ delivery commission fee. Competitors’ Enabling the operating profit margin to improve, it can be a huge upside Competitors’ earlier exit continuous CAPEX potential for CJ KX. CJ KX owns the most-experienced couriers among competitors, and has been trying to secure the couriers. If CJ KX lowers Constant high online Decreasing rate of grow shopping growth th the commission fee, there is a high possibility that couriers would go to other companies. As a result, the decreasing trend of delivery commission Same-day-delivery with di Minimal possibility of fee has been stagnant during the past two years, so we believe that it is stribution companies alliance with distributor unlikely for the company to lower the delivery commission fee. Source : Team analysis Appendix A - Financial Statements

a. Consolidated Income Statement Excluding New Subsidiaries (Rokin, Speedex, Century)

(Unit: Billion won) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E Sales 3,795 4,560 5,056 5,570 5,967 6,344 6,761 7,165 7,562 Contract Logistics 1,823 2,026 2,141 2,219 2,313 2,409 2,511 2,621 2,737 Courier delivery 1,123 1,300 1,557 1,827 2,088 2,325 2,593 2,838 3,072 Global 1,071 1,286 1,418 1,523 1,566 1,610 1,656 1,705 1,753 Cost of goods sold 3,485 4,082 4,507 4,915 5,286 5,598 5,908 6,216 6,487 Gross Profit 310 479 549 655 682 746 852 949 1,075 Contract Logistics 193 245 267 272 285 298 312 328 344 Courier delivery 61 128 158 230 240 287 374 451 555 Global 56 106 124 152 157 161 166 171 175 Gross Profit Margin(%) 8.2% 10.5% 10.9% 11.8% 11.4% 11.8% 12.6% 13.2% 14.2% SG&A 246 312 363 437 443 478 596 661 754 SG&A(% to Sales) 6.5% 6.8% 7.2% 7.8% 7.4% 7.5% 8.8% 9.2% 10.0% Operating Profit 64 167 187 218 238 268 256 287 321 Contract Logistics 105 120 127 126 132 139 146 154 162 Courier delivery - 27 36 49 54 65 85 63 85 106 Global - 14 12 11 38 41 44 47 49 53 Operating Profit Margin(%) 1.7% 3.7% 3.7% 3.9% 4.0% 4.2% 3.8% 4.0% 4.2% Other non-operating gain or loss - 70 - 34 - 68 - 57 - 53 - 59 - 56 - 56 - 57 Financial gain or loss - 27 - 50 - 55 - 64 - 68 - 80 - 93 - 92 - 91 Financial revenue 63 36 28 8 13 13 12 12 13 Interest income 18 15 3 2 6 7 6 6 7 Gains on foreign exchange translation 3 7 7 5 6 6 6 6 6 Revenue from equity method ------Dividend Income 1 1 1 1 1 1 1 1 1 Financial loss 91 86 82 72 81 93 105 104 105 Interest expense 60 66 53 48 72 82 93 94 94 Losses on foreign exchange translation 5 3 9 15 9 11 12 10 11 Loss from equity method - - - 13 - - - - - Other financial gains and losses - - - - 4 - - - - - Earnings before tax - 46 87 80 97 117 128 106 139 172 Effective tax rate N/A 16.3% 21.3% 24.2% 24.2% 24.2% 24.2% 24.2% 24.2% Income Tax - 30 14 17 23 28 31 26 34 42 Net income - 60 60 49 74 89 97 81 106 130 Source : Company disclosure, Team estimates b. Consolidated Income Statement Including All Subsidiaries (Rokin, Speedex, Century)

(Unit: Billion won) 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sales 3,795 4,560 5,056 5,972 6,442 6,894 7,377 7,856 8,332 Contract Logistics 1,823 2,026 2,141 2,219 2,313 2,409 2,511 2,621 2,737 Courier delivery 1,123 1,300 1,557 1,827 2,088 2,325 2,593 2,838 3,072 Global 1,071 1,286 1,418 1,926 2,041 2,160 2,272 2,397 2,524 Cost of goods sold 3,497 4,082 4,507 5,234 5,666 6,079 6,521 6,957 7,386 Gross Profit 298 479 549 738 776 815 856 900 946 Contract Logistics 193 245 267 272 285 298 312 328 344 Courier delivery 49 128 158 272 285 298 312 328 344 Global 56 106 124 194 206 219 231 244 258 Gross Profit Margin(%) 7.8% 10.5% 10.9% 12.4% 12.0% 11.8% 11.6% 11.5% 11.4% SGA 233 312 363 495 507 511 559 566 574 SGA(% to Sales) 6.1% 6.8% 7.2% 8.3% 7.9% 7.4% 7.6% 7.2% 6.9% Operating Profit 64 167 187 243 268 304 296 333 372 Contract Logistics 105 120 127 126 132 139 146 154 162 Courier delivery - 27 36 49 54 65 85 63 85 106 Global - 14 12 11 63 72 80 88 94 104 Operating Profit Margin(%) 1.7% 3.7% 3.7% 4.1% 4.2% 4.4% 4.0% 4.2% 4.5% Other non-operating profit or loss - 70 - 34 - 68 - 57 - 53 - 59 - 56 - 56 - 57 Financial profit or loss - 45 - 50 - 55 - 85 - 81 - 72 - 76 - 75 - 74 Financial revenue 63 36 28 8 13 12 10 10 11 Interest income 18 15 3 2 6 5 4 4 5 Gains on foreign exchange translation 3 7 7 5 6 6 6 6 6 Income from equity method ------Dividend Income 3 1 1 1 1 1 1 1 1 Financial loss 91 86 82 82 81 68 68 65 63 Interest expense 60 66 53 55 72 73 74 75 74 Losses on foreign exchange translation 5 3 9 15 9 11 12 10 11 Dividend Loss - - - 13 - - - - - Other financial gains and losses - 3 - 4 - 3 - 11 - 13 - 15 - 18 - 20 - 23 Gain and loss from investments in associates 5 3 17 8 9 11 9 10 10 Income before taxes - 45 87 80 109 144 183 173 212 250 Effective tax rate 16.3% 21.3% 24.2% 24.2% 24.2% 24.2% 24.2% 24.2% Income Tax - 30 14 17 26 35 44 42 51 61 Income from continuing operations - 15 72 63 101 109 139 131 161 190 Income from discontinued operations - 45 - 13 - 14 ------Net income - 60 59 49 75 109 139 131 161 190 Controlling shareholder's net income - 56 57 46 55 100 110 95 122 148 Source : Company disclosure, Team estimates Appendix A - Financial Statements

c. Consolidated Statement of Financial Position

(Unit: Billion won) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E Total Assets 4,609 4,543 4,500 5,501 6,072 6,233 6,349 6,479 6,627 Current assets 1,330 1,265 1,239 1,600 1,955 1,935 2,027 2,126 2,238 Cash and cash Equivalents 101 115 100 144 267 267 267 267 267 Short-term financial assets 18 20 23 173 165 81 103 133 177 Account Receivables 694 751 796 939 1,151 1,215 1,285 1,353 1,420 Inventory 15 10 10 9 13 13 14 15 15 Other current assets 501 368 311 336 359 359 359 359 359 Non-current assets 3,279 3,278 3,261 3,901 4,117 4,298 4,322 4,352 4,389 Fixed assets 1,816 1,793 1,773 1,969 2,105 2,286 2,310 2,340 2,377 Intangible assets 1,294 918 937 937 937 937 937 937 937 Investments in real estate 159 160 139 140 140 140 140 140 140 Other non-current assets 9 407 412 856 936 936 936 936 936 Total Liabilities 2,361 2,262 2,129 2,941 3,270 3,332 3,367 3,390 3,407 Current liabilities 957 870 1,286 1,550 1,855 1,919 1,990 2,059 2,127 Account payable 342 323 391 433 595 623 650 677 701 Current borrowings 363 269 538 639 679 716 759 801 845 Short-term borrowings 249 217 209 310 350 387 430 472 516 Current bonds payable 20 ------Current portion of long-term debts 94 52 329 329 329 329 329 329 329 Other current liabilities 252 278 356 478 581 581 581 581 581 Non-current liabilities 1,404 1,392 843 1,390 1,415 1,413 1,377 1,331 1,280 Non-current borrowings 1,293 1,240 691 1,207 1,223 1,221 1,185 1,139 1,088 Bond payable 490 540 380 898 897 896 861 816 766 BW ------Long-term borrowing 805 702 312 311 328 327 326 325 324 Other non-current liabilities 110 152 152 183 192 192 192 192 192 Total equity 2,248 2,281 2,372 2,683 3,045 3,184 3,315 3,476 3,666 Total controlling shareholder's equity 2,218 2,239 2,323 2,614 2,703 2,819 2,925 3,056 3,213

