August 21, 2015

KOREA

Sector News & Analysis Major Indices Close Chg Chg (%) Display (Neutral) Downgrade rating KOSPI 1,876.07 -38.48 -2.01 LCD panel price trends: Extent of seasonal-peak effects is limited KOSPI 200 227.14 -4.45 -1.92 KOSDAQ 627.05 -29.66 -4.52

Economy & Strategy Update Turnover ('000 shares, Wbn) Index Watcher: KOSPI 200 Volume Value KOSPI 506,532 6,761 Free-float ratio of Cheil Industries to be raised KOSPI 200 103,092 4,596 KOSDAQ 608,153 3,701

Market Cap (Wbn) Value KOSPI 1,172,666 KOSDAQ 174,193

KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,450 1,892 -442 Institutional 1,834 915 919 Retail 3,396 3,929 -533

KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 343 264 79 Institutional 321 209 111 Retail 3,013 3,218 -205

Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,649 1,416 234 KOSDAQ 97 48 50

Advances & Declines Advances Declines Unchanged KOSPI 96 750 23 KOSDAQ 76 1,001 9

KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Electronics 1,101,000 -38,000 451 KODEX LEVERAGE 8,765 -285 362 KODEX 200 22,760 -360 303 Hynix 32,000 -1,050 194 KODEX INVERSE 8,865 140 177

KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Celltrion 65,000 -5,100 155 ilShinbiobase Co., Ltd. 3,295 -560 112 Daum Communications 124,000 -1,200 90 Sansung P&C 49,500 -2,000 84 Victek 2,615 580 71 Note: As of August 21, 2015

This document is a summary of a report prepared by Daewoo Securities Co., Ltd. (“Daewoo”) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose.

Display (Neutral/Downgrade)

LCD panel price trends: Extent of seasonal- peak effects is limited

Sector Update ¢ TV panel prices continued to decline in the period August 6th to 19th August 21, 2015 ¢ 32” TV panel prices plunged by 5.3% ¢ IT panel prices also continued to fall amid weak demand ¢ We downgrade our opinion on Display to Neutral Daewoo Securities CCo.,o., Ltd.

[Display/IT Materials] Limited seasonal-peak effects Young Ryu +822-768-4138 TV panels: Prices unlikely to pick up anytime soon [email protected]

Chuljoong Kim TV panel prices are continuing to fall faster than market expectations; excluding 32” panels, th th th +822-768-4162 prices dipped 2-3% in the period August 6 to 19 compared to the previous period (July 20 [email protected] to August 5 th ). The price decline was steeper for 32” TV panels, which plunged 5.3% during

the period. We originally believed the price decline would take a breather in mid-3Q, as TV makers tend to build up inventory in anticipation of year-end seasonal demand. However, persistently weak TV demand and high inventory appear to be driving greater-than-expected downward pricing pressures on panel suppliers.

AUO and Innolux saw another month of weak shipments in July, fueling market worries. Macro conditions also suggest we are unlikely to see a recovery in TV demand or the IT sector in general. As such, we believe the seasonal-peak effects that typically occur in 2H will be largely absent this year. While we still think top panel makers focused on the premium segment could deliver relatively resilient earnings, given Chinese firms’ low yields in the premium and large-sized space, China’s continued capacity ramp-ups and rising utilization are ultimately likely to weigh on the overall panel market.

IT panels: Downtrend continues PC and laptop monitor prices fell 2% and 1.5% on average, respectively, in the period August 6th to 19 th , compared to the previous period (July 20 th to August 5 th ). Despite panel makers’ efforts to lower utilization, prices are continuing to decline due to elevated inventory and tepid demand. Until these issues begin to improve, prices are likely to remain under pressure.

