영문_OLED_우투_산업분석

www.wooriwm.com

OLED investment to continue expanding; recent correction offers good buying opportunity

OLED investment to continue; recent correction offers buying opportunity– Recently, OLED-related shares have corrected sharply due to both the delayed start of

operations of Samsung Mobile Display (SMD)’s A2 Phase 3 (P3) line and concerns over SMD’s lower-than-expected A3 line investments in 2012.

– However, after likely bottoming in 2012, we believe that investment in the OLED segment will continue to rise until at least 2015 given that SMD is expected to start investing in its: A3 Phase 1 (P1) line from 2H12, its A3 Phase 2 and 3 (P2 and P3) and V1 lines in 2013, and its A4 and V2 lines in 2014.

– OLED demand is set to grow rapidly, on: 1) the rising adoption of OLED panels by global IT firms; 2) the use of OLED panels in various applications; and 3) an increase in the display size of mobile devices. The OLED market should grow at a CAGR of 54.0% over 2011~2015 (from US$3.87bn to US$21.43bn).

Focus on margin improvement and product development for killer apps – As the industry has achieved its targets of both increasing screen resolution and solving

mass production issues, future investment will likely center on improving margins anddeveloping products that can be used in new killer applications.

– Via lowering costs, the OLED display market is likely to eat into the LED’s display market. Also, the development of products used in killer apps should aid the entry of OLED into new areas.

– We expect cost reductions to come from three key areas: 1) advancements in encapsulation technology; 2) improvements in equipment throughput; and 3) the diversification of materials suppliers. Furthermore, we believe that the industry will focus on developing both flexible and transparent OLED panels which can be used innew killer applications.

Top picks: Cheil Industries and Duksan Hi-Metal – Cheil Industries and Duksan Hi-Metal are our top picks in the OLED sector given that

they should be the prime beneficiaries of expanding OLED investment. – In addition, we advise paying attention to SFA (as the company should benefit from the

increasing adoption of Korean-made OLED equipment) and to AP System and Tera Semicon (as they should benefit from aggressive investments in flexible OLED).

Rating/investment indices (Units: Won, %, x)

Operating margin P/E P/B ROE Code Rating Target price (12M)

Current price 2012E 2013F 2012E 2013F 2012E 2013F 2012E 2013F

Cheil Industries (001300.KS) Buy(Initiate) 115,000 91,800 6.2 6.5 16.3 14.6 1.4 1.3 8.8 9.1DS Hi-Metal (077360.KQ) Buy(Initiate) 33,000 24,800 26.3 30.9 21.5 14.2 4.2 3.3 21.8 25.9SFA (056190.KQ) - n/a 51,500 13.0 13.0 10.3 7.9 2.3 1.9 25.6 24.9AP Systems (054620.KQ) - n/a 11,650 11.3 11.8 8.2 6.6 2.4 1.8 29.5 27.9Tera Semicon (123100.KQ) - n/a 27,600 18.5 17.4 7.4 5.3 3.4 2.3 54.5 45.6Note: Based on closing price of Apr 25; SFA, AP Systems, Tera Semicon based on consensus Source: Woori I&S Research Center estimates

OLED Industry Industry Analysis May 7, 2012

Positive (Initiate)

Analyst Julius Kim (Display) 822)768-7462, [email protected]

Young Park (Semicon/Display) 822)768-7585, [email protected]

CONTENTS

I. Summary ............................................................................................................................. II. OLED Market Outlook .....................................................................................................

1. Demand for small- to mid-sized OLED panels—began surging from 2012 2. Large-sized OLED panels: Demand to gain traction from 2014

III. Future OLED investment.................................................................................................

1. Past trend: Focus on display quality and mass production technology 2. Future trend: Focus on margin improvement and product development for killer apps

IV. Value Chain .......................................................................................................................

1. Equipment maker 2. Materials companies

[Company Analysis] .............................................................................................................

1. Cheil Industries (Buy, TP W115,000) 2. Duksan Hi-metal (Buy, TP W33,000) 3. SFA (Not Rated) 4. AP Systems (Not Rated) 5. Tera Semicon (Not Rated)

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OLED Industry www.wooriwm.com

I. Summary

1. OLED market outlook 1. Mid- to small-sized OLED panels

We expect SMD to invest in its A4 line after competing investment in its A3 line (over 2013~2014), given that OLED demand is likely to grow at a faster pace than is currently expected.

OLED demand should surge on: 1) the rising use of OLED displays by global IT companies; 2) the adoption of OLED displays in various applications; and 3) an increase in the display size of mobile devices. And, if OLED cost savings accelerate, OLED demand—backed by LCD replacement demand—should rise sharply, outstripping forecasts.

Meanwhile, OLED makers will likely have to make further fab investments in order to both meet rising demand and secure large customers such as Apple.

Of note, in 2014—when SMD’s A3 line capacity expansion is likely completed—SMD’s total OLED capacity should equal 24% of global handset display demand (assumes 80% production yield).

2. Large-sized OLED panels

We believe that demand for large-sized OLED panels will increase from 2014. Accordingly, investment in 8G-related mass production lines is unlikely to surface this year; but, capacity expansions for R&D pilot lines will likely continue through 2H13.

Of note, we estimate that global OLED TV shipments will reach 50,000 units in 2012 and 250,000 units in 2013—assuming production of 1,400 panels/month and 7,000 panels /month, respectively, SMD and LG Display (LGD)’s 8G pilot lines should be able to meet this expected demand (based on 50% production yield).

2. OLED technology development outlook Has taken three years for OLED to secure its position as next generation display

Over the past three years, the appropriateness of OLED—as the next-generation display—has been tried and tested. Based on the OLED industry’s efforts to improve display quality and solve mass production issues, OLED has emerged as a promising alternative to LCD.

Since the release of the first OLED smartphone, the ‘Omnia II’, the display quality of OLED has improved substantially (of note, the ‘Galaxy Note’ is the most recent OLED smartphone); in addition, mass production technology has also improved (it has advanced from 4G (panel cut into two pieces) to 5.5G (cut into four pieces)). Of note, many Korean companies have emerged as strong players in the domestic OLED equipment and materials markets.

Key investment focus for OLED industry: cost-reductions and developing products for killer applications

Going forward, as the industry has achieved its targets of both increasing screen resolution and solving mass production issues, investment within the OLED industry will likely shift to center on improving margins and developing products that can be used in new killer applications. As the price of OLED panels declines, in line with lower production costs, OLED should gradually replace LCD, and new flexible and transparent panels, which will likely be the basis for killer applications, should open up new markets.

Cost reductions will likely come from three key areas: 1) advancements in encapsulation technology; 2) improved equipment throughput; and 3) diversification of materials suppliers. The industry is expected to focus on developing both flexible and transparent OLED panels in order to in develop products than can be used in killer applications.

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3. Investment points Sharp falls in share prices of OLED-related companies

Recently, shares in OLED-related companies have fallen due to: 1) postponed operations of SMD’s A2 P3 line; 2) delayed A3 line investment; and 3) concerns over slowing investment growth (after the A3 line has been completed) in line with the grim investment outlook for the OLED segment.

OLED plays’ growth to continue over long term

However, we believe that OLED equipment and materials plays will continue to expand over the longer term as OLED panel demand growth will likely exceed expectations, boosting facility investment.

We forecast that existing domestic OLED equipment and materials producers will benefit from increased OLED investment given that: 1) they possess technological prowess; 2) they are jointly developing next generation technology (with SMD and LGD); and 3) OLED panel makers are highly likely to maintain their ties with existing companies to prevent technology leaks.

In addition, we believe that the OLED growth story will move to flexible OLED panels as the relevant technology progresses. Specifically, producing flexible OLED panels is attractive for panel makers as it allows them to reduce costs; moreover, flexible OLED panels will likely be used in future killer applications.

Amid the entry of new comers into the OLED segment, investment in flexible OLED should accelerate thanks to its high margins and strong growth potential.

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4. Top Picks We recommend Cheil Industries and Duksan Hi-Metal as our top picks in the OLED sector

given that they should be the prime beneficiaries of expanding OLED investment. In addition, we advise paying attention to SFA (as it should benefit from the likely increasing adoption of Korean-made OLED equipment) and to AP System and Tera Semicon (as they should benefit from aggressive investments in flexible OLED).

Cheil Industries Cheil Industries’s market share is forecasted to increase rapidly until at least the end of 2012 given the positive test results for its electron transporting layer (ETL; an OLED material). Of note, the company has started developing and producing other OLED materials such as hole transporting layer (HTL) and donor film. Backed by the Samsung Group’s support for core materials makers, we expect Cheil Industries to become a global materials maker.

Duksan Hi-Metal We believe that Duksan Hi-Metal’s growth story is still valid as the OLED industry will likely continue expanding for some time to come. Increased demand for OLED materials produced by Duksan Hi-Metal—upon the start-up of operations of SMD’s A3 line—should alleviate fears that its market share may fall due to the entry of its peers into the HTL segment. As for its customers, they are unlikely to utilize more than three vendors due to technology leak concerns. Thus, the firm should continue to grow alongside OLED industry expansion.

SFA OLED equipment order momentum at SFA is expected to pick up in 2012 thank to SMD’s A3 line investments. SMD’s capacity expansions (to 88,000 panels/month at its A2 line and to 144,000 panels/month at its A3 line) are acticipated, and additional orders are highly likely, including for both front-end and logistics equipment. In addition, small mask scanning (SMS) deposition equipment (development underway for use on 8G lines) is likely to be installed on mass production lines.

AP Systems Sales growth of laser lift off (LLO) and LITI equipment at AP Systems should draw attention to SMD’s plans to mass produce flexible and high resolution OLED panels. SMD’s mass production line (8G) is highly likely to adopt advanced excimer laser annealing (ELA) and encapsulation equipment (glass, metal), benefiting AP systems.

Tera Semicon Tera Semicon is both a polyimide curing and heat-related equipment maker, and should benefit from strengthening order momentum in the industry. In particular, the OLED and oxide TFT investment trends are forecasted to allow the company to enjoy the most robust growth and earnings momentum among its peers.

