Samsung Securities Co., Ltd.

Samsung Securities Co., Ltd. - Samsung Group Asia Conference - Aug 2018 Investor Relations Samsung Securities

Contents 1H 18 Highlights & Strategic initiatives Key Agenda 1. Recent ESOP Dividend Incident 2. Strategic Direction SAMSUNG SECURITIES

1H18 Highlights Separate basis 1 Record earnings in 1H18 - (Consolidated) 1H18 pretax income increased 96% YoY to W316bn and achieved 89% of 2017 annual earnings - (Separate) Pretax income increased 97% YoY to W307bn - Reported first double digit ROE in three years 2 Strong earnings continued in 2Q18, despite ESOP incident in April - Recognized loss of W10bn related to the ESOP incident - A few pension funds suspended business with our wholesales equity business, however the effect has been limited Domestic wholesales biz contributes 2% to our net revenue (Wbn) 1H18 2Q18 1Q18 1H17 YoY Net revenues 650.3 294.4 355.9 433.3 +50% Brokerage ¹ 223.6 100.4 123.2 143.1 +56% Financial product sales ² 153.3 64.0 89.3 188.0-19% Trading & interest income 216.9 111.0 105.9 68.3 +217% Investment banking 46.2 18.2 28.0 33.6 +38% Other ³ 27.7 9.6 18.1 17.7 +57% Commission expenses (17.4) (8.7) (8.7) (17.5) - Operating expenses 341.8 168.7 173.1 275.7 +24% Personnel expenses 205.0 100.6 104.4 147.1 +39% SG&A expenses 136.8 68.1 68.7 128.6 +6% Operating income 308.5 125.7 182.8 157.6 +96% Non-operating income (1.1) (0.2) (0.9) (1.8) - Pretax income 307.4 125.5 181.9 155.8 +97% Income tax expense 80.2 33.8 46.3 36.6 +119% Net income 227.2 91.7 135.5 119.2 +91% Return on equity 10.1% 8.1% 12.3% 5.9% +4.2%p Cost-to-income ratio 52.6% 57.3% 48.7% 63.6% -11.1%p Consolidated basis Pretax income 315.5 135.4 180.1 161.2 +96% Net income 232.6 100.0 132.6 122.7 +90% Return on equity 10.3% 8.1% 12.3% 6.1% +4.2%p ¹ Brokerage revenue excluding related costs ² Net revenues from financial product sales includes mutual funds, wrap accounts, OTC derivative products, bancassurance and trust(fixed income sales credit included in trading income) ³ Interest on securities borrowing expenses, card related commissions(separate basis includes dividend from subsidiaries) SAMSUNG SECURITIES 3

Separate basis 1H18 Highlights (continued) [ Earnings by revenue source ] 3 Brokerage commission increased on strong investor activity and gain in market share - Brokerage commission increased 56% YoY to W224bn on the back of strong market equity turnover Market Equity turnover +70% YoY - Retail client M/S increased to 7.0% in 1H18 from 6.4% in 1H17 Retail M/S (%) Market Equity Turnover (Wtn) Foreigner Domestic institutions Individual [ Equity turnover & market share ] 6.4 6.7 7.0 1,099 243 191 1,341 272 239 665 830 1,872 355 289 1,228 1H17 2H17 1H18 4 Despite weak financial product sales due to ELS related revenue, retail business remains strong - Weak ELS early termination revenue led to 19% decrease in financial product revenues to W153bn - However, revenue from sale of funds and wrap accounts increased and steady net inflow of client assets continued # of HNWI clients increased by +8,095 YoY # of HNWI ( 000) Net inflow (Wtn) [ Retail client assets ] # of HNWI & total assets based on quarterly average, Net inflow in sum of semi-annual inflow SAMSUNG SECURITIES 4 Total assets (Wtn) 94 155 100 169 107 4.5 2.3 6.9 173 1H17 2H17 1H18

Separate basis 1H18 Highlights (continued) [ Earnings by revenue source ] 5 Trading and interest income increased amid improved hedge trading and loan growth - Trading income increased on ELS hedge trading cost decrease and favorable FX rate [ Trading income related assets ] (Wtn) 19.6 19.3 18.8 9.4 8.9 7.9 4.6 4.5 3.2 5.6 5.9 7.7 1H17 2H17 1H18 Repo DLS ELS [ Deposit & Margin loan balance ] - Interest income increased as both deposit and margin loan balance increased 3.9 3.5 3.1 3.2 2.8 2.1 1H17 2H17 1H18 Margin loan Cash deposits 6 IB revenue increase driven by structured products sales - Market position in M&A and ECM improved ECM (Underwriter) [ IB league table ] 1H17 1H18 Rank 5 3 - Continue to strengthen structured product sales M&A (Completed) 2 1 Note: Based on The Bell league table, M&A ranking based on domestic firms league table SAMSUNG SECURITIES 5