Source : Company disclosure, Team estimates d. Consolidated Statement of Cash Flow

(Unit: Billion won) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E Beginning cash balance 152 101 115 100 144 144 144 144 144 Cash flow from operating activity - 93 260 172 187 256 264 260 289 315 Net income - 71 59 49 101 89 97 81 106 130 Depreciation 74 87 87 149 164 166 185 187 190 Amortization 13 37 38 38 38 38 38 38 38 Net loss on foreign currency transition 2 - 1 2 ------Net loss from equity method 0 - - 12 ------Net working capital increase - 137 - 71 23 - 100 - 35 - 37 - 44 - 42 - 44 Cashflow from investing activity - 129 - 67 - 86 - 233 - 387 - 469 - 225 - 225 - 221 Capital expenditure - 244 - 96 - 87 - 345 - 300 - 346 - 208 - 217 - 226 Acquisition of intangible assets - 10 - 19 - 19 - 38 - 38 - 38 - 38 - 38 - 38 Acquisition of subsidiaries ------Net acquisition of financial assets - - - 150 - 49 - 84 22 30 44 Cashflow from financing activity 174 - 179 - 101 389 34 36 9 - 3 - 6 Introduction of bond payables 319 30 38 290 - - - - - Net increase in borrowings 109 183 70 100 35 37 44 42 44 Introduction of long-term account payables ------Repayment of borrowings - 103 390 - 1 - 1 - 1 - 35 - 45 - 50 Decrease in PV of discount account 3 - 5 - 14 ------Dividend ------Change in exchange rate of foreign currency - 3 1 0 ------Decrease in cash from discontinued operation - 0 ------Change in cash balance - 50 14 - 15 ------Ending cash balance 101 115 100 144 144 144 144 144 144

Source : Company disclosure, Team estimates Appendix B - Key Ratios

Key Ratios

P/E ratio and P/B ratio is calculated with EPS and BPS for controlling shareholders. The multiples in 2013-2015 is calculated based on average market capitalization of that period.

2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E OPM (%) 1.69 3.66 3.69 4.07 4.17 4.40 4.02 4.24 4.47 NPM (%) - 1.58 1.30 0.97 1.26 1.69 2.02 1.78 2.05 2.28 ROA (%) 2.30 3.34 3.75 3.32 3.27 3.60 3.37 3.73 4.08 ROE (%) 4.10 2.55 1.94 2.63 3.50 4.28 3.87 4.51 5.18 EPS (won) - 2,446 2,512 2,012 2,408 4,373 4,819 4,155 5,331 6,497 BPS (won) 119,631 120,090 122,400 130,623 138,956 143,456 148,305 153,496 159,814 DPS (won) ------PER (x) N/A 78.1 94.8 73.9 40.7 36.9 42.8 33.4 27.4 PBR (x) 0.88 0.83 1.53 1.43 1.35 1.30 1.26 1.22 1.17 EV/EBITDA (x) 13.2 26.9 20.3 15.7 14.2 13.2 12.9 12.0 11.1

Source : Company disclosure, Team estimates Appendix C - DCF Valuation a. DCF of CJ KX (Excluding CJ Rokin, Speedex and Century logistics)

(Unit: Billion won) 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E EBIT 238 268 256 287 321 337 355 370 383 396

NOPAT 180 203 194 218 243 255 269 280 290 300

Depreciation and amortization 181 183 202 205 208 207 212 216 220 224

Capital expenditure - 278 - 334 - 197 - 208 - 220 - 210 - 219 - 226 - 233 - 239

Change in net working capital 35 37 44 42 44 14 34 32 29 27

Free Cash flow 48 15 156 173 188 238 228 238 259 248 WACC 6.8% 6.4% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5%

Accumulated WACC 6.8% 13.7% 21.1% 29.0% 37.4% 46.4% 56.0% 66.2% 77.1% 88.6%

PV of FCF 45 13 129 134 136 162 146 143 140 137

SUM of PV 1,187 Enterprise Value 4,271 Market Cap 2,742

Terminal g 2.0% Cash 317

Terminal V 3,084 Debt 1,846

b. FCF of CJ Rokin

(Unit: Billion won) 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

EBIT 30 35 39 44 49 53 57 61 65 68

NOPAT 22 26 29 33 36 40 43 46 48 51

Depreciation and amortization 22 25 27 30 33 36 40 43 48 53

Capital expenditure 19 22 24 27 29 32 34 36 38 40

Change in net working capital 3 4 4 5 5 6 6 6 7 7

Free Cash flow 23 25 28 31 35 38 42 47 51 56

WACC 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6%

Accumulated WACC 6.6% 13.6% 21.1% 29.1% 37.6% 46.7% 56.4% 66.7% 77.7% 89.4%

PV of FCF 21 22 23 24 25 26 27 28 29 30

SUM of PV 116 Enterprise Value 861 Equity value 806

Terminal g 4.0% Cash 25 Stake 37.3%

Terminal V 745 Debt 81 Value of ownership 301 c. FCF of Century logistics

(Unit: Billion won) 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

EBIT 9.4 9.9 10.4 10.9 11.5 12.0 12.4 12.9 13.3 13.7

NOPAT 7.0 7.4 7.8 8.2 8.6 9.0 9.3 9.7 10.0 10.3

Depreciation and amortization 1.3 1.4 1.5 1.5 1.6 1.7 1.7 1.8 1.9 1.9

Capital expenditure 1.8 1.8 1.9 2.0 2.2 2.2 2.3 2.4 2.5 2.6

Change in net working capital 0.3 0.6 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.5

Free Cash flow 6.3 6.3 6.6 7.0 7.4 7.8 8.1 8.5 8.8 9.1

WACC 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3%

Accumulated WACC 6.3% 13.0% 20.1% 27.6% 35.7% 44.2% 53.3% 62.9% 73.1% 84.0%

PV of FCF 6.0 5.6 5.5 5.5 5.4 5.4 5.3 5.2 5.1 5.0

SUM of PV 54 Enterprise Value 13 Market Cap 118

Terminal g 2.6% Cash 24 Stake 31.4%

Terminal V 75 Debt 36 Value of ownership 37

Appendix D - Relative Valuation

a. Target Price by Each Multiple as of 2016-2018

EV/EBITDA EV/Sales

2016E 2017E 2018E 2016E 2017E 2018E

EBITDA 419 451 480 Sales 5,884 6,425 6,871

Target Multiple (Avg.) 10.56 9.38 8.44 Target Multiple (Avg.) 1.83 1.68 1.52

Target Multiple (Med.) 8.91 7.99 7.18 Target Multiple (Med.) 0.90 0.86 0.83

Target EV (bn KRW) 3,728 3,606 3,445 Target EV (bn KRW) 5,322 5,520 5,689

Net debt (bn KRW) 1,535 1,535 1,535 Net debt (bn KRW) 1,535 1,535 1,535

Target Market. Cap 2,193 2,071 1,911 Target Market. Cap (bn KRW) 3,787 3,986 4,154

Shares outstanding 22,812,344 22,812,344 22,812,344 Shares outstanding 22,812,344 22,812,344 22,812,344

Target Price 96,152 90,800 83,754 Target Price 166,023 174,715 182,092

P/E P/B

2016E 2017E 2018E 2016E 2017E 2018E

Earnings 107 106 120 Book value of Equity 2,614 2,703 2,819

EPS 4,697 4,663 5,264 BPS 126,011 138,956 143,456

Target Multiple (Avg.) 24.8 24.4 16.3 Target Multiple (Reg.) 0.92 1.03 1.13 Target Market. Cap Target Multiple (Med.) 16.6 14.6 12.5 (bn KRW) 2,405 2,785 3,186 Target Market. Cap (bn KRW) 1,779 1,550 1,506 Shares outstanding 22,812,344 22,812,344 22,812,344

Shares outstanding 22,812,344 22,812,344 22,812,344 Target Price (KRW) 105,420 143,124 162,105

Target Price (KRW) 77,969 67,934 66,015 Appendix E – Historical 12M Trailing Multiples

