(3657 KS) Betting on the future Game Earnings Preview April 25, 213 (Maintain) Buy Target Price (12M, W) 25, Share Price (4/24/13, W) 165,5 Expected Return 51% OP (13F, Wbn) 251 Consensus OP (13F, Wbn) 223 EPS Growth (13F, %) 46.4 Market EPS Growth (13F, %) 2. P/E (13F, x) 15.9 Market P/E (13F, x) 9.3 KOSPI 1,935.31 Market Cap (Wbn) 3,626 Shares Outstanding (mn) 22 Free Float (%) 76.3 Foreign Ownership (%) 33.5 Beta (12M) 1.3 52-Week Low (W) 125, 52-Week High (W) 298, (%) 1M 6M 12M Absolute 6.8-2.2-43.9 Relative 7.5-21.4-42.5 11 9 7 5 3 Share price KOSPI 4/12 8/12 12/12 4/13 Upside catalysts: China, new title releases, and online console games We believe strong upside momentum lies ahead for. First, 1Q earnings are likely to come in better than expected, backed by the strong performances of existing titles Lineage and Guild Wars 2. We thus adjusted up our 213F EPS by 28.5%. Also encouraging is the disclosure of the Chinese closed beta schedule for Blade & Soul (May 7 th ), which has removed a key potential risk: a delay to the company s biggest event of the year. Furthermore, we now have a clearer picture of the schedules for: 1) the mobile launch of Lineage (2Q), 2) the US and European commercial releases of WildStar (2H), and 3) the Chinese launch of Guild Wars 2 (closed beta test (CBT) set for May 2 nd ). Looking ahead to 2H, we expect some major developments from the online console gaming segment, as game consoles (PlayStation 4 and Xbox 72) with much more advanced online features are scheduled to hit the market, and rival game Diablo 3 is set to come out in a console format. 1Q OP to soar to W52.4bn on solid performance of Lineage and Guild Wars 2 We had originally feared an earnings slowdown in 1H in light of the firm s conservative 213 guidance and the outflow of Blade & Soul users in 1Q. However, existing titles (Lineage, Aion, Guild Wars 2, etc.) appear to have performed better than expected in 1Q both domestically and overseas. We now estimate 1Q revenue and operating profit at W23.1bn (+43.8% YoY) and W52.4bn (+323.6% YoY), respectively, above our previous estimates (W172bn and W35bn) and the market consensus (W181bn and W43.7bn). Raise TP to W25, in line with upward revisions to 213 estimates We lift our target price to W25, (from W2,), as we adjusted up our 213F and 214F EPS by 28.5% and 26.8%, respectively. We call for continued, robust earnings momentum into 214, as: 1) Chinese revenue from Blade & Soul and Guild Wars 2 as well as US and European revenue from WildStar are likely to be fully reflected next year, and 2) the release of the Guild Wars 2 expansion pack has been pushed back to 214 from 213. Our revised target price is based on a 213F P/E of 24x. Over the past decade, the stock s P/E has ranged between 2-4x, with its multiple tending to expand on heightened new game expectations before contracting again once new revenue was recognized. shares have been trading below historical levels as the focus on online smartphone games has intensified (the firm s business is oriented toward online PC games). However, we believe a re-rating is on the horizon given the potential for betterthan-expected earnings in 2H, and upcoming positive shifts in the online gaming console market. Daewoo Securities Co., Ltd. Internet/Game/Entertainment Chang-kwean Kim +822-768-4321 changkwean.kim@dwsec.com FY (Dec.) 12/1 12/11 12/12 12/13F 12/14F 12/15F Revenue (Wbn) 66 69 754 884 1,149 1,288 OP (Wbn) 174 136 151 251 354 413 OP Margin (%) 26.3 22.3 2.1 28.5 3.8 32.1 NP (Wbn) 144 121 156 228 319 358 EPS (W) 6,62 5,529 7,121 1,428 14,543 16,32 ROE (%) 2.8 15.1 16.8 2.6 23.4 21.3 P/E (x) 31.6 55.6 21.1 15.9 11.4 1.1 P/B (x) 5.5 7.2 3.4 3. 2.4 2. Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.
