September 10, 2019 Korea Morning Focus Company News & Analysis Major Indices Close Chg Chg (%) Dongwon Industries (006040/Buy/TP: W330,000) KOSPI 2,019.55 10.42 0.52 Undervalued relative to improving fundamentals KOSPI 200 267.40 1.87 0.70 KOSDAQ 625.77 -5.38 -0.85 JYP Entertainment (035900/Buy/TP: W28,000) Foreign investor influx to begin Turnover ('000 shares, Wbn) Volume Value KOSPI 503,436 4,402 KOSPI 200 60,820 2,639 KOSDAQ 695,783 3,850 Market Cap (Wbn) Value KOSPI 1,348,800 KOSDAQ 219,019 KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,112 879 234 Institutional 1,042 1,116 -75 Retail 2,203 2,376 -173 KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 354 408 -53 Institutional 147 243 -95 Retail 3,321 3,175 146 Program Buy / Sell (Wbn) Buy Sell Net KOSPI 941 852 89 KOSDAQ 321 399 -78 Advances & Declines Advances Declines Unchanged KOSPI 320 508 63 KOSDAQ 388 835 84 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 46,900 600 429 Hwacheon Machinery 5,060 -480 251 Works Korea Industrial 4,635 115 246 KODEX Leverage 11,685 165 229 Hynix 84,300 2,400 208 KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Kukil Paper 5,820 -280 203 KMW 69,800 -6,200 138 KBIOGEN 9,610 1,220 122 RFHIC 42,400 -5,000 95 Soulbrain 71,800 2,700 94 Note: As of September 09, 2019 This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd. (“Mirae Asset 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. Mirae Asset 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. Mirae Asset 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. Dongwon Industries (006040 KS) Undervalued relative to improving fundamentals Food & Beverage 3Q19 preview: Fisheries to return to profit For 3Q19, we forecast a 10.3% YoY gain in revenue and 43.4% YoY increase in operating Company Report profit (W48.4bn) for Dongwon Industries. We believe 3Q19 operating profit growth will September 9, 2019 be driven by the fisheries (tuna catching) business. In 3Q18, the fisheries division (14% of revenue) recorded a loss due to a drop in tuna (skipjack) prices. In 3Q19, we expect the division to post a 22.4% YoY rise in revenue and return to an operating profit (W12.5bn), as a 30% YoY increase in catches and a weaker won against both the dollar and the yen (tuna sales are settled in US$ and JPY) should outweigh a 10% fall in (Maintain) Buy average tuna prices. For logistics (39% of revenue), we forecast both revenue and operating profit to grow. For distribution (47% of revenue), we expect revenue to grow, but operating profit to decline. Target Price (12M, W) 330,000 Fundamentals to continue to improve Share Price (09/09/19, W) 222,000 Looking forward, we expect Dongwon Industries’ fundamentals to improve, with operating profit growing 21.1% YoY in 2019 and 9.1% YoY in 2020. Expected Return 49% Despite wide fluctuations in tuna prices, fisheries’ operating profit should prove less volatile than market expectations, thanks to steady growth in tuna catches. Dongwon Industries launched two new S-class vessels (W35bn invested) in July and September (one began fishing in August and the other will begin in October). With S-class vessels OP (19F, Wbn) 215 accounting for nine of the company’s 14 national flag carriers, we expect catch-per- Consensus OP (19F, Wbn) 214 vessel to increase. S-class vessels are more competitive, because they are equipped with state-of-the-art equipment that allow ships to identify schools and share EPS Growth (19F, %) 41.4 information. We think catches by S-class vessels will reach breakeven levels, even Market EPS Growth (19F, %) -27.9 under unfavorable conditions (climate, etc.). P/E (19F, x) 7.6 We believe the logistics business will grow steadily, following a series of M&As. Market P/E (19F, x) 12.7 Dongwon Industries, which was one of Korea’s first third-party logistics providers, KOSPI 2,019.55 acquired Dongbu Express (ground