SM Entertainment (041510 KQ) A temporary lull before a strong bounce- back

Entertainment 1Q earnings pullback only temporary due to a lull in concerts For 1Q, SM Entertainment posted consolidated revenue of W50bn (+0.8% YoY) and Results Comment operating profit of W5.1bn (-72% YoY). The sharp contraction in operating profit despite flat top-line growth was largely a result of: 1) yen weakness eroding royalty May 31, 2013 income repatriated from , and 2) a temporary void of Japanese concerts, which are

recognized six months later. The last major concert held in 2012 was the August SM Town dome tour in , and the first large-scale concert for 2013 was the Girls’ (Maintain) Buy Generation tour that lasted from February through April. Margins were further hurt by one-off expenses for SM Japan’s system development (accounting, etc.) and SM C&C’s Target Price (12M, W) 58,000 initial investments for video content production. We estimate 1Q overseas revenue was around W17.1bn (parent-based), significantly down from W26.7bn in 1Q12. Share Price (05/30/13, W) 38,600 1.54mn in-Japan concert attendance confirmed so far, nearly double that of 2012 Expected Return 50% Since earlier this year, SM Entertainment has been setting new records in several of its earnings indicators. First, in addition to a five-dome Japanese tour, it has been confirmed that TVXQ will perform on August 17th and 18th at the Nissan Stadium, which has a OP (13F, Wbn) 69 maximum seating capacity of 75,000. The firm’s 2013 Japanese concerts confirmed so Consensus OP (13F, Wbn) 70 far have a combined maximum capacity of 1.54mn, which is nearly double the annual figure of 2012 (900,000). EPS Growth (13F, %) 37.3 Market EPS Growth (13F, %) 21.6 Furthermore, SM Entertainment’s dome (stadium) concerts as a percentage of total P/E (13F, x) 14.1 concerts have increased from 46.3% in 2012 to 84.2% in 2013, a positive development Market P/E (13F, x) 9.6 given that dome tours tend to generate royalty income (per 10,000 attendees) twice as KOSDAQ 581.13 high as that of regular concerts (capacity of over 40,000 per concert for dome tours vs. 10,000-15,000 for regular tours). In 2H, a number of ex-Japan tours are also set to take Market Cap (Wbn) 797 place, including Girls’ Generation world tour, SM Town, and ’s 5. Shares Outstanding (mn) 21 Free Float (%) 78.2 The company is also likely to expand its Chinese presence in 2H. The new Foreign Ownership (%) 11.7 (comprising of six Korean and six Chinese members) has been gaining wide popularity in Beta (12M) 0.16 the Greater region following its single release in 2012. On June 3rd, the band is 52-Week Low (W) 36,000 expected to release its first full-length album, which will feature Chinese songs. 52-Week High (W) 71,600 Lower TP by 19% to W58,000 in light of yen fluctuation (%) 1M 6M 12M We lowered our 2013F-14F EPS by 5% and 8.4%, respectively, after reflecting major Absolute -8.9 -16.6 -4.7 earnings variables observed in 1Q results. We incorporated more conservative Relative -10.7 -20.1 -13.1 assumptions to our target price, largely due to the uncertainty of the yen’s fluctuations. Share price 180 KOSDAQ In deriving our target price, we changed our peer-group comparison from US media and 160 entertainment players (average 2013F P/E of 29x) to global media and entertainment 140 stocks. Our target P/E is 21.5x, a 10% discount to the 2013F average global media and 120 entertainment multiple (24x). As such, we cut our target price to W58,000 from 100 W72,000. 80 5/12 9/12 1/13 5/13

Daewoo Securities Co., Ltd. FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F Internet/Game/Entertainment Revenue (Wbn) 97 143 241 281 335 368 OP (Wbn) 20 26 61 69 82 96 Chang-kwean Kim OP Margin (%) 20.9 17.9 25.1 24.5 24.6 26.1 +822-768-4321 [email protected] NP (Wbn) 17 23 40 56 74 85 EPS (W) 942 1,235 1,994 2,739 3,573 4,123

ROE (%) 22.9 23.1 24.7 23.6 24.4 22.5

P/E (x) 16.0 33.0 22.8 14.1 10.8 9.4

P/B (x) 3.6 7.4 5.5 3.5 2.6 2.1 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.