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II. OLED market outlook High supply growth to continue

Compared to DisplaySearch’s forecast, we present a more optimistic outlook towards the OLED market.

In 2012, the OLED market is expected to post weaker-than-expected growth, given SMD’s: 1) soft mass production yields (at its A2 P3 line); and 2) likely sluggish investment in its A3 P1 line. However, strong growth in the market is expected to be observed from 2013 on: 1) the starting-up of operations of both SMD’s A3 (144,000 panels/month) and V1 lines; 2) full-fledged OLED investments by late comers; and 3) investment in SMD’s A4 line. Of note, investment in SMD’s A4 line will likely begin in 2H14.

OLED market outlook (shipment area base)

Woori I&S’s outlook on OLED market is more positive than

DisplaySearch’s view; Woori I&S assumes A3 line will reach full

capacity (144,000 panel/month) in 2013

0

2,000

4,000

6,000

8,000

10,000

12,000

'08 '09 '10 '11 '12E '13F '14F

DisplaySearch

Woori Ex pected

(000m2)

Source: DisplaySearch, Woori I&S Research Center estimates

OLED Capacity outlook (Unit: 000m2)

Company 2008 2009 2010 2011 2012E 2013F 2014FWoori 133.0 208.7 351.6 881.1 2,483.8 5,114.0 9,750.1

DisplaySearch 133.0 219.1 360.7 881.1 2,592.9 4,848.4 8,133.9 Source: DisplaySearch, Woori I&S Research Center estimates

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OLED capacity by manufacturer

0

2,000

4,000

6,000

8,000

10,000

12,000

'08 '09 '10 '11 '12E '13F '14F

SMD Others

(000m2)

Source: Woori I&S Research Center estimates

OLED capacity by generation

0

2,000

4,000

6,000

8,000

10,000

12,000

'08 '09 '10 '11 '12E '13F '14F

3G 4G 5G 8G

(000m2)


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1. Demand for small- to mid-sized OLED panels—began surging from 2012 Small- to mid-sized OLED panel demand—began surging from 2012

Demand for small- to mid-sized OLED panels likely began surging from 2012, as: 1) an increasing number of global IT companies will likely adopt OLED as their main display type; 2) OLED panels are expected to be applied to a more diverse range of products; and 3) the size of the display for mobile devices is rising.

1) OLED panels to be increasingly adopted by global IT firms on improved quality and easing supply concerns

Global IT companies, excluding SEC, have so far shunned OLED due to both its inferior resolution (compared to LTPS LCD) and panel supply shortages. For instance, when HTC first rolled out the ‘Nexus One’ in 2010, the phone was installed with an OLED display; however, the company switched to an LCD display due to an OLED panel shortage.

From 2012, we expect that an increasing number of global IT companies will adopt OLED panels for their IT products given that OLED technology has improved rapidly and that the starting-up of OLED operations at the SMD’s A2 and A3 lines should resolve supply shortage concerns. We note that Nokia and Motorola’s new flagship models are embedded with an OLED panel; moreover, we expect future smartphones to come equipped with an OLED display as standard.

2) Scope of OLED applications to grow

Meanwhile, OLED panels will likely be installed in a variety of new segments, including media-tablet PCs (of note, SEC’s recently-launched the ‘Galaxy Tab 7.7’—a media-tablet PC that possesses an OLED display). Given the strengths of OLED panels, especially related to playing media files (lighter, thinner, simpler, and smaller; low-energy usage), we believe that OLED panels will become widely installed in future media-tablet PCs.

3) Size of displays for mobile devices to increase

Meanwhile, the size of displays for mobile devices is increasing, a trend that deserves attention. SEC’s Galaxy Note, a recent hit product, has a 5.3-inch display—it is about 50% larger than the Galaxy S display. Noting that SMD’s 5.5G fab has the capacity to produce 350 Galaxy S-sized display panels per sheet or 210 Galaxy Note-sized display panels (assuming 100% production yield), we believe that the increasing size of mobile displays will contribute to boosting demand for small- and mid-sized OLED panels.

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Size of OLED market, by device

0

5,000

10,000

15,000

20,000

25,000

'09 '10 '11 '12E '13F '14F '15F

Others

OLED TV

Mobile Phone

Mobile PC

(US$mn)

Source: DisplaySearch

Number of devices that use OLED panels Number of handset makers using OLED displays for their handsets

0

5

10

15

20

25

30

35

'08 '09 '10 '11 1Q12E

SEC Others

(Number of models)

2008 2010 20112009 2012SECNokia

SECNokia

HP

SECNokia

HPHTC

ToshibaHP

SECNokia

HPHTC

ToshibaHPZTELGDellAsus

SECNokia

HPHTC

ToshibaHPZTELGDellAsus

PentechParasonic

HuaweiRIMSony

Source: Woori I&S Research Center Source: Woori I&S Research Center

Smartphone panel shipments—larger panels to boost OLED demand

0

20

40

60

80

100

120

1Q10 3Q10 1Q11 3Q11 1Q12E 3Q12F 1Q13F 3Q13F

>4.5''

4.3~4.5''

4.0~4.3''

<4''

(mn units)

Source: DisplaySearch, Woori I&S Research Center

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Additional capacity required—SMD’s investments in small- to mid-sized OLED to continue

In our view, SMD will start investing in its A4 line, alongside investment in its A3 line, over 2013 and 2014 in order to cope with the expected demand surge for small-and mid-sized OLED panels. SMD likely needs to secure additional capacity in order to not only meet growing demand from the smartphone and media-tablet PC market, but also to induce major clients, including Apple, to adopt OLED panels.

Of note, SMD’s capacity should satisfy 24% of the global handset display demand in 2014 (assuming 80% yield), equivalent to 260mn 4.3-inch smartphone display panels and 67mn 9.7-inch media-tablet PC display panels.

SMD’s production capacity (Units: Number, mn)

Line Generation Capacity (glass substrate basis)

Galaxy S (4’’)

Galaxy Note (5.3’’)

iPad (9.7”) (unit: mn)

A1 4 48,000 60.4 38.8 8.6 A2 5.5 88,000 359.0 219.6 59.1 A3 5.5 144,000 587.5 359.4 96.7

Total (max) 1,006.9 617.8 164.4 80% production yield 805.5 494.2 131.5 70% production yield 704.8 432.4 115.0 Source: Woori I&S Research Center

Handset demand and OLED capacity

0

500

1,000

1,500

2,000

2,500

3,000

3,500

'11 '12E '13F '14F '15F '16F

MobilePhoneSmartPhoneCapacity capable of 4.3-inch display production (production yield assumed at 80% ) Capacity capable of 4.3-inch display production (production yield assumed at 100% )

A+A2+A3

A1+A2

(mn units)

Source: IDC, Woori I&S Research Center estimates

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Media-tablet PC demand and OLED capacity

020406080

100120140160180

'11 '12E '13F '14F '15F

iPadOthersCapacity capable of 9.7-inch display production (production yield assumed at 80% )Capacity capable of 9.7-inch display production (production yield assumed at 100% )

A1+A2+A3

A1+A2

(mn units)

Source: IDC, Woori I&S Research Center estimates

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2. Large-sized OLED panels: Demand to gain traction from 2014 Demand for large-sized OLED panels to grow from 2015

We predict that demand for large-sized OLED panels will begin to rise from 2014. We also hold a more conservative view, than consensus, towards the OLED TV market.

Both SEC and LGD plan to roll out 55-inch OLED TVs in 2012. However, we hold a rather conservative opinion towards OLED TV sales—we forecast 2012 shipments will reach 50,000 units and 2013 shipments will come to 250,000 units—due to the hefty price tag (W9~10mn/TV) and lack of a ‘killer’ application.

Tipping point to be reached when OLED TV price falls below W3mn/unit

Given the history of LED and LCD TVs, we believe that the OLED TV market will reach tipping point when the price tag falls below W3mn/unit. Considering the present rate of OLED development, we believe this will happen in 2014.

Killer application for OLED TV: 3D

When purchasing a new TV, consumers consider not only the price but also whether it possesses a killer application. Woori I&S believes that 3D will be the killer application for OLED TV. In detail, OLED panels possess a number of attributes that make them ideal for rendering 3D, they have both a much faster response rate and superior contrast range (vs LCD displays). We project that OLED TV sales will gain traction from 2014, when terrestrial broadcasting channels are likely to begin providing programs in 3D (without the need to have a set-top box).

OLED TV shipments and ASPs OLED TV shipments and ASPs

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'12E '13F '14F '15F

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ASP (RHS)

(mn units) (USD)

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100

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140

'10 '11 '12E '13F '14F '15F

0

1

2

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Other TVs (LHS)OLED TV (LHS)OLED TV M/S (RHS)

(mn units) (%)

Source: DisplaySearch, Woori I&S Research Center Source: DisplaySearch, Woori I&S Research Center

OLED market forecasts (Units: 1,000 units, W1,000)

2012E 2013F 2014F 2015FOLED TV shipments 50 250 2,300 5,000

ASP 9,400 6,986 2,872 1,631Source: Woori I&S Research Center estimates

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Pilot lines able to meet OLED TV demand until end-2013

Based on Woori I&S’s forecasts for 2012 and 2013 OLED TV demand (50,000 units in 2012 and 250,000 in 2013), the following conditions will be needed in order to meet anticipated large-sized OLED display demand: monthly capacity of 1,400/sheets and 7,000/sheets (at 8G lines; 50% production yield) in 2012 and 2013, respectively. And, we believe that SMD and LGD’s pilot lines will be sufficient to meet expected demand in both 2012 and in 2013.

Investment in 8G lines to begin from 1H13

Accordingly, aggressive investment in 8G lines appears unnecessary in 2012. We project that SMD and LGD will focus on expanding their pilot lines for R&D purposes in 2012 and that they will construct mass production lines from 1H13 (after accumulating extensive technological know-how).