(KRW) PBR Band (KRW) EV/EBITDA_ Band 300,000 600,000

250,000 500,000

200,000 400,000 300,000 150,000 200,000 100,000 100,000 50,000 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016

Price(Adj.) 1.0X EV/SHARE 13.0X 18.0X 1.3X 1.5X 21.0X 27.0X 1.7X Source : Quantiwise

Appendix F - WACC Computation

a. WACC Computation of CJ KX

2016E 2017E 2018E 2019E 2020E 2021E Remarks WACC 6.98% 6.82% 6.42% 6.53% 6.54% 6.54% Reflected financial position of each year COE 9.32% 9.12% 8.42% 8.45% 8.44% 8.44% Applied CAPM model Levered Beta 1.07 1.04 0.94 0.94 0.94 0.94 Applied Hamada equation Unlevered Beta 0.80 0.78 0.70 0.70 0.70 0.70 Assumed beta of cash to be zero No cash Beta 0.83 0.83 0.75 0.75 0.75 0.75 Median of global logistics companies (1-year regression) BVD/MVE 43.74% 44.53% 45.35% 45.53% 45.42% 45.25% Assumed market value of equity to be the same as now Cash / Equity 3.42% 6.32% 6.32% 6.32% 6.32% 6.32% Assumed market value of equity to be the same as now Risk free rate 1.58% 1.58% 2.08% 2.50% 2.50% 2.50% 10-year Korean treasury yield Market Return 8.82% 8.82% 8.82% 8.82% 8.82% 8.82% Geomean of historical KOSPI Market return from 2009 COD 2.16% 2.16% 2.66% 3.08% 3.08% 3.08% Risk free rate + credit spread We 69.57% 69.19% 68.80% 68.72% 68.76% 68.85% Assumed market value of equity to be the same as now Wd 30.43% 30.81% 31.20% 31.28% 31.24% 31.15% Assumed market value of equity to be the same as now

b. 5-year Regression Beta of CJ KX 15.0% y = 0.8287x + 0.0011 Standard coefficient t Stat P-Value R² = 0.1008 error 10.0% Y intercept 0.001067 0.000619 1.725038 0.084771 X 1 0.828709 0.070415 11.76885 2.21E-30 5.0%

Regression 0.0% Multiple correlation coefficient 0.317439 -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% R square 0.100768 -5.0% Adjusted R square 0.10004 Standard Error 0.021766 -10.0% Observations 1238 -15.0% Source : Bloomberg

c. WACC Computation of CJ Rokin and Century Logistics

CJ Rokin Century logistics Remarks WACC 7.7% 6.5% Weighted average of cost of equity and cost of debt COE 11.2% 7.8% Applied CAPM model Beta 1.13 0.72 Median of local logistics company of each country Risk free Rate 2.7% 2.6% 10-year treasury rate of each country Market Return 10.23% 9.85% Geomean of historical Shanghai composite and Bursa Malaysia return from 2009 D/E 60.5% 42.4% Used book value for both debt and equity as a proxy COD 1.9% 3.5% Credit spread was derived from the average of peers with similar Debt-to-equity We 62.3% 70.2% Used book value for both debt and equity as a proxy Wd 37.7% 29.8% Used book value for both debt and equity as a proxy Source : Bloomberg, Team estimates Appendix G - CAPEX & Depreciation

a. CAPEX

For courier division, we expected 57% of company plan should be net CAPEX, since some part of Daejeon terminal would be disposed, making the net CAPEX to decrease. Retrospecting past 3 years, 57% of company plan has left as a net capex.

2016E 2017E 2018E 2019E 2020E 2021E Remarks Courier Division 84 135 194 48 48 48 2016-2018: Company disclosure, After 2018, the same as depreciation cost CL division 80 62 42 44 45 47 2016-2018: Company disclosure, After 2018, Linked with sales growth Global division 127 45 49 52 56 60 Acquisition cost added IT 38 38 38 38 38 38 Assumed to be the same through 2016-2021 Total 329 280 322 182 187 193

b. Depreciation 2016E 2017E 2018E 2019E 2020E 2021E Remarks Courier Division 30 30 30 48 48 48 Raised it from current depreciation proportionate to increase in capacity CL division 58 59 59 58 57 57 Raised it proportionate to increase in fixed assets Global division 41 52 51 50 51 51 Raised it proportionate to increase in fixed assets IT 38 38 38 38 38 38 Assumed to be the same as capex in IT Total 128 140 140 156 156 156

WACC AppendixTerminal G H – Scenario Analysis

Scenario Analysis - Target Price Change by Change in Terminal Growth and WACC

Slight difference from our target price originates from the WACC difference. We fixed WACC as 6.5% for the senario analysis, while WACC for our target price computation fluctuates as the degree of financial leverage changes.

5.75% 6.00% 6.25% 6.50% 6.75% 7.00% 7.25% 2.75% 227,293 204,621 185,201 168,383 153,679 140,716 129,204 2.50% 209,714 189,870 172,685 157,661 144,416 132,654 122,140 2.25% 194,646 177,085 161,733 148,200 136,182 125,440 115,782 2.00% 181,587 165,899 152,070 139,790 128,814 118,947 110,030 1.75% 170,160 156,028 143,480 132,265 122,184 113,073 104,801 1.50% 160,078 147,255 135,795 125,493 116,184 107,733 100,026

1.25% 151,116 139,405 128,878 119,366 110,731 102,857 95,650

Source : Team estimates

Appendix I - Terminal Growth

Terminal Growth Decomposition

As CJ KX enters into maturity stage in the long run, the growth of cash flow is projected to follow the formula of 푔 = 푅푂퐼퐶 ∗ 푅푒푖푛푣푒푠푡푚푒푛푡 푅푎푡푒, 퐶퐴푃퐸푋−퐷푒푝푟푒푐푎𝑖푡𝑖표푛&퐴푚표푟푡𝑖푧푎푡𝑖표푛+퐶ℎ푎푛𝑔푒 𝑖푛 푁푒푡 퐶푎푝𝑖푡푎푙 where reinvestment rate is 푅푒푖푛푣푒푠푡푚푒푛푡 푟푎푡푒 = 푁푂푃퐴푇

Terminal 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E assumption Remarks ROIC 4.68% 5.64% 4.54% 4.29% 4.57% 4.33% 4.73% 5.12% 6.54% Assumed to converge into WACC Average of Korean corporations through Reinvestment Rate 33.2% -42.9% 140.1% 65.5% 77.8% 13.1% 13.4% 14.9% 31.7% 1998–2015. ROIC* Reinvest. Rate 1.56% -2.42% 6.35% 2.81% 3.56% 0.57% 0.64% 0.77% 2.07% Similar with the target inflation rate

Source : Company disclosure, Bank of Korea, Team estimates Appendix J Peer Comparison

Peer Valuation Table

2016 2017 2018 2019 UNITED PARCEL-B P/E 18.63 17.51 16.14 16.41 P/B 36.79 22.85 15.24 N/A EV/EBITDA 9.93 9.52 9.21 N/A EV/Sales 1.72 1.64 1.58 1.50 ROE 156% 206% 141% 0% FEDEX CORP P/E 15.90 14.16 12.60 11.27 P/B 18.90 15.90 21.27 N/A EV/EBITDA 7.45 6.68 6.21 5.76 EV/Sales 1.14 0.95 0.91 0.87 ROE 19% 21% 21% 20% DEUTSCHE POST-RG P/E 13.21 12.59 11.88 12.22 P/B 2.79 2.50 2.30 1.93 EV/EBITDA 7.68 7.22 6.80 6.46 EV/Sales 0.65 0.62 0.60 0.59 ROE 21% 20% 20% 18% YAMATO HOLDINGS 7.00 7.63 7.88 8.13 P/E 24.29 22.75 20.93 19.68 P/B 6.46 5.95 5.56 N/A EV/EBITDA 8.17 7.99 7.70 7.45 EV/Sales 0.66 0.63 0.62 0.60 ROE 7% 8% 8% 8% CJ KOREA EXPRESS P/E 45.2 45.6 40.4 33.2 P/B 1.67 1.62 1.58 1.53 EV/EBITDA 15.06 13.97 13.14 11.86 EV/Sales 1.03 0.95 0.89 0.83 ROE 4.7% 4.6% 5.5% 6.2% Source : Bloomberg