April 25, 213 New momentum outlook for 2H Figure 1. Share price trends and new game releases Historically, s share price has largely moved in lockstep with operating profit. The company s 212 earnings failed to meet our expectations, despite the strong-than-expected performance of Guild Wars 2 (commercially launched in August, 212). We attribute the weakerthan-expected earnings in 212 to the following: 1) earnings from existing titles, including Aion, were eroded by the popularity of foreign games like League of Legends, and 2) Blade & Soul (commercially launched in June 212) failed to generate new demand. We expect 1Q results to confirm that the performances of existing titles (Lineage, Aion, etc.) had bottomed in 4Q12, and that the popularity of Guild Wars 2 will last longer than expected in the US and Europe. Lineage registered record-high sales in 4Q12 and 1Q13 on the back of in-game item sales events. Due to a high base of comparison, sales from the game are projected to decline QoQ in 2Q, and CD sales of Guild Wars 2 are also projected to slide QoQ. However, Blade & Soul is expected to see a pickup in gamers in Korea in 2Q thanks to the update of its new map, White Blue Mountains. Blade & Soul s user indicator trend after the update should have a great impact on the company s 2Q earnings and the popularity of the game in China. Meanwhile, the Chinese closed-beta testing (CBT) for Blade & Soul is scheduled to begin on May 7 th. In addition, KongZhong, a Chinese partner for the launch of Guild Wars 2, announced that the CBT for the game will start on May 2 nd. is likely to take time to update Blade & Soul and to meet the strict localization requests of Chinese publisher Tencent to offset the game s dismal performance in Korea. However, Guild Wars 2 is likely to be commercialized quickly in China after undergoing simple localization processes, including translation and some graphics changes. We assumed that royalty income from the games will be reflected starting in 3Q. The CBT for WildStar is also scheduled to begin in 2Q. As new games are usually released before Black Friday in the US and Europe, we project WildStar to be commercially launched sometime during end-3q-4q. Meanwhile, we estimate this year s WildStar sales at a third of Guild Wars 2 sales in 212. (W) 48, 36, 24, Share price (L) Operating profit (R) Aion OBT, commercialization in Japan, Taiwan, Europe, North America Aion OBT, commercialization in China Guild Wars 2, WildStar participated in Paris Games Week Guild Wars 2 was named Editors' Game of the Show at Eurogamer Expo in UK Blade & Soul was demonstrated at G-Star game show in Korea Guild Wars 2 was unveiled at gamescom Blade & Soul: China export contract with Tencent Blade & Soul: 1st CBT in Korea Lineage, Lineage 2, China export contract (renewal) Blade & Soul was demonstrated at ChinaJoy Game show in Shanghai Guild Wars 2 CBT in North America, / Europe Blade & Soul's Chinese version is unveiled at Tencent Games Carnival (Wbn) 15 12 9 6 12, Aion OBT, commercialization in Korea Schedule for 213 * Guild Wars 2 CBT in China starts on May 2nd * Blade & Soul CBT in China starts on May 7th * Launch of Lineage Mobile in Japan in 2Q13 * Launch of WildStar in North America/Europe in 4Q13 3 1/8 7/8 1/9 7/9 1/1 7/1 7/13 Note: All figures are based on consolidated K-IFRS Source: Company data, estimates 2