1H18 Strategic Initiatives 1 Strengthen WM-IB collaboration to target corporate owners Create business opportunities by leveraging strong Corp. owners/corp. network - Enhance community platforms such as CEO/CFO forum etc. # of CEO/CFO forum members : 1 st class( 16) 127 3 rd class ( 18.6) 153 Regional/sectoral forums : 540 660 - Actively utilize strong client relationship to refer clients to IB division and penetrate corporate financing market WM-IB collaboration WM Corporate Financing (IPO, M&A etc.) Asset Inflow IB [ # of IPO Mandates ] 55 38 13 2 29 19 16 17 1H18 * 2Q18 IPO mandates 20 WM-IB collaboration 11 Listed DIT(Digital imaging Technology) in Aug 2018 through joint effort between WM-IB 2 Expand overseas stock business (Promote global asset allocation and diversify revenue source) Strengthen global research service through global alliance network - Continued to expand strategic global network CITIC securities ( 15), KGI ( 16), SMBC NIKKO ( 17) Ho Chi Minh securities ( 17), RBC ( 18.3), Societe Generale ( 18.7) Enhance trading convenience - Launched the first integrated deposit service in Korea for overseas stock trading customers Allows customers to order stocks immediately without forex services Overseas stock brokerage revenue (Wbn) Overseas stock balance (Wtn) [ Overseas stock balance & revenue ] 7 2.0 10 2.3 15 2.6 1H17 2H17 1H18 Including deposits 1Q18 9bn 2Q18 6bn 2Q18 2.5tn 2Q18 2.7tn SAMSUNG SECURITIES 6

1H18 Strategic Initiatives (continued) 3 Capture clients through non face-to-face channel Active marketing to capture younger generation investors for the future - Capture new clients to strengthen client base to take lead market position - Promote cross/up selling products and diversify revenue source [ Non face-to-face client acquisition ] 8.4 7.9 4.6 7.6 7.2 Samsung Securities Firm A 4 Actively utilize capital Balancing risk and use of capital to optimize profits - IB focus on finding attractive products for retail/wholesale clients and expanding corporate financing biz - Trading to expand ELS/DLS related assets, strengthen flow trading - Expand margin loan biz for retail investors including securities-collateralized loans Capital (IB/trading/ loans etc.) (Wtn) [ Capital utilization & revenue ] 5.8 End balance 10.5 10.7 1Q18 11.0 New clients ( 0000) 1.5 1.4 2.2 2.9 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Samsung Securities estimation 2.1 Firm B Margin loans IB Trading (Wbn) 361 262 284 98 84 64 102 64 58 120 161 155 16 17 1H18 1Q18 30 2Q 34 39 25 81 75 Based on internal management revenue, excluding margin loan related expenses SAMSUNG SECURITIES 7

1H 18 Highlights & Strategic initiatives Key Agenda 1. Recent ESOP Dividend Incident 2. Strategic Direction SAMSUNG SECURITIES

1. ESOP Dividend Incident - 1 Limitations from restrictions FSC (Financial Services Commission) affirmed the following disciplinary actions on Jul 26th, 2018 Samsung Securities is banned from opening equity brokerage accounts to new investors for 6 months starting from Jul 26th, 2018 * We will resume business on Jan 27th, 2019. [ Details on business suspension ] - New investors will not be able to open a brokerage account starting from Jul 27, 2018 * Clients who joined prior to Jul 27. 2018 will be serviced as usual About the restrictions - Suspension is limited to domestic/foreign stocks. Therefore, new investors who trade bonds, BW/CB/EB, futures, options, ETF/ETNs will be able to open a separate account - Samsung Securities will also be suspended from IPO subscription for new investors and new block deals - Pensions and trust business will proceed as usual * Business restriction is limited to new investors' stock brokerage activities only A W144mn cash penalty was imposed on Samsung Securities * Cash penalty was recognized as non-operating expense in 2Q18 SAMSUNG SECURITIES 9