May 31, 2013 SM Entertainment

Table 1. Annual earnings (Wbn, %) 2007 2008 2009 2010 2011 2012 2013F Revenue 31.3 40.1 61.8 86.4 143.0 241.3 281.0 CD 8.9 10.8 14.6 14.9 19.7 22.3 22.7 Digital 4.4 4.8 9.5 8.5 6.3 6.4 9.5 Overseas 5.6 8.6 15.8 36.8 81.1 128.7 148.4 Management 12.4 16.0 21.9 26.2 35.9 36.3 39.1 Others 47.7 61.4 YoY Revenue 7.1 27.9 54.1 39.9 65.6 68.7 16.4 CD 1.6 21.3 35.7 2.1 32.0 13.3 1.5 Digital 9.7 8.9 98.1 -10.2 -26.2 1.2 49.4 Overseas 17.0 52.0 84.1 133.1 120.6 58.6 15.3 Management 6.3 28.4 37.3 19.6 37.2 0.9 7.8 Others 28.7 Portion CD 28.4 26.9 23.7 17.3 13.8 9.3 8.1 Digital 14.0 11.9 15.3 9.8 4.4 2.6 3.4 Overseas 18.0 21.4 25.5 42.6 56.7 53.3 52.8 Management 39.6 39.8 35.5 30.3 25.1 15.0 13.9 Others 19.8 21.8 OP -3.7 -1.9 9.3 20.2 25.6 60.5 74 YoY RR RR TTB 117.2 26.7 136.3 22.3 OP margin 15.1 23.4 17.9 25.1 26.3 NP -7.6 4.3 4.5 17.1 22.8 39.9 59.1 YoY RR TTB 4.7 280.0 33.3 75.0 48.1 NP margin 7.2 19.8 7.3 19.8 15.9 16.5 21.0 Note: All figures are based on K-GAAP until 2010; From 2011, all figures are based on consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research estimates

Table 2. Earnings forecast revisions (Wbn, %, %p) Before After Change 2013F 2014F 2013F 2014F 2013F 2014F Revenue 290 345 281 335 -3.2 -3.0 OP 74 92 69 82 -7.0 -10.6 Pre-tax profit 86 105 82 97 -4.9 -8.4 Net profit 59 80 56 74 -4.6 -8.1 EPS (W) 2,881 3,901 2,739 3,573 -5.0 -8.4 OP margin 25.5 26.7 24.5 24.6 -1.0 -2.1 Net margin 20.4 23.2 20.1 22.0 -0.3 -1.2 Notes: Based on consolidated K-IFRS Source: KDB Daewoo Securities Research estimates

Table 3. SM’s annual CD sales and concert capacity trends in-Japan and ex-Japan (‘000 units, ‘000 seats, %) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F CD 177,140 1,692,267 1,534,170 901,971 1,408,932 885,182 913,728 914,085 1,161,662 1,769,738 2,918,537 1,748,443 695,241 In Japan Concert - - 37,424 171,000 106,000 41,400 159,520 337,039 374,126 13,000 654,882 903,000 1,543,000 Ex-Japan Concert ------55,000 50,000 223,000 354,000 532,200 115,280 Note: Based on album release dates, concert dates, and maximum seating capacities; 2013 figures are our estimates based on confirmed schedules as of May 30, 2013 Source: KDB Daewoo Securities Research

