(Overweight) All three telcos to start LTE broadband services with completion of frequency auction Issue Comment All three major telcos now able to launch LTE broadband services With auction risk out of the way, focus shifts to earnings and dividends KT could see near-term rally; Top pick is SKT given industry frequency allocations, earnings, dividends, and valuations Daewoo Securities Co., Ltd. /Media Jee-hyun Moon +822-768-3615 jeehyun.moon@dwsec.com 1. End of frequency auction removes major uncertainty The 10-day LTE frequency auction has come to an end, removing uncertainties over bidding prices and winners. We now expect the focus of attention to shift to telco fundamentals, such as earnings and dividends. In the end, all three major telcos acquired LTE broadband frequency. In our view, SK Telecom (SKT) came out with the most favorable outcome, acquiring the 1.8GHz spectrum it already uses for its LTE network at a fair price. KT won the 1.8GHz contiguous block it had coveted, which should enable it to realize LTE-Advanced (LTE-A)-like services using its LTE network. LG Uplus won the 2.6GHz spectrum, which is increasingly being adopted by international mobile carriers. 1) KT landed the D2 block (15MHz) it had sought for contiguity to its existing 1.8GHz band for W900.1bn, which was W611.3bn higher than the minimum bid price. This should help KT, which had failed to launch LTE-A due to 900MHz interference issues, gain ground in the LTE race. 2) SKT acquired the C2 block (35MHz) in the 1.8GHz band for W1.05tr, which was W376.2bn above the minimum bid price. Given that SKT already uses the 1.8GHz band as its secondary LTE network, this should allow the company to leverage the band for both LTE broadband and LTE-A services, making it better positioned than any of its rivals. 3) LG Uplus won the B2 block (40MHz) in the 2.6GHz band at the minimum bid price of W478.8bn. The telco still has relatively sufficient LTE spectrum, with its existing 800MHz nationwide network and 2.1MHz secondary network. We believe KT s acquisition of the 1.8GHz contiguous block provides the telco a chance to close its LTE discount, although this does not mean SKT and LG Uplus walked away empty handed. In terms of spectrum, the competitive environment has now become more balanced for all three telcos, suggesting fundamental factors like operating strategies and cost efficiency will have a greater impact on industry competition going forward. We believe share performances will reflect the auction results in the near term, but subsequently converge with fundamentals, such as earnings and dividends. Figure 1. LTE turbulence passes! As uncertainties fade, focus turns to earnings and dividends (1/13=100) 190 160 SK Telecom share price KT share price LG Uplus share price LTE Season 1. - Subscriber acquisition - LTE coverage - Subsidy competition LTE Season 2. - Spectrum allocation - LTE-Advanced - Marketing for new plan Subsidy penalty Signup fee reduction Spectrum auction 130 100 70 1/ 13 2/ 13 3/ 13 4/ 13 5/ 13 6/ 13 7/ 13 8/ 13 Uncertainties eased Earnings growth Dividend merits Concerns over regulations to ease Source: Thomson Reuters, Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