1. ESOP Dividend Incident - 2 Impact on company We have been suspended from opening equity brokerage accounts to new investors for six months Direct impact We estimate maximum impact on annual revenue of W8bn We estimate loss from 6 month suspension at W4bn We have not noticed any other direct impact after the incident on other businesses such as wealth management, IB and trading Indirect impact on business We do not expect further impact on our wholesale equity business - Equity brokerage M/S already decreased in 2Q18 as a few pension funds suspended business, however the effect has been limited * Wholesales contributes 2% to our net revenue Our credit ratings remain solid after the suspension at AA+(Stable) rating We are more concerned about the reputational risk and share price. However, Samsung Securities will work hard to regain trust and restore company value SAMSUNG SECURITIES 10

1. ESOP Dividend Incident - 3 Our action plan 1 Strengthen internal process, review all system and improve internal compliance policy to prevent any accident from happening again Solutions to limit business impact 2 3 Provide better service and products for our current client base - Reach out to the 150,000 clients who opened an account through on-line channels and focus on providing better service to improve client return - Also, clients who open an account during the suspension period will be offered * For bonds, BW/CB/EB, futures, options, ETF/ETNs incentives to trade stocks when we resume stock brokerage for new investors Continue to execute our strategic initiatives based on consistent strategy through smooth transition in management 4 All employees will put all efforts into regaining trust from customers and shareholders SAMSUNG SECURITIES 11

[Note] ESOP Dividend Incident - Cause Why did it happen Dividends for ordinary shareholders are distributed through KSD, but dividends for ESOP are entrusted to securities companies to manage tax benefits for ESOP * Ordinary shareholders were not affected by the incident Dividend payment for ESOP and ordinary shareholders of Samsung Securities' was both managed by the Securities Service Team 1,340 customer related corporate action annually vs ESOP dividend payment once a year Less attention to ESOP related tasks Main Cause Outdated ESOP system & confusing screens Staffs careless mistake [Screen : Dividend Payment ] [Screen : Supervisor s Approval ] stock dividend The staff mistakenly chose 1.stock dividend code instead of 7.cash dividend code The supervisor didn't recognize the wrong unit(shares instead of won) and approved mistakenly chose code 1(stock dividend) instead of code 7(cash dividend) not identified by the supervisor SAMSUNG SECURITIES 12

1H 18 Highlights & Strategic initiatives Key Agenda 1. Recent ESOP Dividend Incident 2. Strategic Direction SAMSUNG SECURITIES

1 Strategic Direction Shifting our focus from efficiency to sustainable growth Double Digit ROE 12~15 Efficiency Employees: '11 3,113 '18 2,265 Branches: 104 68 * Including 17 offices Strengthen Core Biz (Focus on WM) Client assets: 13 W69tn 18 W112bn # of HNWI clients: 79,641 104,923 (avg. asset per client: W0.7bn W1bn) Boost Growth Momentum (WM-IB/Trading balanced growth) Expand client asset base through global wealth management service Continue IB Trading growth by creating synergy SAMSUNG SECURITIES 14

2 Focusing on efficient use of capital Actively utilize capital to maximize profits since 2017 - Capital Biz Balance - - Revenue from Capital Biz - (KRW trillion) (KRW billion) 481 29.7 29.5 25.1 361 115 IB/Trading/ Lending etc. Product-related (RP/OTC etc.) 10.5 10.7 5.8 19.3 19.2 18.8 Margin Loans IB Trading 262 84 58 120 98 284 64 102 64 161 155 130 236 Achievement rate 60% 2016 2017 1H 18 2016 2017 1H 18 2018 Target SAMSUNG SECURITIES 15

2 Focusing on efficient use of capital (continued) Strengthen competitiveness to become top player in both IB and trading business - IB Biz Target - - Trading Biz Target - 2017 2020 2017 2020 Traditional Biz ECM M&A IPO (Rank) M&A (Rank) 4 1 1 1 ELS Market Share 12.9% 15.0% Capital Biz SP Corp. financing Real estate (M/S) * Excluding equity investment Other alternative investment (M/S) Acquisition Financing (M/S) 29% 30% 5% 7% 25% 12% DLS Market Share 12.7% 15.0% SAMSUNG SECURITIES 16

3 Enhance retail business : WM-IB Collaboration Provide financial solutions not only on personal needs such as family succession, but also solutions on corporate financing (IPO, debt, M&A) for corporate owners Corporate Financing (IPO, M&A etc.) Underwriting through active use of capital WM Asset Inflow (Succession planning etc.) IB / Trading Strong client base (Client assets W184tn) * As of Jun 2018 HNWI W100tn SAMSUNG SECURITIES 17