ROE – PBR Regression with Peers

ROE: P/B: ROE: P/B: 2017E 2017E 2017E 2017E DEUTSCHE POST-RG 20.34 2.50 LANDSTAR SYSTEM 27.60 5.17 KUEHNE & NAGEL-R 33.31 6.78 RUMO LOGISTICA O 3.39 1.36 CH ROBINSON 41.64 7.32 QUBE HOLDINGS LT 6.14 1.47 BOLLORE 4.99 1.11 MITSUB LOGISTICS 3.50 0.97 8 YAMATO HOLDINGS 7.63 5.95 SINGAPORE POST 41.38 3.86 EXPEDITORS INTL 25.45 5.06 OESTERREICH.POST 11.18 3.45 DSV A/S 19.97 4.05 SINOTRANS LTD-H 8.96 0.87 6 ROYAL MAIL 25.69 5.34 KAMIGUMI CO LTD 5.23 0.67 HYUNDAI GLOVIS 15.99 1.62 KERRY LOGISTICS 8.19 0.99 BPOST SA 8.69 4.44 HITACHI TRANSPOR 9.32 1.10 4 NIPPON EXPRESS 6.95 0.87 SEINO HOLDINGS 5.11 0.57 CONTAINER CORP 10.46 3.09 POSTNL NV 22.73 3.18 RYDER SYSTEM INC 15.10 1.40 XIAMEN XIANGYU-A 6.41 1.83 2 PANALPINA WE-REG 20.20 4.85 SANKYU INC 11.23 1.12 y = 0.1379x + 0.5749 CIA DE DISTRIBUC 30.56 5.51 CTS INTERNATIO-A 12.95 3.23 R² = 0.5477 ARAMEX PJSC 30.70 2.22 SUPER GROUP LTD 14.89 1.58 0 EUROPOL INTELL-A 14.01 2.97 SUMITOMO WAREHOU 4.90 0.59 HUB GROUP-A 12.00 1.96 CTT-CORREIOS DE 15.32 2.07 0 10 20 30 40 50 KAP INDUSTRIAL 14.74 2.13 SENKO CO LTD 10.69 1.05 FORWARD AIR CORP 13.48 2.01 KINTETSU WORLD 6.02 0.79 MAINFREIGHT LTD 16.31 2.83 GULF WAREHOUSING 12.80 2.00 MOBILE MINI 9.40 1.79 SHENZHEN PROLT-A 23.69 4.61 NIKKON HOLDINGS 7.40 0.90 Appendix K - Equity Structure

The illustration below is aggregated CJ groups’ equity structure. CJ KX is owned by CJ, through KX holdings and CJ Cheiljedang. Subsidiary concerning the CEO succession is CJ Olive networks. CJ is projected to finance the succession procedure by selling off or exchanging equities of CJ Olive networks, of which the two children of CEO have substantial amount of shares.

Established a joint venture, acquiring 50% of TCL Group’s existing share of Speedex. The ownership was transferred 28.57% from TCL Group, and 21.43% from KUYU.

Shandong Rokin 47.7% STIC

71.4% SPC Holdings Rokin

CJ KX 52.3% ESOP

Source : Company disclosure, Team estimates Appendix L Income Statement of Courier Division

Courier Service Division 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E Sales 1,123 1,300 1,557 1,842 2,081 2,313 2,585 2,785 2,988 yoy N/A 16% 20% 18% 13% 11% 12% 8% 7% Gross Profit 61 128 158 200 249 328 242 327 407 yoy N/A 109% 24% 26% 25% 31% -26% 35% 24% Operating Profit - 27 36 49 54 65 85 63 85 106 yoy N/A -232% 39% 10% 19% 31% -26% 35% 24% GPM 5.5% 9.8% 10.2% 10.8% 12.0% 14.2% 9.4% 11.8% 13.6% OPM -2.4% 2.7% 3.2% 3.0% 3.1% 3.7% 2.4% 3.1% 3.5% Market Volume* 1,498 1,624 1,816 2,049 2,272 2,498 2,703 2,897 3,094 yoy N/A 8.4% 11.8% 12.8% 10.9% 9.9% 8.2% 7.2% 6.8% Share* 535 618 750 937 1,083 1,217 1,405 1,522 1,642 yoy N/A 15.5% 21.5% 24.8% 15.7% 12.4% 15.4% 8.3% 7.9% M/S 35.7% 38.0% 41.3% 45.7% 47.7% 48.7% 52.0% 52.5% 53.1% yoy N/A 7% 9% 11% 4% 2% 7% 1% 1% ASP 2,100 2,105 2,075 1,967 1,921 1,901 1,840 1,830 1,820 yoy N/A 0% -1% -5% -2% -1% -3% -1% -1% Cost / box 2,151 2,048 1,928 1,875 1,861 1,831 1,795 1,774 1,756 yoy N/A -4.8% -5.8% -2.8% -0.7% -1.6% -1.9% -1.2% -1.0% Fixed cost / box 506 435 347 294 280 250 275 254 235 yoy N/A -14% -20% -15% -5% -11% 10% -8% -7% Variable cost / box 1,645 1,613 1,581 1,581 1,581 1,581 1,520 1,520 1,520 yoy N/A -2% -2% 0% 0% 0% -4% 0% 0%

Courier Service Division Quarterly Breakdown Source : Company disclosure, Team estimates

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

Sales 276 260 271 316 294 307 324 376 355 381 378 443 423 447 446 526 484 501 505 591 538 558 562 656

yoy N/A N/A N/A N/A 6% 18% 19% 19% 21% 24% 17% 18% 19% 17% 18% 19% 14% 12% 13% 12% 11% 11% 11% 11%

Gross Profit 23 8 7 23 26 29 27 46 34 39 38 46 42 52 44 61 55 60 52 83 71 76 85 96

Yoy N/A N/A N/A N/A 13% 259% 286% 98% 31% 36% 41% 2% 23% 33% 16% 32% 31% 15% 16% 35% 29% 26% 64% 16% Operating 1 -18 -12 2 2 7 8 18 13 16 10 11 10 17 12 16 14 16 13 21 19 20 22 25 Profit Yoy N/A N/A N/A N/A 335% -142% -171% 942% 432% 115% 18% -39% -21% 5% 17% 49% 37% -6% 16% 35% 29% 26% 64% 16%

GPM 8.4% 3.1% 2.6% 7.3% 8.9% 9.4% 8.4% 12.1% 9.7% 10.3% 10.1% 10.5% 10.0% 11.6% 9.9% 11.6% 11.4% 11.9% 10.2% 14.0% 13.3% 13.6% 15.1% 14.6%

OPM 0.2% -6.8% -4.3% 0.5% 0.8% 2.4% 2.6% 4.7% 3.7% 4.2% 2.6% 2.4% 2.5% 3.7% 2.6% 3.0% 3.0% 3.1% 2.6% 3.6% 3.4% 3.5% 3.9% 3.8% Market 355 363 364 416 376 389 401 457 423 445 443 506 481 498 499 571 534 550 554 634 587 605 609 696 Volume* Yoy N/A N/A N/A N/A 6% 7% 10% 10% 12% 14% 10% 11% 14% 12% 13% 13% 11% 11% 11% 11% 10% 10% 10% 10%

Share* 130 126 131 148 137 148 154 178 170 187 183 211 209 224 228 275 249 260 262 313 280 292 294 351

Yoy N/A N/A N/A N/A 5% 17% 18% 21% 24% 27% 18% 18% 23% 20% 25% 31% 19% 16% 15% 13% 12% 12% 12% 12%

M/S 37% 35% 36% 36% 36% 38% 38% 39% 40% 42% 41% 42% 44% 45% 46% 48% 47% 47% 47% 49% 48% 48% 48% 50%

Yoy N/A N/A N/A N/A -1% 9% 7% 10% 10% 11% 7% 7% 8% 7% 10% 16% 7% 5% 4% 2% 2% 2% 2% 2%

ASP 2,122 2,065 2,077 2,132 2,140 2,077 2,100 2,106 2,090 2,034 2,068 2,105 2,022 1,992 1,960 1,910 1,940 1,930 1,930 1,890 1,920 1,910 1,910 1,870

Yoy N/A N/A N/A N/A 1% 1% 1% -1% -2% -2% -2% 0% -3% -2% -5% -9% -4% -3% -2% -1% -1% -1% -1% -1%

Cost per box 1,975 1,944 1,954 1,980 1,987 1,954 1,964 1,964 1,932 1,872 1,939 1,967 1,902 1,842 1,909 1,852 1,882 1,870 1,879 1,821 1,854 1,843 1,835 1,799