OLED TV demand and capacity (55-inch)

V1 pilot line to meet early demand, but full-fledged investment required

from 2013

0

1,000

2,000

3,000

4,000

5,000

6,000

'11 '12E '13F '14F '15F

SMD V2 Capa

SMD V1 Capa

SMD V1 Pilot Capa

OLED TV Demand

(000)


Production line capacity by AMOLED company (Unit: 1,000m2)

Manufacturer Factory MG Size OLED gen. Cut Equip

Max MP InstallMass-prod.

ramp up2008 2009 2010 2011 2012 2013 2014

LGD LGD M1 1 8 2 4 Pilot Jul ‘11 May ‘12 0 0 0 0 132 264 264 SMD SMD V1 1 8 1 30 MP Jan ‘13 Aug ‘13 0 0 0 0 0 495 1980 SMD SMD V1 Pilot 1 8 6 6 Pilot Aug ‘11 Apr ‘12 0 0 0 0 121 385 396 SMD SMD V2 1 8 1 30 MP Jan ‘14 Aug ‘14 0 0 0 0 0 0 495

Source: DisplaySearch, Woori I&S Research Center estimates

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III. Future OLED investment

1. Past trend: Focus on display quality and mass production technology Taken three years for OLED to secure its position as next generation display

In order to forecast future OLED investment trends, we reviewed the OLED growth story.

For the past three years, the OLED industry has focused on securing mass production technology and on competing head-to-head with LCD panels (specifically regarding display quality). In 2009, the outlook for the OLED segment was quite pessimistic, even amid SEC carrying out an aggressive marketing campaign for AMOLED alongside the release of its ‘Omnia II’. For consumers, OLED appeared to be inferior to LCD, and massive investment in OLED was burdensome for panel makers. All in all, it took three years before OLED was viewed—by consensus—as the next generation display type.

Display quality—in terms of size and resolution—improves

Over the past three years, the display quality of OLED has improved rapidly (in terms of size, pixel per inch (ppi), and pixel composition). Specifically, the size of OLED panels for cell phones has increased from to 3.7-inch to 5.3-inch, the ppi has risen from 167 to more than 280, and the display composition has improved (from pentile to RGB stripe). Improved quality can be seen by comparing the recently released ‘Lumia900’ (Nokia) with the ‘Lumia 800’ (RGB stripe vs pentile), and comparing the Galaxy Note with the ‘iPhone 4S’ (OLED display vs LCD display).

Mass production technology

Mass production technology has also improved rapidly, highlighted by the progress made in organic material deposition technology. In 2009, deposition was achieved by cutting 4G sheets into two pieces. Along with steady advances in technology, in 2010, 5.5G sheets were cut into four pieces; furthermore, deposition in 1H13 will likely be done without the need to cut.

OLED capacity has also increased rapidly, backed by advances in mass production technology and improving yields. SMD invested in its A1 P3 line in 2009, its A2 P1 and P2 lines in 2010, and its A2 P3 line in 2011, raising capacity by a factor of 3.2 (from 208.7km2 in 2009 to 881.1km2 in 2011).

Localization of OLED equipment and materials

Meanwhile, we believe that the localization of OLED equipment and materials also merits attention. While SMD’s A1 line was constructed using imported equipment, localization is rapidly underway, including for materials and encapsulation equipment for the A2 line and organic material deposition equipment for the A3 line. Of note, organic material deposition used to be a major technical issue for OLED panel makers, and it limited increases in OLED panel size. As for organic materials, while the import portion of EML (emissive layer (red, green, blue)) remains lofty, localization of key raw materials HTL and ETL—account for the largest portion of organic material demand (from OLED panel makers)—has been completed. Of note, OLED localization is taking place at a faster rate than in other IT segments.

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LCD VS AMOLED: OLED resolution improving quickly (PPI)

OLED capable of realizing 300ppi resolution (or above) thanks to LITI;

competition over quality of display has become meaningless

0

50

100

150

200

250

300

350

400

'09 '10 '11 '12E

LCD

AMOLED( PPI)

Launch of iPhone 4

Pentile produciton due totechnical difficulties

High resoluiton onLITI process

350ppi and above notnecessary


OLED capacity rising (by shipment area) on advances in mass production technology

OLED capacity rises on SMD’s A1 and A2 line investments

0

200

400

600

800

1,000

'08 '09 '10 '11

Others

SMD A2

SMD A1

(000m2)


OLED Smartphone (SEC)

Model Omnia 2 Galaxy S Galaxy S2 Galaxy Note Galaxy S3 Display Size (inch) 3.7’’ 4.0’’ 4.3’’ 5.3’’ 4.8’’ Resolution (dot) WVGA (400X800) WVGA WVGA WXGA (1280X800) SXGA (1280X1024) Type Pentile Pentile RGB Pentile Pentile PPI (RGB converted) 252 (167) 233 (155) 217 285 (190) 280+ Release Oct 2009 Mar 2010 Jan 2011 Aug 2011 May 2012 Source: Industry data, Woori I&S Research Center

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OLED of Lumia 800 (Pentile) OLED of Lumia 900 (RGB stripe)

Source: The Verge.com, Nokia Source: The Verge.com, Nokia

Pentile: large pixel effective for mass production RGB Stripe: clear display quality

Source: Woori I&S Research Center i Source: Woori I&S Research Center

iPhone 4S: clear picture quality Galaxy Note: comparable resolution to retina display

Source: Phonearena.com Source: Phonearena.com

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2. Focus on margin improvement and product development for killer apps Focus on cost reductions and developing products that can be used in killer applications

We expect the OLED industry to shift its focus to: 1) reducing costs; and 2) developing products that can be used in killer applications. Cost reductions should facilitate expansion of the OLED industry, eroding the LCD market share. Specifically, product development of flexible and transparent OLED panels is expected to lead to new killers applications, carving out new markets.

We believe that the focus of the industry will be quite different from that seen in the past. As advances in deposition technology should end the debate over ppi, we expect the OLED industry to begin focusing on other strengths of OLED.

OLED technology trend

20132009 2011 20122010 2014

Display quality competition with LCD

Mass production technology secured

Cost reduction

Killer Application secured

Source: Woori I&S Research Center

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(1) Cost reductions Need for manufacturing cost reductions

As the resolution of OLED panels is now virtually identical to the resolution of LCD panels, OLED makers are expected to focus on reducing costs. Cost reductions are deemed as being critical to successful competition in the display industry, and should enhance margins and market share (via ASP cuts), eroding the LCD panel market share.

Cost reductions are forecasted to come from three key areas: 1) advancements in encapsulation technology; 2) improved equipment throughput; and 3) diversification of materials suppliers.

Handset panel ASP: Price premium of OLED panels vs LCD panels falls, eroding LCD panel market share

0

10

20

30

40

50

1Q11 2Q11 3Q11 4Q11 1Q12E 2Q12F 3Q12F 4Q12F 1Q13F 2Q13F 3Q13F

20

30

40

504.0'' Premium(RHS) 4.3'' Premium(RHS)

4.0''AMOLED(LHS) 4.3''AMOLED(LHS)

4.0''LTPS LCD(LHS) 4.3''LTPS LCD(LHS)

(US$) (%)


Portion of handsets (based on volume) that have OLED displays Portion of handsets (based on amount) that have OLED

displays

0

5

10

15

20

25

30

1Q09 3Q09 1Q10 3Q10 1Q11 3Q11

0

2

4

6

8

10Shipment volume basis (LHS)

M/S (RHS)

(mn units) (%)

0

200

400

600

800

1,000

1Q09 3Q09 1Q10 3Q10 1Q11 3Q11

0

5

10

15

20

25Shipment value basis (LHS)

M/S (RHS)

(US$mn) (%)

Source: DisplaySearch Source: DisplaySearch

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1) Focus on encapsulation for cost reduction

As OLED panels are sensitive to moisture and air, encapsulation is necessary. When glass is replaced with other materials, costs can be reduced.

Glass accounts for a substantial portion of display production costs; as such, the development of an alternative material should lead to a decline in manufacturing costs. Thus, glass demand should fall over the mid- to long-term, putting pressure on glass makers to reduce ASPs.

Technology to differ by panel size

Encapsulation technology used for OLED panels will likely differ by application. While thin-film encapsulation technology is expected to be used for small and mid-sized panels (front-lit), a range of encapsulation materials (including metal) are forecasted to be utilized for back-lit large-sized panels. As a result, the use of glass as an encapsulation material should decrease going forwards.

Thin-film encapsulation for small- to mid-sized panels

Mass production using thin-film encapsulation is expected to begin in the near future for small- to mid-sized panels (at SMD’s A2 P3 line). However, mass production of metal encapsulation (for larger-sized panels) will likely take a while longer to emerge due to its weak adhesive power.

20


Operating margin gap between glass manufacturers and panel makers 42W LED TV cost analysis—glass cost portion high

-20%-10%

0%10%20%30%40%50%60%70%

`08 `09 `10 `11

LGD AUO SEC

SCP AGC NEG

0

10

20

30

40

50

Glas

s CF

Crys

tal

Pola

rizer

BLU

Drive

r IC

Chem

ical

Othe

rs

(US$)

Source: Industry data Source: Witsview, Woori I&S Research Center

Glass as percent of LED TV cost Glass as percent of OLED panel cost

Glass22.4%

Others77.6%

15.625.9

0

20

40

60

80

100

55'' TV 4'' Handset

Glass Target and Others Organic Material Chemical(%)

Source: Witsview, Woori I&S Research Center Source: Witsview, Woori I&S Research Center

Front lit—applied to smaller panels (handset, tablet PC) Back lit—applied to large panels (TV)


21


2) Equipment throughput improving

OLED panel manufacturing costs are set to decline on improving equipment throughput as efficiency should rise on debottlenecking. Currently, a technical bottleneck exists at both the poly-si TFT process (panel cut into two pieces due to limited laser beam output) and the organic chemical vapor deposition process (panel cut into four pieces due to mask sagging under the force of gravity). Improved throughput should result in debottlenecking at these stages, raising mass production efficiency and cutting costs.

Rising throughput to benefit equipment makers

Despite the prospect of improved throughput negatively impacting equipment makers—given the possible reduction in equipment demand—we believe that improved throughput will benefit them.