3 Enhance retail business : WM-IB Collaboration (continued) Creating a business opportunity through relationship with corporate owners - Example of WM-IB Collaboration - A Corporation Client Corporate Owner IPO needs 1 Identify corporate finance needs 2 Referral WM Advisor IB Capital Utilization IB/Trading IB 3 4 Pre-IPO Investment Listed on the advice WM 5 Wealth Management Listing * Capital gain * Fee revenue * New clients * Increased client base acquiring owner/esop customers * Succession of family biz SAMSUNG SECURITIES 18

3 Enhance retail business : WM-IB Collaboration (continued) Increase business opportunities such as M&A, corporate governance advice through WM-IB client referral - Accessible client pool - - Number of IPO Mandates - - Increase corporate client base through community platforms such as exclusive CEO/CFO forums (# of deals) 55 60 [ # of Community members & market cap ] Current Target Total # of members 1,073 1,650 26 38 19 Achievement rate 63% CEO/CFO Forum 413 700 Regional/sectoral forums 660 950 Market cap W365tn 620 WM-IB collaboration 9 29 3 19 6 2016 2017 2H18 2018 Target SAMSUNG SECURITIES 19

3 Enhance retail business : Mass Affluent Expand WM services to mass affluent clients through digital channel products & services capitalizing WM service capabilities for HNWI clients Client Acquisition Expand from HNWI clients-oriented asset management, to include the mass affluent - ex) 2040 generation, small biz owners etc.,. WM biz with focus on HNWI Mass Affluent WM Biz Expand Point of Client Contact Strengthen non face-to-face channels (Increase client acquisition) - Call center personnel - Increase mass advisory staffs in Mega Financial Center - Expand digital channels such as chat-bot Provide Differentiated Product & Service Provide customized products & services (Diversification of investment target) - Expand on-line services with focus on retirement products and develop on-line advisory platform - Strengthen data driven marketing activities (upgrade for customer based offering system) SAMSUNG SECURITIES 20

3 Enhance retail business : Mass Affluent (continued) Active marketing to increase non face-to-face client acquisition, and cross-sell various financial products - Non Face-to-Face Clients Base - Number of non face-to-face clients acquisition Mobile trading system M/S ( 000 accounts) 562 637 Achievement rate 88% Samsung Securities Firm A 468 487 Firm B Firm C Expansion due to M&A 2016 2017 1H18 2018 2013 2014 2015 2016 2017 1H18 Target * Accumulated SAMSUNG SECURITIES 21

3 Enhance retail business : Overseas stock brokerage Expand overseas stock business in order to promote global asset allocation capabilities and diversify revenue source - Expand Overseas Stock Business - Overseas stock brokerage balance - 2021 Target W10tn Global alliance network (KRW trillion) 2.4 2.7 2.8 Achievement rate 98% 15 16 China (Market research product Supply, IB deal sourcing) Taiwan (Market research, Wholesale stock brokerage) 1.7 17 Japan (Market research) 17 Vietnam (Market research product supply, IB deal sourcing) 18.3 Americas (Market research) 2016 2017 1H18 Including deposits 2018 Target 18.7 Europe (Market research) SAMSUNG SECURITIES 22

4 Regaining Trust & Confidence 1 Establish a ROE based performance management & evaluation process - Each business division will be responsible to optimize use of capital and create best ROE in industry - Also, each business will be evaluated on managing its own resources and ROE 2 Build new internal control system & corporate culture to prevent any activity that will harm client trust - Zero Tolerance against any violations - Corporate culture innovation (Align performance & compensation structure) - Management communication (Sep.18~, 8 sessions) * Main Topics : Compliance, vision sharing, corporate culture, etc. 3 Sharing out profits with our shareholders, improving shareholder returns - Maintain an optimal capital level in line with our business model and steadily increase dividends as profits improve Pay-out ratio (%) 21 25 28 33 '14 '15 '16 '17 SAMSUNG SECURITIES 23

Disclaimer This presentation includes forward-looking statements about Samsung Securities Co., Ltd. All statements that address expectations or projections about the future are forward-looking statements. Although they reflect our current expectations, these statements are not guarantees of future performance, but involve a number of risks, uncertainties, and assumptions. Samsung Securities assumes no obligation to provide revisions to any forward-looking statements should circumstances change. SAMSUNG SECURITIES 24