Yoy N/A N/A N/A N/A 1% 1% 1% -1% -3% -4% -1% 0% -2% -2% -2% -6% -1% 2% -2% -2% -2% -1% -2% -1% Fixed cost 330 299 309 335 374 341 351 351 351 291 358 386 321 261 328 271 301 289 298 240 273 62 254 218 per box yoy N/A N/A N/A N/A 13% 14% 14% 5% -6% -15% 2% 10% -9% -10% -8% -30% -6% 11% -9% -11% -10% -9% -15% -9% Variable cost 1,645 1,645 1,645 1,645 1,613 1,613 1,613 1,613 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581 1,581 per box yoy N/A N/A N/A N/A -2% -2% -2% -2% -2% -2% -2% -2% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

*Million boxes

Source : Company disclosure, Team estimates Appendix M Competitor Analysis

Competitor Analysis

Earnings from courier service division was estimated based on our assumption, that the company would continue the predatory pricing policy to drive out competitors from the market. In order to estimate CJ KX’s ASP range, we assumed competitors’ earnings as well. We divided variable cost and fixed cost, and linked the variable cost to sales. Fixed cost was estimated to grow at a rate of QoQ 1%, considering historical trend. ASP of Hanjin and Hyundai is projected to decrease as CJ KX’s ASP decreases. In addition, market share of Hanjin and Hyundai is also projected to decrease as the share of CJ KX increases.

(bn KRW) Hyundai Logistics (bn KRW) Hanjin 600 0.8% 600 6% 570 0.6% 570 5% 0.4% 4% 540 540 0.2% 3% 510 510 0.0% 2% 480 -0.2% 480 1%

450 -0.4% 450 0% 2016E 2017E 2018E 2016E 2017E 2018E

Sales OPM Sales OPM

Hanjin Revenue Variable cost Fixed cost Operating profit Year M/S Market volume Share Hanjin ASP OPM (bn KRW) (bn KRW) (bn KRW) (bn KRW) 2014 11.4% 1,624 185 2,257 418 293 100 26 6.1% 2015 12.6% 1,816 228 2,249 513 361 138 26 5.0% 2016 11.7% 2,052 240 2,186 524 379 145 25 4.8% 2017 11.3% 2,279 257 2,127 546 406 146 20 3.6% 2018 11.0% 2,508 276 2,111 583 437 152 14 2.5% 2019 11.0% 2,703 298 2,062 615 471 158 15 -2.4% 2020 11.0% 2,897 317 2,054 652 502 165 15 -2.3% 2021 10.9% 3,094 337 2,046 688 532 171 15 -2.2%

Hyundai Logistics Revenue Variable cost Fixed cost Operating profit Year M/S Market volume Share Hyundai ASP OPM (bn KRW) (bn KRW) (bn KRW) (bn KRW) 2014 12.7% 1,624 206 2,272 469 326 125 18 3.7% 2015 12.7% 1,816 230 2,169 499 364 122 13 2.6% 2016 11.6% 2,052 238 2,103 500 376 121 4 0.7% 2017 11.2% 2,279 255 2,047 521 403 120 1 -0.3% 2018 10.9% 2,508 274 2,031 557 433 125 2 -0.3% 2019 11.1% 2,703 300 1,982 595 475 123 3 -0.5% 2020 11.0% 2,897 320 1,974 631 506 128 3 -0.4% 2021 11.0% 3,094 339 1,966 667 536 134 3 -0.5%

Source : Company disclosure, Team estimates Appendix N Regression & Sensitivity Analysis on Courier Division

2,160 Regression between ASP and Market Share y = -941.93x + 2449.7 2,130 R² = 0.5016 Regression Statistics 2,100 Multiple correlation coefficient 0.708262 2,070 R square 0.501635 Adjusted R square 0.460104 2,040 Standard Error 0.023495 2,010 Observations 14 1,980 33.0% 38.0% 43.0% 48.0% Source : Team estimates Coefficients Standard Error t Stat P-Value Y Intercept 1.499818 0.318901204 4.703079425 0.000511597 X 1 -0.00053 0.000153235 -3.475445632 0.004584697 Source : Team estimates

In order to figure out the correlation between ASP and market share, we have done regression analysis between ASP of CJ KX and market share in courier delivery service industry by quarter from 1Q13 to 2Q16 T-stat of coefficient X equates -3.48 and P-value is 0.5%, so statistical confidence is high. R square, which is above 50% shows that ASP is the key factor determining the market share.

Sensitivity Analysis between ASP and Operating Profit as of 2016

ASP Market Volume Share Container ha Collection Delivery Wages in Other Operating OP M/S Sales Dep Rebate Cost/box (KRW) (# of boxes) (# of boxes) ndling costs Fee Fee terminal Expenses Profit Margin 2,100 38.1% 2,049,310,860 781,693,736 1,642 30 70 260 664 310 100 100 1,535 106 6.5% 2,080 39.2% 2,049,310,860 803,521,345 1,671 30 70 268 683 319 100 100 1,570 102 6.1% 2,060 40.3% 2,049,310,860 825,348,954 1,700 30 70 275 702 328 100 100 1,604 96 5.6% 2,040 41.3% 2,049,310,860 847,176,563 1,728 30 70 282 720 336 100 100 1,639 90 5.2% 2,020 42.4% 2,049,310,860 869,004,172 1,755 30 70 289 739 345 100 100 1,673 82 4.7% 2,000 43.5% 2,049,310,860 890,831,781 1,782 30 70 297 757 354 100 100 1,708 74 4.2% 1,980 44.5% 2,049,310,860 912,659,390 1,807 30 70 304 776 363 100 100 1,742 65 3.59% 1,960 45.6% 2,049,310,860 934,486,999 1,832 30 70 311 794 371 100 100 1,777 55 3.0% 1,940 46.7% 2,049,310,860 956,314,608 1,855 30 70 318 813 380 100 100 1,811 44 2.4% 1,920 47.7% 2,049,310,860 978,142,217 1,878 30 70 326 831 389 100 100 1,846 32 1.7% 1,900 48.8% 2,049,310,860 999,969,826 1,900 30 70 333 850 397 100 100 1,880 20 1.04% 1,880 49.9% 2,049,310,860 1,021,797,435 1,921 30 70 340 869 406 100 100 1,915 6 0.3% 1,860 50.9% 2,049,310,860 1,043,625,044 1,941 30 70 348 887 415 100 100 1,949 - 8 -0.4% 1,840 52.0% 2,049,310,860 1,065,452,653 1,960 30 70 355 906 423 100 100 1,984 -23 -1.2% 1,820 53.1% 2,049,310,860 1,087,280,262 1,979 30 70 362 924 432 100 100 2,018 -39 -2.0% 1,800 54.1% 2,049,310,860 1,109,107,871 1,996 30 70 369 943 441 100 100 2,053 -56 -2.8% Source : Team estimates

(bn KRW) 140

120 Our sensitivity analysis between ASP and operating margin 100 shows that the optimal level of ASP is 2200KRW by the market volume of 2016. It is projected that if CJ KX is able 80 to increase ASP by the optimal level, its operating margin will rise to 7.9%, which is double current operating 60 margin(3.8%). However, CJ KX not increasing its ASP 40 explains that the price maker is consumer, not any other Optimal level Current price party. Also, it proves the continuous chicken-game 20 2,220, 7.9% 1,990, 3.8% between competitors. - 2,480 2,400 2,320 2,240 2,160 2,080 2,000 1,920 (KRW) Appendix O Cost Reduction Effect Estimation