2. All three major telcos acquires LTE broadband frequency During the 10-day LTE frequency auction, 50 ascending bids were conducted before sealed bids on the final day. At the final stage of the ascending bids, bidders were concentrated on band plan #2. Sealed bids were conducted only for band plan #2. KT won the 1.8GHz contiguous block, while the other two telcos acquired bands that are not contiguous to their existing LTE frequencies. KT plans to publicize its LTE broadband service full swing starting September. KT is supposed to launch the LTE broadband service in the Seoul metropolitan area right after spectrum allocation, in the metropolitan cities in March 2014, and nationwide in July 2014. SKT acquired the C2 block (35MHz) in the 1.8GHz band for W1.05tr. The company will return the 20MHz bandwidth that it currently uses for its exiting LTE service in the 1.8GHz spectrum and receive a W600bn discount to the W1.05tr. Figure 2. Mobile spectrum allocation: Band plan #2 Note: The 1735-1745 band is currently in use in some areas Source: Ministry of Science, ICT and Future Planning Table 1. Final outcome of August 30 th sealed bids (Wbn) Frequency band B2 (2.6GHz, 40MHz ) C2 (1.8GHz, 35MHz) D2 (1.8GHz, 15MHz) Total Winner LG Uplus SKT KT Price paid 478.8 1,050.0 900.1 2,428.9 Minimum bid price 478.8 673.8 288.8 1,441.4 Increment 0.0 376.2 611.3 987.5 Note: Allocation conditions 1) If either SKT or KT acquires the C2 block, they would have to relinquish their current 1.8GHz band within six months; 2) If KT acquires the D2 block, it can only launch the service in the Seoul metropolitan area immediately after the allocation, and then in March 2014 in other major cities and July 2014 nationwide; The conditions can be nullified if another operator provides the service first or a roaming agreement is reached between operators; 3) The 2.6GHz band allows interference by specified radio equipment in the 2.4GHz band. The use of the D2 block is conditioned on the protection of existing radio stations. Source: Ministry of Science, ICT and Future Planning, KDB Daewoo Securities Research Table 2. Frequency ascending bid auction process Auction start Aug. 19 th Aug. 20 th Aug. 21 st Aug. 22 nd Aug. 23 rd Aug. 26 th Aug. 27 th Aug. 28 th Aug. 29 th Results Band plan 1 1,920.2 1,946.0 1,963.9 1,980.1 1,991.5 2,027.2 2,061.9 2,081.1 1,920.2 1,920.2 Band plan 2 1,920.2 1,937.4 1,962.9 1,975.2 2,034.2 2,043.4 2,055.5 2,071.6 2,145.3 2,175.3 Win/lose Band plan 1 Win Win Win Lose Lose Win Win Lose Lose Band plan 2 Lose Lose Lose Win Win Lose Lose Win Win Gap in amount between plans Band plan 1 8.6 1.0 4.9-42.7-16.2 6.4 9.5-225.1-255.1 Band plan 2-8.6-1.0-4.9 42.7 16.2-6.4-9.5 225.1 255.1 Gain from the previous day Band plan 1 25.8 17.9 16.2 11.4 35.7 34.7 19.2-160.9 0.0 Band plan 2 17.2 25.5 12.3 59.0 9.2 12.1 16.1 73.7 30.0 Cumulative gains Band plan 1 25.8 43.7 59.9 71.3 107.0 141.7 160.9 - - Band plan 2 17.2 42.7 55.0 114.0 123.2 135.3 151.4 225.1 255.1 Participants (estimates) Band plan 1 SKT, LGU SKT, LGU SKT, LGU SKT, LGU SKT, LGU SKT, LGU SKT, LGU LGU LGU Band plan 2 KT KT KT KT KT KT KT KT, SKT KT, SKT Round 6 6 6 6 5 5 5 5 3 Cumulative rounds 6 12 18 24 29 34 39 44 47 Note: On the last day of Aug. 30 th, three ascending bids was conducted and switched to sealed bids Source: Ministry of Science, ICT and Future Planning, (Wbn) 2