Notes: All figures are based on consolidated K-IFRS; TTB and TTR stand for turn to black and turn to red, NP refers to net profit attributable to controlling interests Source: Company data, estimates April 25, 213 Table 1. Quarterly and annual earnings (Wbn, %) 1Q12 2Q12 3Q12 4Q12 1Q13F 2Q13F 3Q13F 4Q13F 211 212 213F Revenue 141 147 182 283 23 192 26 283 69 754 884 Lineage 44 58 38 65 66 53 49 62 196 25 23 Lineage II 18 17 13 16 17 18 18 2 11 65 73 Aion 53 36 27 25 28 29 3 35 223 141 122 Blade & Soul 33 27 19 25 3 31 62 15 Guild Wars 2 46 119 37 32 3 29 165 127 WildStar 54 54 Other 6 14 1 14 15 16 17 13 13 51 61 Royalties 15 17 15 17 21 19 31 39 57 64 111 OP 12-11 37 113 52 43 51 16 135 151 251 OP margin 8.8-7.6 2.2 39.9 25.8 22.3 24.6 37.3 22.1 2.1 28.4 Pretax profit 18-3 54 114 53 46 55 123 157 183 278 Pretax margin 13. -2.2 29.8 4.1 26.2 23.9 26.8 43.6 25.8 24.3 31.4 NP 12-8 47 12 43 37 45 11 12 154 226 NP margin 8.8-5.3 25.9 36. 21.4 19.5 21.8 YoY change Revenue -9.2-12. 23.4 13.9 43.8 3.7 13. -.1-7.2 23.8 17.3 Lineage 13.3-11.8-24.8 62.3 5.3-8.6 28. -3.8 7. 4.9 12.3 Lineage II -4.2-29.1-37.2-33.5-8.6 5.4 37.8 23.5-18.2-35.3 12.7 Aion -13.8-33. -51.7-51.6-47. -2.1 12. 39.6-14.8-36.7-13.5 Blade & Soul -7.5 14.2 68.7 Guild Wars 2-35.1-75.8-23. Other 85.7 363.7 23.9 326.8 141.3 14.2 65.2-7.4 11.3 296.1 2.4 Royalties -4.7 19. 25.7 17.3 39.8 12.6 111. 129.3 17.8 13.3 72.6 OP -69.4 TTR 2.6 654.4 323.6 TTB 37.7-6.8-23.8 12.3 66.2 Pretax profit -66.4 TTR TTB 27.1 19.4 TTB 1.8 8.7-2.8 16.6 51.9 NP -6.7 TTR 39.6 411.1 249.7 TTB -4.7-1.3-18.4 28.3 47.3 QoQ change Revenue 1.6 4. 24.1 55.5-28.3-5.5 7.3 37.5 Lineage 9.2 33.9-34.5 69.3 1.2-18.6-8.2 27.3 Lineage II -25.5-8.2-21.4 23.7 2.3 5.9 2.8 1.9 Aion 2.4-31.3-25.9-7. 12. 3.6 3.8 15.9 Blade & Soul -17.6-28.6 28.6 22.3 1.7 Guild Wars 2 159.6-69.1-13.6-6.3-3.4 Other 89.9 118.2-26.1 39.3 7.3 3.3 7. -21.9 Royalties 6.2 12.4-12.9 12.7 26.5-9.4 63.2 22.5 Operating profit -17.5 TTR TTB 27.7-53.7-18.4 18.4 18.3 Pretax profit -17.5 TTR TTB 19.6-53.1-13.9 2.3 123.7 Net profit -27.2 TTR TTB 116.2-57.4-13.9 2.3 123.7 Notes: All figures are based on consolidated K-IFRS; TTB and TTR stand for turn to black and turn to red, NP refers to net profit attributable to controlling interests Source: Company data, estimates Table 2. Earnings forecast revisions Previous Revised % chg. (Wbn, W, %, %p) 213F 214F 213F 214F 213F 214F Revenue 851 1,8 884 1,149 3.9 6.4 Operating profit 23 295 251 354 23.8 19.9 Net profit 178 251 228 319 28.3 26.9 EPS 8,114 11,469 1,428 14,543 28.5 26.8 OP margin 23.9 27.3 28.5 3.8 4.6 3.5 Net Margin 2.9 23.3 25.8 27.7 4.9 4.4 Notes: All figures are based on consolidated K-IFRS, NP refers to net profit attributable to controlling interests Source: Company data, estimates 3