OLED panel makers to maintain status quo with suppliers due technology leak concerns

Throughput improvement can come from either calibrating the line or from developing new equipment. Given the absence of standardized production in the OLED industry, OLED panel makers face the possibility of a technology leaks. Thus, they are highly likely to continue working with their existing suppliers (equipment and materials makers).

Equipment makers—potential to secure technology and experience mass production environment

Domestic OLED equipment makers currently lag behind their global peers in terms of technology. However, if SMD or LGD decide to work with equipment makers, equipment makers will likely acquire additional technological know-how, facilitating their evolution into becoming global players (if domestic OLED production technology becomes the industry standard—as expected).

Material/equipment-related strategic alliances, by panel maker

Company Materials/equipment makers Date Remark

Materials Jun 2009 Formed strategic alliance with Idemitsu Kosan (Japan) related to OLED technology development LG Display

Materials Dec 2009 LG’s Global OLED Technology acquired Kodak’s OLED business and patent license (Idemitsu Kosan acquired 33% stake in Jun 2010)

Materials Jan 2001 Partnership between Samsung SDI + NEC (to develop and produce small-sized OLED panels)Equipment Dec 2010 Invested W29.4bn in SNU (rights offering: W14.2bn, acquired W15.2bn in convertible bonds) Equipment Feb 2011 Invested in AP System’s convertible bonds (W27.6bn) Materials Jul 2011 Signed contract to establish joint venture (plastic PI film) with Ube Industries (Japan) Materials Aug 2011 Partnership with SFC (subsidiary of Hodogaya Chemical, OLED maker; Japan) Materials Aug 2011 Formed a patent and technology alliance with UDC (OLED maker)

SMD

Equipment Feb 2012 W29.5bn investment in convertible bonds of Tera Semicon Samsung Venture

Investment Materials Sep 2011 Invested in NOVALED (OLED maker)

SEC Equipment May 2010 Invested in SFA (911,000 shares) Source: LG Business Insights, News, Woori I&S Research Center

22


3) Cost savings via diversifying materials suppliers

Diversification of materials suppliers should help save costs for OLED panel makers. For example, Duksan Hi-Metal and LG Chem used have a duopoly in the supply of HTL and ETL to SMD. However, since 2H11, CSElsolar and Cheil Industries have also been supplying the materials to SMD, likely intensifying competition between the materials makers. Moreover, EML—a material whose import portion is high—is now being locally produced, helping panel makers save costs.

Concerns over stagnating growth of OLED materials market

Thus, concern has arisen over downward pricing pressure on the materials market, which may undermine growth in the segment. Of note, SMD has a number of OLED materials patents, which it allows its materials suppliers to use; thus, the company possesses an upper hand in the materials market.

Focus on OLED industry growth rather than on lower market share

We advise focusing more on the longer-term growth potential of the OLED market rather than on lower organic material ASP concerns, as: 1) demand for organic materials should surge—OLED panels are set to become increasingly adopted for not only high-end smartphones but for TVs as well; and 2) panel makers will likely procure materials from only two or three vendors out of technology leak fears (thus, a vendor should carry on supplying 20~40% of the OLED materials needs of the OLED panel maker that it currently services).

OLED materials—market outlook

0

100

200

300

400

500

600

'10 '11 '12E '13F '14F

ETL

EML

HTL

(US$mn)


23


(2) Developing OLED products for use in killer applications

Flexible and transparent OLED panels—products to be used in killer applications

Development within the OLED industry will likely focus on products (including flexible and transparent OLED panels) that can be used in killer applications, given that hybrid patterning system (HPS; 400ppi is expected to be reached in the near future) is forecasted to be used on SMD’s A2 P3 line. In addition, with display panels becoming larger, we believe that competition over resolution with LCD display panels has become meaningless (the larger the display becomes, the lower the resolution needed). Thus, OLED makers will likely focus on developing products for use in killer applications, helping create new markets.

1) Investment in flexible OLED to accelerate

We believe that panel makers will accelerate investing in flexible OLED, as: 1) it should help them reduce costs (no glass is used); 2) it is lighter and more shock-resistant than conventional display panels (should help make smart devices lighter and thinner); and 3) new markets can likely be created.

In fact, SMD is set to begin mass producing flexible OLED panels in 2H12 via its A2 P3 line, while LGD—which is currently focusing on LTPS LCD in the smaller panel market—is likely to continue developing 4G flexible OLED technology.

Key technologies for flexible OLED panel: flexible TFT substrate and thin-film encapsulation

Key technologies required to produce flexible OLED include flexible TFT substrate and thin-film encapsulation. The manufacturing process includes: 1) the deposition of polyimide on glass; 2) the creation of TFT and organic layers; 3) the deposition of organic and inorganic layers (and their encapsulation); and 4) the separation of glass and polyimide.

Some expectations exist in the market that flexible OLED panels will be used for the Galaxy S3. But, we believe that this is unlikely given the rollout schedule for flexible panels at the A2 P3 line and the launch date of the Galaxy S3 (as well as lack of capacity and low yields).

Characteristics of flexible OLED panels Thin-film packaging process: deposition of organic and inorganic layers

Costreduction

Thin, light

Design Free

UnbreakbleFlexibleOLED

Source: Industry data, Woori I&S Research Center Source: Industry data

24


2) Transparent OLED panels

OLED panels that emit light on both sides—so do not need BLU—are likely to be used for transparent displays. Transparent OLED panels will likely be adopted in a variety of products.

However, we forecast that its will take a while longer before transparent OLED panels are ready to be mass produced as a number of technologies still need to be advanced, including the transparency of TFT and electrode layers. As for TFT, a-si and poly-si have to be substituted as they are not transparent, while electrode layers will need to be replaced or made thinner as they are made from metal.

Therefore, we are of the opinion that it is necessary for the OLED industry to develop materials such as oxide, organic (materials), nanowire (for TFTs), and graphene and CNT (for transparent electrodes).

OLED lighting structure suitable for transparent display Transparent OLED notebook

Source: HowStuffWorks.com Source: SEC

Automobile OLED rear view mirror LUMUS’s transparent glasses-type HMD

Source: NeoView Kolon Source: LUMUS

25


IV. Value chain

1. Equipment makers Focus on mid- to long-term growth story of domestic OLED equipment makers

Domestic OLED equipment makers’ growth story will likely remain valid over the mid- to long-term, given that: 1) SMD and LGD are forecasted to carry out aggressive capex; 2) domestic equipment makers—which possess a proven track record—should beat overseas new entrants (given their lack of mass production experience); and 3) order flows are likely to increase in line with SMD’s investment in its 5.5G A3 line in 2013 and 8G V1 line in 2014.

OLED process: 1)TFT; 2) deposition; and 3) encapsulation

The OLED panel manufacturing process is largely composed of: 1) backplane; 2) deposition; and 3) encapsulation and logistics. While localization has largely been completed in the TFT, encapsulation, and logistics segments, dependence on imported deposition equipment remains lofty; thus, deposition technology development is underway by domestic OLED equipment makers.

Value chain for equipment maker

Overseas JSW (Japan Steel Works), ULVAC, SHI (Sumitomo Heavy Inc.), TCZ TFT LTPS transformation equipment (ELA: Excimer Laser Annealing) Domestic AP Systems, Tera Semicon, Viatron Tech

Overseas Tokki, Hitachi, ULVAC Evaporation

Domestic YAS, Jusung Engineering,

DMS, Avaco, LIG ADP, DongA Eltek (Sunic System)

SFA, SNU, Wonik IPS

Overseas ULVAC HPS Laser

Domestic AP Systems

Deposition

Donor Film operator Domestic SFA Glass Domestic Avaco, Jusung Engineering, LIG ADP AP Systems, SFA

Domestic Wonik IPS, SNU Film (Yet to be decided) Overseas ULVAC

Metal Domestic Tess, AP Systems

OLED

Encapsulation

Laser Lift Off (LLO) Domestic AP Systems Glass cutting system Domestic Top Engineering Rorze Systems

Backend process Domestic SFA, Toptec Source: Woori I&S Research Center

26


1) What is TFT? TFT is a thin-film semiconductor embedded on a glass substrate. TFT is composed of gates, drains, and sources, and controls the contrast of the display.

Poly-si and a-oxide used for OLED TFT

A-si TFT used for LCD is not suitable for OLED due to its low electron mobility. Thus, poly-si and a-oxide are used for OLED TFT thanks to their faster electron mobility (vs a-si).

Poly-si TFT Low temperature poly-si (LTPS) is widely used for conversion of a-si into poly-si. As TFT is made from glass, it is sensitive to heat; as such, low temperatures are critical to the manufacturing process. SMD uses ELA on its 5.5G mass production line, and tests employing ELA and super grain silicon (SGS) are underway at its pilot 8G line.

a-oxide TFT While electron mobility is high for LTPS, uniformity is low and production costs are lofty. Thus, development of a-oxide TFT is taking place at a rapid pace. A-oxide TFT is superior to LTPS as: 1) it requires less masks; 2) its initial equipment investment burden is small (process is similar to existing LCD mass production so relatively low investment burden); and 3) it can be used in the mass production of high resolution OLED panels. Of note, a growing number of OLED makers, including Sharp and LGD, have started using a-oxide TFT technology to produce OLED panels.