3. Possible allocation of 1.8GHz (20MHz) and 700MHz to grab market attention The new frequency bands secured through the recent auction should allow telcos to comfortably digest LTE data traffic. However, issues may linger regarding frequency auctions. For instance, the 20MHz of 1.8GHz band that SKT will return is a major LTE spectrum contiguous to LG Uplus frequency. Although the bandwidth is not going to be up for sale until end-2014, the market will likely continue to pay attention to whether the 1.8GHz band will be allocated. In addition, the 700MHz band, which is being set free following the switch to digital broadcasting, will likely trigger frequency competition between telcos and broadcasting networks. SKT mainly uses 800MHz for its nationwide network services, and the 1.8GHz band as its secondary LTE network. And 35MHz in the 1.8GHz band now should allow the company to leverage the band for both LTE broadband and LTE-A services. KT won the block contiguous to the 1.8GHz band that has already been used for the company s nationwide network services, and thus, should be able to realize LTE-A-like services using its LTE network. This successful bid should significantly improve the company s service efficiency, but the Ministry of Science, ICT and Future Planning has limited the service coverage area for a certain period to ensure fair competition (unlike SKT and LG Uplus, KT will not incur additional costs as it has secured a block contiguous to its major 1.8GHz bandwidth). Until the company resolves interference issues related to its secondary LTE network (900MHz), it will likely focus on LTE broadband services. LG Uplus continues to hold relatively sufficient LTE spectrum with its existing 800MHz nationwide network and 2.1MHz secondary network. Meanwhile SKT carries 11mn LTE subscribers under 40MHz of spectrum, and LG Uplus 6mn LTE subscribers under similar spectrum. LG Uplus has 10.52mn (as of end-2q13) total subscribers, and is seeing the fastest conversion of its subscriber base to LTE among the domestic telcos. Thus, the company is expected to concentrate on LTE-A for now and tap into the new spectrum later. Table 3. Status of each telco s mobile communications frequency holdings Network technology (MHz) SK Telecom KT LGU+ Band Bandwidth Band Bandwidth Band Bandwidth Total 2G 800MHz 10 1800MHz 20 30 3G 2.1GHz 60 2.1GHz 40 100 800MHz 20 800MHz 10 800MHz 20 200 LTE 900MHz 20 2.1GHz 20 1.8GHz 35 1.8GHz 35 2.6GHz 40 WiBro 2.3GHz 30 2.3GHz 30 60 Frequency holdings 155 135 100 390 Source: Ministry of Science, ICT and Future Planning Figure 3. Status of each telco s LTE frequency holdings after the end of frequency auction 2,500MHz 2,520MHz 2,540MHz 2.6GHz A2 LGU+ B2 LTE bands acquired at auction 2,620MHz 2,640MHz 2,660MHz 1,715MHz 1,730MHz 1,740MHz 1,745MHz 1,755MHz 1,765MHz 1,780MHz 1,785MHz 1.8GHz SK Telecom KT KT SK Telecom LGU+ C2 LTE bands acquired at auction LTE bands acquired at auction Existing LTE band (Existing LTE band to be returned) Existing 2G band 1,810MHz 1,825MHz D2 1,840MHz 1,850MHz 1,860MHz 1,870MHz 1,880MHz Note: B2, C2, and D2 blocks were allocated this time; The white areas are public Ministry of Science, ICT and Future Planning, Source: 3