April 25, 213 Figure 2. User indicator trends for and major foreign games 5 4 3 games - daily (L) Foreign games - daily (L) games - monthly (R) Foreign games - monthly (R) 1 8 6 2 4 1 2 Note: Total playing time in PC cafés (Lineage, Lineage II, Blade & Soul, Aion) Source: Gametrics, Figure 3. User indicator trend for s major games excluding Blade & Soul 3 games ex-blade & Soul - daily (L) 6 games ex-blade & Soul - monthly (R) 2 4 1 2 Note: Total playing time in PC cafés (Lineage, Lineage II, Aion) Source: Gametrics, Figure 4. Unique visitors to Guild Wars 2 website (' persons) 32 Unique visitors to www.guildwars2.com 28 24 2 16 12 8 4 Eurogamer Expo in the UK Editors' Game of the Show Comic-Con in the US Paris Games Week People's Choice Award Limited beta test in the US and Europe (1bn applicants for CBT) Pre-sales (April 1th) Comic-Con in the US Launch of Guild Wars 2 Unique visitors in 1Q13: Around 7% of 4Q12 level 1/11 5/11 9/11 1/12 5/12 9/12 1/13 Note: Number of visitors to www.guildwars2.com(in North America) Source: Compete.com, 4
April 25, 213 Figure 5. User indicator trend for Lineage Figure 6. User indicator trend for Lineage II (' hours) 5 Lineage - daily (L) Lineage - monthly (R) 1 (' hours) 5 Lineage II - daily (L) Lineage II - monthly (R) 1 4 8 4 8 3 6 3 6 2 4 2 ' 4 1 2 1 2 Note: Total playing time in PC cafés (Lineage) Source: Gametrics, Note: Total playing time in PC cafés (Lineage II) Source: Gametrics, Figure 7. User indicator trend for Aion Figure 8. User indicator trend for Blade & Soul (' hours) 2,5 Aion - daily (L) Aion - monthly (R) 5 (' hours) 2, Blade & Soul - daily (L) Blade & Soul - monthly (R) 5 2, 4 1,6 4 1,5 3 1,2 3 1, 2 8 2 5 1 4 1 Note: Total playing time in PC cafés (Aion) Source: Gametrics, Note: Total playing time in PC cafés (Blade & Soul) Source: Gametrics, Figure 9. User indicator trend for League of Legends Figure 1. User indicator trend for Diablo III (' hours) 3, 2,5 2, League of Legends - daily (L) League of Legends - monthly (R) 8 6 (' hours) 3,5 3, 2,5 Diablo III - daily (L) Diablo III - monthly (R) 6 45 1,5 4 2, 1,5 3 1, 5 2 1, 5 15 Note: Total playing time in PC cafés (League of Legends) Source: Gametrics, Note: Total playing time in PC cafés (Diablo III) Source: Gametrics, 5
April 25, 213 Figure 11. Long-term P/E trend of (x) 8 7 6 62.4 P/E Online game boom Schedule for 213 * Guild Wars 2 CBT in China starts on May 2nd * Blade & Soul CBT in China starts on May 7th * Launch of Lineage Mobile in Japan in 2Q13 * Launch of WildStar in North America/Europe in 4Q13 213F P/E: 15.9x 5 4 3 2 1 7/ 1/2 7/3 1/5 7/6 1/8 7/9 1/11 7/12 Note: P/E calculated with last daily prices and year-end EPS Source: Figure 12. P/E trend and new game releases (x) 8 7 6 5 4 P/E 62.4 Online game boom 43.4 Launch of Lineage 45.1 4.1 Launch of Tabula Rasa 43.6 Launch of Aion 39.8 63.3 56.1 213F P/E: 15.9x 3 2 1 9. 14.1 17.6 Note: P/E calculated with last daily prices and year-end EPS Source: 8.5 7/ 1/2 7/3 1/5 7/6 1/8 7/9 1/11 7/12 23.6 19.5 6.5 3.4 31.1 Figure 13. 213F P/E-EPS growth comparison of global game companies (P/E, x) 4. 35. Sega Sammy (Japan) 3. 25. Tencent (China) 2. Konami (Japan) Gameloft (France) Gamevil Com2uS Electronic Arts (US) 15. Activision Blizzard (US) Namco Bandai (Japan) 1. DeNA (Japan) 5. Neowiz Games (EPS growth, %). -6. -4. -2.. 2. 4. 6. 8. Source: Bloomberg, 6