TFT technology comparison

TFT technology Advantage Disadvantage

A-si - Used for LCD, processing lines established - Uniformity (good for larger-sized displays)

- Low electron mobility and stability - Requires heating above 300oC (during processing), so low-

temperature processing needs to be developed

LTPS - Crystallization of a-si silicon using catalyst and laser - High electron mobility and transistor stability

- Need for high-temperature processing (above 400oC) - Complex processing, high processing price, need to

reduce process temperature

Organic - High flexibility, low-temperature fabrication possible so

able to use all substrates - Mass production possible using roll-to-roll processing and

inkjet printing

- Slow electron mobility—needs to be improved

Oxide - High electron mobility and uniformity - Needs high-temperature processing for stabilization - Transistor characteristics change easily during deposition

process Source: Displaybank, Woori I&S Research Center

ELA process mimetic diagram SGS process mimetic diagram

Source: Industry data Source: Industry data

27


Substrate process [LTPS]

Glass In

Buffer/a-Si:H증착

poly-Si

Gate Insulator

Gate

P+ Ion DopingN+Ion Doping

Contact Hole

Source/Drain

Passivation/Via

Anode(ITO)

Clean Deposition Lithography Etch, Strip LTPS

Clean Pre Compaction:RTA

PECVD Thermal Dehydrogenation

Crystallization:ELA

Clean Dry Etching

Clean PECVD

Sputter

P+Ion Drop

Dopant Activation:RTAClean PECVD Mask5 Dry Etching

Clean Sputter Mask6 Wet Etching

Clean PECVD Mask7 Dry Etching Hydrogenation

Clean Mask8Sputter Wet Etching

Bank Clean Mask9 Wet Etching

Mask1

Mask2 Wet Etching

Clean: Semes, KC TechDMS

PECVD:SFASputter: Ulvac

Photo: NikonCoating, Developer: Semes, DNS, TEL

Etcher: ICD,Wonik IPS,TEL

ELA:AP SystemsSGS: Tera SemiconRTA, Hydrogenation:Tera Semicon, Viatron

Other

FA:SFA, DaifukuETC: Rotze Systems,

Toptec

Mask3

Mask4 N+Ion Drop


Substrate process [Oxide]

Glass In

Gate

Clean Deposition Lithography Etch, Strip Curing

Clean

Sputter Mask1 Wet Etching

Source/Drain

Passivation/Via

Anode(ITO)

Clean PECVD Mask3 Dry Etching

Clean Sputter Mask4 Wet Etching

Clean PECVD Mask5 Dry Etching

Clean Mask6Sputter Wet Etching

PECVD:SFASputter: UlvacMOCVD:Jusung Eng.

Photo: NikonCoating, Developer: Semes, DNS, TEL

Etcher: ICD,Wonik IPS,TEL

Curing:Tera Semicon, Viatron

Other

Gate Insulator PECVD

SputterMOCVD?

Mask2 Wet Etching

Clean

Thermal Curing

Etch-Stop Layer

IGZO

Bank Clean Mask7 Wet Etching

Clean:Semes, KC TechDMS

FA:SFA, DaifukuETC: Rotze Systems,

Toptec


28


2) Deposition The deposition process refers to layering organic materials such as HTL, EML (RGB), and ETL on TFT. FMM evaporation is used on SMD’s 5.5G A2 line, and HPS (FMM evaporation and LITI) will be used on its A3 line (in order to enhance resolution). Of note, SMS will be used on its 8G V1 line.

FMM evaporation

Fine metal mask (FMM) evaporation—depositing organic materials (heated and evaporated within patterned masks)—is used on SMD’s 5.5G A2 P2 line. It is easy to apply the technology, but difficult to achieve a high resolution. Of note, the deposition of organic materials tends to generate low yields.

HPS

HPS is a combination of FMM evaporation and LITI, and will likely be used on SMD’s 5.5G A2 P3 line. The technology evaporates a charged layer and creates red and green patterns with LITI (results in high resolution). However, additional processing (vs evaporation) is necessary due to LITI, and it is difficult to scale up the process; as such, it is unlikely to be used on 8G lines.

Small mask scanning

FMM cannot be used on mass production 8G lines as the mask easily sags under the force of gravity. To complement this weakness, SMS was developed (small masks are moved in order to facilitate deposition without sagging).

OLED deposition method

Method Description

FMM Evaporating organic thin film for use in small-sized AMOLED panels Laminating organic materials, which are heated and evaporated within patterned masks Deposition of organic materials with intrinsic patterns difficult for 6G-and-above production lines

LITI Firing a laser at the donor film and glass substrate to fabricate OLED HPS Combination of the FMM and LITI methods SMS Deposition by dividing and moving areas

WOLED Using color filters on WOLED Patterning is not required if only white organic layers are formed, so balanced fabrication is possible on large areas Use of color filters can decrease color purity and brightness

Inkjet printing Print colored patterning using ink made from high-polymer materials Source: Displaybank, Woori I&S Research Center

Comparison of color patterning technologies

FMM HPS Printing WOLED Accuracy (㎛) 5 2.5 5 1.5 Glass size (G) < 6G > 6G > 6G > 6G

Resolution (ppi) 240 > 300 < 200 > 300 Lifecycle (hrs) > 60,000 ~ 20,000 ~ 5,000 ~ 5,000

Efficiency (cd/A) 20~25 18~22 12~15 12~15

Material characteristics Small molecules Small molecules Soluble (small or polymer)

Small molecules; color filter

Investment cost Middle Mid-high Low Mid-high Source: Displaybank, Woori I&S Research Center

29


SMD: HPS used on A2 P3 line onwards—capable of creating high resolution displays

Substrate PenetrationSubstrate Penetration

D/F PenetrationD/F Penetration

LITILITI


SMD: Evaporation used up until (and including) A2 P2 line—difficult to create large-sized high-resolution panels due to sagging mask phenomenon

Source: Industry data, Woori I&S Research Center

SMS expected to be used on 8G lines

Source: OLED Association

30


Deposition: HPS (FMM evaporation + LITI)

Glass In

Pre-Treatment

HIL/HTL

EML-R

EML-G

EML-B

ETL/EIL

Cathod

Clean andPlasma Treatment Deposition

Plasma Treatment

Open Mask Evaporation

Array Test

Glass Out

Evaporation: Tokki, SFALITI: AP Systems (with SFA)

Other

FA:SFADaifuku

LITI(Red)

LITI(Green)

Evaporation(Blue)

Evaporation(Blue)

ITO Sputtering

AOI

Clean: Semes, KC TechDMS


31


3) Encapsulation equipment

OLED is highly sensitive to moisture and oxygen—a basic characteristic of organic materials. Thus, encapsulation is needed to protect the organic materials. Of note, the type of encapsulation used differs by light-emitting technology (front-lit vs back-lit).

Smaller OLED panels emit light on both sides, requiring transparent encapsulation materials

For smaller OLED panels (light emitted on both sides), transparent glass or thin-film encapsulation (protecting both organic and inorganic layers) is applied.

SMD has adopted glass encapsulation on its 5.5G A2 P2 line. Going forward, the firm plans to use thin-film encapsulation on the A2 P3 line due to glass being both expensive and inflexible.

Large OLED panels emit light on their reverse, allowing flexible selection of materials

Large panels emit light on their reverse, allowing the selection of encapsulation materials to be less restricted.

Currently, SMD and LGD are developing a variety of encapsulation processes that can be used for large panels. Glass is the most common encapsulation material, but it is expensive and difficult to apply frit technology to large panels. Metal is cheaper, but yields are lower due to differences in the nature of TFT substrate and metal.

Features of encapsulation, by material

Glass Film

Advantage Effective in blocking oxygen and water Effective in protecting OLED layers

Thinner, lighter layers Shockproof

Disadvantage Vulnerable to shock Thick, heavy

Less effective in blocking oxygen and water Less effective in protecting layers when applied to touchpanel

Improvement Thickness and weight to be reduced via glass etching To be improved via deposition of organic/inorganic layers


32


Encapsulation process

Glass Encapsulation(Frit Type) Thin Film Encapsulation

PolymerPolymerPolymerPolymer

Al2O3

Frit Sealant

Encap Glass

Encap Glass

TFT Glass

Encap Glass

TFT Glass

UV Curing(Sealant)

Laser Curing(Frit)

Encap:AP Systems,Frit: LTSFrit Sintering: Tera Semicon, Viatron

Organic : SNUInorganic: Ulvac(Sputter)

Wonik IPS(ALD, PECVD)

Metal EncapsulationGlass Encapsulation(Epoxy Type)

Getter Sealant

UV Curing(Sealant)

Sealant

Encap MetalEncap Glass

Epoxy

UV Curing(Sealant)

TFT Glass

TFT Glass

Glass Encapsulation(Frit Type)

Frit Sealant

Encap Glass

Encap Glass

TFT Glass

Encap Glass

TFT Glass

UV Curing(Sealant)

Laser Curing(Frit)

Encap:AP SystemsFrit: LTSFrit Sintering: Tera Semicon, Viatron

Encap: AP System, SFA Encap:AP System

Small-Middle Size Panel Large Size Panel


33


2. OLED materials companies Core organic materials for OLED panels: HTL, EML, ETL

OLED technology is based on organic layers that emit light when electron and electron ‘holes’, injected through a cathode and anode, respectively, combine to create energy. OLED is composed of various layers including HTL, ETL, and EML. HTL is a layer through which holes can move, and electrons are carried through ETL. Light is emitted when the holes and electrons meet at the EML (red, green, and blue EML layers).

Korean OLED materials companies need to develop EML materials

Compared to LCD and semicon materials, a relatively large portion of OLED materials are supplied to Korean panel makers by Korean companies. However, Korea still imports a large portion of its EML material requirements. Given the high cost burden of EML, we believe that domestic materials makers need to develop EML in order to increase their market share in the OLED materials segment.

OLED structure OLED materials

EIL

ETL

Emitting layer

HTL

HIL

ITO

Glass substrate

AI AI

Color

Red

Green

Blue

Fluorescent Phosphorescent

O

O O

O


Global OLED materials companies

Korea Japan US and others

LG Chem Cheil Ind

Duksan Hi-Metal Doosan Electronics-CSElsolar

SFC

Idemitsu Kosan Hodogaya Chemical Shinitzu Chemical

Toray Sony Chemical

Sumation

Universal Display Corp (UDC) Eastman Kodak

DuPont Merck

Dow Chemical CDT (UK)

Novaled (Germany) Source: Woori I&S Research Center

34


HTL

HTL is a layer that carries electron ‘holes’ into the emissive layer. As HTL requires thicker deposition than other layers, to eliminate the ‘pin hole’ and ‘peak’ phenomena, HTL formation consumes more materials than the formation of other layers.

Duksan Hi-Metal dominates the Korean HTL market. However, as the HTL market is the largest among the various OLED materials markets, it has attracted many new players. CSElsolar entered the market at the end of 2011, and Cheil Industries is expected to move into the arena in 1H13. Of note, we forecast that Duksan Hi-Metal, Cheil Industries, and CSElsolar will supply a respective 40%, 35%, and 25% of SMD’s HTL needs over the mid- to long term.