4. Earnings and valuation: Our top pick is SKT We maintain our Buy rating and target price of W280,000 (26% upside potential) for SKT. We continue to recommend Buy with a target price of W16,000 (23% upside potential) for LG Uplus, and Buy with target price of W44,000 (22% upside potential) for KT. SK Telecom looks increasingly attractive compared to the earnings trends and valuations of global telcos. The firm s earnings have been improving, and despite its high ROE and dividend yield, the stock is trading at a 2013F P/E of less than 10x. LG Uplus is trading at a premium to its peers, boosted by an earnings turnaround, market share gains, and fast-growing ARPU. Table 4. Major global telecoms profitability and valuation indicators (Wbn, %, x) Company Market cap. Dividend OP margin P/E P/B EV/EBITDA ROE yield 12 13F 14F 12 13F 14F 12 13F 14F 12 13F 14F 12 13F 14F 13F Korea SK Telecom 17,885 10.8 12.9 15.3 10.7 9.4 7.5 1.3 1.7 1.5 4.5 5.0 4.3 9.8 15.6 18.0 4.2 KT 9,426 5.1 5.3 5.6 8.8 9.7 8.8 0.9 0.9 0.9 4.4 4.1 3.8 8.8 7.8 8.3 5.5 LGU+ 5,698 1.2 5.5 6.6-15.7 11.4 1.2 1.7 1.5 5.2 4.8 4.1-1.6 9.2 11.7 1.9 Japan NTT Docomo 77,730 18.7 18.2 18.4 13.3 12.8 12.4 1.2 1.2 1.1 4.1 4.3 4.2 9.3 9.1 8.8 3.8 Softbank 84,030 22.1 19.6 17.7 16.4 16.9 16.7 3.9 3.6 3.1 7.2 6.2 5.6 30.9 24.3 21.2 0.6 China China Unicom Hong Kong 39,877 5.0 6.1 7.3 24.5 20.1 14.6 1.0 1.0 0.9 2.8 4.0 3.6 4.3 5.1 6.6 1.3 China United Network 12,457 4.4 5.1 6.3 23.0 19.6 13.9 0.9 0.9 0.8-4.0 3.4 4.1 5.0 6.2 1.2 Hong Kong PCCW 48,716 16.9 16.5 16.6 15.6 14.9 13.8 2.3 2.2 2.1 12.7 12.5 12.3 15.0 15.3 15.7 4.8 Taiwan Far Eastone Telecom 3,633 13.4 13.8 15.0 15.1 15.0 13.4 3.0 2.7 2.6 6.1 5.8 5.5 18.4 19.2 5.7 Singapore Singapore Telecom 9,149 16.5 18.0 18.2 23.3 20.3 18.4 3.4 3.2 3.2 12.0 8.7 8.1 14.6 16.3 18.5 3.9 Philippine Philippine Long Distance Telephone 15,486 30.6 29.5 30.7 18.8 16.1 15.2 4.3 4.1 4.1 8.5 8.6 8.1 24.7 25.7 26.5 4.4 Malaysia Maxis Bhd 17,258 34.3 34.6 35.0 28.3 23.8 22.4 8.2 8.3 9.4 13.1 12.8 12.3 26.8 32.7 39.6 4.7 Axiata Group 19,346 23.2 22.6 23.2 22.8 20.8 18.8 2.8 2.7 2.6 8.4 8.4 7.8 12.5 13.2 14.0 3.4 US AT&T 199,435 10.2 17.8 18.8 14.3 13.6 12.5 2.1 2.1 2.0 8.6 6.1 5.8 7.7 15.7 16.5 5.3 Verizon 150,499 11.4 20.8 22.1 19.5 16.9 14.6 4.0 3.8 3.4 7.7 5.7 5.3 4.4 19.3 21.2 4.4 Sprint Nextel 29,252-10.7-3.0 2.3 - - - 0.9 4.2 7.5-9.1 7.0 - -55.1-113.9 - Centurylink 22,083 14.8 16.8 16.4 20.1 12.2 12.2 1.1 1.1 1.1 5.6 5.4 5.5 4.4 6.6 5.3 6.5 Level 3 5,526 9.6 10.9 13.2 - - 52.1 4.5 4.1 3.4 9.1 8.1 7.4-5.3 9.1 - Frontier 4,805 21.3 21.3 21.0 19.9 20.1 19.8 1.1 1.1 1.1 5.2 5.4 5.6 2.4 6.1 5.7 9.2 Canada Bce 35,301 22.5 22.8 23.2 14.8 14.3 13.6 3.0 2.4 2.3 6.7 6.6 6.4 22.1 15.5 17.1 5.4 Telus 22,236 19.3 19.0 20.1 15.9 16.1 14.1 2.8 2.9 2.8 6.7 6.9 6.5 16.9 17.2 18.9 4.2 Rogers 22,791 23.5 26.2 26.6 11.3 11.7 11.2 5.0 4.5 4.1 6.7 6.6 6.4 47.2 42.2 37.5 4.2 Europe Telefonica 68,630 17.3 16.5 16.4 11.9 10.0 9.5 2.5 2.0 1.9 5.1 5.4 5.4 19.9 19.9 20.2 3.4 Deutsche Telekom 63,151 11.6 12.0 12.6-15.1 13.8 1.8 1.5 1.5 5.1 5.4 5.3-17.4 10.4 11.0 7.2 Teliasonera 34,464 13.8 23.6 24.7 10.4 11.5 10.9 2.0 1.8 1.7 7.7 8.0 7.7 19.4 15.7 16.1 6.0 Tele2 6,327 12.9 16.4 10.7 16.7 19.4 16.5 1.7 1.6 1.6 5.4 7.6 6.9 84.3 38.4 9.6 8.5 Belgacom 8,979 16.2 14.4 13.4 8.5 9.5 10.5 2.3 2.0 2.0 4.6 4.9 5.1 24.2 21.4 20.4 12.0 Telenor 35,012 17.3 21.1 22.5 14.3 12.5 11.2 2.8 2.5 2.3 6.2 6.6 6.2 19.2 20.3 21.8 4.7 Telecon Italia 14,145 21.4 17.8 20.9-4.9 5.1 0.6 0.5 0.4 4.0 4.1 4.2-21.5 7.8 8.9 3.8 Koninklijke 13,851 14.7 13.2 13.4 16.1 12.3 13.7 1.7 1.2 1.2 3.9 4.8 5.0 8.2 13.0 9.8 - Korea Avg 5.7 7.9 9.2 9.8 11.6 9.2 1.1 