Cost Reduction Effect In order to estimate cost reduction derived from establishment of automation system and new mega hub terminal, we 1. Labor cost reduction assumed that part-time workers’ labor can be replaced with automated machinery. Also, we projected that one out of three Daily volume(boxes) 3,152,957 container handling procedures would be eliminated, and Avg # of terminals in delivery procedure 4 commission to courier would decrease by 5%. The number of boxes that a courier can deliver a day is projected to increase Capacity of all terminals(boxes) 12,611,826 by 10% due to 2-hour time save. As there could be a strong Daily capacity per person(boxes) 12,000 hostility if courier’s total income decreases, we believe that delivery commission would decrease lower than the rate of # of workers needed per day 1,051 increase in quantity. Net income of a courier is below the Daily salary per person W85,000 minimal wage of Korea as of 2016, so the additional decrease in Whole salary per day W89,333,770 commission delivery will be limited. Whole salary per year W25,549,458,256 Cost Breakdown Cost reduction per box W28 1.6% 6.5% 3.5% 2. Container handling cost 5.0% Total container handling cost W490 4.5% 42.4% Rebate W400 Cost excluding rebate W90 20.0% Avg times of container handling W3 16.5% Cost of container handling per box W30 Delivery commission Collection commission 3. Delivery commission fee Rebate Container handling cost Reduced commission per box W30 Wages in terminal Depreciation cost Source : Team estimates Etc Profit Source : Company disclosure, Team estimates

Appendix P Courier Delivery Service Market Projection

Mobile Shopping Smartphone The number of Retail Consumption Mobile Shopping Mobile Shopping Mobile Shopping Total Population Consumption per Penetration Smartphone User per Person Penetration Market Size(KRW) Market Growth Person

2013 50,219,669 73% 36,660,358 7,049,031 1.9% 130,619 6,559,633,000,000 2014 50,423,955 79% 40,036,620 7,159,296 4.1% 294,896 14,869,802,000,000 126.7% 2015 51,015,000 88% 44,893,200 7,233,167 6.6% 479,556 24,464,525,000,000 64.5% 2016 51,246,000 89% 45,655,527 7,428,462 10.3% 765,132 34,932,487,012,271 42.8% 2017 51,382,000 90% 46,337,222 7,629,031 12.7% 968,887 44,895,527,132,545 28.5% 2018 51,488,000 91% 46,994,502 7,835,015 14.8% 1,159,582 54,493,985,447,060 21.4% 2019 51,569,000 92% 47,631,004 8,046,560 16.3% 1,311,589 62,472,313,127,388 14.6% 2020 51,626,000 93% 48,246,844 8,263,817 17.4% 1,437,904 69,374,337,374,335 11.0% 2021 51,662,000 95% 48,844,073 8,453,885 18.4% 1,555,515 75,977,678,422,678 9.5% 2022 51,680,000 96% 49,424,873 8,648,324 19.2% 1,660,478 82,068,925,790,659 8.0% 2023 51,680,000 97% 49,988,655 8,847,236 19.9% 1,760,600 88,010,019,758,242 7.2% 2024 51,664,000 98% 50,536,785 9,050,722 20.4% 1,846,347 93,308,457,326,982 6.0% 2025 51,631,000 99% 51,067,753 9,258,889 20.7% 1,911,961 97,639,526,476,887 4.6% 2026 51,583,000 100% 51,583,000 9,471,843 20.7% 1,960,672 101,137,319,110,863 3.6%

(bn Mobile Shopping Online Shopping Courier Service Courier Service Market Growth KRW) Market Size Market Size Market Size(mn boxes) 45% 2013 6,560 47,578 2014 14,870 54,592 30% 2015 24,465 63,078 1,816 2016E 34,932 72,912 2,047 15% 2017E 44,896 82,252 2,272 2018E 55,230 91,977 2,498 0% 2019E 65,922 102,069 2,703 2020E 76,551 112,110 2,897 2021E 86,714 121,696 3,094 2022E 96,175 130,591 3,291 2023E 103,489 137,351 3,493 Mobile Shopping 2024E 111,147 144,463 3,692 Market Growth (YoY) 2025E 118,208 150,990 3,882 Online Shopping 2026E 124,589 156,847 4,066 Market Growth (YoY) Courier Service Market Growth (YoY) Appendix Q Effect of New Mega Hub Terminal

Mega hub terminal‘s daily capacity is 1.6mn S S boxes, but practically it is 1.2mn, which is 75% S S S of average full capacity. It would be able to S process 0.7mn boxes, which used to be S transferred to Daejeon. Facilities in Daejeon is projected to be sold off, so additional capacity G H will amount only to 0.5mn, not 1.6mn boxes. H

H

H H

Source : Team estimates

G New Hub Terminal S S Point-to-point

H Hub Terminal S H S Hub-and-spoke S Sub Terminal S The total daily market volume : 3mn boxes 0.3 For Metropolitan area: 1.8mn 1.2 0.7mn HAS within metropolitan area: 0.8mn mn PTP within metropolitan area: 0.3mn mn HAS going through Daejeon area: 0.7mn 0.8mn So, therefore, New mega Hub Terminal will eliminate container handling of 0.7mn boxes headed to Daejeon per day

Current total daily market volume is 3mn boxes. 1.8mn out of 0.3mn boxes are for metropolitan area. 0.8mn boxes out of all metropolitan area uses Hub-and-spoke system within metropolitan area. 0.3mn boxes out of all metropolitan area uses Point-to-point within metropolitan area. 0.7mn boxes out of all metropolitan area go to Hun terminals in Daejeon area. So, therefore, the New mega Hub Terminal will eliminate container handling of 0.7mn boxes headed to Daejeon per day which is 24% of the total daily market volume. Appendix R Timeline of Delivery Procedure

Process of courier service & Limitations of ‘Same day-Delivery’

Cargo Intermediation Collection /Sorting

Source : Company disclosure, Team estimates

Procedure Time spent With the establishment of the new mega hub terminal, time for intermediation and sorting will decline, one or two procedure of container handling out of three will be eliminated. However, the total Cargo collection 3hrs time save from this amounts to 10 to 14 hours. As a result, the total time for delivery will decrease from 24 hours to 10 hours, which is still Intermediation/Sorting 9hrs far longer to enable the same-day-delivery, unless CJ KX collects inventory every time a customer makes an order. The key to the Container Handling 3hrs * 3times success of same-day-delivery is the procurement of inventory in advance, not reduction of travelling time and distance. So, therefore, Delivery 3hrs the same-day-delivery in current 3PL system is possible in certain areas and certain goods only, which generates only partial amount of volume. Appendix S Market Risk Premium Derivation

Hitorical P/E Ratio of KOSPI KOSPI Index 15 2,500

2,000

1,500 10 1,000

500

- 5 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 22008 22009 22010 20112 20122 20132 20142 20152 20162 2017E2 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 8 9 0 1 2 3 4 5 6 7

We used historical return of KOSPI from 2009 to the present to derive market risk premium. We believe this is a conservative approach to our view, since long term historical return since 1977 shows higher return of 11.5%. In addition, average P/E ratio of KOSPI has been 9.9, and implied return is 10.1%. Appendix T – Estimations on Subsidiaries

Speedex’s Income Statement

Estimated based on TCL’s earnings, because Speedex is a delivery subsidiary of TCL group. Portion of deliveries of TCL is set to contribute 30% in the early phase, and 65% in 2021. Used Samsung Electronics’ and LG Electronics’ rate of delivery cost out of revenue, because they have the similar business areas with TCL’s as global total electronics company. Estimated gross margin rate and operating profit rate based on the rates of Samsung Electronics Logistics, because it is the 2PL company for electronics company like Speedex.

2017E 2018E 2019E 2020E 2021E TCL revenue 21,626 23,573 25,694 28,007 30,527 TCL cost of transport 478 521 568 619 675 Speedex revenue 167 235 312 372 439 Speedex sales cost 157 220 292 348 411 Speedex gross margin 10.7 15.0 20.0 23.8 28.1 Gross margin rate 6.4% 6.4% 6.4% 6.4% 6.4% Sales & administrative expenses 8.20 11.49 15.31 18.21 21.50 Sales & administrative expenses rate 4.9% 4.9% 4.9% 4.9% 4.9% Operating profit 2.51 3.52 4.69 5.57 6.58 Operating profit rate 1.5% 1.5% 1.5% 1.5% 1.5%

Source : Team estimates CJ Rokin’s Income statement

(bn KRW) 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E Sales 274 312 346 403 475 550 616 692 770 Coldchain 177 207 242 283 331 387 453 Synery effect - 16 42 66 74 84 87 Non-coldchian 170 180 191 201 211 221 230 COGS 254 285 311 361 426 493 551 618 688 Gross Profit 20 27 35 41 49 58 65 73 82 Coldchain 20 26 33 40 47 54 62 Non-coldchian 15 16 17 18 18 19 20 Gross Profit Margin 7.2% 8.6% 10.1% 10.3% 10.4% 10.5% 10.6% 10.6% 10.7% Coldchain 11.5% 11.5% 11.5% 11.5% 11.5% 11.5% 11.5% Non-coldchian 8.7% 8.7% 8.7% 8.7% 8.7% 8.7% 8.7% SG&A 11 12 14 16 19 22 25 28 31 SG&A (%) 3.9% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Operating Profit 9 14 21 25 30 36 40 46 51 Operating Profit Margin 3.2% 4.6% 6.2% 6.3% 6.4% 6.5% 6.6% 6.6% 6.7%

