LG International ( KS)

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1 January 11, 217 (112 KS) Mid/long-term growth intact, time to buy BUY (MAINTAIN) Price (Jan. 1) W3,4 Target Price W43, % variance 41.4% MinHo Hur (82-2) hiroo79@shinhan.com Hyunji Ku (82-2) hyunji.ku@shinhan.com KOSPI 2,45.12p KOSDAQ p Market Cap. W1,178.3bn/ US1,33.6mn Par Value W5, Outstanding Shares Free Floating Shares 52-Week High/Low 6-Day Avg. Trading Volume 6-Day. Avg. Trading T/O 38.8mn 28.mn(72.1%) W39,65/W27, 155,582shrs W4,71mn Foreign Ownership 14.3% Major Shareholders Bon-Jun Koo and 43 others 27.62% NPS 13.41% Absolute Performance 3M -5.9% 6M -18.2% 12M -1.9% Relative performance 3M -5.3% to KOSPI 6M -21.5% 12M -16.4% 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 certification and important disclosures & disclaimers at the end of this report. 4Q16 operating profit to meet consensus at W37.5bn (+6,66% YoY) 217 operating profit estimated at W244.7bn (+53% YoY) Retain BUY for target price of W43, 4Q16 operating profit to meet consensus at W37.5bn (+6,66% YoY) is expected to post 4Q16 operating profit of W37.5bn (+6,66% YoY). Including non-ferrous metal hedging profit, estimated operating profit is W37.8bn (-6% YoY). The figures are in line with the consensus (W37.2bn). Operating profit from logistics is expected at W1.5bn (-44% YoY) and infrastructure at W1.5bn (-76% YoY). Logistics profits were squeezed by losses related to Hanjin Shipping, falling freight rates and organizational reshuffle. Declines in shipments to non-affiliates and project sales were likely in the infrastructure segment. The E&P division is expected to post operating profit of W16.5bn (positive swing), offsetting the slump in infrastructure and logistics. Coal price hikes in 1H16 should be reflected from 4Q16. The nonferrous metal/steel/green energy and oil businesses likely turned to profits on raw material price hikes. 217 operating profit estimated at W244.7bn (+53% YoY) We expect total operating profit of W244.7bn (+52.9% YoY) in 217. Earnings should improve across the board. E&P earnings should be boosted by growing coal output (3mn tons in 216, 6mn tons in 217) in Indonesia following commercial ramp-up of the GAM mine (6% stake), coal price hikes and rising oil prices. Newcastle coal price (6,3kcal) of US$73 will be applied, which is up 32% YoY, given the one-quarter lag in coal price reflected in earnings. Logistics earnings should be solid on strong sales from the group, rising freight rates, improved margins of forwarding services and low base effect. The infrastructure division is likely to win the GTL project (US$3.9bn) in Turkmenistan in 1H17. Retain BUY for target price of W43, We retain our BUY rating for a target price of W43,. Logistics profits slumped in 216 due to one-off factors such as the Hanjin Shipping woes. Prospects for structural growth backed by rising sales to the group and margin recovery remain intact. Weakness in the infrastructure and logistics divisions should be offset by the recent rise in coal prices and production. The recent share price drop provides a good entry point, given earnings improvement expected from 1Q17, mid/longterm growth potential and current valuation (217F PER of 1x). Year to Dec. Sales OP Pre-tax NP EPS Growth BPS PER EV/EBITDA PBR ROE Net Debt (W bn) (W bn) (W bn) (W bn) (Won) (%) (Won) (X) (X) (X) (%) Ratio (%) , (13.2) (34) TR 36,89 (84.3) (.9) , (215.2) (235.4) (6,74) - 3,942 (5.6) (17.9) F 12, ,863 TB 32, F 13, , , F 14, , ,