EML

The holes and electrons transported through HTL and ETL come together at EML, emitting light at various wavelengths. EML materials emit either red, green, or blue depending on: the wavelength of the light, the emission type (florescent or phosphorescent), and the role played in emission (host or dopant).

The most recent EML issue is whether to introduce phosphorescent material, which has a superior theoretic luminous efficiency (75~100%) and consumes less energy (vs fluorescent). In other words, phosphorescent should help extend the battery’s charge (when it is used in high-quality display and smart devices). Thus, many companies have been developing phosphorescent EML, and sooner or later, phosphorescent is expected to replace fluorescent in EML. We note that phosphorescent is already used for red organic material, and from 2H12, phosphorescent will replace florescent for green organic material.

ETL

As mentioned earlier, ETL is a layer that moves electrons to EML. Thanks to its easier manufacturing process and low raw material costs, ETL is around 15~20% cheaper than HTL.

So far, LG Chem is the exclusive ETL supplier to SMD. However, with Cheil Industries entering the market at end-2011, we expect it to supply ETL to SMD (along with LG Chem). Given its close relationship with SMD, we project that Cheil Industries will supply 30~40% of SMD’s ETL needs by end-2012.

35


Comparison of fluorescent and phosphorescent materials

Fluorescent Phosphorescent Features Theoretic luminous efficiency 25% Theoretic luminous efficiency 75~100%Strengths Long life span Low energy consumption


Value chain for materials suppliers

Suppliers

HTL Duksan Hi-metal, Doosan-CSElsolar, Cheil Ind HIL Duksan Hi-metal ETL LG Chem, Cheil Ind

Charged layer

EIL LG Chem Host DOW Graclel Red

Phosphorescent Dopant UDC Host Duksan Hi-metal, Cheil Ind Green

Phosphorescent Dopant UDC Host Doosan-CSElsolar Green

Fluorescent Dopant UDC Host SFC

Emissive layer

Blue Fluorescent Dopant SFC


36


OLED capacity forecast

AMOLED capacity by company (Units: 1,000m2)

Manufacturer Factory MG Size

OLED Gen Cut Equip

Max MP Install MP Ramp 2008 2009 2010 2011 2012 2013 2014

AUO L4B AMOLED 1 4 2 15 MP Oct-11 Sep-12 0 0 0 0 15 111 121 AUO L3D Linkou AMOLED 1 3.25 1 7 MP Sep-10 May-12 0 0 0 0 22 39 39 BOE BOE B6 AMOLED 2 5.5 4 15 MP Jun-14 Oct-14 0 0 0 0 0 0 29

Chimei Innolux TPO Hinschu 1 1 3.25 2 8 MP Mar-13 Sep-13 0 0 0 0 0 8 45 CMEL CMEL Tainan 2 1 3.25 2 7 MP Feb-07 Jul-07 3 27 39 0 33 39 39 IRICO Foshan-Shunde 3 1 4 2 15 MP Dec-12 Jun-13 0 0 0 0 0 35 121 IRICO 2 4 2 15 MP Oct-13 Jun-14 0 0 0 0 0 0 60

Japan Display Mobara AMOLED 1 6 1 15 MP Nov-13 Jun-14 0 0 0 0 0 0 216 LG Display LGD AP1-E1 1 4 2 3 Pilot Mar-08 Sep-09 0 8 14 0 0 0 0 LG Display LGD AP2-E2 1 4 2 6 MP Dec-09 Mar-11 0 0 0 40 48 48 48 LG Display 2 4 2 5 MP Nov-10 May-11 0 0 0 19 40 40 40 LG Display LGD M1 1 8 2 4 Pilot Jul-11 May-12 0 0 0 0 132 264 264

SMD SDI A1 1 4 2 13.5 MP Apr-06 Sep-07 100 109 109 109 109 109 109 SMD 2 4 2 7 MP Aug-08 May-09 0 32 56 56 56 56 56 SMD 3 4 2 24 MP Jan-10 Jun-10 0 0 98 193 193 193 193 SMD SMD A2 1 5.5 4 24 MP Dec-10 May-11 0 0 0 328 562 562 562 SMD 2 5.5 4 32 MP Jul-11 Oct-11 0 0 0 94 702 749 749 SMD Flex-1 5.5 4 8 Pilot Aug-11 Apr-12 0 0 0 0 105 187 187 SMD Flex-2 5.5 4 24 MP Feb-12 Jun-12 0 0 0 0 293 562 562 SMD SMD A3 1 5.5 1 48 MP Nov-12 Apr-13 0 0 0 0 0 702 1123 SMD 2 5.5 1 48 MP Apr-13 Aug-13 0 0 0 0 0 304 1123 SMD 5.5 1 48 MP Jan-13 Aug-13 0 0 0 0 0 94 1053 SMD SMD A4 1 5.5 1 48 MP Apr-14 Jan-15 0 0 0 0 0 0 0SMD 2 5.5 1 48 MP - - 0 0 0 0 0 0 0SMD 3 5.5 1 48 MP - - 0 0 0 0 0 0 0SMD SMD V1 1 8 1 30 MP Jan-13 Aug-13 0 0 0 0 0 495 1980 SMD SMD V1 Pilot 1 8 6 6 Pilot Aug-11 Apr-12 0 0 0 0 121 385 396 SMD SMD V2 1 8 1 30 MP Jan-14 Aug-14 0 0 0 0 0 0 495

Panasonic IPSA Himeji 1 1 5 1 5 Pilot Jun-12 Dec-12 0 0 0 0 4 50 50 TMDisplay Ishikawa 1 4 2 4 MP Nov-08 Oct-12 0 0 0 0 3 30 32

Total 102 176 316 881 2,483 5,114 9,750Source: DisplaySearch, Woori I&S Research Center estimates

www.wooriwm.com

OLED momentum reloaded

Initiate at Buy and target price of W115,000

– We initiate coverage on Cheil Industries at Buy and a target price of W115,000.

– Our sum-of-the-parts derived target price offers upside potential of 25.3%.

OLED momentum reloaded

– Viewing the company’s shares as being highly sensitive to OLED-related earnings, our high valuation reflects expectations for its electronic materials (EM) division(which is strongly related to OLED materials).

– Among the company’s OLED materials units, the ETL unit is expected to see tangible growth in 2012, owing to: 1) the positive results of SMD’s quality assessment; 2) SMD’s move toward lessening dependency on LG Chem. We forecast that Cheil Ind will supply 20% of SMD’s ETL needs by yearend.

– Cheil Ind is also in the process of developing both a variety of OLED materials (including HTL and donor film) and semiconductor processing materials. The EMdivision’s contribution to total earnings should strengthen gradually going forward. In line with the Samsung Group’s focus on developing a core materials company, Cheil Ind will likely become a global electronic materials player.

Chemical and fashion divisions: Margins to improve on output growth and decrease in fixed costs

– Going forward, the chemical division should experience both top- and bottom-line growth. Moreover, shipment volume is expected to increase on: 1) the anticipated continuation of the recovery in IT product demand; and 2) completion of EP capacity expansion in 3Q12. Margins should gradually improve in line with likelydecreased fixed costs.

– We believe that the fashion division will remain a steady cash cow for the company. Stable earnings growth should be possible, as: 1) following continuallosses, a turnaround is expected for women’s wear unit; and 2) the division’s already diverse product portfolio should be positively impacted by the launch of new brand SPA ‘8 Seconds’.

Price trend

0

50

100

150

200

'11.4 '11.6 '11.8 '11.10 '11.12 '12.2 '12.4

Cheil Industries

KOSPI

Cheil Ind (001300.KS) Company Analysis May 7, 2012

Sales Chg OP NP NP to parent EPS Chg P/E P/B EV/EBITDA ROE Debt/equity Net debtYE-Dec (Wbn) (%) (Wbn) (Wbn) (Wbn) (won) (%) (x) (x) (x) (%) (%) (Wbn)

2010 5,113 16.1 343 273 279 5,573 132.5 19.9 2.0 12.2 11.8 46.0 281 2011 5,581 9.2 222 259 259 5,079 -8.9 19.9 1.6 15.7 8.7 53.3 754

2012E 6,184 10.8 383 295 295 5,621 10.7 16.3 1.4 9.0 8.8 52.9 783 2013F 6,836 10.6 438 330 330 6,301 12.1 14.6 1.3 8.0 9.1 52.3 677 2014F 7,553 10.5 493 368 368 7,016 11.4 13.1 1.2 7.1 9.4 51.6 559

Note: IFRS basis, but operating profit based on adjusted operating income (gross profit – SG&A expenses); EPS, P/E and ROE excluding minority interests based on consensus Source: Woori I&S Research Center estimates

Buy (Initiate)



TP W115,000 (Initiate)CP (’12/04/25) W91,800

Sector ChemicalsKospi 1,961.98Kosdaq 483.48Market cap (common) W4,813.8bnOutstanding shares (common) 52.4mn shrs52W high (’11/05/31) W138,000 low (’11/09/26) W74,000Dividend yield (2011) 0.7%Foreign ownership 24.3%Major shareholders National Pension Service (NPS) 7.7%Samsung Card and 5 others 7.3%

Share performance (%)3M 6M 12MAbsolute -10.9 -8.2 -27.7Relative -11.3 -11.6 -18.4

38

Cheil Ind www.wooriwm.com

II. Valuations Initiate with Buy and target price of W115,000

We initiate coverage on Cheil Ind with a Buy rating and a target price of W115,000. Our target price was derived using the sum of operating value (based on RIM) and asset value (based on sum-of-the-parts valuation). The RIM-derived calculations assume a market risk premium of 6.0%, a risk free rate of 4.0%, and a beta of 1.2, with a CoE of 11.2%. Our target price equates to 20.5x 2012 EPS (W5,621) and 18.3x 2013 EPS (W6,301).