Source : Team estimates Century Logistics’ Income statement

2016E 2017E 2018E 2019E 2020E 2021E Sales 88.07 90.00 94.68 99.60 104.78 110.23 COGS 60.53 61.86 65.07 68.46 72.02 75.76 Gross Profit 27.54 28.14 29.61 31.15 32.77 34.47 GPM 31% 31% 31% 31% 31% 31% SG&A 18.32 18.72 19.69 20.71 21.79 22.92 SG&A (%) 20.8% 20.8% 20.8% 20.8% 20.8% 20.8% Operating Profit 9 9 10 10 11 12 OPM 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% Net income 5 6 6 6 7 7 Source : Team estimates Synergy Projection between CJ Rokin and CJ KX Synergy by Company Guidance (bn KRW) (bn KRW)

100 250 217 87 80 84 74 200 66 149 60 59 150 94 40 100 44 20 16 50 16 - - 2016 2017 2018 2019 2020 2021 2016E 2017E 2018E 2019E 2020E

CJ CheilJedang CJ Freshway CJ Foodvil Industry specialized service platform Cross-selling Total New contracts Revenue from CJ subsidiaries Source : Team estimates Cross-selling Source : Company disclosure Synergy effect from the company guidance is W220bn by 2021, which is a very aggressive assumption. However, our analysis shows that realizable synergy would be from cross-selling and revenue from CJ subsidiaries only. 1. Cross selling : CJ Rokin has signed a deal which amounts to approximately W18.5bn through cross-selling. It will grow by 10% annually. 2. From CJ CheilJedang: The revenue of CJ CheilJedang China is W620bn, and freight cost account for W110bn. Considering the fact that CJ CheilJedang consigns 30% of freight forwarding to CJ KX, CJ Rokin will take W33bn annually, which is 30% of CJ cheilJedang China’s freight cost. 3. From CJ Freshway : Joint venture, formed with Yonghui Superstore aims to earn a revenue of W810bn by 2020. CJ Rokin is projected to take 3% of its freight cost. 4. From CJ Foodville : CJ Foodville plans to open 1,130 of its franchise restaurant in China by 2020. CJ Rokin is projected to take 1.5% of its fright cost. Appendix U Chinese Cold Chain Logistics Market Projection

(CNY) Consumption of Fresh Food per Person in China Chinese Cold Chain Market Projection (bn CNY) 5,000 600 565 3,984 4,000 3,651 493 3,318 500 427 2,944 3,000 2,670 400 366 309 2,000 300 257 200 1,000 100 - 2011 2012 2013 2014 2015 - 2015 2016E 2017E 2018E 2019E 2020E

Source : China Uryu Source : Chinese Cold Chain Logistics Association

Appendix V Analysis on M&A

Can Expectation for Potential M&A Justify High Multiples?

We analyzed multiples of global top 50 3PL service providers in order to figure out if expectations on additional M&A affect the companies’ intrinsic value. As a result, companies without frequent M&As were rated at higher multiples that with frequent M&As. Therefore, we do not believe that expectations on future M&A enhance the companies’ intrinsic value.

Average number Observations: 17 public companies 17 PBR 17 PER 17 EV/ EBITDA of M&A since 2010 Companies with frequent M&As 7.5 5.25 16.10 9.31 Average Companies without frequent M&As 1 5.19 19.19 10.45 Companies with frequent M&As 7.5 1.98 16.67 9.08 Median Companies without frequent M&As 1 4.72 19.57 10.64 Appendix W - Shipping Rates Comparison

FedEx Express Shipping Rates

Delivery commitment next day by 8 a.m. next day by 10:30 a.m. next day by 3 p.m. 2nd day by 10:30 a.m. 2nd day by 4:30 p.m. 3rd day by 4:30 p.m. FedEx First FedEx Priority FedEx Standard FedEx 2Day A.M. FedEx 2Day FedEx Express Saver Overnight Overnight Overnight 1 lb. $54.09 $26.09 $23.83 $18.04 $15.69 $14.83 2 lbs. $54.43 $26.43 $25.17 $18.35 $15.96 $15.10 3 $57.59 $29.59 $27.36 $18.66 $16.23 $15.53 4 $59.90 $31.90 $29.50 $19.23 $16.72 $15.80 5 $60.60 $32.60 $30.03 $19.79 $17.21 $16.07 6 $64.92 $36.92 $31.69 $20.65 $17.96 $17.37 7 $65.36 $37.36 $32.71 $21.53 $18.72 $17.64 8 $65.70 $37.70 $34.42 $22.39 $19.47 $18.33 9 $66.18 $38.18 $35.64 $23.58 $20.50 $18.60 10 $66.52 $38.52 $35.97 $24.69 $21.47 $18.87 11 $71.48 $43.48 $38.37 $25.81 $22.44 $22.17 12 $73.28 $45.28 $39.65 $27.17 $23.63 $22.65 13 $73.90 $45.90 $40.08 $29.10 $25.30 $24.70 14 $74.67 $46.67 $41.63 $30.52 $26.54 $24.97 15 $75.01 $47.01 $43.24 $31.69 $27.56 $25.24 16 $76.73 $48.73 $44.14 $32.44 $28.21 $26.65 17 $80.93 $52.93 $46.39 $33.43 $29.07 $27.51 18 $81.36 $53.35 $47.78 $34.56 $30.05 $29.24 19 $81.70 $53.70 $49.06 $35.91 $31.23 $29.99 20 $81.98 $53.98 $49.97 $37.16 $32.31 $30.26 21 $84.34 $56.34 $51.31 $38.89 $33.82 $32.31 22 $86.92 $58.92 $53.12 $40.08 $34.85 $33.23 23 $87.25 $59.25 $54.03 $41.07 $35.71 $34.68 24 $88.82 $60.82 $55.37 $42.00 $36.52 $35.55 25 $89.14 $61.14 $56.65 $43.37 $37.71 $35.82 26 $92.88 $64.88 $57.88 $44.67 $38.84 $38.08 27 $93.26 $65.26 $58.84 $46.09 $40.08 $39.32 28 $94.63 $66.63 $60.66 $47.58 $41.37 $40.51 29 $94.96 $66.96 $61.94 $48.89 $42.51 $41.70 30 $95.26 $67.26 $62.96 $49.75 $43.26 $41.97 …

Yamato Shipping Rates(JPY)

Northern Southern Size Hokkaido Kanto Shinetsu Chubu Hokuriku Kansai Chugoku Shikoku Kyushu Okinawa Tohoku Tohoku

Osaka Ibaraki Fukuoka Kyoto Kagawa Tochigi Shizuoka Saga Aomori Toyama Shiga Okayama Tokushi Hokkaido Miyagi Gunma Niigata Aichi Nagasaki Akita Ishikawa Nara Tottori ma Okinawa Saitama Nagano Mie Oita Iwate Fukui Wakaya Shimane Ehime Chiba Gifu Miyazaki ma Kochi Tokyo Hyogo

60 756 972 1080 1188 1188 1296 1296 1512 1620 1728 1836 1944 80 972 1188 1296 1404 1404 1512 1512 1728 1836 1944 2052 2484 100 1188 1404 1512 1620 1620 1728 1728 1944 2052 2160 2268 3024 120 1404 1620 1728 1836 1836 1944 1944 2160 2268 2376 2484 3564 140 1620 1836 1944 2052 2052 2160 2160 2376 2484 2592 2700 4104 160 1836 2052 2160 2268 2268 2376 2376 2592 2700 2808 2916 4644

Appendix X - Investment Risk

Reflected benefit from Hanjin’s restructuring

Sensitivity analysis by CJ KX’s forwarding takeover ratio.