April 25, 213 Table 3. Earnings forecasts and valuations of global game companies (Wbn, local currency mn, %, x) Korea North America/ Europe Japan China Company name Market cap. Share price Revenue OP OP margin NP EPS ROE P/E P/B 3,659 167, 754 151 2.1 156 712.5 16.8 21.1 3.4 Neowiz Games 376 17,15 694 119 17.1 81 3675.6 27.7 6.3 1.7 Gamevil 592 16,7 7 24 34.4 22 445.4 28.2 24.9 6.4 Com2uS 562 55,7 77 16 2.9 21 228.6 25.2 23.9 5.3 GameHi 276 8,9 53 29 54.3 15 454 23.8 15.6 3.3 WeMade 937 55,8 12-2 -1.6-4 -1.6 2.8 Webzen 352 9,98 57 8 13.8 2 78 2. 96.4 1.9 JCE 22 18,75 63 8 13. 8 678 11.9 24.3 2.8 Nexon 5,833 1,191 18 48 44.1 25 59 13.2 14.8 1.8 Large cap 27.1 19.2 14. 2.2 Mid-small cap 19.9 9. 45.5 2.7 Mobile games 27.7 26.7 24.4 5.9 Average 24. 16.4 28.4 3.2 Activision Blizzard 18,149 15 4,856 1,451 29.9 1,149 1. 1.5 1.4 1. Electronic Arts 5,843 17 4,143 62 1.5 76.2 3. 31.7 2.1 Take-Two 1,569 15 826-84 -1.2-19 -1.3-18. 2.3 THQ 831-235 -28.3-243 -35.5 Zynga 2,792 3 1,281-6.8-29 -.3-11.7 1. Gameloft 597 5 28 9.1 44.2 Glu Mobile 229 3 87-17 -19.6-2 -.3-46.5 3.9 Average -1. -12.5 21.1 2.1 Nintendo 19,8 11,95 648-37 -5.8-43 -337.9-3.5 1.3 Sega Sammy 7,425 2,484 396 58 14.8 22 86.7 7.7 2. 1.5 Namco Bandai 4,54 1,87 454 35 7.6 19 85.6 9.1 13.9 1.2 Konami 3,545 2,2 266 41 15.4 23 166.2 11.2 14.1 1.5 DeNA 483,431 2,868 146 63 43.5 34 235.3 39.6 9.7 3.5 Average 15.1 12.8 14.4 1.8 Shanda 831 3 742 218 29.4 176.6 29.3 4.7 1.2 Netease.com 7,813 53 1,316 596 45.3 584 4.5 25.4 9.6 2.2 The9 68 3 Perfect World 68 11 439 88 19.9 86 1.8 13.6 5.7.8 Tencent 67,883 254 53,963 18,378 34.1 15,653 8.6 36.5 28.8 9. Kingsoft 1,482 9 1,735 517 29.8 532.5 18.7 11.6 2. Average 31.7 24.7 12.1 3.1 Global Average 17.4 11.3 21.6 2.7 Notes: Among Korean companies,, Neowiz Games, Gamevil, Com2uS' earnings are based on consolidated K-IFRS; Among Chinese companies, Tencent and Kingsoft are listed on the Hong Kong Stock Exchange, while the others are listed on the NASDAQ; Per-share data are in local currency; Market cap figures are in Wbn; All other units are in local currency mn except Korea, Japan (local currency bn) Source: Bloomberg, 7
April 25, 213 Table 4. Earnings forecasts and valuations of global game companies (Wbn, local currency mn, %, x) Korea Company name Market cap. Share price Revenue OP OP margin NP EPS ROE P/E P/B 884 251 28.5 228 1427.6 2.6 15.9 3 Neowiz Games 583 71 12.3 5 2273.4 13.9 7.4 1.1 Gamevil 112 34 3.1 29 521.7 27.5 2.1 5 Come2uS 19 27 25 28 2799.6 26.5 19.5 4.6 GameHi WeMade 224 38 16.9 33 1,928 1.8 28.9 3.3 Webzen 93 27 28.4 2 61 19.1 16.6 2.4 JCE Nexon 146 56 38.2 38 87 17.1 13.6 2.1 Large cap 26.3 17.2 12.3 2.1 Mid-small cap 22.6 14.9 22.8 2.9 Mobile games 27.6 27. 19.8 4.8 Average 25.6 19.4 17.4 3.1 Activision Blizzard 4,275 1,31 3.4 963.8 8. 17.4 1.4 Electronic Arts 3,783 354 9.4 271.9 1.2 2.1 2.6 Take-Two 1,198 24 2. 16.2.5 81.4 2.9 North THQ America/ Europe Zynga 1,57-49 -4.7-43 -.1-3.3 1.4 Gameloft 241 28 11.7 22.3 14. 18.7 2.8 Japan China Glu Mobile 88-11 -12.9-8 -.1-29.8 9.1 Average 4.8-2.9 39.7 3.5 Nintendo 67-18 -2.6 13 99.2 1.2 12.4 1.3 Sega Sammy 331 23 6.9 17 66.3 6.8 37.5 2. Namco Bandai 466 44 9.5 25 115.6 11.3 15.6 1.7 Konami 23 23 1.1 14 1.8 6.1 21.8 1.4 DeNA 25 79 38.5 45 321.6 4.6 8.9 3.2 Average 12.5 13.2 4.9 1.9 Shanda 813 231 28.4 198.7 21.5 3.8.8 Netease.com 1,733 782 44.6 672 5.1 23.4 1.5 2.2 The9 2-55.4-41 -1.7 Perfect World 53 89 16. 8 1.6 1.8 7..7 Tencent 9,426 3,35 33.1 2,473 11.2 32.5 22.7 6.8 Kingsoft 2,686 8 28.5 653.5 17.1 16.5 2.9 Average 15.9 21.1 12.1 2.7 Global Average 14.7 13.3 25. 2.8 Note: Among Korean companies,, Neowiz Games, Gamevil, Com2uS' earnings are based on consolidated K-IFRS; Among Chinese companies, Tencent and Kingsoft are listed on the Hong Kong Stock Exchange, while the others are listed on the NASDAQ; Per-share data are in local currency; Market cap figures are in Wbn; All other units are in local currency mn except Korea, Japan (local currency bn) Source: Bloomberg, 8