Figure 111.1. Monthly revenue of Innolux and AUO

(NT$mn) Innolux (L) AUO (L) (%) Innolux YoY growth (R) AUO YoY growth (R) 60,000 40

30 50,000 20 40,000 10

30,000 0

-10 20,000 -20 10,000 -30

0 -40 1/10 7/10 1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 Source: IHS, KDB Daewoo Securities Research

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

Index Watcher: KOSPI 200 Free-float ratio of Cheil Industries to be raised

KRX disclosed on August 19 th that it will raise Cheil Industries’ free-float ratio

Our August 19 th Index Watcher report, entitled “Special reconstitution: Samsung C&T AI Report out, Hyundai Green Food in,” was based on there being no adjustments to free-float ratios, as the KRX had not announced any such change up to that point. August 21, 2015 th After market closing on August 19 , however, the KRX disclosed that it will raise the free-float ratio of Cheil Industries from 30% to 45%. As such, we are publishing this Daewoo Securities CCo.,o., Ltd. report to update the August 19 th report in line with the free-float ratio change.

[Derivatives] There are two areas in particular that require updating in light of the change in free-float

Youngsung Kim ratio: 1) the selling volume of Samsung C&T shares by index funds, and 2) the impact of +822-768-4120 the KOSPI 200 and MSCI rebalancing. [email protected] Weight of merged entity to decrease by 0.01%p

The revised free-float ratio will be reflected in the index on September 1 st , when the special reconstitution is scheduled to take effect.

Based on August 20 th closing prices, the weight of the merged entity in the KOSPI 200—

after the free-float ratio adjustment—is forecast to decrease 0.01%p to 1.86%.

(Currently, the combined weight of Cheil Industries and Samsung C&T stands at 1.87%.) Meanwhile, selling by KOPSI 200-tracking index funds (estimated at KRW35tr) of Samsung C&T is projected at KRW4.1bn, equivalent to about 5% of the daily average trading value of the stock. The expected selling demand is significantly lower than our prior estimate of KRW224.4bn (2.99 times the daily trading value).

Given the small scale of the selling pressures from index trackers (and given that selling pressure could shift to Cheil Industries if Samsung C&T remains undervalued relative to Cheil Industries), the market impact will likely be significantly smaller than the pre-ratio revision level.

KOSPI 200 and MSCI rebalancing to result in KRW174bn in stock selloffs In our previous report, we forecast buying demand of KRW152bn for existing KOSPI 200 constituents (excluding Samsung C&T and Hyundai Green Food) as a result of the KOSPI 200 rebalancing, and selling pressure of KRW92.2bn (excluding added/deleted stocks) following MSCI’s quarterly rebalancing. For large caps, we predicted a particularly small impact, given the similarities between the KOSPI 200 and the MSCI series in terms of weighting and constituents (and thus the likelih ood of purchases and selloffs being canceled out).

However, in light of the KRX’s upward adjustment to Cheil Industries’ free-float ratio, we now expect both the KOSPI 200 rebalancing and the MSCI rebalancing to result in selling demand, and thus the impacts will not be offset . Specifically, we expect selling pressures for existing KOSPI 200 constituents to reach KRW72bn, while MSCI’s rebalancing will likely cause KRW101.9bn in selling demand for existing constituents (excluding added/deleted stocks), based on August 20 th closing prices. We anticipate that this selling will pose a burden to large-cap stocks on August 31 st .

Meanwhile, with regard to newly added and deleted constituents of the KOSPI 200 and MSCI Standard Index, we maintain o ur previous views. (For detailed information, refer to our August 19 th report, “Special reconstitution: Samsung C&T out, Hyundai Green Food in”).

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

Key Universe Valuations August 21, 2015

※All data as of close August 20, 2015, unless otherwise noted.