(Unit : bn KRW) 2016E 2017E 2018E 2019E 2020E 2021E Bring 10% 530 795 1,060 1,325 1,589 1,854 Bring 20% 1,060 1,589 2,119 2,649 3,179 3,709 Bring 30% 1,589 2,384 3,179 3,974 4,768 5,563

Source : Team estimates Liquidation of Treasury Shares

Left table shows current condition of stock composition. Right table shows CJ groups voting right scenario by liquidation. Outstanding shares 22,812,344 Stocks with voting right 52.03% Number of treasury stocks 5,188,284 Stocks with voting right 40.20% Number of shares ready to trade 17,624,060 After the liquidation Portion of treasury stocks 22.7% Source : CJ KX

Synergy from Global Division

(Unit : bn KRW) 2017E 2020E Subsidiaries synergy revenue 2 34 Global division Revenue 2,040 2,397 Portion of synergy 0.1% 1.4%

Source : Team estimates

Appendix Y Porter’s Five Forces Analysis

Porter’s Five Forces Analysis Threat of New Five Forces Analysis on CJ Korea Express’s Courier Delivery Service Business Entrants 5 LEGEND 4 0. No threat to CJ KX 3 Bargaining Power 2 Competition in the 1. Insignificant threat to CJ KX of Customers 1 Industry 2. Low threat to CJ KX 0 3. Moderate threat to CJ KX

4. Significant threat to CJ KX

5. High threat to CJ KX Threat of Substitute Bargaining Power Products of Suppliers 1) Threat of new entrants: 2, Low

As we mentioned in industry overview, massive investment is necessary in courier delivery service and economies, therefore, it is difficult for new entrants to enter this industry. In fact, there were many entrants in Korean courier service industry, but currently only 5 big companies and other small local companies continue to operate. From these properties of this industry, we believe that threat of new entrants is low.

2) Competition in the industry: 3.5, Moderate

Major competitors of CJ KX are two companies: Hyundai and Hanjin, which compete in B2C delivery industry. CJ KX has an advantage on cost leadership amongst competitors, benefiting from leverage effect, which is cause by economies of scale. In terms of profitability, CJ KX enjoys 3% higher operating margin than its competitors, which makes it possible for CJ KX to lower ASP and thereby gain market share.

3) Bargaining power of customers: 4.5, Significant

Since there is a low switching cost, customers can easily change their delivery service company. Customers choose courier service company mainly on the basis of the delivery price, rather than service quality or brand loyalty. It is easier for customers to change their service company whenever other company offers lower price than CJ KX. Therefore, there is a significant bargaining power of customers.

4) Bargaining power of suppliers: 1, Low

In courier delivery service industry major suppliers are courier themselves in terms of labor market. In average courier delivery price, courier’s delivery commission has been decreasing from W1300 in early 2000’s, to W850 as of October 2016, which shows the low bargaining power of suppliers. Also, deregulation of the ‘Small truck delivery’ will generate surplus in labor supply and this makes the bargaining power of suppliers even lower.

5) Threat of substitute products: 4, Significant

Services which can substitute current courier delivery service is distributors’ self-shipping, which is a distributor deals with sales and delivery as well by itself. The self-shipping service of distributors has shown some limitations as we mentioned in industry overview. However, giant distributors such as E- mart and Lotte mart are investing into their own logistics network currently and they have advantages on shipping fresh food, which is the next growth engine in online shopping. We believe its influence will enlarge over time, so the threat of substitute products is significant.

Source : Team estimates Appendix Z SWOT Analysis

CJ KX SWOT Analysis SWOT Analysis Total Strengths Strengths Weaknesses 40 Competence Limited domestic market growth 30 Competitive skill Limited global market penetration

20 Experience Massive investment

10 Economies of scale Total Total Threats 0 opportunities Brand awareness Opportunities Threats

International expansion Strong rivalry

Market growth Unfavorable market

Facility expansion Market stagnation Total Weaknesses

STRENGTH RATING WEAKNESS RATING

Strategy Competence 3 3 Profitability Facilities Cost/Price Competitive Skill 2.5 2.5 2 Technical Skills 2 Experience Curve Cost Structure Management 1.5 1.5 1 1 Management Financial Resources 0.5 Financial Resources 0.5 Key Competencies 0 0

Service Development Reputaion Strategy Marketing Skills Implementation Marketing Market Leadership Effectiveness Proprietary Market Image Internal Operations Economies of Scale Technology Property Service Line Competitive Pressure Development

OPPORTUNITY RATING THREAT RATING

Prospects Pricing 3 3 International Technology Substitute Products 2.5 Markets 2.5 Expansion 2 2 1.5 1.5 1 Entry Barriers 1 Market Stagnation Market Growth 0.5 Service Enhancement 0.5 0 0

Demographics Regulatory Overhead Rival Complacency Automation

Market Business Cycle Requirements Downturn Expansion of facilities Vertical Integration Buyer/Supplier Power

Source : Team estimates References

Baek Kiseung,” Survey on the Internet Usage in 2015”, KISA (2015) FedEx, "FedEx Standard List Rates", 15/09/15, http://www.fedex.com/us/2016rates/index.html Hong Seokgeun, “CJ Cheiljedang, jump to the biggest company in feed and stockbreeding in south-east asia”, Financial News,12/20/16,http://www.fnnews.com/news/201612201728227478 Jeremy Kressmann,” eMarketer 2015 data”, eMarketer (2015) Jorij Abraham, Richard van Welie,” Global B2C E-commerce Report 2016”, Ecommerce Foundation (2016) Kang Hui Jong, "Korea Reaches Global Number One in Smartphone Penetration", AsiaEconmics(2016), http://www.asiae.co.kr/news/view.htm?idxno=2016032814080541212 Kang, Jin-kyu, "'Express Delivery War' Stopped…Coopang·11st Service Withdrawl", Hankyung, 06/12/16, http://www.hankyung.com/news/app/newsview.php?aid=2016120637791 Kim Youngmin,“ New story of distribution, logistic”, Logistics News, 5/31/16, http://www.klnews.co.kr/news/articleView.html?idxno=113603. Kim, Heung Kuen, "China Fresh Food Status and implication", INChinaBrief Vol.297 (2015) : p.2,8,9 Kim, Yong Chyul, "CJ KX's Cold Chain ability in China", CJ KX (2015) : p.4, 1 Kim Yun Tae, "2015 Trend and Projection Online Shopping in Korea", Korea Online Shopping Association(2015) Lee, Dong Huen, "China Fresh Food Ecommerce Rapid Rise", NEWSPIM, DEC 12th 2016, http://www.newspim.com/news/view/20161212000350 Lee, Hwa Won, "China Fresh Food (B2C) Market Trends and Advance Strategy", Korea Logistics News, MAY 18th 2015, http://www.klnews.co.kr/news/articleView.html?idxno=111099 Logistic News Editors,” Logistics Industry comprehensive survey”, Logistic News (2016) Oh, Lean A, "Analysis of distributors in china", Ebest (2016) : p. 8~9 Park Won Ik, "Introduction of Omnichannel Age : 30% of Cousumer staples will Be Consumed by Online Shopping, Which Will Exceed Offline Store", ChosunBiz (2016), http://biz.chosun.com/site/data/html_dir/2016/01/02/2016010200772.html Park, Mi-joo, "30 Conglomerates' M&A with 203 companies…the Most CJ", Asiaeconomics, 03/25/15, http://www.asiae.co.kr/news/view.htm?idxno=2015032508245397373 Pew Research Center Roland Berger Strategy Consultants,” Global Logistics Markets”, Barclays Bank PLC Frankfurt Branch (2014) Son Eun Rak and Lee Bok Hyun, "20 years of Online Shopping in Korea", Statistics Korea (2016) Son, Lee,” 2016 November Trend of online shopping”, Statistics Korea (2016) Statista,” E-commerce in South Korea - Statistics&Facts”, Statista (2016) Stephane Roger, "Accelerating the Growth of Ecommerce in FMCG", Kanta Worldwide(2014) Suk Da Yun and Kim Chul Min, "Deuce Spot of Ecommerce: Preoccupy Freshfood Logistics Market", Chief Logistics Officer(2016), http://clomag.co.kr/article/1448 Yamato Transport Co., Ltd, "TA-Q-BIN Rates Table", 2015, http://www.kuronekoyamato.co.jp/en/send/ta_q_bin/ Yun Hui Seok, "Second War in Online Distribution Market: Counterattack of Sinsegye and E-mart 'Neo' ", Etnews(2016), http://www.etnews.com/20160309000208 Disclosures: Ownership and material conflicts of interest: The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as a officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject company’s securities. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA Society Korea, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

CFA Institute Research Challenge