KDB Daewoo Securities Research 2 May 31, 2013 SM Entertainment

Table 4. SM’s major Japanese concerts (seats) Girls’ Joint Date BoA TVXQ Super Junior Location Generation performances 01/18/12 17,000 Yokohama 01/19/12 17,000 Yokohama 01/25/12 10,000 01/26/12 10,000 Nagoya 01/27/12 10,000 Nagoya 02/11/12 15,000 Fukuoka 02/12/12 15,000 Fukuoka 02/18/12 10,000 Niigata 02/19/12 10,000 Niigata 02/23/12 10,000 Sapporo 02/24/12 10,000 Sapporo 03/03/12 10,000 Hiroshima 03/04/12 10,000 Hiroshima 03/09/12 8,000 Fukui 03/10/12 8,000 Fukui 03/13/12 16,000 03/14/12 16,000 Osaka 03/17/12 37,000 Saitama 03/18/12 37,000 Saitama 03/20/12 37,000 Saitama 04/14/12 50,000 Tokyo 04/15/12 50,000 Tokyo 04/16/12 50,000 Tokyo 04/21/12 45,000 Osaka 04/22/12 45,000 Osaka 04/23/12 45,000 Osaka 04/25/12 11,000 Fukuoka 04/29/12 11,000 Hokkaido 05/03/12 10,000 Nagoya 05/04/12 10,000 Nagoya 05/08/12 16,000 Osaka 05/09/12 16,000 Osaka 05/12/12 10,000 Hyogo 05/13/12 10,000 Hyogo 05/30/12 13,000 Tokyo 05/31/12 13,000 Tokyo 06/02/12 13,000 Tokyo 06/03/12 13,000 Tokyo 06/30/12 10,000 Hiroshima 07/01/12 10,000 Hiroshima 08/04/12 50,000 Tokyo 08/05/12 50,000 Tokyo 10/18/12 Tokyo 10/19/12 Tokyo 11/19/12 5,000 Yokohama 11/20/12 5,000 Yokohama 11/21/12 5,000 Yokohama 12/22/12 8,000 Kobe 12/23/12 8,000 Kobe 12/24/12 8,000 Kobe

KDB Daewoo Securities Research 3 May 31, 2013 SM Entertainment

01/01/13 15,000 Tokyo 02/09/13 9,000 Kobe 02/10/13 9,000 Kobe 02/16/13 37,000 Saitama 02/17/13 37,000 Saitama 02/23/13 10,000 Niigata 02/24/13 10,000 Niigata 02/27/13 15,000 Fukuoka 02/28/13 15,000 Fukuoka 03/09/13 10,000 Hiroshima 03/10/13 10,000 Hiroshima 03/19/13 37,000 Saitama 03/20/13 37,000 Saitama 03/26/13 16,000 Osaka 03/27/13 16,000 Osaka 04/04/13 37,000 Saitama 04/05/13 37,000 Saitama 04/09/13 10,000 Nagoya 04/10/13 10,000 Nagoya 04/20/13 10,000 Osaka 04/21/13 10,000 Osaka 04/27/13 37,000 Saitama 04/28/13 37,000 Saitama 04/29/13 37,000 Saitama 05/05/13 40,000 Sapporo 05/10/13 40,000 Nagoya 05/11/13 40,000 Nagoya 05/22/13 40,000 Nagoya 05/25/13 35,000 Fukuoka 05/26/13 35,000 Fukuoka 05/29/13 10,000 Nagoya 05/30/13 10,000 Nagoya 06/01/13 10,000 Kobe 06/02/13 10,000 Kobe 06/05/13 45,000 Osaka 06/06/13 45,000 Osaka 06/08/13 45,000 Osaka 06/08/13 10,000 Sapporo 06/09/13 45,000 Osaka 06/15/13 50,000 Tokyo 06/16/13 50,000 Tokyo 06/17/13 50,000 Tokyo 06/18/13 12,000 Fukuoka 06/22/13 10,000 Hiroshima 06/28/13 World Tour plan37,000 Saitama 06/29/13 World Tour plan 37,000 Saitama 06/30/13 World Tour plan 37,000 Saitama 07/06/13 World Tour plan 16,000 Osaka 07/07/13 World Tour plan 16,000 Osaka 07/13/13 World Tour plan 10,000 Niigata 07/27/13 50,000 Tokyo 07/28/13 50,000 Tokyo 08/17/13 75,000 Yokohama 08/18/13 75,000 Yokohama 2012 Total 903,000 2013 Total 1,543,000 Notes: Based on our estimates. Seating capacity depends on stage setting. Our estimates are based on confirmed schedules as of May 30, 2013. Source: Company data, Wikipedia, KDB Daewoo Securities Research