2 4Q16 earnings estimates (bn KRW, %) 4Q16F 4Q15 YoY 3Q16 QoQ Consensus Sales 3, ,759. (6.4) 2, ,235.9 OP , Pre-tax profit 31.4 (278.6) TP NP (controlling interests) 19.2 (24.4) TP Source: Company data, WISEfn, Shinhan Investment Corp. Key assumptions for earnings projection 1Q16 2Q16 3Q16 4Q16F 1Q17F 2Q17F 3Q17F 4Q17F F 217F 218F Forex rate (KRW/USD) 1,21 1,163 1,121 1,157 1,18 1,17 1,14 1,11 1,53 1,131 1,161 1,15 1,8 Dubai crude (USD/bbl) Newcastle coal (USD/ton) Coal production (mn ton) Oil/gas production (mn boe) Source: Bloomberg, company data, Shinhan Investment Corp. Earnings trend and outlook (bn KRW, %) 1Q16 2Q16 3Q16 4Q16F 1Q17F 2Q17F 3Q17F 4Q17F F 217F 218F Sales 3,15.3 2, , , , , , , , , , , ,686.4 Infrastructure/E&P 2,31.3 2, , , , , , , , , ,479. 1, ,197.5 Logistics , ,84.8 3,83.2 3,488.9 OP Financial income (8.7) (8.) (8.) (8.3) (9.7) (8.6) (8.3) (9.3) (45.1) (47.) (33.) (35.9) (36.2) Other income 15.8 (15.2) (2.) (.7) (.7) (.7) (.7) (.7) (16.3) (28.8) (2.1) (2.8) (2.8) Equity method gains (.4) (8.) (221.1) Pre-tax profit (215.2) NP of controlling interests (13.2) (235.4) OPM Pre-tax margin (1.6) Adjusted operating profit (including derivatives income), equity method gains and dividend income (bn KRW) 1Q16 2Q16 3Q16 4Q16F 1Q17F 2Q17F 3Q17F 4Q17F F 217F 218F Adjusted OP Infrastructure Logistics E&P (2.3) (13.4) Nonferrous metal/steel/ green energy (124.2) Nonferrous derivatives income 1.9 (1.3) (.6) (11.1) Coal Oil/gas (4.7) 2.8 (7.4) 1.2 (4.7) 3. (4.6) (8.1) (8.1) (1.8) (.) Equity method gains and dividend income (215.1) Infrastructure.1. (1.4) (.9) (.7) (.5) (.5) (.2) (6.9).4 (2.2) (2.) 13.4 Nonferrous metal/steel/ green energy (.1) (.) (8.1) (3.6) Coal.2 (.8) (1.3) Oil/gas (.) (1.7) (214.9) (.1) Others (12.2) Total profit (58.3)

3 Coal operating profit and Newcastle coal price (bn KRW) 3 2 Coal OP (LHS) Coal equity method gains (LHS) Newcastle coal price (RHS) Quarterly average Newcastle coal price (RHS) (USD/ton) (1) 1/14 7/14 1/15 7/15 1/16 7/16 1/17F 7/17F Source: KORES, company data, Shinhan Investment Corp. Note: Coal operating profit = OP + equity method gains 4 Oil operating profit and Dubai oil price (bn KRW) Oil OP (LHS) Oil equity method gains/dividend (LHS) Dubai oil price (RHS) Quarterly average Dubai oil price (RHS) (USD/bbl) (5) 4 (1) 1/14 7/14 1/15 7/15 1/16 7/16 1/17F 7/17F Source: Bloomberg, company data, Shinhan Investment Corp. Note: Oil operating profit = OP + equity method gains 2 Global thermal coal prices (USD/ton) Newcastle 6,3kcal Kalimantan 5,9kcal Appalachian Qinghuangdao 6,2kcal Container freight indexes 1,5 1, CCFI Index SCFI Index 3 1/14 7/14 1/15 7/15 1/16 7/16 1/17 1/14 7/14 1/15 7/15 1/16 7/16 Source: Clarksons, Shinhan Investment Corp. 3

4 Profit by division (adjusted operating profit + equity method gains/dividend) (bn KRW) Nonferrous/green Coal Oil/gas Infrastructure Logistics (3) (6) 1Q15 3Q15 1Q16 3Q16 1Q17F 3Q17F 1Q18F 3Q18F Earnings forecast revision Before After Change (bn KRW, %) 216F 217F 216F 217F 216F 217F Sales 12,87. 13, , , OP (7.6) 2.1 Pre-tax profit (8.8) (2.5) NP (controlling interests) (15. (7.2) OPM Source: Shinhan Investment Corp. Valuation (bn KRW, %, x) Total enterprise value Infrastructure/E&P Logistics Sales 13,935. 