15F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 15F 16F 15F 16F 15F 16F 15F 16F 15F 16F 005930 162,177 1,101,000 1.4 8.7 6.2 -6.9 8.5 8.7 8.0 1.0 0.9 12.6 12.3 005380 Hyundai Motor 32,160 146,000 2.5 -11.9 8.0 -7.1 2.1 6.1 6.0 0.7 0.6 11.4 10.7 015760 KEPCO 31,777 49,500 2.2 56.6 4.5 266.6 -47.6 3.2 6.2 0.5 0.5 16.9 7.9 000660 SK Hynix 23,296 32,000 1.3 13.1 0.6 8.5 2.8 5.0 4.9 1.0 0.9 22.9 19.4 017670 SK Telecom 20,509 254,000 3.9 3.5 7.3 5.2 5.1 10.8 10.3 1.2 1.1 12.8 12.6 090430 AmorePacific 20,110 344,000 0.3 42.2 37.5 56.2 35.3 40.1 29.6 7.1 5.9 19.2 21.7 032830 Samsung Life 20,100 100,500 - - - - 0.0 0.0 055550 19,916 42,000 - - - - 0.0 0.0 012330 19,517 200,500 1.6 -10.7 11.1 -10.7 15.1 6.4 5.5 0.7 0.7 12.4 12.8 018260 Samsung SDS 18,764 242,500 0.2 14.3 13.8 12.4 12.2 40.4 36.0 4.2 3.8 10.8 11.0 000270 Motors 18,647 46,000 2.5 -4.4 25.0 -0.3 14.9 6.3 5.4 0.8 0.7 13.0 13.7 034730 SK Holdings 18,012 256,000 0.8 23.2 9.0 356.4 4.3 22.0 21.1 3.7 3.2 22.7 19.8 035420 NAVER 17,009 516,000 0.2 12.7 34.4 32.0 35.5 28.3 20.9 5.2 4.2 28.8 29.4 005490 POSCO 15,694 180,000 4.4 -9.6 30.8 124.5 65.9 11.2 6.7 0.4 0.3 3.4 5.5 033780 KT&G 15,651 114,000 3.1 14.8 -6.3 22.9 -10.5 15.4 17.2 2.4 2.2 17.1 14.1 051910 LG Chem 14,613 220,500 1.8 53.5 26.1 61.5 35.5 11.6 8.6 1.3 1.1 11.2 13.8 105560 KB Financial Group 13,986 36,200 - - - - 0.0 0.0 000810 Samsung F&M 12,744 269,000 - - - - 0.0 0.0 051900 LG Household & Health Care 12,026 770,000 0.6 34.8 20.3 34.4 22.6 29.1 23.7 6.7 5.4 26.1 26.0 003550 LG Corp. 9,784 56,700 1.8 23.9 10.0 22.8 7.3 9.6 9.0 0.8 0.7 8.3 8.3 035250 9,253 43,250 2.5 16.8 12.2 25.3 14.2 20.5 18.0 2.9 2.7 15.8 16.4 010130 Korea Zinc 9,114 483,000 1.3 3.2 17.4 9.4 17.6 16.6 14.1 1.8 1.6 11.3 12.0 096770 SK Innovation 8,747 94,600 3.4 - -29.2 - -27.6 6.4 8.9 0.5 0.5 8.8 6.0 086790 8,184 27,650 - - - - 0.0 0.0 011170 Lotte Chemical 7,798 227,500 0.4 348.5 0.4 696.9 6.9 6.7 6.2 1.0 0.9 16.7 15.3 030200 KT 7,677 29,400 1.7 - 2.1 - -15.8 9.8 11.7 0.6 0.6 7.3 5.8 034220 LG Display 7,568 21,150 2.4 47.1 -34.0 49.0 -33.1 5.6 8.4 0.6 0.6 11.3 7.0 024110 7,511 13,500 - - - - 0.0 0.0 023530 Lotte Shopping 7,479 237,500 0.6 11.3 12.6 37.8 13.4 9.9 8.7 0.4 0.4 4.4 4.8 035720 Daum 7,433 124,000 0.1 -42.7 105.4 -75.3 115.3 82.1 38.1 2.9 2.7 3.6 7.4 000830 Samsung C&T 7,295 46,700 1.3 -19.4 12.2 61.9 9.6 17.1 15.6 0.5 0.5 3.3 3.5 088350 Hanwha Life 7,287 8,390 - - - - 0.0 0.0 021240 Coway 6,941 90,000 3.0 21.1 12.9 30.7 11.9 21.3 19.0 5.8 5.1 31.0 31.8 009240 Hanssem 6,931 294,500 0.3 35.1 34.9 35.3 34.3 59.1 44.0 14.6 11.2 30.8 31.8 004020 6,832 51,200 1.5 10.8 4.8 44.4 -4.6 5.4 5.7 0.4 0.4 7.8 7.0 086280 6,563 175,000 1.1 3.7 12.3 -16.5 30.0 14.7 11.3 2.1 1.8 15.3 17.5 010950 S-Oil 6,541 58,100 4.7 - -24.6 - -22.9 7.2 9.3 1.2 1.1 17.8 12.2 139480 Emart 6,537 234,500 0.6 -2.7 25.8 111.3 -18.2 10.7 13.0 0.9 0.8 8.7 6.7 066570 LG Electronics 6,513 39,800 1.5 -40.8 56.2 31.8 84.9 13.7 7.4 0.6 0.6 4.5 7.9 19745. 009540 6,475 85,200 - - - - 12.4 0.4 0.4 - 3.4 0 051600 KEPCO KPS 5,513 122,500 - - - - 0.0 0.0 001800 Orion 5,336 893,000 0.7 17.2 9.4 26.9 14.7 25.7 22.4 3.7 3.3 15.7 15.9 006400 Samsung SDI 5,336 77,600 1.3 -73.3 859.1 - 45.4 24.9 17.1 0.5 0.5 1.9 2.7 097950 CJ CheilJedang 5,143 391,000 0.6 45.4 11.4 201.6 19.3 20.4 17.1 1.7 1.6 9.1 10.1 032640 LG Uplus 5,130 11,750 2.4 26.4 0.7 80.3 3.9 12.5 12.0 1.2 1.1 9.5 9.3 007070 GS Retail 4,628 60,100 1.0 69.0 25.0 67.0 24.3 24.9 20.0 2.5 2.3 10.6 12.1 161390 4,614 37,250 1.1 -21.0 13.2 -12.4 12.7 7.5 6.7 0.9 0.8 12.9 13.0 004800 Hyosung 4,530 129,000 0.8 -1.9 -4.4 9.4 -4.9 15.4 16.2 1.5 1.4 10.1 8.8 036570 NCsoft 4,506 205,500 1.9 12.7 22.1 19.7 15.1 16.4 14.2 2.7 2.4 18.8 18.8 008770 4,337 110,500 0.4 39.1 87.5 67.2 124.2 36.0 16.0 5.3 4.0 15.8 28.7 Source: KDB Daewoo Securities Research