1.4 1.3 4.7 4.6 4.1 5.7 10.9 12.7 3.9 Japan Avg 20.4 18.9 18.1 14.9 14.8 14.5 2.5 2.4 2.1 5.7 5.3 4.9 20.1 16.7 15.0 2.2 China Avg 4.7 5.6 6.8 23.8 19.9 14.3 1.0 0.9 0.9 2.8 4.0 3.5 4.2 5.1 6.4 1.3 South East Avg 26.2 25.8 26.3 21.4 18.9 17.5 4.4 4.4 4.6 10.7 10.6 10.1 19.7 21.7 24.0 4.3 Asia US. Avg 9.4 14.1 15.6 18.5 15.7 22.2 2.3 2.7 3.1 7.2 6.6 6.1 4.7 8.5 11.6 6.4 Europe Avg 15.6 16.9 16.8 13.0 11.9 11.4 1.9 1.6 1.6 5.3 5.8 5.7 17.0 18.4 14.7 6.5 Total Avg 15.0 16.5 17.1 16.6 14.8 14.8 2.5 2.5 2.5 6.7 6.5 6.2 14.8 13.6 11.7 4.8 Source: Bloomberg, 4
For 3Q, we see the strongest earnings momentum at LG Uplus. We forecast the telco to swing to a YoY operating profit in 3Q (+26% QoQ) on the back of sustained wireless ARPU growth and continued net subscriber addition. We see the second strongest earnings growth potential in SKT. The telco s wireless ARPU growth, which had slowed in 2Q due to the introduction of unlimited voice plans, should pick up again in 2H. The company also remains ahead of its pack in the deployment of LTE-A. On the other hand, we expect KT s 3Q operating profit to decline QoQ. We believe the firm s wireless business has been weighed down by its 3Q business suspension and retail channel issues. The company is also likely to increase its marketing spend in September to promote its LTE broadband services following its spectrum acquisition. Non-telecom operating profit, which significantly contributed to earnings in 1H, should decelerate in 2H. All in all, the positive stock momentum triggered by the auction outcome could prove limited as earnings slow down. The government plans to allocate frequency in September, and all three telcos are also targeting to launch their LTE broadband services during the month. Twenty five percent of the aggregate bid price is due this year and the remaining amount will be paid out over the following eight years. The bid amount has not yet been reflected in telcos current capex budgets. We believe network investments related to the new frequency allocation will be manageable within 2013 and 2014 capex budgets. Table 5. SK Telecom s quarterly and annual earnings (Wbn,%) 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13F 4Q13F 2011 2012 2013F Revenue 3,970 4,008 4,126 4,197 4,113 4,164 4,374 4,559 15,926 16,300 17,210 Parent 3,007 3,069 3,098 3,159 3,112 3,209 3,316 3,469 12,551 12,333 13,106 Wireless 2,875 2,930 2,941 2,948 2,937 3,004 3,082 3,155 11,903 11,695 12,179 New 132 138 157 211 175 205 233 313 648 638 927 Subsidiaries 963 939 1,028 1,038 1,001 955 1,058 1,090 3,375 3,967 4,104 Operating profit 499 416 301 545 411 553 566 688 2,296 1,760 2,218 OP margin 12.6 10.4 7.3 13.0 10.0 13.3 13.0 15.1 14.4 10.8 12.9 Net profit 323 121 176 519 346 468 481 582 1,582 1,116 1,876 Net margin 8.1 3.0 4.3 12.4 8.4 11.2 11.0 12.8 9.9 6.8 10.9 Note: Based on consolidated K-IFRS Source: Company data, Table 6. KT s quarterly and annual earnings (Wbn, %) 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13F 4Q13F 2011 2012 2013F Revenue 5,706 5,709 6,173 6,203 6,104 5,757 5,708 5,898 21,258 23,790 23,468 Service revenue 4,708 4,736 4,860 4,885 4,941 4,938 4,898 5,006 16,947 19,189 19,783 Wireless communication 1,716 1,740 1,754 1,703 1,757 1,752 1,789 1,832 6,969 6,913 7,129 Wired communication 1,664 1,611 1,568 1,549 1,522 1,508 1,472 1,468 6,951 6,392 5,970 