RIM-derived operating value (Units: Wbn, won)

2012E 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023FNet profit 295 330 368 392 487 639 774 918 1,077 1,282 1,474 1,737 Shareholder’s equity 3,473 3,765 4,095 4,449 4,898 5,499 6,211 7,038 7,987 9,090 10,329 11,754

Forecast ROE (FROE) 8.8% 9.1% 9.4% 9.2% 10.4% 12.3% 13.2% 13.9% 14.3% 15.0% 15.2% 15.7%Spread (FROE-COE) -2.4% -2.1% -1.8% -2.0% -0.8% 1.1% 2.0% 2.7% 3.1% 3.8% 4.0% 4.5%

Residual income -80 -75 -72 -87 -37 57 118 176 236 325 386 501

Cost of equity (COE) 11.2% Beta 1.2 Market risk premium (Rm-Rf) 6.0% Risk-free rate (Rf) 4.0%

Beginning shareholder’s equity 3,216 PV of forecast period RI 374 PV of continuing value 1,175

Equity value (C+P) 4,765 Number of shares (common, mn) 52 12m TP Fair price (C) 101,053 Current price (C) 91,800 Upside (-downside) 10.1% Implied P/B (x) 1.6 Implied P/E (x) 17.3

Note: The residual income model (RIM) is a cash flow approach that yields a fair shareholder value (value of equity) by adding shareholders’ equity and present value of residual

income (meaning income excluding cost of equity). Value of equity = shareholders’ equity + sum of present value of future residual income * Residual income (RIt) = NP (t) – shareholders’ equity(t-1) * cost of equity (t)= shareholders’ equity (t-1) * (ROEt - COEt) Woori I&S uses RIM as our primary valuation model as RIM is an objective model that minimizes subjectivity of valuation indicators while producing same results as the

dividend discount model (DDM) and DCF.

Market risk premium assessment guidelines Mega cap Large cap Mid cap Small cap

Criteria Market cap of W10tn or higher + credit rating of 'AAA' or higher

Market cap of W1~10tn + credit rating of 'A0' or higher

Market cap of W200bn-1tn + credit rating of 'BBB+' or higher

Market cap of less than W200bn + credit rating of 'BBB-' or higher

Risk premium 5.2% 6.0% 7.0% 8.0% * Risk Free Rate = 4.0%( standardized)

39


Sum-of-the-parts and RIM valuations (Units: Wbn)

1. Operating value Operating value RIM-derived operating value Net debt Value 5,299.0 +783.0 5,817.4

2. Asset value Book value Estimated value Discount ValueListed shares 689.5 1,261.5 20.0% 1,009.2Unlisted shares 269.7 269.7 20.0% 215.8 Shares subject to equity-method valuation 112.3 95.6 20.0% 76.5 Sub-total 1,071.5 1,626.9 1,301.5Note: Listed shares based on closing prices on Apr 24

Unlisted shares based on book value Shares subject to equity-method valuation based on book value

3. Fair value Number of shares (‘000) 52,438 Treasury shares (‘000) 1,865 Sum of operating and asset value (Wbn) 5,817.4 Fair value (won) 115,031.4

40


III. Earnings forecasts 1Q12 preview: Forecast sales of W1,441.4bn, operating profit of W94.6bn

We forecast consensus-beating 1Q12 sales of W1,441.4bn (up 3.9% q-q) and operating profit of W94.6bn (up 86.2% q-q). In particular, we expect a sharp rise in operating profit on: 1) likely improved margins at the EM division thanks to the softer yen; and 2) lower fixed costs at the chemical division on likely resilient IT industry conditions and higher shipments.

Earnings to improve gradually in 2012

We project full-year 2012 sales of W6,183.8bn (up 10.7% y-y) and adjusted operating profit of W383.2bn (up 80.9% y-y), backed by: 1) anticipated growth at the EM division thanks to increased supply of semiconductor and OLED materials; 2) the chemical unit benefiting from resilient IT demand; and 3) likely top-line growth at the fashion division on the launch of new brands. We believe that Cheil Ind’s supply of high-margin OLED materials will justify its high valuations.

Earnings forecasts (Units: Wbn, won, x, %)

2011 2012E 2013F 2014FSales 5,581 6,184 6,836 7,553 Operating profit 222 383 438 493 EBITDA 384 622 689 756 Net profit 259 295 330 368 EPS 5,079 5,621 6,301 7,016 P/E 19.9 16.3 14.6 13.1 P/B 1.6 1.4 1.3 1.2 EV/EBITDA 15.7 9.0 8.0 7.1 ROE 8.7 8.8 9.1 9.4 Source: Woori I&S Research Center estimates

41


Sales breakdown Operating profit breakdown

0 200 400 600 800

1,000 1,200 1,400 1,600 1,800

1Q10 3Q10 1Q11 3Q11 1Q12E 3Q12F

Fashion

E.M

Chemical

(Wbn)

0

20

40

60

80

100

120

1Q10 3Q10 1Q11 3Q11 1Q12F 3Q12F

Fashion

E.M

Chemical

(Wbn)

Source: Cheil Ind, Woori I&S Research Center estimates Source: Cheil Ind, Woori I&S Research Center estimates

Chemical product prices ABS, PS spreads

0

1,000

2,000

3,000

4,000

5,000

'08.1 '08.8 '09.3 '09.10 '10.5 '10.12 '11.8 '12.3

ABS PSSM ANBD

($MT)

-400

-200

0

200

400

600

800

1,000

'08.4 '08.11 '09.6 '10.1 '10.9 '11.4 '11.11

PS spread

ABS spread

($MT)

Source: Datastream, Woori I&S Research Center Source: Datastream, Woori I&S Research Center

OLED capacity at SMD OLED materials (ETL) supply for SMD

0

2,000

4,000

6,000

8,000

10,000

2011 2012E 2013F 2014F

(000m2)

0

2

4

6

8

10

12

14

2012E 2013F 2014F

Cheil. Ind

Others

(ton)

Source: Woori I&S Research Center estimates Source: Woori I&S Research Center estimates

42


Quarterly earnings

1Q11 2Q11 3Q11 4Q11 1Q12E 2Q12F 3Q12F 4Q12F 2011 2012E 2013F

Sales (Wbn) Chemical 621.0 650.3 592.6 550.8 618.1 636.4 723.2 669.9 2,414.7 2,647.6 2,904.5 EM 383.7 406.5 395.6 361.5 402.3 444.3 471.2 463.7 1,547.4 1,781.6 2,031.3 Fashion 394.9 423.9 328.9 471.2 421.0 452.4 372.7 508.5 1,618.9 1,754.6 1,900.5 Total 1,399.6 1,480.7 1,317.1 1,383.5 1,441.4 1,533.1 1,567.1 1,642.1 5,581.0 6,183.8 6,836.3

Operating profit (Wbn) Chemical 35.5 23.0 2.3 9.7 24.3 28.6 41.2 32.2 70.5 126.3 140.7 EM 36.4 26.9 68.1 17.8 47.2 37.6 48.8 44.0 149.2 177.7 205.1 Fashion 28.7 11.1 5.3 23.3 23.2 20.5 13.3 24.7 68.4 81.7 96.6 Total 100.6 61.0 75.7 50.8 94.6 86.8 103.3 100.9 286.5 385.7 442.4 Adj operating profit (Wbn) 79.2 61.3 28.1 53.8 75.6 84.7 100.0 122.9 221.8 383.2 437.5

Operating margin Chemical 5.7% 3.5% 0.4% 1.8% 3.9% 4.5% 5.7% 4.8% 2.9% 4.8% 4.8%EM 9.5% 6.6% 17.2% 4.8% 11.7% 8.5% 10.4% 9.5% 9.6% 10.0% 10.1%Fashion 7.3% 2.6% 1.6% 5.0% 5.5% 4.5% 3.6% 4.9% 4.2% 4.7% 5.1%Total 7.2% 4.1% 5.7% 3.7% 6.6% 5.7% 6.6% 6.1% 5.1% 6.2% 6.5%

Sales growth q-q Chemical 5.2% 4.7% -8.9% -7.0% 12.2% 3.0% 13.6% -7.4% 6.5% 9.6% 9.7%EM 8.9% 5.9% -2.7% -5.9% 8.0% 10.4% 6.1% -1.6% 10.3% 14.3% 14.0%Fashion -4.9% 7.3% -22.4% 41.2% -9.4% 7.5% -17.6% 36.4% 12.5% 8.8% 8.3%Total 3.1% 5.8% -11.0% 5.4% 3.9% 6.4% 2.2% 4.8% 9.2% 10.7% 10.6%Operating profit growth q-q

Chemical 7.3% -35.2% -90.0% 321.7% 150.1% 18.0% 43.9% -22.0% -57.6% 79.1% 11.4%EM 1,003.0% -26.1% 153.2% -73.9% 164.9% -20.2% 29.7% -9.8% 43.6% 19.1% 15.5%Fashion 124.2% -61.3% -52.3% 339.6% -0.3% -11.8% -35.2% 86.2% 14.4% 19.5% 18.2%Total 104.5% -39.4% 24.1% -32.9% 86.3% -8.3% 19.1% -2.3% -13.2% 34.6% 14.7%

% of sales Chemical 44.4% 43.9% 45.0% 39.7% 42.9% 41.5% 46.1% 40.8% 43.2% 42.8% 42.5%EM 27.4% 27.5% 30.0% 26.8% 27.9% 29.0% 30.1% 28.2% 27.9% 28.8% 29.7%Fashion 28.2% 28.6% 25.0% 33.5% 29.2% 29.5% 23.8% 31.0% 28.9% 28.4% 27.8%Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

% of operating profit Chemical 35.3% 37.7% 3.0% 19.1% 25.6% 33.0% 39.9% 31.9% 24.6% 32.7% 31.8%EM 36.2% 44.1% 90.0% 35.0% 49.8% 43.4% 47.3% 43.6% 52.1% 46.1% 46.4%Fashion 28.5% 18.2% 7.0% 45.9% 24.5% 23.6% 12.9% 24.5% 23.9% 21.2% 21.8%Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Note: IFRS consolidated basis Source: Woori I&S Research Center estimates