Market Data August 21, 2015

※All data as of close August 21, 2015, unless otherwise noted.

Other Major Indices Economic Indicators Close Net Chg 1D (%) YTD (%) Close 1D ago 1M ago 1Y ago MSCI Korea* 332.62 -3.75 -1.11 -13.98 USD/KRW 1,185.10 1,185.10 1,151.90 1,020.90 KOSPI 1,876.07 -38.48 -2.01 -2.61 JPY100/KRW 959.83 956.50 926.82 984.43 KOSDAQ 627.05 -29.66 -4.52 13.24 EUR/KRW 1,330.69 1,317.71 1,247.80 1,353.61 Dow Jones* 16,990.69 -358.04 -2.06 -4.72 3Y Treasury 1.71 1.71 1.77 2.58 S&P 500* 2,035.73 -43.88 -2.11 -1.09 3Y Corporate 1.96 1.96 2.00 2.96 NASDAQ* 4,877.48 -141.57 -2.82 3.19 DDR2 1Gb* 1.15 1.15 1.19 1.60 Philadelphia Semicon* 594.78 -23.54 -3.81 -13.39 NAND 16Gb* 1.53 1.53 1.65 2.37 FTSE 100* 6,367.89 -35.56 -0.56 -2.75 Oil (Dubai)* 46.33 48.74 55.12 100.76 Nikkei 225 19,435.83 -597.69 -2.98 11.64 Gold* 1,153.00 1,128.10 1,106.80 1,293.40 Hang Seng* 22,757.47 -410.38 -1.77 -4.61 Customer deposits (Wbn)* 21,421 21,007 24,703 15,627 Taiwan (Weighted) 7,786.92 -242.89 -3.02 -16.04 Equity type BC (Wbn)(Aug. 19) 78,158 78,206 77,387 78,147 Note: * as of August 20, 2015 Source: KSDA, Wisefn, DRAMeXchange, MSCI