April 25, 213 (3657 KS/Buy/TP: W25,) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/12 12/13F 12/14F 12/15F (Wbn) 12/12 12/13F 12/14F 12/15F Revenue 754 884 1,149 1,288 Current Assets 674 92 1,285 1,653 Cost of Sales 226 246 37 344 Cash and Cash Equivalents 123 349 676 1,22 Gross Profit 527 638 842 944 AR & Other Receivables 8 94 123 137 SG&A Expenses 376 387 489 531 Inventories 2 2 3 4 Operating Profit (Adj) 151 251 354 413 Other Current Assets 29 34 44 49 Operating Profit 151 251 354 413 Non-Current Assets 643 78 727 738 Non-Operating Profit 32 18 35 46 Investments in Associates 21 21 21 21 Net Financial Income -17-18 -24-35 Property, Plant and Equipment 426 417 48 4 Net Gain from Inv in Associates 7 Intangible Assets 133 123 116 111 Pretax Profit 183 269 389 459 Total Assets 1,317 1,628 2,13 2,39 Income Tax 29 43 72 13 Current Liabilities 236 274 353 394 Profit from Continuing Operations 154 226 317 355 AP & Other Payables 23 26 34 39 Profit from Discontinued Operations Short-Term Financial Liabilities 12 12 12 12 Net Profit 154 226 317 355 Other Current Liabilities 21 236 37 343 Controlling Interests 156 228 319 358 Non-Current Liabilities 61 122 136 145 Non-Controlling Interests -2-2 -2-2 Long-Term Financial Liabilities 12 25 25 25 Total Comprehensive Profit 15 222 313 352 Other Non-Current Liabilities 14 63 76 85 Controlling Interests 154 227 317 356 Total Liabilities 296 397 489 539 Non-Controlling Interests -5-5 -5-5 Controlling Interests 1,1 1,216 1,513 1,845 EBITDA 19 274 373 43 Capital Stock 11 11 11 11 FCF (Free Cash Flow) 112 24 314 346 Capital Surplus 22 22 22 22 EBITDA Margin (%) 25.2 31. 32.4 33.4 Retained Earnings 871 1,87 1,386 1,72 Operating Profit Margin (%) 2.1 28.5 3.8 32.1 Non-Controlling Interests 2 16 11 7 Net Profit Margin (%) 2.7 25.9 27.7 27.8 Stockholders' Equity 1,21 1,231 1,524 1,851 Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/12 12/13F 12/14F 12/15F 12/12 12/13F 12/14F 12/15F Cash Flows from Op Activities 191 211 325 339 P/E (x) 21.1 15.9 11.4 1.1 Net Profit 154 226 317 355 P/CF (x) 17. 14.4 1.7 9.7 Non-Cash Income and Expense 77 48 56 74 P/B (x) 3.4 3. 2.4 2. Depreciation 29 9 9 8 EV/EBITDA (x) 14.8 1.7 7. 5.2 Amortization 1 14 11 9 EPS (W) 7,121 1,428 14,543 16,32 Others -34 3 13 13 CFPS (W) 8,873 11,464 15,418 17,74 Chg in Working Capital -2 25 13 BPS (W) 44,296 54,537 68,416 83,795 Chg in AR & Other Receivables -29-14 -28-15 DPS (W) 6 1, 1,2 1,5 Chg in Inventories -1-1 Payout ratio (%) 7.7 8.7 7.5 8.4 Chg in AP & Other Payables -3 4 8 4 Dividend Yield (%).4.6.7.9 Income Tax Paid -4-43 -72-13 Revenue Growth (%) 23.8 17.3 3. 12.1 Cash Flows from Inv Activities -122 15 23 33 EBITDA Growth (%) 17.6 44.6 36. 