1, ,83.2 OP Pre-tax profit NP NP (controlling interests) Fair PER , , No. of shares (1, shares) 38,76 38,76 38,76 Target price 43, 25,9 17,1 Source: Shinhan Investment Corp. Note: 1) Fair PER of infrastructure/e&p divisions is the market average (11x); E&P earnings are highly volatile because of the raw material market conditions, which is a discount factor, but infrastructure earnings should post solid growth backed by expansion of project organizing and overseas infrastructure investments 2) Logistics target PER of 2x is the average PER of Hyundai Glovis during a phase of strong growth; logistics earnings are on fast growth track due to corporate governance issues Target price revision Previous Revised (KRW, x, bn KRW) 217F 216F 217F 218F Remarks EPS 3,35 1,863 3,15 3,317 Target price derived by dividing the sum of the value of each division (infrastructure/e&p W1.1tr + logistics W.66tr) by the number of outstanding shares (38.76mn) Infrastructure/E&P business value based on PER of 11x Target price 43, 43, 43, 43, Logistics business value based on PER of 2x Source: Shinhan Investment Corp. 4

5 Relative share performance of global coal miners ( =1) BUMI RESOURCES BUKIT ASAM 16 CHINA SHENHUA CHINA COAL ENERGY /14 7/14 1/15 7/15 1/16 7/16 1/17 Valuation of global trading and E&P peers (bn KRW, x, %) Domestic trading companies Market cap. PER PBR EV/EBITDA EPS growth ROE F 217F F 217F F 217F F 217F F 217F Daewoo International 2, (3.1) SK Networks 1, (22.8) N TP Hyundai Corp (76.1) Global trading companies Glencore (UK) 52, TN TP 111. (11.1) Mitsubishi (Japan) 34, TN N (353.4) 7.5 (2.9) 8.4 Mitsui (Japan) 25, TN N (433.) 7.7 (1.8) 7.3 Itochu (Japan) 22, (19.6) Marubeni (Japan) 1, TN TP month forward PER band 12-month forward PBR band (1,KRW) 8 (1,KRW) 8 24X 6 2X X X 12X 8X X 1.2 X.9 X.6 X Source: WISEfn, Shinhan Investment Corp Source: WISEfn, Shinhan Investment Corp. 5

6 Coal, oil and gas ETFs in the U.S. Ticker ETF Market cap. Average daily trading value Average daily trading volume (shares) Returns (%) 1M 3M 6M XLE US Equity ENERGY SELECT SECTOR SPDR 17, , ,87,951. (2.4) VDE US Equity VANGUARD ENERGY ETF 4, ,162. (2.3) XOP US Equity SPDR S&P OIL & GAS EXP & PR 2, ,351,991. (6.) FXN US Equity FIRST TRUST ENERGY ALPHADEX 1, ,122,562.3 (4.3) IYE US Equity ISHARES U.S. ENERGY ETF 1, ,243,956.1 (2.2) IXC US Equity ISHARES GLOBAL ENERGY ETF 1, ,94.9 (1.4) FENY US Equity FIDELITY MSCI ENERGY ETF ,59.5 (2.2) IEO US Equity ISHARES U.S. OIL & GAS EXPLO ,458.2 (4.5) RYE US Equity GUGG S&P 5 EQ WGT ENERGY ,58.1 (3.8) FCG US Equity FIRST TRUST NATURAL GAS ETF ,858.8 (5.7) (2.1) 7.5 PXI US Equity POWERSHARES DWA ENERGY MOMEN ,66.2 (4.4) PXE US Equity POWERSHARES DYN ENRG EXP PRO ,471.3 (6.8) FRAK US Equity VANECK VECTORS UNCONVENTIONA ,934.4 (5.7) (1.8) 9.2 IPW US Equity SPDR S&P INTL ENERGY SECTOR , FILL US Equity ISHARES MSCI GLOBAL ENERGY P ,727.7 (1.6) JHME US Equity JOHN HANCOCK MULT FACT ENRGY ,296.2 (3.2) Trading sector ETFs in Japan Ticker ETF Market cap. Average daily trading value Average daily trading volume (shares) Returns (%) 1M 3M 6M 1599 JP Equity DAIWA ETF-JPX NIKKEI 4 114, , JP Equity NEXT FUNDS JPN EQT DVD7 ETF 63, ,821.8 (.6) JP Equity JAPAN HIGH D TSE DIVS FO 1 12, , JP Equity ISHARES JPX/SP CAPEX CAP ETF 12, JP Equity NOMURA ETF TOPIX CORE 3 4, , JP Equity LISTED JAPAN ECO CONTRIBUTOR 3, JP Equity NEXT FUNDS R/N FUNDAMENTAL 2, JP Equity DAIWA ETF - TOPIX CORE 3 1, , JP Equity MAXIS TOPIX CORE3 ETF 1, , JP Equity NEXT FUNDS TOPIX-17 WHOLESAL (.7) Trading sector ETFs in Korea Ticker ETF Market cap. Average daily trading Average daily trading value volume (shares) Returns (%) 1M 3M 6M KS Equity SAMSUNG KODEX 2 EQUAL WEIGHT ETF , (2.1) KS Equity MIRAE ASSET TIGER 2 EQUAL WEIGHT ETF (2.5) KS Equity HANWHA ARIRANG SMARTBETA QUALITY ETF (2.4) (3.) KS Equity HANWHA ARIRANG SMARTBETA VALUE ETF , KS Equity HANWHA ARIRANG SMARTBETA QUALITY CONSERVATIVE BALANCED ETF (1.2) (1.5) KS Equity HANWHA ARIRANG SMARTBETA 4 FACTOR ETF (.1) (1.2) KS Equity YURIE TREX FUNDAMENTAL 2 SECURITIES ETF , KS Equity HANWHA ARIRANG KOSPI1 EQUAL WEIGHT ETF (1.3) KS Equity MIRAE ASSET TIGER 2 INDUSTRIALS ETF , (8.3) (6.1) 1457 KS Equity KB KBSTAR EXPORTER SECURITIES ETF ,

7 Balance Sheet Year to Dec. (W bn) F 217F 218F Assets 4, , , , ,968. Total Current Assets 2,83.2 3,74.1 2,992. 3, ,35.4 Cash and Cash Equivalents Accounts Receivables 1,53.1 1, , , ,468.6 Inventories 1, Non-Current Assets 2,66.6 2,39.3 2,47.1 2,54.7 2,617.6 Tangible Assets Intangible Assets Investment Assets Other Financial Institutions Assets..... Liabilities 3, ,84.2 3, , ,98.6 Current Liabilities 2, , , , ,713.6 ST Borrowings Account Payables 1, , , , ,65.2 Current Portion of LT Debt Non-Current Liabilities , , , ,267. Bonds LT Borrowings(incl. LT Fin. Liab.) Other Financial Institutions Liab Shareholders' Equity 1, , , , ,987.4 Capital Stock Capital Surplus Other Reserves (1.6) (1.6) (1.6) (1.6) (1.6) Accu. Other Comp. Income Retained Earnings 1, ,23.1 1,132.3 Owners of Parent Equity 1, , , , ,474. Non-Controlling Interests Equity *Total Debt 1, ,78.8 1, , ,748.2 *Net Debts(Cash) , ,81.7 1,12. 1,98. Profit and Loss Year to Dec. (W bn) F 217F 218F Sales 11, , , , ,686.4 Growth (%) (5.8) 16.3 (6.8) COGS 1, , , , ,16.2 Gross Profit Gross margin (%) SG&A Operating Income Growth (%) 75. (52.5) (.3) Operating margin (%) Other Net Non-Operating Profits (159.3) (296.9) (22.9) (22.4) (4.2) Financial Income(Expenses) (45.1) (47.) (33.) (35.9) (36.2) Net Other Non-Operating Profits (16.3) (28.8) (2.1) (2.8) (2.8) Net Gains in Asso., Subs., and JVs (8.) (221.1) Pre-tax Profit from Cont. Op (215.2) Income Taxes Profit from Continuing Op. (13.8) (217.1) Profit from Discontinued Op Net Profit (13.8) (217.1) Growth (%) N/A N/A N/A Net Profit margin (%) (.1) (1.6) Net Profit of Parent (13.2) (235.4) Net Profit to Non-Controlling (.6) Total Comprehensive Income (33.) (19.2) Total Comp. Income of Parent (37.5) (215.5) Total Comp. Income to Non-Cont (13.2) (22.5) (24.2) EBITDA Growth (%) 9.8 (42.5) (.) EBITDA Margin (%) Note: Operating profit is based on 212 K-IFRS (gross profit - SG&A costs) Cash Flow Year to Dec. (W bn) F 217F 218F Operating Cash Flow Net Profit (13.8) (217.1) Depreciation Amortization Losses(Gains) on F/X Translation (2.) Losses(Gains) on Disp. of Assets..... Losses(Gains) in Asso.., Subs.,JVs.. (2.2) (24.2) (42.7) Chg. in A/L from Op. Activities (98.2) (31.6) (Payments of Income Taxes) (53.2) (34.4) (38.2) (53.4) (57.5) Others Investing Cash Flow (23.) (277.6) (158.7) (158.6) (152.) Incr. in Tangible Assets(CAPEX) (8.8) (26.9) (199.3) (29.1) (26.1) Decr. in Tangible Assets Decr.(Incr.) in Intangible Assets (48.9) (29.5) (35.1) (35.1) Decr.(Incr.) in Investment Assets (75.4) 13.2 (56.6) (81.) (52.1) Others 19.3 (234.9) (2.7) (13.4) (38.7) Free Cash Flow Financing Cash Flow (237.) 27.6 (1.8) (22.7) (43.) Incr.(Decr.) in Borrowing (11.1) (27.5) Decr.(Incr.) of Treasury Stock..... Dividend (22.6) (16.) (7.7) (11.6) (15.5) Others (214.4) Other Cash Flows (5.9) (6.1) Change of Consolidated Scope..... Difference by Chg. in F/X Rates Incr.(Decr.) in Cash (59.9) (11.7) Beginning Cash Ending Cash Key Ratios Year to Dec F 217F 218F EPS_C (won) (355) (5,61) 2,553 4,36 4,699 EPS_P (won) (34) (6,74) 1,863 3,15 3,317 BPS_C (won) 4,383 39,817 43,114 47,75 51,276 BPS_P (won) 36,89 3,942 32,56 35,213 38,31 DPS (won) PER_C (x) (8.8) (6.) PER_P (x) (84.3) (5.6) PBR_C (x) PBR_P (x) EV/EBITDA (x) Payout Ratio (%) (87.9) (3.3) Dividend Yield (%) Profitability EBITDA Margin (%) OP Margin (%) NP Margin (%) (.1) (1.6) ROA (%) (.3) (4.2) ROE (%) (.9) (17.9) ROIC (%) (14.) Stability D/E Ratio (%) Net Debt to Equity (%) Cash Ratio (%) Interest Coverage (x) Activity (%) Working Capital Turnover (t) Inventory Turnover (d) Receivable Turnover (d)

8 (112 KS) (won) 6, 5, 4, 3, 2, 1/15 Target Price (LHS) Target Price & Recommendation History Price (LHS) Recommendation (RHS) BUY Trading BUY HOLD REDUCE Date Recommendation Target Price (won) Trading BUY 27, BUY 39, BUY 47, BUY 42, BUY 47, BUY 34, BUY 4, Trading BUY 4, BUY 4, BUY 51, BUY 41, BUY 5, BUY 45, BUY 43, Share Price Performance (won) (Indexed,Jan-16=1) 45, 11 KOSPI Index = 1 4, 15 35, 1 3, 95 25, 9 1/16 5/16 9/16 1/17 Price (LHS) Relative Performance to KOSPI (RHS) Compliance Notice Analyst Certification: The following analysts hereby certify the information and material presented in this report are accurate expressions of their views, and that they have not received wrongful pressure to express such views: MinHo Hur, Hyunji Ku. As of the date of this report's publication, Shinhan Investment Corp.'s shareholdings in the company mentioned in this report() do not exceed 1% of outstanding shares of the company. As of this date, Shinhan Investment Corp. has not participated as the lead underwriter or advisor in issuance of the securities of the company during the past 1 year. As of this date, the covering analyst does not possess any financial interest in the securities or debt instruments convertible into such shares of the company, which is required to be disclosed by law, and has not and will not receive any compensation of any kind whatsoever in exchange for expressing specific recommendations. All opinions and estimates regarding the company and its securities are accurate representations of the covering analyst's judgments as of this date, and may differ from actual results. This report is intended to provide information to assist investment decisions only and should not be used or considered an offer or the solicitation of an offer to sell or to buy any securities. Stock selection and final investment decisions should be made at the client's own discretion. This report is distributed to our clients only, and any unauthorized use, duplication, or redistribution of this report is strictly prohibited. Distribution United States: This report is distributed in the U.S. by Shinhan Investment America, Inc., a member of FINRA/SIPC, and is only intended for major U.S. institutional investors as defined in Rule 15a-6(a)(2) under the U.S. Securities Exchange Act of All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major U.S. institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Shinhan Investment Corp. or its affiliates. Pursuant to Rule 15a-6(a)(3), any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Shinhan Investment 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. person absent registration or an applicable exemption from the registration requirement. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Shinhan 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 Shinhan and its affiliates to any registration or licensing requirement within such jurisdiction. SHIC Rating Classifications (As of Jul. 25, 211) Stock BUY: Expected return of over +15% in the next 6 months Trading BUY: Expected return of % ~ +15% in the next 6 months HOLD: Expected return of -15% ~ % in the next 6 months REDUCE: Expected return of below -15% in the next 6 months Sector OVERWEIGHT: Prevalence of BUY rating for stocks in our sector coverage universe based on market cap NEUTRAL: Prevalence of HOLD rating for stocks in our sector coverage universe based on market cap UNDERWEIGHT: Prevalence of REDUCE rating for stocks in our sector coverage universe based on market cap SHIC Universe Rating Classification Ratio (as of Jan. 9, 217) BUY (BUY) 88.29% Trading BUY (HOLD) 4.88% HOLD (HOLD) 6.83% REDUCE (SELL) % 8