transportation, stevedoring, storage, and international logistics) in February 2017 to strengthen its logistics business. The Market Cap (Wbn) 816 increased size of the business has led to stronger pricing power, a rise in new Shares Outstanding (mn) 4 contracts, and scale effects. Dongwon Industries also acquired BIDC (a storage and Free Float (%) 36.6 transportation service provider that owns a distribution center in Busan New Port; revenue of W69.5bn and operating profit of W6.1bn) in February 2019, and merged Foreign Ownership (%) 7.4 with Dongwon Cold Storage (revenue of W16.2bn and operating profit of W6.9bn) in Beta (12M) 0.79 May 2019. The company also established Dongwon Loex (operating profit in 2H18) to 52-Week Low 191,500 enter the cold storage business. 52-Week High 299,500 StarKist, a US canned tuna supplier wholly owned by Dongwon Industries, has been expanding its business beyond canned tuna and tuna pouches to products like canned (%) 1M 6M 12M salmon (2014), salmon pouches (2015), chicken pouches (2018), and shrimp pouches Absolute -1.8 -3.7 -24.5 (2H19). That said, increased SG&A expenses related to new products could lead to Relative -5.7 1.9 -14.7 profit contraction. Regarding the price-fixing lawsuits with US retailers, StarKist has set aside roughly US$100mn to cover the litigation costs. We could see additional litigation 110 Dongwon Industries KOSPI provisions, but they are unlikely to have a significant impact on fundamentals. 100 90 Maintain Buy and TP of W330,000 80 We think Dongwon Industries’ current share price offers a good entry point, as we 70 expect fundamentals to continue to improve and tuna prices to also rebound in 2019- 20. We also believe the company warrants a re-rating, as it continues to reduce its 60 exposure to the volatile fisheries business in favor of the more stable logistics and 50 9.18 1.19 5.19 9.19 distribution businesses. The stock is currently trading at a 2020F P/E of 6x and P/B of 0.6x. Mirae Asset Daewoo Co., Ltd. [ F&B] FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Revenue (Wbn) 1,576 2,381 2,445 2,704 2,906 3,095 Woon-mok Baek +822-3774-1679 OP (Wbn) 151 225 178 215 235 250 [email protected] OP margin (%) 9.6 9.4 7.3 8.0 8.1 8.1 NP (Wbn) 75 167 69 103 125 144 EPS (W) 22,300 49,609 20,549 29,056 34,024 39,264 ROE (%) 10.0 19.6 7.3 9.6 10.3 10.8 P/E (x) 16.3 6.8 9.9 7.6 6.5 5.7 P/B (x) 1.5 1.2 0.7 0.7 0.6 0.6 Dividend yield (%) 0.8 1.2 1.5 1.6 1.6 1.6 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. JYP Entertainment (035900 KQ) Foreign investor influx to begin Entertainment US NDR takeaways: Despite worries, overall view on K-pop still positive We recently joined JYP Entertainment on a non-deal roadshow (NDR) in New York, Company Report Chicago, and Los Angeles during the first week of September. A wide range of topics September 10, 2019 were covered, from the Korean entertainment industry’s unique profit model (trainee incubation and profit sharing) to potential risks. US investors generally maintained a positive view on K-pop. Many investors believed that K-pop could become mainstream and expand its market, as the growth of digital music revives the global music market and removes the physical barriers to content consumption. (Maintain) Buy That said, investors appeared more wary than before of the various risks inherent in the entertainment industry, as a string of negative news since the beginning of the Target Price(12M, W) 28,000 year has caused a sharp selloff that has lasted for more than six months. Growth visibility and risk management capabilities stand out Share Price (09/09/19, W) 19,950 We believe JYP Entertainment has strong earnings visibility. Its main artists, TWICE and GOT7, are seeing growing album sales and concert attendees, while its newer artists Expected Return 40% like Stray Kids (debuted in 2018) and ITZY (debuted in 2019) are beginning to generate profits.