KDB Daewoo Securities Research 4 May 31, 2013 SM Entertainment

Table 5. SM's major ex-Japan concerts (seats) Girls’ Super Date BoA TVXQ SHINee Joint Performance City Generation Junior 01/15/12 16,000 Girls Generation Tour: AsiaWorld Arena 02/02/12 15,000 Super Show: Arena 02/03/12 15,000 Super Show: Taiwan 02/04/12 15,000 Super Show: Taipei Arena Taiwan 02/05/12 15,000 Super Show: Taipei Arena Taiwan 02/12/12 12,000 Girls Generation Tour: Impact Arena 02/18/12 12,000 Super Show: Indoor Stadium Singapore 02/19/12 12,000 Super Show: Singapore 03/16/12 40,000 Super Show: Impact Arena Thailand 03/17/12 40,000 Super Show: Impact Arena Thailand 03/18/12 40,000 Super Show: Impact Arena Thailand 04/06/12 6,200 Super Show: Zenith de Paris France 04/14/12 18,000 Super Show: Mercedez-Benz Arena China 04/27/12 20,000 Super Show: Meta Elang International Stadium 04/28/12 20,000 Super Show: Meta Elang International Stadium Indonesia 04/29/12 20,000 Super Show: Meta Elang International Stadium Indonesia 05/20/12 12,000 SM Town Live: Honda Center US 06/09/12 15,000 SM Town Live: Hsinchu County Stadium Taiwan 09/15/12 15,000 SHINee World III: Taipei Arena Taiwan 09/16/12 15,000 SHINee World III: Taipei Arena Taiwan 09/22/12 80,000 SM Town Live: Gelora Bunb Karno Stadium Indonesia 10/27/12 16,000 SHINee World III: AsiaWorld-Arena China 11/23/12 30,000 SM Town Live: The Float Marian Bay Singapore 11/25/12 21,000 SM Town Live: SCG Stadium Thailand 12/08/12 12,000 SHINee World III: Singapore Indoor Stadium Singapore TVXQ! Live World Tour 'Catch Me', Asia World 01/19/13 10,000 Hong Kong Arena TVXQ! Live World Tour 'Catch Me', Capital 03/30/13 10,000 China Stadium 04/21/13 7,000 Super Show: Credicard Hall 04/23/13 8,280 Super Show: Luna Park 04/25/13 15,000 Super Show: Moviestar Arena 04/27/13 25,000 Super Show: Jockey Club del Peru TVXQ! Live World Tour 'Catch Me', Stadium 05/18/13 40,000 Malawati 2012 Total 532,200 2013 Total 115,280 Notes: Based on our estimates factoring confirmed schedules as of May 30, 2013. Seating capacity depends on stage setting. Source: Company data, Wikipedia, KDB Daewoo Securities Research

KDB Daewoo Securities Research 5 May 31, 2013 SM Entertainment

Table 6. Global media/entertainment earnings and valuation metrics (2013F) (Wbn, mn in local currencies, %, x) Company Market cap Share price Revenue OP OPM NP EPS ROE P/E P/B SM Entertainment 935 45,750 281 69 24.5 56 2,739 23.6 14.1 3.5 YG Entertainment 748 72,500 129 29 22.4 26 2,559 24.3 25.3 6.0 Cheil Worldwide 2,830 24,600 2,863 187 6.5 142 1,232 16.8 21.3 3.3 Korea CJ E&M 1,366 36,000 1,667 96 5.8 66 1,727 5.3 20.1 1.7 KT Skylife 1,577 33,000 675 165 24.5 131 2,729 32.3 14.2 4.4 Average 16.7 20.5 19.0 3.8 Disney 134,539 66 45,263 10,421 23.0 6,343 3.5 15.5 19.0 2.8 Time Warner 62,218 59 29,473 6,555 22.2 3,471 3.7 11.4 16.1 1.8 CBS 34,903 50 14,938 3,374 22.6 1,905 3.0 19.0 16.6 3.1 Discovery Communications 31,835 79 5,562 2,221 39.9 1,216 3.4 20.6 23.6 4.8 North Viacom 37,469 68 13,791 3,994 29.0 2,334 4.7 32.0 14.5 4.8 America Liberty Interactive 13,589 23 10,404 1,302 12.5 586 1.2 8.6 19.8 1.8 E.W. Scripps 874 14 831 25 3.0 10 0.1 1.2 102.3 News Corp 85,746 33 36,424 5,853 16.1 3,846 1.6 15.1 20.1 2.8 Pandora 3,344 17 425 -36 -8.5 -14 3.0 -29.8 22.0 Average 17.8 10.4 29.0 5.5 Avex 1,593 3,105 140 14 10.1 6 141 16.0 22.1 3.4 Japan Amuse 228 2,200 31 4 12.9 3 282 17.6 7.8 Average 85 9 11.5 4 16.8 14.9 3.4 Global Average 16.7 14.3 23.8 5.0 Notes: Figures for domestic firms (except KT Skylife) are based on consolidated K-IFRS. Market cap is based on Wbn. Except per-share data and Korean/Japanese data, currency units are based on mn units. Source: Bloomberg, KDB Daewoo Securities Research

KDB Daewoo Securities Research 6 May 31, 2013 SM Entertainment

SM Entertainment (041510 KQ/Buy/TP: W58,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/12 12/13F 12/14F12/15F (Wbn) 12/12 12/13F 12/14F 12/15F Revenue 241 281 335368 Current Assets 198 240 310 387 Cost of Sales 132 154 184 196 Cash and Cash Equivalents 100 132 191 260 Gross Profit 110 127 151 172 AR & Other Receivables 23 27 33 36 SG&A Expenses 49 58 69 76 Inventories 6 7 8 9 Operating Profit (Adj) 61 69 82 96 Other Current Assets 25 30 35 39 Operating Profit 61 69 82 96 Non-Current Assets 125 146 159 171 Non-Operating Profit -4 13 14 16 Investments in Associates 2 2 2 2 Net Financial Income -2 -2 -3 -5 Property, Plant and Equipment 39 39 38 37 Net Gain from Inv in Associates 4 0 0 0 Intangible Assets 43 35 32 31 Pretax Profit 57 82 97 112 Total Assets 323 386 469 558 Income Tax 20 28 26 30 Current Liabilities 74 86 102 112 Profit from Continuing Operations 37 54 71 82 AP & Other Payables 45 53 63 69 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 3 3 3 3 Net Profit 37 54 71 82 Other Current Liabilities 27 31 37 40 Controlling Interests 40 56 74 85 Non-Current Liabilities 10 10 10 10 Non-Controlling Interests -3 -3 -3 -3 Long-Term Financial Liabilities 8 8 8 8 Total Comprehensive Profit 34 51 68 79 Other Non-Current Liabilities 1 1 2 2 Controlling Interests 37 53 70 82 Total Liabilities 84 96 112 122 Non-Controlling Interests -3 -3 -3 -3 Controlling Interests 213 266 336 418 EBITDA 70 97 105117 Capital Stock 10 10 10 10 FCF (Free Cash Flow) 2 40 59 69 Capital Surplus 119 119 119 119 EBITDA Margin (%) 29.0 34.4 31.3 31.7 Retained Earnings 84 140 214 299 Operating Profit Margin (%) 25.1 24.5 24.6 26.1 Non-Controlling Interests 26 24 21 19 Net Profit Margin (%) 16.5 20.1 22.0 23.1 Stockholders' Equity 239 290 357 436

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/12 12/13F 12/14F12/15F 12/12 12/13F 12/14F 12/15F Cash Flows from Op Activities 46 49 74 84 P/E (x) 22.8 14.1 10.8 9.4 Net Profit 37 54 71 82 P/CF (x) 18.4 9.4 8.3 7.5 Non-Cash Income and Expense 34 43 34 35 P/B (x) 5.5 3.5 2.6 2.1 Depreciation 2 1 1 1 EV/EBITDA (x) 11.8 6.8 5.7 4.5 Amortization 7 27 22 20 EPS (W) 1,994 2,739 3,573 4,123 Others -6 14 14 14 CFPS (W) 2,471 4,098 4,667 5,125 Chg in Working Capital -4 -19 -5 -3 BPS (W) 8,305 11,189 14,730 18,731 Chg in AR & Other Receivables -6 -4 -5 -3 DPS (W) 0 0 0 0 Chg in Inventories -3 -1 -1 -1 Payout ratio (%) 0.0 0.0 0.0 0.0 Chg in AP & Other Payables 15 7 10 6 Dividend Yield (%) 0.0 0.0 0.0 0.0 Income Tax Paid -21 -28 -26 -30 Revenue Growth (%) 68.8 16.5 19.1 10.0 Cash Flows from Inv Activities -48 -15 -14 -13 EBITDA Growth (%) 116.7 38.1 8.3 11.3 Chg in PP&E -23 0 0 0 Operating Profit Growth (%) 136.4 13.7 19.7 16.7 Chg in Intangible Assets -19 -19 -19 -19 EPS Growth (%) 61.5 37.3 30.5 15.4 Chg in Financial Assets -5 0 0 0 Accounts Receivable Turnover (x) 14.1 12.2 12.4 11.9 Others -2 4 5 7 Inventory Turnover (x) 58.3 45.6 46.1 44.4 Cash Flows from Fin Activities 75 -2 -2 -2 Accounts Payable Turnover (x) 7.7 6.6 6.6 6.4 Chg in Financial Liabilities 0 0 0 0 ROA (%) 15.2 15.2 16.6 16.0 Chg in Equity 65 0 0 0 ROE (%) 24.7 23.6 24.4 22.5 Dividends Paid 0 0 0 0 ROIC (%) 65.3 52.7 59.4 68.1 Others 9 -2 -2 -2 Liability to Equity Ratio (%) 35.1 33.2 31.4 28.0 Increase (Decrease) in Cash 66 33 58 70 Current Ratio (%) 266.4 278.3 303.6 345.6 Beginning Balance 34 100 132 191 Net Debt to Equity Ratio (%) -55.8 -57.3 -62.8 -67.4 Ending Balance 100 132 191 260 Interest Coverage Ratio (x) 51.3 40.2 48.1 56.2 Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 7 May 31, 2013 SM Entertainment

Important Disclosures & Disclaimers Disclosures (W) SM Entertainment As of the publication date, Daewoo Securities Co., Ltd. has been acting as a financial advisor to SM 100,000 Entertainment for its treasury stock trust, and other than this, Daewoo Securities has no other special interests in the companies covered in this report. 80,000 60,000

40,000 20,000

0 6/11 11/11 5/12 11/12 5/13

Stock Ratings Industry Ratings Buy Relative performance of 20% or greater Overweight Fundamentals are favorable or improving Trading Buy Relative performance of 10% or greater, but with volatility Neutral Fundamentals are steady without any material changes Hold Relative performance of -10% and 10% Underweight Fundamentals are unfavorable or worsening Sell Relative performance of -10% * Ratings and Target Price History (Share price (----), Target price (----), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.

Disclaimers This report is published by Daewoo Securities Co., Ltd. (“Daewoo”), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.

KDB Daewoo Securities Research 8 May 31, 2013 SM Entertainment

Distribution : This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.

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KDB Daewoo Securities Research 9