15.3 Chg in PP&E -89 Operating Profit Growth (%) 11.4 66.2 4.7 16.8 Chg in Intangible Assets -4-4 -4-4 EPS Growth (%) 28.8 46.4 39.5 12.2 Chg in Financial Assets 25 Accounts Receivable Turnover (x) 1.1 1.6 11.1 1.4 Others -54 19 26 37 Inventory Turnover (x) 456.3 399. 417.9 39.6 Cash Flows from Fin Activities -22-26 Accounts Payable Turnover (x) 22.2 12.9 126.6 118.4 Chg in Financial Liabilities 15 ROA (%) 12.7 15.4 17.4 16.1 Chg in Equity 3 ROE (%) 16.8 2.6 23.4 21.3 Dividends Paid -12-12 -2-24 ROIC (%) 32.1 44.7 62.5 79. Others -5-1 -2-2 Liability to Equity Ratio (%) 29. 32.2 32.1 29.1 Increase (Decrease) in Cash 64 226 326 347 Current Ratio (%) 286.1 335.4 364.1 419.3 Beginning Balance 59 123 349 676 Net Debt to Equity Ratio (%) -52.9-61.1-7.8-77. Ending Balance 123 349 676 1,22 Interest Coverage Ratio (x) 174.7 22.9 2.6 234.3 Source: Company data, estimates 9
April 25, 213 Important Disclosures & Disclaimers Disclosures As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. As of the publication date, Daewoo Securities Co., Ltd. issued equity-linked warrants with as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. (W) 7, 6, 5, 4, 3, 2, 1, 4/11 1/11 4/12 1/12 4/13 Stock Ratings Industry Ratings Buy Relative performance of 2% or greater Overweight Fundamentals are favorable or improving Trading Buy Relative performance of 1% or greater, but with volatility Neutral Fundamentals are steady without any material changes Hold Relative performance of -1% and 1% Underweight Fundamentals are unfavorable or worsening Sell Relative performance of -1% * Ratings and Target Price History (Share price (----), Target price (----), Not covered ( ), Buy ( ), Trading Buy ( ), Hold ( ), Sell ( )) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst s estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions. Analyst Certification The research analysts who prepared this report (the Analysts ) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein. Disclaimers This report is published by Daewoo Securities Co., Ltd. ( Daewoo ), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. 1
April 25, 213 Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2 (Financial Promotion) Order 25 (the Order ), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as Relevant Persons ). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction. KDB Daewoo Securities International Network Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office 34-3 Yeouido-dong, Yeongdeungpo-gu Seoul 15-716 Korea Two International Finance Centre Suites 25-212 8 Finance Street, Central Hong Kong 6 Lexington Avenue Suite 31 New York, NY 122 United States Tel: 82-2-768-326 Tel: 85-2-2514-134 Tel: 1-212-47-122 Daewoo Securities (Europe) Ltd. Tokyo Representative Office Beijing Representative Office Tower 42, Level 41 25 Old Broad Street London EC2N 1HQ United Kingdom 7th Floor, Yusen Building 2-3-2 Marunouchi, Chiyoda-ku Tokyo 1-5 Japan Suite 262, Twin Towers (East) B-12 Jianguomenwai Avenue Chaoyang District, Beijing 122 China Tel: 44-2-7982-816 Tel: 81-3- 3211-5511 Tel: 86-1-6567-9699 Shanghai Representative Office Ho Chi Minh Representative Office Unit 13, 28 th Floor, Hang Seng Bank Tower Centec Tower 1 Lujiazui Ring Road 72-74 Nguyen Thi Minh Khai Street Pudong New Area, Shanghai 212 Ward 6, District 3, Ho Chi Minh City China Vietnam Tel: 86-21-513-6392 Tel: 84-8-391-6 11