March 16, 2016 KOREA Company News & Analysis Major Indices Close Chg Chg (%) GS E&C (006360/Buy/TP: W33,000) KOSPI 1,974.90 4.93 0.25 Upbeat on orders in 1H and margins in 2H KOSPI 200 242.35 0.52 0.22 KOSDAQ 693.44 0.10 0.01 Turnover ('000 shares, Wbn) Volume Value KOSPI 289,945 4,056 KOSPI 200 72,666 3,063 KOSDAQ 586,686 2,967 Market Cap (Wbn) Value KOSPI 1,250,641 KOSDAQ 207,067 KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,108 1,010 98 Institutional 866 953 -88 Retail 2,028 2,074 -46 KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 188 169 19 Institutional 95 137 -42 Retail 2,682 2,650 32 Program Buy / Sell (Wbn) Buy Sell Net KOSPI 908 775 133 KOSDAQ 85 78 8 Advances & Declines Advances Declines Unchanged KOSPI 390 411 72 KOSDAQ 479 568 96 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value KODEX LEVERAGE 9,985 60 191 Samsung Electronics 1,256,000 3,000 173 POSCO 203,000 -7,000 153 KODEX INVERSE 8,160 -25 128 Samsung Engineering 9,950 430 109 KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Sansung P&C 36,000 950 118 Codes Combine 141,000 -10,100 101 CCS Cable TV 1,965 85 92 Celltrion 107,500 1,900 77 ILYA 13,050 2,550 62 Note: As of March 16, 2016 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. GS E&C (006360 KS) Upbeat on orders in 1H and margins in 2H Construction Most problematic projects likely to be completed in 1H GS E&C’s Saudi Rabigh II (contract value: W2.1tr), Saudi PP-12 power plant (W0.7tr), Company Update and Thailand UHV (W0.7tr) projects are due to be completed in 1H. We could see some March 16, 2016 additional losses during completion, but unless there are further delays, we expect margins to recover full swing from 2H (as is the case with other major construction companies). (Maintain) Buy Cash flow to improve on falling unbilled receivables Target Price (12M, W) 33,000 Since 2010, GS E&C’s billed and unbilled accounts receivable have remained at around 41-44% of overall revenue. Assuming it takes three to four months on average to collect Share Price (3/15/16, W) 27,950 receivables, we believe normal levels should be around 25-33%. The company’s billed and unbilled receivables shrank to W4.1tr at end-4Q15, after peaking at W4.6tr at end- Expected Return 18% 3Q15. In particular, unbilled receivables sharply declined from W3.2tr to W2.1tr during the period. Looking forward, the ongoing conversion of accounts receivable into cash should support continued cash flow improvement. OP (16F, Wbn) 248 Consensus OP (16F, Wbn) 245 2016 order environment better than expected EPS Growth (16F, %) 407.2 Management has guided 2016 overseas orders at W5tr (vs. a ctual orders of W3.1tr in Market EPS Growth (16F, %) -0.3 2015). Despite low oil prices, the company believes it has a good chance of winning P/E (16F, x) 14.8 large-scale contracts. It has been reported that GS E&C submitted the lowest bid for the Market P/E (16F, x) 11.3 W3tr UAE POC project, and the company is expected to win an infrastructure contract KOSPI 1,969.97 in Singapore. If both contracts come through, this would enable the company to achieve most of its full-year guidance. Market Cap (Wbn) 1,984 Shares Outstanding (mn) 71 On the domestic front, the company should see stable housing o rders led by Free Float (%) 68.8 reconstruction /redevelopment projects. In 2015, housing orders totaled W7tr Foreign Ownership (%) 14.9 (reconstruction/redevelopment orders totaled W6.8tr, of which W3.1tr was