KOSPI Top 10 Foreign Net Buy / Net Sell (Wbn) KOSPI Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Hyundai Development E&C 10.66 Samsung Electronics 156.12 Samsung Electronics 130.88 KODEX LEVERAGE 112.75 SK C&C 9.02 KODEX 200 62.66 Hynix 36.71 KODEX INVERSE 17.82 Hyundai Steel 6.99 Hynix 57.03 Hanmi Pharm 35.62 OCI 12.23 Hyundai Elevator 5.67 TIGER200 25.15 KODEX 200 34.55 Hyundai Elevator 11.66 Hotel Shilla 4.92 KEPCO 23.22 Kia Motors 29.59 Kumho Petrochemical 4.21 Hyundai Eng. & Cosnt. 4.82 Samsung Electronics (P) 14.86 TIGER200 23.42 3.87 LG Uplus 4.50 Hyundai Mobis 14.69 Amore Pacific 23.04 Hyundai Steel 3.40 OCI 4.48 Kia Motors 13.85 KEPCO 21.95 LG International 2.37 TIGER SYNTH-CHINA A Hyundai Motor 4.25 CHEIL INDUSTRIES 11.09 Hyundai Mobis 18.89 2.24 LEVERAGE Ilyang Pharmaceutical 4.21 POSCO 10.64 Hyundai Motor 17.33 KCC 2.15 Source: KSDA, Wisefn

KOSDAQ Top 10 Foreign Net Buy / Net Sell (Wbn) KOSDAQ Top 10 Institutional Net Buy / Net Sell (Wbn) Net Buy Net Sell Net Buy Net Sell Daum Communications 9.35 Celltrion 9.70 CJ E&M 12.61 Celltrion 7.44 Paradise 4.84 Korea Information Service 8.87 SM 6.83 ATTO 2.06 Dongsuh 2.99 OSSTEM IMPLANT 4.91 Webzen 6.03 Paradise 2.04 ACTOZ SOFT 2.89 CJ O Shopping 3.12 Medy-tox 5.21 NEW 1.80 ATTO 2.57 PEPTRON 2.76 CJ O Shopping 5.10 HLB 1.79 SM 2.54 Maeil Dairy Industry 2.09 Korea Information Service 5.04 SundayToz 1.61 HLB 2.46 Amicogen 2.02 YG Entertainment 4.29 Jenexine 1.41 REDROVER 2.46 Medy-tox 1.80 Com2us 4.23 INICIS 1.39 HaanSoft 2.44 GemVax 1.35 Amicogen 3.90 Speco 1.25 Sansung P&C 2.34 i-SENS 1.18 Sansung P&C 3.24 Alteogen 1.19 Source: KSDA, Wisefn

KOSPI Top 10 by Market Cap (Wbn) KOSDAQ Top 10 by Market Cap (Wbn) Close (W) Chg (W) Mkt Cap Close (W) Chg (W) Mkt Cap Samsung Electronics 1,101,000 -38,000 162,177 Daum Communications 124,000 -1,200 7,433 Hyundai Motor 146,000 -3,000 32,160 Celltrion 65,000 -5,100 7,282 KEPCO 49,500 -2,200 31,777 Dongsuh 41,150 -1,250 4,103 Hynix 32,000 -1,050 23,296 CJ E&M 75,400 800 2,920 SK Telecom 254,000 -4,000 20,509 Medy-tox 510,000 -4,000 2,885 Samsung Electronics (P) 888,000 -12,000 20,276 LOEN 86,200 -3,200 2,180 Amore Pacific 344,000 4,000 20,110 ViroMed 128,600 -12,700 1,826 100,500 0 20,100 Paradise 19,700 -500 1,792 Shinhan Financial Group 42,000 50 19,916 EO Technics 109,000 -4,000 1,337 Hyundai Mobis 200,500 -4,000 19,517 GS Home Shopping 197,200 -100 1,294 Source: