Sector Update. Pharmaceuticals(OVERWEIGHT) Short of consensus as a group; Yuhan attractive WHAT S THE STORY?

Transcription

1 Sector Update Pharmaceuticals(OVERWEIGHT) Short of consensus as a group; Yuhan attractive We expect the combined 2Q results of the 5 largest pharmaceutical firms we cover to miss consensus, with Hanmi Pharmaceutical and Donga ST falling far short. In 3Q, Yuhan, Hanmi, Green Cross, and Donga ST are likely to benefit from low bases, while Chong Kun Dang Pharmaceutical should suffer from a high one. Yuhan should emerge as an attractive investment during earnings season, while Hanmi should remain attractive over the longer term. Green Cross deserves attention as its IVIG should win US FDA approval at end-217. Brian Lee Analyst brian79.lee@samsung.com Wonyong Park Research Associate wkrw.park@samsung.com AT A GLANCE Hanmi Pharmaceutical (12894 KS, KRW368,5) Target price: KRW45, (22.1%) Yuhan (1 KS, KRW24,5) Target price: KRW33, (37.2%) Green Cross (628 KS, KRW175,) Target price: KRW21, (2%) Chong Kun Dang Pharmaceutical (18575 KS, KRW124,) Target price: KRW14, (12.9%) Donga ST (179 KS, KRW9,4) Target price: KRW11, (21.7%) WHAT S THE STORY? 2Q preview: We now believe the combined 2Q results of the five largest pharmaceutical firms we cover will fall slightly short of consensus, with sales of KRW1.27t (up 3% y-y and short of consensus by 1.3%), operating profit of KRW86.1b (up 16.7% y-y and below consensus by 5.6%), and net profit of KRW83.3b (up 9.9% y-y and edging consensus by 1.9%). Despite there being fewer business days y-y due to an unusually long run of holidays in early May, sales likely held up well industry-wide. Although marketing costs have stabilized under Korea s new anticorruption law, operating profit likely missed consensus due to rises in R&D costs. Hanmi and Donga ST to fall far short: Operating profit likely met consensus at Green Cross, Chong Kun Dang Pharmaceutical (CKD), and Yuhan, but missed by 1.8% at Hanmi Pharmaceutical, and by 47.6% at Donga ST. Sales growth at Green Cross was likely driven by exports of seasonal flu vaccine to the Pan American Health Organization. We believe CKD s top line received a boost from robust sales of in-house-developed drugs. Yuhan likely posted solid sales growth for all of its licensed-in drugs, generics, supergenerics, OTC drugs, household products, and APIs. Hanmi likely saw a rise in domestic sales thanks to in-house-developed drugs despite an absence of Galvus sales and an increase in R&D spending. Meanwhile, despite its out-licensing deal with Abbvie (that generates KRW4b in sales and KRW1.8b in operating profit every quarter this year), Donga ST is likely to post disappointing 2Q operating results, due to: 1) the National Health Insurance Service cutting Stillen reimbursements by 3.9%; 2) the end of co-promotion for five GlaxoSmithKline drugs on Nov 3 last year; and 3) some exports being delayed until 2H. Four to benefit from low bases in 3Q, but CKD to suffer from high base: In 3Q16, Yuhan, Hanmi, Green Cross, and Donga ST all suffered poor operating profits due to rises in marketing and R&D costs (Yuhan), a decline in upfront payments and an earnings slump at Beijing Hanmi (Hanmi), demand for seasonal flu vaccinations being delayed until 4Q16 (Green Cross), and a 3.9% cut to the National Health Insurance Service s reimbursements for Stillen (Donga ST). In contrast, CKD posted solid operating profit thanks to its marketing costs coming in flat y-y. In light of this, base effect should play a key role in 3Q results this year. Yuhan in particular deserves attention, as the introduction of new licensed-in drugs should drive its quarterly sales above the KRW4b mark which would be a record for a Korean pharmaceutical firm. Top picks Yuhan (near term), Hanmi (longer); Green Cross promising: During the approaching earnings season, Yuhan should emerge as an attractive investment for its solid earnings momentum and valuation merit. Hanmi remains attractive from a longer-term perspective as many of its pipeline drugs are now in latephase clinical trials worldwide. Green Cross deserves attention, as the US FDA is likely to approve its IVIG at end-217.

2 Pharmaceutical Big-5 pharmaceutical firms*: Combined operating profit (KRWb) Q16 3Q16 1Q17 3Q17E Sum of operating profit (LHS) Note: * Samsung Securities coverage Source: QuantiWise, Samsung Securities estimates (% y-y) (5) Growth (RHS) (1) Big-5 pharmaceutical firms*: Forward consensus P/E (x) Jan 16 Jul 16 Jan 17 Jul 17 Hanmi Pharm Yuhan Green Cross CKD Pharm Note: * Samsung Securities coverage Source: QuantiWise, Samsung Securities Donga ST Big-5 pharmaceutical firms*: 2Q performances (KRWb) (%) 1,4 1,2 1, ,229 1, Q16 2Q17E 2Q16 2Q17E 2Q16 2Q17E Sales Operating profit Net profit Big-5 pharmaceutical firms*: Samsung vs consensus (2Q17E) (KRWb) (%) 1.9 1,6 2 (1.3) 1,2 (2) (5.6) 8 (4) 1,283 1,267 (6) (8) (1) Consensus Samsung Consensus Samsung Consensus Samsung Sales Operating profit Net profit Combined total (LHS) y-y (RHS) Combined total (LHS) vs. consensus (RHS) Note: *Samsung Securities coverage Source: QuantiWise, Samsung Securities estimates Note: *Samsung Securities coverage Source: QuantiWise, Samsung Securities estimates Big-5 pharmaceutical firms: 2Q estimates (KRWb) Sales Operating profit Net profit Vs consensus (%) Samsung Consensus Samsung Consensus Samsung Consensus Sales Operating profit Net profit Green Cross (3.6).5.5 Yuhan (.8) (1.6) 16.1 Hanmi Pharm (1.8) 14.5 Chong Kun Dang (2.) (.6) (9.4) Donga ST (1.7) (47.6) (78.9) Source: QuantiWise, Samsung Securities estimates 2

3 Pharmaceutical Pharm/biotech indices: Korea vs EMs (Indexed: 1 = Jan 1, 1995) 4, 3, 2, 1, Pharm/biotech indices: Korea vs DMs (Indexed: 1 = Jan 1, 1995) 2, 1,5 1, KRX Healthcare Kosdaq Pharmaceuticals Kospi Medical Supplies India Pharm & Bio KRX Healthcare Kosdaq Pharmaceuticals Kospi Medical Supplies Japan Pharm & Bio China Pharm & Bio US Pharm & Bio Europe Pharm & Bio Source: QuantiWise, Samsung Securities Source: QuantiWise, Samsung Securities Pharm/Biotech Forward P/E indices: Korea* vs EMs (x) Pharm/Biotech Forward P/E indices: Korea* vs DMs (x) KRX Healthcare Kosdaq Pharmaceutical India Pharm & Bio Kospi Medical Supplies China Pharm & Bio KRX Healthcare Kosdaq Pharmaceutical US Pharm & Bio Kospi Medical Supplies Europe Pharm & Bio Japan Pharm & Bio Note: * Excludes Samsung Biologics Source: QuantiWise, Samsung Securities Note: * Excludes Samsung Biologics Source: QuantiWise, Samsung Securities Pharm/Biotech Forward P/B* indices: Korea vs EMs (x) Pharm/Biotech Forward P/B* indices: Korea vs DMs (x) KRX Healthcare Kosdaq Pharmaceuticals China Pharm & Bio Kospi Medical Supplies India Pharm & Bio KRX Healthcare Kosdaq Pharmaceuticals US Pharm & Bio Kospi Medical Supplies Japan Pharm & Bio Europe Pharm & Bio Note: * Based on FY total equity Source: QuantiWise, Samsung Securities Note: * Based on FY total equity Source: QuantiWise, Samsung Securities 3

4 Pharmaceutical KRX Healthcare Index: Forward P/E KRX Healthcare Index: Forward P/B (x) (x) x x Forward P/E average Forward P/B average Note: Excludes Samsung Biologics Source: QuantiWise, Samsung Securities Note: Excludes Samsung Biologics Source: QuantiWise, Samsung Securities Kospi Medical Supplies Index: Forward P/E Kospi Medical Supplies Index: Forward P/B (x) x (x) x Forward P/E average Forward P/B average Note: Excludes Samsung Biologics Source: QuantiWise, Samsung Securities Note: Excludes Samsung Biologics Source: QuantiWise, Samsung Securities Kosdaq Pharmaceutical Index: Forward P/E Kosdaq Pharmaceutical Index: Forward P/B (x) x (x) x Forward P/E average Forward P/B average Source: QuantiWise, Samsung Securities Source: QuantiWise, Samsung Securities 4

5 Pharmaceutical Samsung coverage: Annual forecasts (KRWb) Company Sales Operating profit Pharmaceuticals Source: Samsung Securities estimates EBITDA Net profit attributable to major shareholders 217E 218E 217E 218E 217E 218E 217E 218E Green Cross 1,278 1, Yuhan 1,529 1, Hanmi Pharm Chong Kun Dang Donga ST Samsung coverage: Target prices and valuations (x) Company Current price Rating Target-price Upside P/E P/B EV/EBITDA Pharmaceuticals Note: As of Jul 3 close Source: Samsung Securities estimates (KRW) (RKW) (%) 217E 218E 217E 218E 217E 218E Green Cross 173, BUY 21, Yuhan 242,5 BUY 33, Hanmi Pharm 37,5 BUY 45, Chong Kun Dang 122, BUY 14, Donga ST 91,5 BUY 11,

6 Company Update Hanmi Pharmaceutical (12894) Pipeline drugs in late-phase trials worldwide Brian Lee Analyst brian79.lee@samsung.com Wonyong Park Research Associate wkrw.park@samsung.com AT A GLANCE Target price KRW45, (2.6%) Current price KRW373, Market cap KRW4.2t/USD3.7b Shares (float) 11,163,452 (58.2%) 52-week high/low KRW669,551/KRW266,43 Avg daily trading value (6-day) KRW49.2b/ USD43.m ONE-YEAR PERFORMANCE Hanmi Pharmaceutical (%) 1M 6M 12M Vs Kospi (%pts) KEY CHANGES (KRW) New Old Diff Recommend. BUY BUY Target price 45, 45,.% 217E EPS 4,335 4,335.% 218E EPS 5,239 5,239.% SAMSUNG vs THE STREET No of estimates 15 Target price 44,71 Recommendation 3.6 BUY : 5 / BUY: 4 / HOLD: 3 / SELL: 2 / SELL : 1 We now expect Hanmi Pharmaceutical s 2Q operating results to meet our estimates (though miss consensus), backed by solid domestic growth of in-housedeveloped drugs. This, despite a rise in R&D investments, a decline in milestone revenue, and an absence of Galvus sales. Global clinical trials for JNJ (Johnson & Johnson) and efpeglenatide (Sanofi) should resume in 3Q and 4Q, respectively. We expect Hanmi to make significant progress in clinical trials and receive large amounts of milestone revenue from out-licensing contracts already signed. Spectrum Pharmaceutical is due to release interim results of Phase III US clinical trials for Rolontis in 1H18, while Eli Lilly should release the results of Phase II global clinical trials for HM71224 in 2H18. Many of Hanmi's pipeline drugs are now in late-phase clinical trials around the world. WHAT S THE STORY? 2Q preview: We expect Hanmi Pharmaceutical to post consolidated 2Q sales of KRW231.4b (down 1.3% y-y), operating profit of KRW14.4b (up 124.7% y-y), and net profit of KRW12.1b (down 43.3% y-y), meeting our earlier forecasts. Such results would put sales and net profit above consensus by 2.1% and 14.5%, respectively, but operating profit below by 1.8%. In-house-developed drugs lead domestic sales: On a parent basis, we have Hanmi posting 2Q sales of KRW191.6b (up.1% y-y), a y-y turn to an operating profit of KRW9.7b, and a net loss of KRW8.7b (down 47.2% y-y). Specifically, we believe domestic sales grew 6.9% y-y to KRW155.7b, exports grew 1% y-y to KRW27b, and out-licensing revenue plunged 57.8% y-y to KRW9b. Although co-promotion for Galvus (an oral treatment for people with type 2 diabetes; annual sales of KRW5b) ended on Dec 14 last year, domestic sales growth was propelled by hyperlipidemia treatments Rosuzet and Rovelito and erectile dysfunction drug Gugu. On the out-licensing front, Hanmi likely recognized sales of KRW9b (part of USD8m the firm received from Genentech as an upfront payment) and operating profit of KRW6b. Although R&D investments rose, operating margin likely climbed to 5.1% thanks to marketing expenses stabilizing. Meanwhile, y-y growth in net profit suffered from high base (resulting from KRW14b in proceeds from the sale of the firm s entire stake in Crystal Genomics and KRW1.9b in tax refunds and R&D tax credits). We forecast that Beijing Hanmi Pharmaceutical will post 2Q sales of KRW39.8b (down 5.8% y-y), operating profit of KRW4b (down 11.5% y-y), and net profit of KRW3b (down 27.1% y-y). SUMMARY FINANCIAL DATA (Continued on the next page) E 218E 219E Revenue (KRWb) Net profit (adj) (KRWb) EPS (adj) (KRW) 2,89 4,335 5,239 5,68 EPS (adj) growth (% y-y) (84.9) (3.3) EBITDA margin (%) ROE (%) P/E (adj) (x) P/B (x) EV/EBITDA (x) Dividend yield (%).... Source: Company data, Samsung Securities estimates

7 Hanmi Pharmaceutical JNJ and efpeglenatide to begin global trials: Johnson & Johnson should initiate Phase I clinical trials for JNJ in 3Q, and Sanofi should start Phase III clinical trials for efpeglenatide in 4Q. We expect Hanmi to make significant progress in clinical trials and receive large amounts of milestone revenue from out-licensing contracts already signed. Spectrum Pharmaceutical is due to release interim results of Phase III US clinical trials for Rolontis TM in 1H18, while Eli Lilly should release the results of Phase II global clinical trials for HM71224 in 2H18. Meanwhile, 1 drugs in Hanmi s preclinical pipeline should gradually enter Phase I clinical trials throughout 2H17. Promising candidates include HM15211 (triple agonist obesity treatment), HM15136 (LAPS glucagon analog), and HM43239 (acute myeloid leukemia treatment). 2Q preview (KRWb) 2Q17E Diff 2Q16 1Q17 Chg Samsung Consensus (%) (% y-y) (% q-q) Sales (1.3) (.9) Operating profit (1.8) (54.2) Pre-tax profit (37.1) (53.9) Net profit (43.3) (5.9) Margins (%) Operating profit Pre-tax profit Net profit Source: Company data, Samsung Securities estimates Revisions to full-year forecasts (KRWb) 217E 218E Old New Diff (%) Old New Diff (%) Sales Operating profit Pre-tax profit Net profit Source: Samsung Securities estimates Forward P/E band Forward P/B band (KRW) 1,, 8, (KRW) 1,, 8, 13.x 6, 13x 6, 9.x 4, 2, 9x 5x 4, 2, 5.x x x Source: QuantiWise, Samsung Securities estimates Source: QuantiWise, Samsung Securities estimates 7

8 Hanmi Pharmaceutical Hanmi Pharm: Results and forecasts (consolidated) (KRWb) 1Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 217E Sales Chg (% y-y) 19.4 (4.1) (18.1) (7.8) (33.) (8.9) (1.3) Hanmi Pharm Chg (% y-y) 23.9 (4.) (16.7) (77.2) (38.2) (8.9) Domestic Chg (% y-y) (.8) (.7) Exports Chg (% y-y) (3.1) (1.5) 5.1 Upfront and milestone revenue (51.5) Chg (% y-y) (61.1) (58.5) (113.1) (94.6) (47.6) (57.8) (63.8) (117.5) 59.9 Beijing Hanmi Chg (% y-y) 9.4 (7.2) (22.2) (3.2) (5.8) (7.3) (5.8) (4.4) (24.3) (1.6) Mamiai Chg (% y-y) (2.2) 5.1 (18.3) (38.7) (13.4) (8.2).2 (8.5) (.7) (5.) Mechanan Chg (% y-y) (21.7) (36.4) (49.8) (61.7) (42.6) (28.5) (5.3) (1.5) (7.4) (11.8) Itanzing Chg (% y-y) 15.2 (14.8) (29.4) 1. (4.4) (12.3) (15.4) (8.9) 2.4 (7.8) Other Chg (% y-y) 17.8 (.5) (4.7) (5.1) 6.7 (73.9) (23.1) Gross profit Chg (% y-y) 23.4 (14.) (28.4) (86.) (49.9) (6.5) (1.3) (5.) Gross margin (%) R&D expenses Chg (% y-y) (12.3) (17.1) (4.9) (24.3) (14.9) (1.2) R&D expenses-to-sales (%) Operating profit (16.) Chg (% y-y) (61.5) Turned neg (87.4) To turn pos Operating margin (%) (9.3) Pre-tax profit (49.) Chg (% y-y) ,16.3 (97.9) Turned neg (96.2) (16.3) (37.1) 1,933.2 To turn pos Pre-tax margin (%) (28.4) Net profit (38.3) Chg (% y-y) Turned pos Turned neg (81.3) (39.9) (43.3) 11.9 To turn pos 17.5 Net margin (%) (22.3) Net profit attributable to controlling shareholders (39.6) Chg (% y-y) Turned pos Turned neg (84.9) (5.3) (53.6) 14.6 To turn pos 17.5 Net margin attributable to controlling shareholders (%) (23.) Source: Samsung Securities estimates Revenue from out-licensing deals Reflected Project Partner Type Value (KRWb) Recognition 2Q15 HM71224 Eli Lilly Upfront fee 54.8 Lump-sum 3Q15 HM61713 Boehringer Ingelheim Upfront fee 59.8 Lump-sum 4Q15 HM61713 Boehringer Ingelheim Milestone fee 17.1 Lump-sum 4Q15 HM12525A Janssen (Johnson& Johnson) Upfront fee Lump-sum 4Q15 Quantum Project Sanofi Upfront fee Distributed 4Q16 HM95573 Genentech Upfront fee 93.6 Distributed 4Q16 Quantum Project Sanofi Upfront fee 63.9 Returned Note: Sales recognition based on GAAP and general practices of global pharmaceutical sector; values exclude 3% of total payment going to Hanmi Science Source: Company data, Samsung Securities 8

9 Hanmi Pharmaceutical Hanmi Pharm: Results and forecasts (parent basis) (KRWb) 1Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 217E Sales Chg (% y-y) 23.9 (4.) (16.7) (77.2) (38.2) (8.9) Domestic Chg (% y-y) (.8) (.7) Exports Chg (% y-y) (3.1) (1.5) 5.1 Operating profit 9.3 (.) 5.9 (2.) (4.4) Chg (% y-y) Turned pos Remained neg (79.3) Turned neg Turned neg 69.1 To turn pos 43.3 To turn pos To turn pos Operating margin (%) 4.7 (.) 3.3 (16.1) (.6) Net profit (.1) (42.9) Turned Chg (% y-y) Remained neg (97.2) (62.2) (47.2) To turn pos To turn pos neg Net margin (%) (.1) (34.7) Source: Samsung Securities estimates Beijing Hanmi: Results and forecasts (KRWb) 1Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 217E Sales Chg (% y-y) 9.4 (7.2) (22.2) (3.2) (5.8) (7.3) (5.8) (4.4) (24.3) (1.6) Mamiai Chg (% y-y) (2.2) 5.1 (18.3) (38.7) (13.4) (8.2).2 (8.5) (.7) (5.) Mechanan Chg (% y-y) (21.7) (36.4) (49.8) (61.7) (42.6) (28.5) (5.3) (1.5) (7.4) (11.8) Itanzing Chg (% y-y) 15.2 (14.8) (29.4) 1. (4.4) (12.3) (15.4) (8.9) 2.4 (7.8) Other Chg (% y-y) 17.8 (.5) (4.7) (5.1) 6.7 (73.9) (23.1) Operating profit Chg (% y-y) (7.3) (5.) (7.) 2.1 (11.5) (14.).7 (1.5) Operating margin (%) Net profit Chg (% y-y) (8.1) (37.7) (5.3) (3.2) (27.1) (17.9) (45.1) (13.3) Net margin (%) Source: Samsung Securities estimates Hanmi Fine Chem: Results and forecasts (KRWb) 1Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 217E Sales Chg (% y-y) (2.8) (7.7) Operating profit (1.1) Chg (% y-y) Turned neg 19.1 Turned pos Turned pos Turned pos (66.3) (31.9) (54.4) 6.1 Operating margin (%) (5.) Net profit (1.3) Chg (% y-y) Turned neg (39.3) Turned pos Turned pos (17.4) Turned pos (45.1) 63.5 (72.7) Net margin (%) (5.9) Source: Samsung Securities estimates 9

10 Hanmi Pharmaceutical Hanmi Group combined market cap and key events (KRWb) 22, 18, Jul 28, 215 Out-licensed HM61713 to Boehringer Ingelheim Nov 5, 215 Out-licensed Quantum project to Sanofi Nov 9, 215 Out-licensed HM12525A to Janssen Sep 29, 216 Out-licensed HM95573 to Genentech Dec 29, 216 Changed outlicensing contract with Sanofi on LAPS-Insulin (KRWb) 1, 8, 14, Mar 19, 215 6, 1, Out-licensed Sep 3, 216 HM71224 to Nov 23, 215 Boehringer Eli Lilly Out-licensed Ingelheim 4, HM61713 to 6, terminated ZAI Lab HM , 2, contract Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Combined market caps of Hanmi Pharm and Hanmi Science (LHS) Remaining contract amount (RHS) Note: Deals converted to Korean won based on rate the day of announcement; upfront payments and milestone revenue deducted as received Source: QuantiWise, Bloomberg, Company data Ownership structure Other: 4.4% National Pension Service: 6.1% Dong Kuk Shin: 12.1% Hanmi Science: 41.4% Source: Company data, Samsung Securities Hanmi s R&D strategy: Open innovation Open innovation Leveraging external sources of innovation Diabetes Obesity Oncology Auto-immune New biologics based on the LAPSCOVERY platform New chemical entity focus on targeted therapy Source: Company data, Samsung Securities Value-added programs Formulation technology 1

11 Hanmi Pharmaceutical Hanmi Pharmaceutical: R&D pipeline Category Project Indication Pre- Phase clinical l Biologic LAPS Exendin4 (efpeglenatide) Diabetes, obesity LAPS Insulin Combo (HM1422) Diabetes, obesity LAPS Insulin115 (HM1247) LAPS GCSF (Rolontis, eflapegrastim) LAPS hgh (efpegsomatropin) Diabetes Neutropenia Growth hormone deficiency Phase ll Phase lll Remarks Quantum Project, out-licensed to Sanofi Out-licensed to Spectrum Pharmaceuticals LAPS GLP/GCG (HM12525A) Diabetes, obesity Out-licensed to Janssen (Johnson & Johnson) LAPS Triple Agonist (HM15211) Obesity Developed by Bejing Hanmi LAPS GCG Analog (HM15136) Congenital hyperinsulinism Applied LAPScovery LAPS IDS (HM1541) Mucopoysaccharidosis Applied LAPScovery LAPS GLP-2 Analog (HM1541) Short bowel syndrome Applied LAPScovery HM211 GMB stem cell therapy Co-developing with Ajou University BH295 Breast/gastric cancer Developed by Bejing Hanmi BH2922 NSCLC/colorectal cancer Developed by Bejing Hanmi BH2941 Cancer Developed by Bejing Hanmi Poziotinib (HM781-36B) Breast cancer Out-licensed to Spectrum Pharmaceuticals and Luye Pharma in China Olmutinib (HM61713) NSCLC Out-licensed to ZaiLab in China Luminate Retinal diseases Licensed in from US bio venture Allegro Oraxol Gastric cancer Out-licensed to Athenex New chemical HM71224 Rheumatoid arthritis Out-licensed to Eli Lilly Incrementally modified or fixeddose combin ation HM95573 Solid cancer Out-licensed to Genentech KX2-391 Solid cancer Licensed-in from Athenex Oratecan Solid cancer Out-licensed to Athenex HM43239 HGP127 HCP115 HCP135 HCP141 HCP133 HCP145 HCP122 HIP132 HIP153 Source: Company data, Samsung Securities Acute myeloid leukemia Pulmonary hypertension Non-HDL decline of patients with combined dyslipidemia Hypertension/dyslipidemia Hypertension Prostatic hyperplasia, erectile dysfunction Osteoporosis COPD Anti-virus Overactive bladder 11

12 Hanmi Pharmaceutical R&D milestones Category Project Description Progress Quantum Project (diabetes drug) New biologic New chemical LAPS Exendin4 (efpeglenatide) LAPS Insulin Combo LAPS Insulin115 (HM1247A) LAPS GLP/GCG (HM12525A JNJ ) Olmutinib (HM61713) Poziotinib (HM781-36B) HM71224 GLP-1, targets diabetes and obesity Insulin combo; administered weekly Long-acting insulin; administered weekly Long-acting diabetes & obesity treatment, administered weekly Late Phase ll clinical trials underway in nine countries (including US, EU members, and Korea) Weekly T2DM* Phase ll completed Monthly T2DM Phase ll interim analysis completed Weekly/biweekly obesity Phase ll interim analysis completed Presented at ADA in Jun 215 Signed out-licensing contract with Sanofi (Nov 215) Pre-clinical trials currently underway Presented at ADA in Jun 215 Signed out-licensing contract with Sanofi (Nov 215) US clinical trials began Presented at ADA in Jun 215 Signed out-licensing contract with Sanofi (Nov 215) Phase l clinical trials underway globally Signed out-licensing contract with Janssen Made presentation on Phase l clinical trials at ASCO (Jun 215) Anti-cancer drug targeting Signed out-licensing contract with Boehringer Ingelheim (Jul 215) non-small cell lung cancer Signed out-licensing contract with ZaiLab in China (Nov 215) Phase ll clinical trials underway on lung cancer and terminal breast cancer patients Anti-cancer drug targeting Signed out-licensing contract with Spectrum Pharmaceuticals in US (Mar 215) non-small cell lung cancer Signed out-licensing contract with Luye Pharma in China (Aug 215) Rheumatoid arthritis/ auto-immune disease treatment Phase li clinical trials in Europe currently underway Made presentation on Phase l clinical trials at EULAR (Jun 215) Signed out-licensing contract with Eli Lilly (Mar 215) HM95573 Urinary system treatment In Phase l trials for solid tumor cancer; signed out-licensing deal with Genentech (Sep 216) Note: * Type II diabetes mellitus Source: Company data, Samsung Securities Global partnerships Year Partner Drug (or technology) Remarks 29 MSD Amosartan World s first amlodipine + losartan combination drug 211 Kinex Oral Platform Tech (Oral Paclitaxel/Irintotecan) Co-development and exclusive marketing rights 212 Spectrum Pharmaceuticals Eflapegrastim Co-development and exclusive global marketing rights, excluding Korea, China, and Japan 213 Sanofi Rovelito Co-development and exclusive marketing rights (commercialized) 214 Luye Pharma Poziotinib (Pan-HER inhibitor) Co-development and exclusive marketing rights in China 215 Spectrum Pharmaceuticals Poziotinib (Pan-HER inhibitor) Co-development and exclusive global marketing rights, excluding Korea and China Eli Lilly HM71224 (BTK Inhibitor) Co-development and exclusive global marketing rights, excluding Korea and China Boehringer Ingelheim Sanofi Janssen (Johnson & Johnson) ZaiLab HM61713 (3rd-generation EGFR TKI) Quantum Project HM12525A (GLP/GCG dual agonist) HM61713 (3rd-generation EGFR TKI) Co-development and exclusive global marketing rights excluding Korea, China, and Hong Kong deal canceled in Sep 216 Co-development and exclusive global marketing rights deal on LAPS-Insulin canceled in Dec 216 Co-development and exclusive global marketing rights, excluding Korea and China Co-development and exclusive marketing rights in China 216 Genentech (Roche) HM95573 (RAF inhibitor) Co-development and exclusive global marketing rights, excluding Korea Source: Company data, Samsung Securities 12

13 Hanmi Pharmaceutical clinical trial plans Category Phase l Phase ll Phase lll Biologic Hanmi (LAPS Insulin Combo) Janssen (HM12525A/JNJ ) New chemical Genentech (HM95573) Source: Company data, Samsung Securities Hanmi (HM1247) Spectrum (Poziotinib) Eli Lilly (HM71224) ZAI Lab (HM61713) Sanofi (efpeglenatide) Spectrum (eflapegrastim) Hanmi (HM156A) R&D pipeline highlights Pipeline Description Clinical stage Remarks HM156A Value-added programs Long-acting rhgh with comparable efficacy to daily rhgh To develop fixed-dose combinations on back of technological prowess for IMD development Source: Company data, Samsung Securities Completed Phase ll clinical trials on adult growth hormone deficiency Presented results of domestic Phase l clinical trials and interim results of global Phase ll clinical trials at US ENDO Plans to launch five new products in 217, developing six more 13

14 Hanmi Pharmaceutical Income statement Year-end Dec 31 (KRWb) E 218E 219E Sales 1, Cost of goods sold Gross profit Gross margin (%) SG&A expenses Operating profit Operating margin (%) Non-operating gains (losses) (2) (19) (4) (4) (2) Financial profit Financial costs Equity-method gains (losses) Other 9 (17) Pre-tax profit Taxes 48 (22) Effective tax rate (%) 22.7 (278.9) Profit from continuing operations Profit from discontinued operations Net profit Net margin (%) Net profit (controlling interests) Net profit (non-controlling interests) EBITDA EBITDA margin (%) EPS (parent-based) (KRW) 13,835 2,89 4,335 5,239 5,68 EPS (consolidated) (KRW) 14,517 2,714 5,631 6,85 6,583 Adjusted EPS (KRW)* 13,835 2,89 4,335 5,239 5,68 Balance sheet Year-end Dec 31 (KRWb) E 218E 219E Current assets 1, ,23 Cash & equivalents Accounts receivable Inventories Other current assets Fixed assets Investment assets Tangible assets Intangible assets Other long-term assets Total assets 1,723 1,597 1,588 1,686 1,775 Current liabilities Accounts payable Short-term debt Other current liabilities Long-term liabilities Bonds & long-term debt Other long-term liabilities Total liabilities Owners of parent equity Capital stock Capital surplus Retained earnings Other 3 (13) (13) (13) (13) Non-controlling interests equity Total equity Net debt (3) (88) (189) Cash flow statement Year-end Dec 31 (KRWb) E 218E 219E Cash flow from operations Net profit Non-cash profit and expenses Depreciation Amortization Other Changes in A/L from operating activities (118) 332 (26) 1 Cash flow from investments (114) (355) 16 (42) (26) Change in tangible assets (119) (2) (72) (3) (1) Change in financial assets 6 (145) 178 (12) (16) Other (1) (11) Cash flow from financing 95 (63) (94) Change in debt 95 (35) (94) Change in equity () Dividends (2) Other (1) (7) Change in cash 86 (8) Cash at beginning of year Cash at end of year Gross cash flow Free cash flow (19) Note: * Excluding one off items, ** Fully diluted, excluding one-off items *** From companies subject to equity-method valuation Source: Company data, Samsung Securities estimates Financial ratios Year-end Dec E 218E 219E Growth (%) Sales 73.1 (33.) Operating profit (87.4) (4.4) Net profit (81.3) (3.3) Adjusted EPS** 33.1 (84.9) (3.3) Per-share data (KRW) EPS (parent-based) 13,835 2,89 4,335 5,239 5,68 EPS (consolidated) 14,517 2,714 5,631 6,85 6,583 Adjusted EPS** 13,835 2,89 4,335 5,239 5,68 BVPS 6,573 59,234 63,72 68,965 74,56 DPS (common) 2, Valuations (x) P/E*** P/B*** EV/EBITDA Ratios (%) ROE ROA ROIC Payout ratio Dividend yield (common) Net debt to equity (.3) (1.1) (19.9) Interest coverage (x)

15 Company Update Yuhan (1) Earnings momentum and attractive valuation Yuhan should post in-line 2Q results showing solid sales across the board. In 3Q, it should become the first Korean pharmaceutical firms to see quarterly sales exceed KRW4b. Next year, it is likely to license out YH12852 and YH During the upcoming earnings season, the stock should emerge as an attractive investment for its earnings momentum and valuation merit. Brian Lee Analyst brian79.lee@samsung.com Wonyong Park Research Associate wkrw.park@samsung.com AT A GLANCE Target price KRW33, (36.1%) Current price KRW242,5 Market cap KRW2.8t/USD2.4b Shares (float) 11,665,896 (74.8%) 52-week high/low KRW38,426/KRW179,117 Avg daily trading value (6-day) KRW11.4b/ USD9.9m ONE-YEAR PERFORMANCE 1M 6M 12M Yuhan (%) Vs Kospi (%pts) KEY CHANGES (KRW) New Old Diff Recommend. BUY BUY Target price 33, 33,.% 217E EPS 14,266 13, % 218E EPS 15,588 14, % SAMSUNG vs THE STREET No of estimates 16 Target price 31,25 Recommendation 3.9 BUY : 5 / BUY: 4 / HOLD: 3 / SELL: 2 / SELL : 1 WHAT S THE STORY? 2Q results to be in line: We expect Yuhan to post 2Q results showing consolidated sales, operating profit, and net profit up 9.6%, 21.3%, and 24.7% y-y, respectively, to KRW364.6b, KRW29.9b, and KRW42.5b, the former just.8% and 1.6% off consensus, respectively, and the latter beating it by 16.1%. Sales solid across the board: Each division likely saw solid revenue in 2Q, with: 1) pharmaceutical sales up 6.8% y-y to KRW251.6b the sum of KRW22.7b (up 5.7% y-y) in prescription goods and KRW31b (15.6% y-y) in OTC drugs; 2) overseas sales rising 17.3% y-y to KRW76.6b, led by API exports growing 17.5% y-y to KRW75b; and 3) household & healthcare sales up 16.2% y-y to KRW3.3b. Operating margin likely rose.8%pts y-y to 8.2% despite a hike in R&D investment and marketing costs. Meanwhile, subsidiary Yuhan Kimberley likely saw sales, operating profit, and net profit fall 3.4%, 8.8%, and 11.7% y-y, respectively, to KRW354.5b, KRW6b, and KRW37.9b. In 1Q, Yuhan s tissue sales contracted y-y as: 1) the firm suspended the sale of wet types; and 2) China-bound exports were weak due to THAAD-related fallout. In 2Q, the tissue problem was resolved and China-bound export improved. 3Q sales to set record for Korean pharmaceutical player: Yuhan is seeking to introduce blockbuster licensed-in drugs, which efforts should help quarterly sales surpass the KRW4b mark in 3Q a record figure for a Korean pharmaceutical player. Yuhan expects to sign API export contracts with new clients in 2H. This will ease its overreliance on Gilead Sciences and secure API growth momentum over the longer term. SUMMARY FINANCIAL DATA (Continued on the next page) E 218E 219E Revenue (KRWb) 1,321 1,529 1,647 1,778 Net profit (adj) (KRWb) EPS (adj) (KRW) 13,548 14,266 15,588 16,899 EPS (adj) growth (% y-y) EBITDA margin (%) ROE (%) P/E (adj) (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Source: Company data, Samsung Securities estimates

16 Yuhan To license out YH12852, YH25448 in 218: Yuhan is conducting Phase II trials for irritable bowel treatment YH12852 and Phase I trials for non-small cell lung cancer drug YH25448 (licensedin from Oscotec). It is also conducting pre-clinical trials for a nonalcoholic steatohepatitis (NASH) drug (utilizing Genexine s hybrid Fc fusion protein platform technology). It plans to license in promising candidates from pharma and biotech firms at home and overseas, develop them, and then license them out. To turn attractive during earnings season for earnings momentum, valuation merit: Yuhan is trading at 18.5x consensus P/E, which is a 25.1% discount to the Kospi Medical Supplies Index figure of 24.7x (excludes Samsung Biologics) the biggest discount in 1 years. 2Q preview (KRWb) 2Q17E Diff 2Q16 1Q17 Chg Samsung Consensus (%) (% y-y) (% q-q) Sales (.8) Operating profit (1.6) (15.9) Pre-tax profit Net profit Margins (%) Operating profit Pre-tax profit Net profit Source: Company data, Samsung Securities estimates Revisions to full-year forecasts (KRWb) 217E 218E Old New Diff (%) Old New Diff (%) Sales 1,55.1 1, ,62.7 1, Operating profit Pre-tax profit Net profit Source: Samsung Securities estimates Forward P/E band Forward P/B band (KRW) 4, 3x 25x (KRW) 5, 3, 2, 1, 2x 15x 4, 3, 2, 1, 2.5x 2.x 1.5x 1.x Source: QuantiWise, Samsung Securities estimates Source: QuantiWise, Samsung Securities estimates 16

17 Yuhan P/E and premium vs Kospi Medical Supplies Index (x) (%) (15) 1 (3) (45) Yuhan (LHS) Kospi Medical Supplies* (LHS) Premium (RHS) Note: * Excludes Samsung Biologics Source: QuantiWise, Samsung Securities Ownership structure Other: 43.6% Schroders PLC: 5.8% Blackrock: 6.9% Source: Company data, Samsung Securities Treasury shares: 1.7% Yuhan Foundation: 15.4% National Pension Service: Yuhan School 1.% Foundation: 7.6% 17

18 Yuhan Yuhan: Results and forecasts (KRWb) 1Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 217E Sales , ,528.9 Chg (% y-y) Pharmaceutical ,83.8 Chg (% y-y) OTC Chg (% y-y) ETC Chg (% y-y) Healthcare Chg (% y-y) Overseas Chg (% y-y) (19.7) (15.) Exports Chg (% y-y) (2.7) (15.4) Supply/raw materials Chg (% y-y) (22.8) (33.6) (9.9) (56.4) (8.2) Other Chg (% y-y) 6.1 (31.6) (29.4) (36.3) (23.5) (38.) (8.9) Gross profit Chg (% y-y) Gross margin (%) R&D expenses Chg (% y-y) R&D expenses-to-sales (%) Operating profit Chg (% y-y) 33.4 (4.) (2.4) Operating margin (%) Pre-tax profit Chg (% y-y) (55.) (4.6) Pre-tax margin (%) Net profit Chg (% y-y) (46.4) (42.5) (8.9) 5.3 Net margin (%) Note: Consolidated basis Source: Samsung Securities estimates 18

19 Yuhan Yuhan Kimberly: Results and forecasts (KRWb) 1Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 217E Sales , ,46.9 Chg (% y-y) (.5) (7.7) (.5) (1.8) (3.4).1 (1.1) (4.) Domestic , ,181.3 Chg (% y-y) (2.4) 1.8 (6.7) (1.6) Diaper Chg (% y-y) (5.5) 1.5 (9.3) (1.8) Tissue Chg (% y-y) (.8) 2.5 (1.2)... (2.7) Female hygiene products Chg (% y-y) (3.9). (4.6)... (1.2) B2B Chg (% y-y) 1.9 (4.5) (1.1) 1.9 (2.9) Others Chg (% y-y) 29.6 (3.) (7.5)... (2.1) Exports Chg (% y-y) 5.8 (3.9) (14.2) (26.3) (1.) (26.6) (19.5) (1.1) (7.5) (15.) China Chg (% y-y) (3.).8 (12.1) (26.7) (1.3) (35.6) (27.5) (1.7) (11.6) (21.3) Operating profit Chg (% y-y) (29.9) (8.8) (5.2) (6.5) (13.7) Operating margin (%) Net profit Chg (% y-y) (32.5) (11.7) (7.6) (9.1) (16.3) Net margin (%) Source: Samsung Securities estimates Yuhan: Equity-method gains (KRWb) 1Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 217E Equity-method gains Chg (% y-y) (34.1) (.3) (6.7) 1.4 (9.9) Yuhan Kimberly Yuhan Clorox (.2) Janssen Korea (.2) (.2) 2. Ucarlix (YuYu Calmic) MG Hanall Biopharma (.1) Theragen Etex..1 (.) (.)..2 Source: Samsung Securities estimates 19

20 Yuhan R&D pipeline Category Project Indication Pre-clinical Phase l Phase ll Phase lll Filing for approval Supergeneric New chemical Botanical YH14755 Hyperlipidemia/diabetes YH22162 Hypertension YHD1119 Diabetic neuropathy, YHP164 Hyperlipidemia/hypertension YH1177 Diabetic neuropathy, Tympanitis YH12852 Functional dyspepsia YH25448 Molecular-targeted cancer therapy YH24931 Immune-oncology therapy YH25724 Diabetes, non-alcoholic steatohepatitis (NASH) YH23537 Periodontitis/arthritis Source: Company data, Samsung Securities Bio venture investments Investment target Date of acquisition Amount (KRWb) Ownership (%) Investment purpose Date of listing Ensol Biosciences Mar Extend R&D pipeline n/a Hanall Biopharma* Nov Extend R&D pipeline Kospi Theragen Etex Dec Extend R&D pipeline Kosdaq Ucarlix (YuYu Calmic) Nov Expand business area n/a MG Mar Expand infusion solution business n/a Bioneer Sep Extend R&D pipeline Kosdaq Coson Nov Expand business area Kosdaq Genexine Dec Extend R&D pipeline Kosdaq BSL Dec n/a Expand business area n/a ImmuneOncia** Mar Develop immune-oncology therapy (by establishing overseas JV) n/a PharmAbcine Apr Extend R&D pipeline n/a Sorrento Apr Enhance partnership Nasdaq NeoImmunetech Jul Extend R&D pipeline n/a Genosco Aug Extend R&D pipeline n/a C&C Nov n/a Enhance business cooperation n/a Note: *Sold 5.3% stake in Hanall Biopharma in Jul 215 **Joint venture between Yuhan and Sorrento Therapeutics Source: Company data, local media, Samsung Securities 2

21 Yuhan Income statement Year-end Dec 31 (KRWb) E 218E 219E Sales 1,129 1,321 1,529 1,647 1,778 Cost of goods sold ,69 1,149 1,236 Gross profit Gross margin (%) SG&A expenses Operating profit Operating margin (%) Non-operating gains (losses) Financial profit Financial costs Equity-method gains (losses) Other Pre-tax profit Taxes Effective tax rate (%) Profit from continuing operations Profit from discontinued operations Net profit Net margin (%) Net profit (controlling interests) Net profit (non-controlling interests) EBITDA EBITDA margin (%) EPS (parent-based) (KRW) 1,59 13,548 14,266 15,588 16,899 EPS (consolidated) (KRW) 1,59 13,548 14,266 15,588 16,899 Adjusted EPS (KRW)* 1,59 13,548 14,266 15,588 16,899 Balance sheet Year-end Dec 31 (KRWb) E 218E 219E Current assets 959 1,48 1,174 1,322 1,478 Cash & equivalents Accounts receivable Inventories Other current assets Fixed assets ,77 1,123 1,177 Investment assets Tangible assets Intangible assets Other long-term assets Total assets 1,88 2,46 2,251 2,445 2,655 Current liabilities Accounts payable Short-term debt Other current liabilities Long-term liabilities Bonds & long-term debt Other long-term liabilities Total liabilities Owners of parent equity 1,364 1,497 1,646 1,88 1,983 Capital stock Capital surplus Retained earnings 1,274 1,411 1,56 1,722 1,897 Other (82) (87) (87) (87) (87) Non-controlling interests equity Total equity 1,364 1,497 1,646 1,88 1,983 Net debt (328) (29) (384) (486) (591) Cash flow statement Year-end Dec 31 (KRWb) E 218E 219E Cash flow from operations Net profit Non-cash profit and expenses 15 5 (18) (26) (31) Depreciation Amortization Other (16) (37) (61) (65) (65) Changes in A/L from operating activities (37) (19) 24 (14) (16) Cash flow from investments (118) (77) (14) (45) (48) Change in tangible assets (8) (8) (4) (1) (1) Change in financial assets (32) (12) (61) (35) (38) Other (6) 15 (3) Cash flow from financing (26) (24) (26) Change in debt (5) Change in equity Dividends (18) (21) (21) (24) (26) Other (6) (1) Change in cash Cash at beginning of year Cash at end of year Gross cash flow Free cash flow 45 (6) Note: * Excluding one off items, ** Fully diluted, excluding one-off items *** From companies subject to equity-method valuation Source: Company data, Samsung Securities estimates Financial ratios Year-end Dec E 218E 219E Growth (%) Sales Operating profit Net profit Adjusted EPS** Per-share data (KRW) EPS (parent-based) 1,59 13,548 14,266 15,588 16,899 EPS (consolidated) 1,59 13,548 14,266 15,588 16,899 Adjusted EPS** 1,59 13,548 14,266 15,588 16,899 BVPS 126, , , , ,17 DPS (common) 2, 2, 2,2 2,42 2,42 Valuations (x) P/E*** P/B*** EV/EBITDA Ratios (%) ROE ROA ROIC Payout ratio Dividend yield (common) Net debt to equity (24.1) (19.4) (23.3) (26.9) (29.8) Interest coverage (x)

22 Company Update Green Cross (628) In-line 2Q results, solid 3Q growth expected We now expect Green Cross to post 2Q results in line with consensus forecasts and better than our original estimates, with seasonal flu vaccine exports leading top-line growth. In 3Q, growth should benefit from the base of an unexpectedly weak showing the year prior. We expect the US FDA to approve Green Cross s IVIG at end-217 or early-218 after supplementary documents are submitted in September-October. The company's long-term growth strategy centers on plasma derivatives and vaccines. Brian Lee Analyst brian79.lee@samsung.com Wonyong Park Research Associate wkrw.park@samsung.com AT A GLANCE Target price KRW21, (2.3%) Current price KRW174,5 Market cap KRW2.t/USD1.7b Shares (float) 11,686,538 (45.%) 52-week high/low KRW188,5/KRW134, Avg daily trading value (6-day) KRW4.9b/ USD4.3m ONE-YEAR PERFORMANCE 1M 6M 12M Green Cross (%) Vs Kospi (%pts) KEY CHANGES (KRW) New Old Diff Recommend. BUY BUY Target price 21, 21,.% 217E EPS 4,757 4, % 218E EPS 4,729 5,26-9.2% SAMSUNG vs THE STREET No of estimates 11 Target price 23,91 Recommendation 3.6 BUY : 5 / BUY: 4 / HOLD: 3 / SELL: 2 / SELL : 1 WHAT S THE STORY? 2Q preview: We now believe Green Cross s consolidated 2Q sales, operating profit, and net profit grew a respective 4.1%, 1.7%, and 9.5% y-y to KRW316b, KRW24.5b and KRW18.5b sales missing consensus by 3.6%, but profits meeting market expectations. Flu vaccine exports likely drive growth: We believe Green Cross's domestic sales rose 1.2% y-y to KRW2b in 2Q as sales of plasma derivatives, vaccines, and OTC drugs rose a respective 5.8%, 2.5%, and 1% y-y to KRW74.7b, KRW34.9b, and KRW27.4b (prescription drug sales slipped 7.5% y-y to KRW63.7b). Meanwhile, exports likely climbed 9.4% y-y to KRW71b as exports of plasma derivatives rose 9.3% y-y to KRW17.9b and vaccines 1% y-y to KRW47.7b. Domestic sales of prescription drugs were likely influenced by a price cut of Baraclude, whose patent expired, and the release of generic drugs. Green Cross renewed a contract to supply seasonal flu vaccine to the Pan American Health Organization for the southern hemisphere (the deal is worth USD37m, up 15.6% y- y). R&D investments likely increased, and we estimate that the firm s operating margin slipped.2%pts y-y to 7.7%. Low base to provide boost in 3Q: In 3Q17, Green Cross s growth should benefit from the base of a weak showing the year prior. In 3Q16, facing a budget shortfall, the Korean government canceled a program offering free seasonal flu vaccinations for children aged five and under. Some people delayed vaccinations to 4Q16, hurting Green Cross's results. IVIG poised for US approval around turn of year: Green Cross's two plasma derivatives plants each have an annual capacity of.7m liters. The second facility was completed in Aug 216 and opened in April. The company plans to start making IVIG at the first plant in August, and we expect the US FDA to approve the product at end-217 or early-218 after supplementary documents are submitted in September-October. Longer-term strategy centers on plasma derivatives, vaccines: Green Cross plans to raise its export portion of sales from 2% in 216 to 3% in 22 and aware that ASP and margin hikes are key to structural growth to export more plasma derivative and vaccines to developed markets. SUMMARY FINANCIAL DATA E 218E 219E Revenue (KRWb) 1,198 1,278 1,342 1,434 Net profit (adj) (KRWb) EPS (adj) (KRW) 5,388 4,757 4,729 5,73 EPS (adj) growth (% y-y) (33.7) (11.7) (.6) 21.2 EBITDA margin (%) ROE (%) P/E (adj) (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Source: Company data, Samsung Securities estimates

23 Green Cross Q preview (KRWb) 2Q17E Diff 2Q16 1Q17 Chg Samsung Consensus (%) (% y-y) (% q-q) Sales (3.6) Operating profit Pre-tax profit (4.8) Net profit Margins (%) Operating profit Pre-tax profit Net profit Source: Company data, Samsung Securities estimates Revisions to full-year forecasts (KRWb) 217E 218E Old New Diff (%) Old New Diff (%) Sales 1, , , , Operating profit (.2) (8.3) Pre-tax profit (1.4) (9.2) Net profit (1.4) (9.2) Source: Samsung Securities estimates Forward P/E band Forward P/B band (KRW) 4, 3, 2, 1, 45.x 35.x 25.x 15.x (KRW) 3, 25, 2, 15, 1, 5, 3.x 2.5x 2.x 1.5x Source: QuantiWise, Samsung Securities estimates Source: QuantiWise, Samsung Securities estimates 23

24 Green Cross Results and forecasts (KRWb) 1Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 217E Sales , ,278.3 Chg (% y-y) Domestic Chg (% y-y) (.5) 4.3 Plasma derivatives Chg (% y-y) Vaccines Chg (% y-y) (1.2) 26.1 (4.2) (8.6) 14.7 Prescription drugs Chg (% y-y) (2.2) (7.5) (6.6) (4.1) (5.1) OTC drugs Chg (% y-y) Others Chg (% y-y) (1.) (1.) (1.) (98.4) (99.6) Exports Chg (% y-y) (15.9) (15.9) (2.4) 23. (1.8) Plasma derivatives Chg (% y-y) (17.1) (18.6) (8.7) 39.5 (.1) Vaccines Chg (% y-y) 63.8 (11.9) Other Chg (% y-y) (76.5) (34.4) (62.3) (33.4) (45.8) Subsidiaries Chg (% y-y) Gross profit Chg (% y-y) (1.6) (3.1) 5.6 Gross margin (%) R&D expenses Chg (% y-y) (.9) R&D expenses-to-sales (%) Operating profit Chg (% y-y) (14.4) (2.5) (28.2) 1,466.5 (14.4) (83.9) 4.1 Operating margin (%) Pre-tax profit (.5) 71. Chg (% y-y) (49.5) (48.) (63.4) Turned pos (38.3) To turn neg (1.7) Pre-tax margin (%) (.1) 5.6 Net profit (.2) 58.2 Chg (% y-y) (51.4) (42.7) (6.4) Turned pos (31.9) To turn neg (1.7) Net margin (%) (.1) 4.6 Note: Consolidated basis Source: Samsung Securities estimates 24

25 Green Cross R&D pipeline Category Project Indication Research Preclinical Biologic & raredisease drugs Vaccines Anti-cancer drugs IVIG SN GreenGene F Hunterase GC112 MG1113A MG1121A MG1122A MG1126A Primary immune deficiency (US) Hemophilia-A (US, China) Hunter syndrome (US, Japan) Prevention of hepatitis recurrence + treatment of chronic hepatitis Hemophilia-A Hemophilia-A Immuno-oncology Hemophilia-A GCFLU Quadrivalent Influenza GCFLU H5N1 GC117 GC316A GC119 GC3111A GC3113A GC317A MGAH22 GC1113 GC1118 GC914 Source: Company data, Samsung Securities Avian influenza Tetanus, diphtheria Influenza (quadrivalent cellcultured based) Anthrax Tetanus, diphtheria, pertussis Avian influenza (H7N9) Tuberculosis (BCG) Breast cancer (anti-her2 bio better)(l/i) Anemia (EPO-hFc) Cancer (Anti-EGFR mab) Cancer (Anti-MSLN ADC) Phase l Phase ll Phase lll Filed for approval Approved Launched Overseas orders Order intake Product Value (USDm) Jan 215 Varicella vaccine for (PAHO) 75.1 Feb 215 Flu vaccine for the southern hemisphere (PAHO) 29.2 Feb 215 IVIG-SN (Brazil) 5.7 Aug 215 Flu vaccine for the northern hemisphere (PAHO) 31. Mar 216 Flu vaccine for the southern hemisphere (PAHO) 32. Jun 216 IVIG-SN (Brazil) H16 Flu vaccine for the northern hemisphere (PAHO) 3. Jan 217 Varicella vaccine for (PAHO) 6. Mar 217 Flu vaccine for the southern hemisphere (PAHO) 37. Source: Company data, Samsung Securities 25

26 Green Cross R&D pipeline Source: Company data Sales forecasts for hemophilia A treatments (USDm) 1,6 1,4 1,2 1, E 217E 218E 219E 22E 221E 222E 223E Advate (Baxalta) Kogenate (Bayer) Novoeight (Novo Nordisk) Source: Datamonitor Healthcare, Samsung Securities Sales forecasts for long-acting hemophilia A treatments (USDm) 1,6 1,4 1,2 1, E 217E 218E 219E 22E 221E 222E 223E Eloctate (Biogen) Adynovate (Baxalta) Afstyla (CSL) Source: Datamonitor Healthcare, Samsung Securities 26

27 Green Cross Major long-acting hemophilia A treatments Drug substance Eloctate Adynovate Afstyla (CSL627) Antihemophilic factor (recombinant) Antihemophilic factor (recombinant) Company Biogen Baxalta CSL Launch date 3Q14 4Q15 4Q16 Half-life (hours) Antihemophilic factor (recombinant) Dosing frequency Every four days Twice weekly Thrice weekly Format Fc fusion protein Proprietary PEGylation technology Single-chain Source: Samsung Securities MG1121A: Pre-clinical trial pharmacokinetic results MG1113A: Pre-clinical trials blood coagulation time Source: Company data Source: Company data Ownership structure Other: 32.8% Treasury stock: 2.4% National Pension Service: 8.1% Matthews International Capital Management: 6.7% Green Cross Holdings: 5.1% Source: Bloomberg, Company data, Samsung Securities 27

28 Green Cross Income statement Year-end Dec 31(KRWb) E 218E 219E Sales 1,48 1,198 1,278 1,342 1,434 Cost of goods sold ,7 Gross profit Gross margin (%) SG&A expenses Operating profit Operating margin (%) Non-operating gains (losses) 37 1 (11) (7) (8) Financial profit Financial costs Equity-method gains (losses) 39 (2) Other (13) 4 () Pre-tax profit Taxes Effective tax rate (%) Profit from continuing operations Profit from discontinued operations Net profit Net margin (%) Net profit (controlling interests) Net profit (non-controlling interests) EBITDA EBITDA margin (%) EPS (parent-based) (KRW) 8,126 5,388 4,757 4,729 5,73 EPS (consolidated) (KRW) 8,188 5,575 4,981 4,952 6, Adjusted EPS (KRW)* 8,126 5,388 4,757 4,729 5,73 Balance sheet Year-end Dec 31(KRWb) E 218E 219E Current assets Cash & equivalents Accounts receivable Inventories Other current assets Fixed assets Investment assets Tangible assets Intangible assets Other long-term assets Total assets 1,415 1,551 1,667 1,753 1,847 Current liabilities Accounts payable Short-term debt Other current liabilities Long-term liabilities Bonds & long-term debt Other long-term liabilities Total liabilities Owners of parent equity ,34 1,75 1,128 Capital stock Capital surplus Retained earnings Other (8) (27) (27) (27) (27) Non-controlling interests equity Total equity 998 1,59 1,13 1,147 1,22 Net debt Cash flow statement Year-end Dec 31(KRWb) E 218E 219E Cash flow from operations 45 (2) Net profit Non-cash profit and expenses Depreciation Amortization Other Changes in A/L from operating activities (55) (8) 3 (23) (32) Cash flow from investments 8 (111) (112) (17) (58) Change in tangible assets (121) (81) (1) (1) (5) Change in financial assets 47 (5) (7) (7) (8) Other 82 (26) (5) () Cash flow from financing (28) Change in debt (21) Change in equity (5) 13 Dividends (15) (2) (14) (14) (14) Other 13 (4) Change in cash 26 (1) 26 (16) 26 Cash at beginning of year Cash at end of year Gross cash flow Free cash flow (76) (82) 2 (25) 28 Note: * Excluding one off items, ** Fully diluted, excluding one-off items *** From companies subject to equity-method valuation Source: Company data, Samsung Securities estimates Financial ratios Year-end Dec E 218E 219E Growth (%) Sales Operating profit (5.5) (14.4) 4.1 (4.4) 19.9 Net profit 1.3 (31.9) (1.7) (.6) 21.2 Adjusted EPS** 13.1 (33.7) (11.7) (.6) 21.2 Per-share data (KRW) EPS (parent-based) 8,126 5,388 4,757 4,729 5,73 EPS (consolidated) 8,188 5,575 4,981 4,952 6, Adjusted EPS** 8,126 5,388 4,757 4,729 5,73 BVPS 82,746 87,11 9,632 94,224 98,842 DPS (common) 1,75 1,25 1,25 1,25 1,25 Valuations (x) P/E*** P/B*** EV/EBITDA Ratios (%) ROE ROA ROIC Payout ratio Dividend yield (common) Net debt to equity Interest coverage (x)

29 Company Update Chong Kun Dang Pharmaceutical (18575) R&D to pay off this year, B2B unit in 218 Chong Kun Dang Pharmaceutical should post in-line results for 2Q on the back of robust sales of in-house-developed drugs and stabilized costs. Merck on Jun 29 reported Phase III trial results for Anacetrapib, the first CETP inhibitor to boost levels of high-density lipoprotein cholesterol. This should help CKD Pharm s CETP inhibitor CKD519 should draw attention down the road. The Korean firm s R&D efforts are likely to pay off in 217 and its B2B operations should bear fruit in 218. Brian Lee Analyst brian79.lee@samsung.com Wonyong Park Research Associate wkrw.park@samsung.com AT A GLANCE Target price KRW14, (14.8%) Current price KRW122, Market cap KRW1.1t/USD1.b Shares (float) 9,49,5 (66.4%) 52-week high/low KRW127,5/KRW9,5 Avg daily trading value (6-day) KRW5.8b/ USD5.1m ONE-YEAR PERFORMANCE Chong Kun Dang Pharmaceutical (%) 1M 6M 12M Vs Kospi (%pts) KEY CHANGES (KRW) New Old Diff Recommend. BUY BUY Target price 14, 14,.% 217E EPS 4,86 4,93-2.5% 218E EPS 6,185 5, % SAMSUNG vs THE STREET No of estimates 15 Target price 142,467 Recommendation 3.9 BUY : 5 / BUY: 4 / HOLD: 3 / SELL: 2 / SELL : 1 WHAT S THE STORY? 2Q preview: We believe Chong Kun Dang Pharmaceutical s parent-based sales, operating profit, and net profit in 2Q grew a respective 4.5%, 34.1%, and 21.7% y-y to KRW215b, KRW14.2b, and KRW8.9b, with sales and operating profit meeting but net profit falling 9% short of consensus. Overall results likely missed our estimates. In-house-developed drugs lead top-line growth; costs stabilizing: CKD Pharm s sales of newly imported drugs likely hit KRW51.3b (down.8% y-y). Such products include: 1) diabetes treatments Januvia, Janumet, and Janumet XR; 2) highcholesterol treatments Vytorin and Atozet; and 3) cognitive disorder treatment Gliatilin. Sales of in-house developed drugs (eg, Lipilow, Telminuvo, Tacrobell, Imotun, Cipol, and Duvie) likely rose 6.3% y-y to KRW163.7b. Despite hikes in R&D investments and labor cost, the firm s operating margin likely rose 1.5%pts y-y to 6.6% as marketing expenses stabilized. Merck s CETP inhibitor results bode well for CKD519: Merck on Jun 27 reported Phase III results for Anacetrapib, the first CETP inhibitor to boost levels of high-density lipoprotein cholesterol. In patients on statin therapy who are at risk for cardiac events, the drug showed benefits (vs a placebo) in reducing cardiovascular events. As the drug met its primary objective of reducing major coronary events, the company now plans to review the results with external experts and decide whether to file for marketing approval. For reference, Amgen in Sep 215 licensed-in DEZ1 (Dezima s CETP inhibitor which was in Phase II trials) for USD1.5b. CKD Pharm began phase IIa trials in Australia for cholesterol ester transfer protein inhibitor CKD519 in 1Q17. Merck s positive results highlight the value of CETP inhibitors, so the value of the Korean firm s CKD519 value should come into the limelight. SUMMARY FINANCIAL DATA (Continued on the next page) E 218E 219E Revenue (KRWb) Net profit (adj) (KRWb) EPS (adj) (KRW) 4,352 4,86 6,185 6,439 EPS (adj) growth (% y-y) nm EBITDA margin (%) ROE (%) P/E (adj) (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Source: Company data, Samsung Securities estimates

30 Chong Kun Dang Pharmaceutical Cholesterol is divided into: 1) low-density lipoprotein (LDL) which delivers fats to organs; and 2) high-density lipoprotein (HDL) also described as good cholesterol which delivers fats to the liver. Currently, all cardiovascular drugs are based on statin therapy that lowers LDL cholesterol. Key global pharmaceutical firms (eg, Pfizer, Roche, and Eli Lilly) over the past 1 years have failed to develop CETP inhibitor drugs that boost HDL cholesterol. Among multinational players, only Merck has conducted Phase III trials for its CETP inhibitor Anacetrapib. R&D to pay off this year; B2B operations to bear fruit in 218: CKD Pharm is currently in Phase I European trials for its autoimmune disease drug CKD56 (an HDAC6 inhibitor), and should start US Phase I trials for its Huntington s disease drug CKD54. In Korea, the company is conducting Phase I and I/IIa trials for combination therapies using histone deacetylase inhibitor CKD581 with Velacade, and vascular-disrupting agent CKD516A with Camtosar, respectively. We believe CKD519, CKD54, and CKD56 have strong potential to be out-licensed and commercialized. 2Q preview (KRWb) 2Q17E Diff 2Q16 1Q17 Chg Samsung Consensus (%) (% y-y) (% q-q) Sales (2.) Operating profit (.6) (15.4) Pre-tax profit (1.3) (16.5) Net profit (9.4) (22.3) Margins (%) Operating profit Pre-tax profit Net profit Source: Company data, Samsung Securities estimates Revisions to full-year forecasts (KRWb) 217E 218E Old New Diff (%) Old New Diff (%) Sales (.4) Operating profit (2.2) Pre-tax profit (2.5) Net profit (2.5) Source: Samsung Securities estimates Forward P/E band Forward P/B band (KRW) 2, 45x 35x (KRW) 2, 4.5x 16, 25x 16, 3.5x 12, 8, 15x 12, 8, 2.5x 1.5x 4, 4, Source: QuantiWise, Samsung Securities estimates Source: QuantiWise, Samsung Securities estimates 3

31 Chong Kun Dang Pharmaceutical Results and forecasts (KRWb) 1Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 217E Sales Chg (% y-y) (.) 3.9 Newly licensed-in Chg (% y-y) 3. (.8) (.6) (.5) 5.8 Januvia, Janumet (XR) Gliatilin Vytorin Xalatan/Xalacom Atozet Established/in-house developed Chg (% y-y) (2.8) Lipilou Dilatrend Tamiflu Telminuvo Imotun Gross profit Chg (% y-y) (1.1) 4. Gross margin (%) R&D expenses Chg (% y-y) (1.7) (22.) 16.3 (16.) R&D expense-to-sales (%) Operating profit Chg (% y-y) (32.6) (5.5) (27.2) 8.8 Operating margin (%) Pre-tax profit Chg (% y-y) (13.3) Turned pos (3.) (25.6) 1.4 Pre-tax margin (%) Net profit Chg (% y-y) (9.) Turned pos Turned pos (3.3) 1.4 Net margin (%) Note: Parent basis Source: Samsung Securities estimates Ownership structure Other: 44.8% Allianz Global Investors: 5.5% Gochon Foundation: 6.7% Jang Han Lee: 9.5% National Pension Service: 13.3% Chong Kun Dang Holdings: 2.2% Source: Company data, Samsung Securities 31

32 Chong Kun Dang Pharmaceutical Major products, by year of launch Category E Generics Incrementally modified drugs New drugs (licensed-in) Monolair Telmitrend Rosulord Coxbito Silodosin (Thrupas) Sildenafil Copregrel Anyforge OMPS Cendom Solitos Newrabell Bellmetec Entecabell Dutesmol Telminuvo Dilatrend SR Duvimet (diabetes, fixed dose) Tenofovel (hepatitis B) EupasidinS Canderus (hypertension, fixed dose) Tamiflu, Xenical & Botulex Duvie Restasis & other Licensed-in 5 drugs from MSD Nasonex 6 others Stylage Ultra V Xalatan & other Gliatilin Vorico Source: Company data, Samsung Securities Prefemin R&D pipeline Category Project Indication Research Pre-clinical Phase l Phase ll Phase lll Approval Launch New chemical Biologic Incrementally modified CKD-943 Pain, pruritus CKD-516 Solid cancer Korea CKD-519 Dyslipidemia Australia CKD-581 Lymphoma/Multiple myeloma Korea CKD-56 Autoimmune disease Europe CKD-54 Huntington s disease US CKD-58 CKD-1111 CKD-71 CKD-337 CKD-391 CKD-333 CKD-35 CKD-351 CKD-39 CKD-841 Source: Company data, Samsung Securities Dyslipidemia Anemia (NESP biosimilar) Macular degeneration (Lucentis biosimilar) Dyslipidemia Dyslipidemia Hypertension + hyperlipidemia Dry eye syndrome Glaucoma Hepatitis B Prostate cancer 32

33 Chong Kun Dang Pharmaceutical Major R&D plans 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 Remarks CKD-54 Pre-clinical Phase l CKD-516 CKD-581 Source: Company data, Samsung securities Phase l Phase l Phase l/lla (combination) Phase l (combination) Started pre-clinical trials in 215 To start US Phase l trials in 3Q17 Developed jointly with Korea s National Cancer Center in 213 Combination with Camptosar Combination with Velacade How cholesterol ester transfer protein (CETP) works Source: Company data, Samsung Securities CKD-519: Overseas R&D plans Stage Drug name Developer Remarks Phase lll Phase ll Anacetrapib (MK-859) Merck Positive results were released on Jun Evacetrapib (LY ) Eli Lilly Failed clinical trials (Oct 215) Dalcetrapib (RO467381, JTT-75) Roche-Japan Tobacco Failed clinical trials (May 212) Torcetrapib (CP ) Pfizer Failed clinical trials (Dec 26) AMG 899 (DEZ-1, TA-8995) Amgen (Dezima Pharma (Mitsubishi Tanabe Pharma) Completed Phase llb (Sep 213), Amgen licensed-in drug for USD1.5b (Sep 215) CKD-519 Chong Kun Dang Ongoing Phase lla trials in Australia Phase l K-312 KOWA Conducted Phase l trials (Sep 213) Source: Company data, Samsung Securities CKD-516: Competitors Drug Stage Route of administration NPI-2358 Phase lll trials Intravenous CA4P Phase ll/iii trials Intravenous BNC15P Phase ll trials Intravenous Oxi-453 Phase lb/ii trials Intravenous CKD-516 Phase l/iia trials Oral Source: Company data, Samsung Securities 33

34 Chong Kun Dang Pharmaceutical Income statement Year-end Dec 31 (KRWb) E 218E 219E Sales Cost of goods sold Gross profit Gross margin (%) SG&A expenses Operating profit Operating margin (%) Non-operating gains (losses) (28) (4) (4) (4) (3) Financial profit Financial costs Equity-method gains (losses) () () Other (24) () () Pre-tax profit Taxes Effective tax rate (%) Profit from continuing operations (7) Profit from discontinued operations Net profit (7) Net margin (%) (1.1) Net profit (controlling interests) (7) Net profit (non-controlling interests) EBITDA EBITDA margin (%) EPS (parent-based) (KRW) (72) 4,352 4,86 6,185 6,439 EPS (consolidated) (KRW) (72) 4,352 4,86 6,185 6,439 Adjusted EPS (KRW)* (72) 4,352 4,86 6,185 6,439 Balance sheet Year-end Dec 31 (KRWb) E 218E 219E Current assets Cash & equivalents Accounts receivable Inventories Other current assets Fixed assets Investment assets Tangible assets Intangible assets Other long-term assets Total assets Current liabilities Accounts payable Short-term debt Other current liabilities Long-term liabilities Bonds & long-term debt Other long-term liabilities Total liabilities Owners of parent equity Capital stock Capital surplus Retained earnings Other Non-controlling interests equity Total equity Net debt (12) Cash flow statement Year-end Dec 31 (KRWb) E 218E 219E Cash flow from operations Net profit (7) Non-cash profit and expenses Depreciation Amortization Other Changes in A/L from operating activities (27) (36) 3 (12) (8) Cash flow from investments (36) (43) (26) (26) (26) Change in tangible assets (32) (38) (25) (25) (25) Change in financial assets 6 (1) (1) (1) Other (1) (5) () () Cash flow from financing (8) (6) (8) (8) (8) Change in debt () () Change in equity Dividends (8) (6) (8) (8) (8) Other Change in cash (36) Cash at beginning of year Cash at end of year Gross cash flow Free cash flow (25) Note: * Excluding one off items, ** Fully diluted, excluding one-off items *** From companies subject to equity-method valuation Source: Company data, Samsung Securities estimates Financial ratios Year-end Dec E 218E 219E Growth (%) Sales Operating profit (2.8) Net profit nm nm Adjusted EPS** nm nm Per-share data (KRW) EPS (parent-based) (72) 4,352 4,86 6,185 6,439 EPS (consolidated) (72) 4,352 4,86 6,185 6,439 Adjusted EPS** (72) 4,352 4,86 6,185 6,439 BVPS 33,451 37,671 41,58 46,868 52,411 DPS (common) Valuations (x) P/E*** n/a P/B*** EV/EBITDA Ratios (%) ROE (2.1) ROA (1.2) ROIC (4.6) Payout ratio (83.3) Dividend yield (common) Net debt to equity (2.5) Interest coverage (x)

35 Company Update Donga ST (179) All eyes on earnings, legal issues We now expect Donga ST to post disappointing 2Q results because of anemic prescription drug sales and a delay of some exports to 2H. Looking ahead, however, we believe the firm will sign more out-licensing deals for innovative drug candidates. Donga ST is trading at the bottom of its five-year band, but legal investigations are likely to continue to weigh on its shares for now. The resolution of these issues, as well as earnings, should determine its performance going forward. Brian Lee Analyst brian79.lee@samsung.com Wonyong Park Research Associate wkrw.park@samsung.com AT A GLANCE Target price KRW11, (2.2%) Current price KRW91,5 Market cap KRW772.61b/USD673.65m Shares (float) 8,443,868 (58.1%) 52-week high/low KRW135,5/KRW8,6 Avg daily trading value (6-day) KRW4.1b/ USD3.6m ONE-YEAR PERFORMANCE 1M 6M 12M Donga ST (%) Vs Kospi (%pts) KEY CHANGES (KRW) New Old Diff Recommend. BUY BUY Target price 11, 11,.% 217E EPS 518 2, % 218E EPS 4,21 4,19 4.5% SAMSUNG vs THE STREET No of estimates 12 Target price 12, Recommendation 4. BUY : 5 / BUY: 4 / HOLD: 3 / SELL: 2 / SELL : 1 WHAT S THE STORY? 2Q preview: We now expect Donga ST to post parent-based 2Q sales of KRW139.7b (down 8.5% y-y), operating profit of KRW3.2b (down 6.4% y-y), and a net profit of KRW1.4b (turning from a loss y-y). These figures would fall short of our original forecasts and miss consensus estimates by 1.7%, 47.6%, and 78.9%, respectively. Prescription-drug sales sluggish, exports to pick up in 2H: Our sales estimate comprises prescription drugs (KRW8.3b; down 8.9% y-y), exports (KRW28.6b; down 24.5% y-y), medical devices (KRW11b; flat y-y), diagnostics (KRW8.2b; flat y-y), outlicensing (KRW4b), and other categories (KRW11.5b; up 53.3% y-y). We attribute poor prescription drug sales to: 1) the National Health Insurance Service cutting Stillen reimbursements by 3.9%; and 2) the end of co-promotions for GlaxoSmithKline drugs Zeffix, Hepsera, Seretide, Avamys, and Avodart which generated annual sales of KRW2b for Donga ST on Nov 3. Meanwhile, despite marketing expenses stabilizing, the firm's operating margin likely slipped 3.1%pts y-y to 2.3% because of the Stillen price cut and increasing R&D investments. Growth hormone exports to Brazil and a tuberculosis treatment bid with the World Health Organization have been put on hold until 2H. More out-licensing deals on the way: At end-216, Donga ST out-licensed cancer immunotherapy candidate DA-451 (targeting the MerTK gene) to Abbvie Biotechnology, granting the US firm marketing rights outside Korea. Abbvie is conducting follow-up R&D. The deal is worth up to USD525m excluding royalties (capped at 1% of net sales), and should generate quarterly sales of KRW4b and operating profit of KRW1.8b this year for Donga ST. We expect more out-licensing deals going forward. The US FDA approved Donga ST s Investigational New Drug Application for phase-ii trials on Parkinson's disease botanical treatment DA-985 in 1Q17. In 2H17, the firm plans to finish European phase I trials on overactive bladder treatment DA-81 and nonalcoholic steatohepatitis treatment DA-1229 in 2H17. US phase-i trials for type-2 diabetes treatment DA-1241 should conclude in September after patients were recruited in March. SUMMARY FINANCIAL DATA (Continued on the next page) E 218E 219E Revenue (KRWb) Net profit (adj) (KRWb) EPS (adj) (KRW) 1, ,21 4,875 EPS (adj) growth (% y-y) (74.8) (66.3) EBITDA margin (%) ROE (%) P/E (adj) (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Source: Company data, Samsung Securities estimates

36 Donga ST Base effect to help earnings but investigations to weigh on shares: Donga ST s growth should benefit from base effect going forward results fell y-y over 3Q16-2Q17. Shares are now trading at the bottom of their five-year band, but may be weighed upon by investigations into physician kickbacks and alleged embezzlement by its largest shareholder. 2Q preview (KRWb) 2Q17E Diff 2Q16 1Q17 Chg Samsung Consensus (%) (% y-y) (% q-q) Sales (1.7) (8.6) 5. Operating profit (47.6) (6.4) (34.4) Pre-tax profit (77.1) (5.1) (15.1) To turn pos To turn pos Net profit (78.9) (3.8) (11.3) To turn pos To turn pos Margins (%) Operating profit Pre-tax profit (3.3) (11.4) Net profit (2.5) (8.5) Source: Company data, Samsung Securities estimates Revisions to full-year forecasts (KRWb) 217E 218E Old New Diff (%) Old New Diff (%) Sales (1.7) (1.6) Operating profit (.7) Pre-tax profit (78.) Net profit (78.) Source: Samsung Securities estimates Forward P/E band Forward P/B band (KRW) 2, 16, 75.x 55.x 35.x (KRW) 2, 15, 2.5x 2.x 12, 8, 4, 15.x 1, 5, 1.5x 1.x Source: QuantiWise, Samsung Securities estimates Source: QuantiWise, Samsung Securities estimates 36

37 Donga ST Results and forecasts (KRWb) 1Q16 2Q16 3Q16 4Q Q17 2Q17E 3Q17E 4Q17E 217E Sales Growth (% y-y) (8.6) (11.3) (1.3) (9.4) (8.5) Prescription drugs Growth (% y-y) (6.5) 12.4 (6.5) (2.7) (3.8) (9.6) (8.9) (.6) Exports Growth (% y-y) (13.8) (2.) 1.4 (27.7) (24.5) (7.1) Medical devices Growth (% y-y) Diagnostics Growth (% y-y) Other & out-licensing income Growth (% y-y) (29.8) (43.2) (42.) 4.8 (29.6) Gross profit Growth (% y-y) (16.1) (2.6) (6.) (12.9) (12.9) Gross margin (%) R&D expense Chg (% y-y) (2.1) (8.7) 6.3 R&D expense-to-sales (%) Operating profit (6.4) Growth (% y-y) (8.5) (47.4) (89.3) Turned neg (72.1) (57.9) (6.4) To turn pos 94.2 Operating margin (%) (5.2) Pre-tax profit 6. (5.1) (15.1) Growth (% y-y) (48.8) (133.1) (57.7) (61.9) (75.7) Turned neg To turn pos (23.7) 8.4 (63.3) Pre-tax margin (%) 4.1 (3.3) (11.4) Net profit 4.5 (3.8) (11.3) Growth (% y-y) (48.6) (131.2) (53.8) (55.6) (73.1) Turned neg To turn pos (2.8) 42.7 (66.1) Net margin (%) 3. (2.5) (8.5) Note: Parent basis Source: Samsung Securities estimates Ownership structure Donga Socio Holdings 22.1% Others 54.5% National Pension Services 1.2% Glaxo Group 8.2% Otsuka Holdings 5.% Source: Company data, Samsung Securities 37

38 Donga ST R&D pipeline Category Project Indication Phase l Phase ll Phase lll Partner DA-8159 (Zydena) DA-7218 (Sivextro) PDE-5 inhibitor Oxazolidinone class antibiotic Erectile dysfunction Launched (Korea) Mezzion Erectile dysfunction Submitted NDA (US) Mezzion Benign prostatic hypeplasia Japan Meiji Seika Pulmonary hypertension Skin infection (ABSSSI) Korea Launched (US) Merck (MSD) Launched (Europe) Merck (MSD) Launched (Korea) Pneumonia (HABP/VABP) Global Merck & Bayer Launched (Korea) China Luye Chemical DA-1229 Submitted IND (Suganon DPP-4 inhibitor Type 2 diabetes (India) Alkem /Sugamet) Submitted IND (Brazil) Eurofarma Russia Gerpharm Preparing for IND CVC Nonalcoholic Tobira (Global) Steatohepatitis (NASH) CVC+DA-1229 US Tobira Botanical Biologic DA-1241 GPR 119 Agonist Type 2 diabetes US M3 receptor Overactive bladder DA-81 Europe antagonist syndrome (cystitis) DA-451 MerTK inhibitor Cancer Drug discovery Abbive Biotechnology DA-971 (Motilitone) DA-981 DA-985 Corydails turtschaninovil/ Pharbitis purpurea Functional dyspepsia Dioscorea nipponica Diabetic neuropathy Makino Paeonia suffruticosa Andrews/ Bupleurum Parkinson s disease falcatum Linne/Angelica dahurica Benth. et Hooker f. DMB-3111 Trastuzumab biosimilar Breast cancer US IND approved (US) Launched (Korea) Preparing for IND (US) Preparing for IND (Japan, Europe) Meiji Seika, Gedeon DMB-3113 Adalimumab biosimilar Rheumatoid arthritis Japan Meiji Seika DA-388 Darbepoetin α biosimilar Anemia Europe DA-3131 Anti-VEGF mab Macular degeneration Pre-clinical DMB-3115 Ustekinumab biosimilar Psoriasis Preparing for preclinical trials Source: Company data, Samsung Securities Japan Preparing for IND (Global) SKK (Japan) 38

39 Donga ST Income statement Year-end Dec 31(KRWb) E 218E 219E Sales Cost of goods sold Gross profit Gross margin (%) SG&A expenses Operating profit Operating margin (%) Non-operating gains (losses) 9 (24) (4) (3) Financial profit Financial costs Equity-method gains (losses) Other (4) 3 1 () Pre-tax profit Taxes Effective tax rate (%) Profit from continuing operations Profit from discontinued operations Net profit Net margin (%) Net profit (controlling interests) Net profit (non-controlling interests) EBITDA EBITDA margin (%) EPS (parent-based) (KRW) 6,19 1, ,21 4,875 EPS (consolidated) (KRW) 6,19 1, ,21 4,875 Adjusted EPS (KRW)* 6,19 1, ,21 4,875 Balance sheet Year-end Dec 31(KRWb) E 218E 219E Current assets Cash & equivalents Accounts receivable Inventories Other current assets Fixed assets Investment assets Tangible assets Intangible assets Other long-term assets Total assets 1,59 1, ,5 Current liabilities Accounts payable Short-term debt Other current liabilities Long-term liabilities Bonds & long-term debt Other long-term liabilities Total liabilities Owners of parent equity Capital stock Capital surplus Retained earnings Other Non-controlling interests equity Total equity Net debt 74 6 (11) (3) (54) Cash flow statement Year-end Dec 31(KRWb) E 218E 219E Cash flow from operations Net profit Non-cash profit and expenses Depreciation Amortization Other Changes in A/L from operating activities (41) (25) 25 (4) (5) Cash flow from investments (48) (3) (3) Change in tangible assets (27) (6) (3) (3) (3) Change in financial assets 7 1 () (1) (1) Other (17) 1 1 Cash flow from financing (7) (65) (174) (9) (9) Change in debt (76) (8) (163) Change in equity Dividends (6) (8) (4) (4) (4) Other (16) (11) (8) (5) (5) Change in cash 14 (1) (146) Cash at beginning of year Cash at end of year Gross cash flow Free cash flow 16 (2) Note: * Excluding one off items, ** Fully diluted, excluding one-off items *** From companies subject to equity-method valuation Source: Company data, Samsung Securities estimates Financial ratios Year-end Dec E 218E 219E Growth (%) Sales (.) (1.3) Operating profit 12.8 (72.1) Net profit 39.8 (73.1) (66.1) Adjusted EPS** 37.2 (74.8) (66.3) Per-share data (KRW) EPS (parent-based) 6,19 1, ,21 4,875 EPS (consolidated) 6,19 1, ,21 4,875 Adjusted EPS** 6,19 1, ,21 4,875 BVPS 68,641 69,87 69,833 73,538 77,916 DPS (common) 1, Valuations (x) P/E*** P/B*** EV/EBITDA Ratios (%) ROE ROA ROIC Payout ratio Dividend yield (common) Net debt to equity (1.9) (4.8) (8.2) Interest coverage (x)

40 Pharmaceutical Compliance notice - As of Jul 4, 217, the covering analyst(s) did not own any shares, or debt instruments convertible into shares, of any company covered in this report. - As of Jul 4, 217, Samsung Securities' holdings of shares and debt instruments convertible into shares of each company covered in this report would not, if such debt instruments were converted, exceed 1% of each company's outstanding shares. - This report has been prepared without any undue external influence or interference, and accurately reflects the views of the analyst(s) covering the company or companies herein. - All material presented in this report, unless specifically indicated otherwise, is under copyright to Samsung Securities. - Neither the material nor its content (including copies) may be altered in any form, or by any means transmitted, copied, or distributed to another party, without prior express written permission from Samsung Securities. - This memorandum is based upon information available to the public. While we have taken all reasonable care to ensure its reliability, we do not guarantee its accuracy or completeness. This memorandum is not intended to be an offer, or a solicitation of any offer, to buy or sell the securities mentioned herein. Samsung Securities shall not be liable whatsoever for any loss, direct or consequential, arising from the use of this memorandum or its contents. Statements made regarding affiliates of Samsung Securities are also based upon publicly available information and do not necessarily represent the views of management at such affiliates. - This material has not been distributed to institutional investors or other third parties prior to its publication. Target price changes in past two years Hanmi Pharmaceutical (KRW) 9, 8, 7, 6, 5, 4, 3, 2, 1, Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Yuhan (KRW) 4, 35, 3, 25, 2, 15, 1, 5, Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Green Cross (KRW) 3, 25, 2, 15, 1, 5, Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Chong Kun Dang Pharmaceutical (KRW) 18, 16, 14, 12, 1, 8, 6, 4, 2, Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Donga ST (KRW) 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 4

41 Pharmaceutical Rating changes in past two years Hanmi Pharmaceutical Date 215/9/7 1/27 11/5 11/9 11/23 216/1/6 2/4 1/27 12/18 217/1/1 2/8 2/27 Recommendation HOLD HOLD HOLD HOLD HOLD HOLD BUY BUY BUY BUY BUY BUY Target price (KRW) 321, , , , , ,452 84,29 561,76 467, , ,997 37, Date 4/27 5/3 Recommendation BUY BUY Target price (KRW) 41, 45, Yuhan Date 215/9/7 1/28 216/1/6 2/23 1/27 12/2 217/1/3 4/27 Recommendation HOLD HOLD HOLD HOLD BUY BUY BUY BUY Target price (KRW) 258, , , ,47 335, ,354 3, 33, Green Cross Date 215/9/7 216/1/6 2/5 1/27 217/2/5 4/27 Recommendation BUY BUY BUY BUY BUY BUY Target price (KRW) 23, 25, 235, 22, 185, 21, Chong Kun Dang Pharmaceutical Date 215/9/7 1/19 11/4 11/16 12/15 216/1/6 1/27 217/4/6 Recommendation BUY BUY BUY BUY BUY BUY BUY BUY Target price (KRW) 97, 8, 78, 8, 78, 17, 13, 14, Donga ST Date 215/9/7 1/3 216/1/6 2/4 1/27 217/2/9 Recommendation BUY BUY BUY BUY BUY BUY Target price (KRW) 155, 165, 19, 185, 14, 11, Samsung Securities uses the following investment ratings. Company BUY HOLD SELL Expected to increase in value by 1% or more within 12 months and is highly attractive within sector Expected to increase/decrease in value by less than 1% within 12 months Expected to decrease in value by 1% or more within 12 months Industry OVERWEIGHT Expected to outperform market by 5% or more within 12 months NEUTRAL Expected to outperform/underperform market by less than 5% within 12 months UNDERWEIGHT Expected to underperform market by 5% or more within 12 months Percentage of ratings in 12 months prior to Mar 31, 217 BUY (82%) HOLD (18%) SELL (%) 41

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