recognized Beta (12M) 1.82 due to regulatory approval, while the remaining W3.7tr is provisional and yet to be 52-Week Low 18,950 recognized). For 2016, we forecast housing orders to be around W5-6tr. Also positive is 52-Week High 36,650 the increase in building projects, with the company recently being tapped for LG Display’s new plant project. (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M Absolute 11.4 16.5 -10.6 Cash flow, earnings visibility, and valuation behind recent rebound Relative 5.3 14.5 -9.8 GS E&S’s market value has been recovering this year, driven by 1) cash flow 130 GS E&C KOSPI improvements resulting from the decline in unbilled receivables, 2) better margins and 110 earnings visibility due to the completion of problematic overseas projects, and 3) an attractive valuation (P/B of 0.4x). We think the stock’s valua tion is still compelling 90 despite the recent rebound, and expect cash flow and margins to continue to gradually 70 improve. We maintain our Buy rating on the stock with a target price of W33,000. 50 3.15 7.15 11.15 3.16 Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/12 12/13 12/14 12/15 12/16F 12/17F Revenue (Wbn) 9,569 9,566 9,488 10,572 11,412 11,790 [Construction/Construction Materials] OP (Wbn) 176 -936 51 122 248 427 Hyung-ryul Park OP margin (%) 1.8 -9.8 0.5 1.2 2.2 3.6 +822-768-4165 NP (Wbn) 86 -828 -41 26 134 281 [email protected] EPS (W) 1,564 -15,000 -649 371 1,884 3,952 ROE (%) 2.3 -25.5 -1.3 0.8 4.0 7.8 Ye-gee Kim +822-768-4155 P/E (x) 33.9 - - 53.2 14.8 7.1 [email protected] P/B (x) 0.8 0.5 0.5 0.4 0.6 0.5 Notes: 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 t he U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. Key Universe Valuations March 16, 2016 ※All data as of close March 15, 2016, unless otherwise noted. 16F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 16F 17F 16F 17F 16F 17F 16F 17F 16F 17F 005930 Samsung Electronics 182,207 1,256,000 1.7 -16.9 3.8 -3.2 9.3 11.8 10.8 1.0 1.0 9.6 9.7 015760 KEPCO 38,389 59,800 2.7 2.2 4.0 -48.0 2.9 5.6 5.4 0.5 0.5 10.0 9.6 005380 Hyundai Motor 32,271 146,500 3.4 5.3 3.5 3.1 2.9 6.3 6.1 0.6 0.6 10.2 9.6 012330 Hyundai Mobis 24,093 247,500 1.4 4.9 7.5 11.5 10.0 7.1 6.4 0.8 0.7 12.6 12.3 032830 Samsung Life 23,100 115,500 - - - - 0.0 0.0 090430 AmorePacific 22,828 390,500 0.3 34.8 26.3 26.5 26.1 37.0 29.4 6.7 5.5 19.6 20.6 000660 SK Hynix 21,258 29,200 1.4 -32.6 22.1 -36.2 27.3 8.0 6.3 0.9 0.8 11.7 13.4 035420 NAVER 21,096 640,000 0.2 36.0 31.3 41.7 29.0 28.6 22.2 5.4 4.4 27.9 27.5 051910 LG Chem 20,345 307,000 1.3 9.9 26.0 37.2 26.8 14.3 11.3 1.6 1.4 11.5 13.2 055550 Shinhan Financial Group 19,608 41,350 - - - - 0.0 0.0 000270 Kia Motors 19,255 47,500 2.5 11.6 16.3 16.7 12.1 6.3 5.6 0.7 0.6 12.0 12.1 005490 POSCO 17,699 203,000 3.0 8.7 26.5 471.9 86.2 17.2 9.2 0.4 0.4 2.5 4.5 017670 SK Telecom 17,603 218,000 4.6 3.5 2.4 -3.5 2.4 12.0 11.7 1.0 0.9 9.3 9.1 034730 SK Holdings 17,203 244,500 0.8 9.0 13.4 4.3 -49.4 20.2 39.9 3.1 2.9 19.8 8.9 033780 KT&G 14,690 107,000 3.2 -10.5 4.3 -7.1 4.7 15.3 14.6 2.1 1.9 14.9 14.3 051900 LG Household & Health Care 14,634 937,000 0.7 21.2 17.0 20.3 18.6 30.0 25.3 6.5 5.3 24.4 23.6 018260 Samsung SDS 14,431 186,500 0.3 10.8 9.2 4.0 7.9 31.6 29.3 2.9 2.7 9.7 9.6 000810 Samsung F&M 14,402 304,000 - - - - 0.0 0.0 096770 SK Innovation 14,378 155,500 2.1 2.6 10.6 65.1 24.8 10.8 8.7 0.9 0.8 8.2 9.6 105560 KB Financial Group 12,614 32,650 - - - - 0.0 0.0 003550 LG Corp.