Media/content 231 248 266 323 314 335 357 375 803 1,068 1,381 Financial/rental 836 844 939 955 917 965 913 928 997 3,574 3,723 Other services 262 293 332 355 432 378 367 403 1,227 1,242 1,580 Product revenue 998 973 1,312 1,318 1,163 819 811 892 4,311 4,601 3,685 Operating profit 580 346 227 61 367 348 336 190 1,737 1,214 1,241 OP margin 10.2 6.1 3.7 1.0 6.0 6.0 5.9 3.2 8.2 5.1 5.3 Net profit 405 235 370 101 213 133 359 326 1,441 1,111 1,030 Net margin 7.1 4.1 6.0 1.6 3.5 2.3 6.3 5.5 6.8 4.7 4.4 Notes: Based on consolidated K-IFRS Source: Company data, Table 7. LGU+ s quarterly and annual earnings (Wbn, %) 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13F 4Q13F 2011 2012 2013F Revenue 2,552 2,788 2,821 2,755 2,860 2,763 2,808 2,905 9,186 10,905 11,337 Operating revenue 1,647 1,748 1,804 1,811 1,848 1,935 1,988 2,019 6,419 7,013 7,791 Wireless 894 988 1,057 1,039 1,107 1,173 1,208 1,213 3,413 3,980 4,701 Wired 750 760 748 772 740 762 780 806 3,067 3,030 3,088 Handset revenue 889 1,035 1,013 940 1,006 824 816 882 2,753 3,878 3,528 Operating profit 68-2 -10 72 123 145 184 177 279 127 628 OP margin 2.7-0.1-0.4 2.6 4.3 5.2 6.5 6.1 3.0 1.2 5.5 Net profit 22-32 -38-11 74 82 115 91 85-60 362 Net margin 0.9-1.2-1.4-0.4 2.6 2.9 4.1 3.1 0.9-0.5 3.2 Notes: Based on consolidated K-IFRS Source: Company data, 5
APPENDIX 1 Important Disclosures & Disclaimers Disclosures As of the publication date, Daewoo Securities Co., Ltd and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding. Stock Ratings Industry Ratings Buy Relative performance of 20% or greater Overweight Fundamentals are favorable or improving Trading Buy Relative performance of 10% or greater, but with volatility Neutral Fundamentals are steady without any material changes Hold Relative performance of -10% and 10% Underweight Fundamentals are unfavorable or worsening Sell Relative performance of -10% * 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. (W) KT 60,000 50,000 40,000 30,000 20,000 10,000 0 9/11 3/12 8/12 2/13 8/13 (W) LG Uplus 20,000 15,000 10,000 5,000 0 9/11 3/12 8/12 2/13 8/13 (W) SK Telecom 300,000 250,000 200,000 150,000 100,000 50,000 0 9/11 3/12 8/12 2/13 8/13 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. Distribution 6
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 2000 (Financial Promotion) Order 2005 (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 150-716 Korea Two International Finance Centre Suites 2005-2012 8 Finance Street, Central Hong Kong 320 Park Avenue, 31st Fl. New York, NY 10022 United States Tel: 82-2-768-3026 Tel: 85-2-2514-1304 Tel: 1-212-407-1000 Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Ltd. Tokyo Representative Office Tower 42, Level 41 25 Old Broad Street London EC2N 1HQ United Kingdom 6 Battery Road, #11-01 Singapore, 049909 7th Floor, Yusen Building 2-3-2 Marunouchi, Chiyoda-ku Tokyo 100-0005 Japan Tel: 44-20-7982-8016 Tel: 65-6671-9845 Tel: 81-3- 3211-5511 Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office Suite 2602, Twin Towers (East) B-12 Jianguomenwai Avenue Chaoyang District, Beijing 100022 China Unit 13, 28 th Floor, Hang Seng Bank Tower 1000 Lujiazui Ring Road Pudong New Area, Shanghai 200120 China Centec Tower 72-74 Nguyen Thi Minh Khai Street Ward 6, District 3, Ho Chi Minh City Vietnam Tel: 86-10-6567-9699 Tel: 86-21-5013-6392 Tel: 84-8-3910-6000 7