43


STATEMENT OF COMPREHENSIVE INCOME VALUATION INDEX (Wbn) 2011/12A 2012/12E 2013/12F 2014/12F 2011/12A 2012/12E 2013/12F 2014/12FSales 5,581 6,184 6,836 7,553 Price/Earnings (x) 19.9 16.3 14.6 13.1 Growth (%) 9.2 10.8 10.6 10.5 P/E (High, x) 27.5 19.5 17.4 15.6 COGS 3,997 4,376 4,910 5,494 P/E (Low, x) 13.9 16.1 14.4 12.9 Gross Profit 1,584 1,808 1,926 2,060 Price/ Book Value (x) 1.6 1.4 1.3 1.2 Gross margin (%) 28.4 29.2 28.2 27.3 P/B (High, x) 2.3 1.7 1.5 1.4 SG&A 1,361 1,425 1,488 1,567 P/B (Low, x) 1.2 1.4 1.3 1.2 GAAP Operating Income 222 383 438 493 Price/ Gross Cash Flow (x) 12.5 7.9 7.1 6.5 GAAP Operating margin (%) 4.0 6.2 6.4 6.5 Price/ Sales (x) 0.9 0.8 0.7 0.6 Other Operating Income(Exp.) 65 2 5 8 P/E/ EPS growth (x) 1.7 1.6 1.1 0.6 EBITDA 384 622 689 756 P/E/ EBITPS growth (x) 0.7 1.4 1.0 0.7 Operating Income 287 386 442 501 P/E/ EBITDAPS growth (x) 0.8 1.8 1.4 0.9 Operating margin (%) 5.1 6.2 6.5 6.6 EV/ EBITDA (x) 15.7 9.0 8.0 7.1 Financial Income(Costs) -24 -39 -39 -41 EV/ EBIT (x) 27.2 14.6 12.6 10.9 Other Non-Operating Profits 0 0 0 0 Enterprise Value (Wbn) 6,050 5,597 5,492 5,373 Gains(Losses) in Associates, Subsidiaries and JVs 12 0 0 0 EPS CAGR (3-Yr) (%) 11.4 9.9 13.8 20.2 Pre-tax Profit from Cont. Op. 276 347 403 460 EBITPS CAGR (3-Yr) (%) 29.2 11.6 14.2 19.6 Income Taxes 17 52 73 92 EBITDAPS CAGR (3-Yr) (%) 24.1 9.0 10.5 14.3 Profit from Continuing Op. 259 295 330 368 EBITPS (won) 4,361 7,308 8,344 9,400 Net Profit 259 295 330 368 EBITDAPS (won) 7,531 11,857 13,148 14,410 Net margin (%) 4.6 4.8 4.8 4.9 Fully diluted EPS (won) 5,079 5,621 6,301 7,016 Net Profit of Parent 259 295 330 368 BVPS (won) 61,333 66,231 71,808 78,101 Net Profit to Non-Controlling 0 0 0 0 CFPS (won) 8,073 11,566 12,888 14,169 Other Comprehensive Income -68 0 0 0 Sales PS (won) 109,399 117,926 130,369 144,038 Total Comprehensive Income 191 295 330 368 DPS (won) 750 750 750 750

CASH FLOW STATEMENT RIM & EVA (Wbn) 2011/12A 2012/12E 2013/12F 2014/12F 2011/12A 2012/12E 2013/12F 2014/12FOperating Cash Flow 195 484 527 570 RIM Net Profit 259 295 330 368 Spread (FROE-COE) (%) 0.4 0.4 1.0 1.3 Depreciation & Amortization 162 239 252 263 Residual Income 10.7 -79.8 -75.0 -72.3 + Loss(Gains) from Subs -57 0 0 0 12M RIM Target Price (won) 101,053 + FC translation loss(profit) 0 0 0 0 EVA + Losses(Gains) on Disposal of Assets 3 0 0 0 Invested Capital 2,586.6 2,845.1 2,990.2 3,143.1 Gross Cash Flow 412 607 676 743 NOPAT 184.5 350.6 385.7 423.9 - Incr. (Decr.) in WC -155 -49 -55 -60 ROIC (%) 8.6 12.9 13.2 13.8 Investing Cash Flow -333 -478 -384 -414 ROIC - WACC (%) 1.6 6.0 6.5 7.2 + Decr. In Tangible Assets 2 0 0 0 EVA 41.8 170.3 194.8 227.0 - Incr. In Tangible Assets (capex) -327 -420 -300 -300 DCF + Disp.(Acq.) of Inv. Assets 10 -57 -74 -93 EBIT 222.5 383.2 437.5 492.9 Free Cash Flow -133 64 227 270 + Depreciation/Amortization 162 239 252 263 Net Cash Flow -138 6 143 156 - Capex -327.3 -420.0 -300.0 -300.0 Financing Cash Flow 202 -4 -6 -6 - Incr. (Decr.) in Working Capital -206.0 -77.1 -87.0 -95.6 Equity Financing 294 0 0 0 Free Cash Flow for Firm 249.6 221.4 397.7 452.6 Debt Financing -92 -4 -6 -6 WACC Incr.(Decr.) in Cash 63 2 137 151 Cost of Debt (Tax Adj.) 4.5 4.1 4.0 3.9 Ending Cash and Cash Equivalents 96 99 236 387 Cost of Equity (COE) 8.3 8.4 8.1 8.0 Net Debt (Cash) 754 783 677 559 WACC (%) 7.0 6.9 6.7 6.6

STATEMENT OF FINANCIAL POSITION PROFITABILITY & STABILITY (Wbn) 2011/12A 2012/12E 2013/12F 2014/12F 2011/12A 2012/12E 2013/12F 2014/12FCash and Cash Equivalents 96 99 236 387 ROE (%) 8.7 8.8 9.1 9.4 Accounts Receivables 485 536 593 655 ROA (%) 5.8 5.8 6.0 6.2 Total Current Assets 1,435 1,578 1,871 2,193 ROIC (%) 8.6 12.9 13.2 13.8 Tangible Assets 1,491 1,680 1,737 1,784 EBITDA/ equity (%) 11.9 17.9 18.3 18.4 Investment Assets 1,482 1,539 1,613 1,706 EBITDA/ asset (%) 7.8 11.7 12.0 12.2 Non-Current Assets 3,496 3,735 3,867 4,017 Dividend Yield (%) 0.7 0.8 0.8 0.8 Assets 4,931 5,313 5,738 6,211 Payout Ratio (%) 13.9 12.9 11.5 10.3 Short-Term Debt 271 291 313 337 Total Cash Dividend (Wbn) 36 38 38 38 Account Payables 280 310 343 378 Cash DPS (won) 750 750 750 750 Current Liabilities 864 948 1,039 1,139 Net debt(cash)/ equity (%) 23.4 22.5 18.0 13.6 Long-Term Debt 581 594 604 612 Debt/ equity (%) 53.3 52.9 52.3 51.6 Long-Term Allowance 38 42 47 51 Net interest exp/ sales (%) 510.7 678.7 636.4 596.5 Non-Current Liabilities 850 892 933 975 Interest coverage (x) 7.8 9.1 10.1 10.9 Liabilities 1,714 1,839 1,971 2,114 Current Ratio (%) 166.0 166.5 180.1 192.6 Capital Stock 262 262 262 262 Quick Ratio (%) 80.0 79.9 92.7 104.5 Capital Surplus 702 702 702 702 Total shares (mn) 52 52 52 52 Retained Earnings 1,386 1,643 1,936 2,266 Par value (won) 5,000 5,000 5,000 5,000 Non-Controlling Interests Equity 1 1 1 1 Share price (won) 101,000 91,800 91,800 91,800 Shareholders' Equity 3,217 3,474 3,766 4,096 Market Cap (Wbn) 5,296 4,814 4,814 4,814

www.wooriwm.com

Strong growth momentum to offset negatives

Initiate coverage with Buy rating and target price of W33,000

– We initiate our coverage on Duksan Hi-Metal with a Buy recommendation and a target price of W33,000.

– Our RIM-derived target price assumes a market risk premium of 7.0%, a risk free rate of 4.0%, and a beta of 1.2, with a CoE of 12.4%.

Benefits from growing OLED industry to exceed weight of falling market share and ASP cut pressure

– Duksan Hi-Metal should enjoy strong 2012 top-line expansion (up 14.7% y-y), despite: 1) a likely falling market share upon the entry of new competitors; and 2) price-cutting pressure.

– Going forward, Duksan Hi-Metal Business should enjoy a favorable environment, backed by: 1) the start of operations of SMD’s A3 and V1 lines; and 2) likely additional HTL demand in the wake of SMD’s adoption of a two-track (RGB, WOLED) strategy. Of note, WOLED consumes 50~100% more HTL than RGB.

– Furthermore, Duksan Hi-Metal should be a primary beneficiary of OLED industry expansion, supported by the tendency of client companies to limit their number of vendors to three or less in order to prevent technology leaks.

To see steady demand growth on expansion of solder ball market

– We believe that the company’s solder ball division is well positioned to continue enjoying steady growth, expecting smart devices to continue becoming smaller, thinner, lighter, and simpler, thereby spurring multi-chip package (MCP) and package-on-package (POP) demand.

– Of note, DDR3 manufacturing requires 78 solder balls per unit; in contrast, an average of 150 solder balls per unit are required for MCP and POP (200 solder balls needed for moviMCP).

Price trend

0

50

100

150

200

'11.4 '11.6 '11.8 '11.10 '11.12 '12.2 '12.4

DS Hi-metal

KOSDAQ

Duksan Hi-Metal (077360.KQ) Company Analysis May 7, 2012


2010 72 125.5 13 10 10 409 82.7 49.6 6.3 23.6 12.4 19.7 6 2011 129 78.6 39 35 35 1,181 83.7 21.5 5.4 17.0 29.0 9.6 -18

2012E 148 14.7 40 34 34 1,153 -2.4 21.5 4.2 15.0 21.8 8.5 -33 2013F 198 33.3 62 51 51 1,744 51.3 14.2 3.3 9.6 25.9 8.0 -54 2014F 234 18.5 81 67 67 2,272 30.2 10.9 2.5 7.1 26.0 6.9 -94


Buy (Initiate)



TP W33,000 (Initiate)CP (’12/04/25) W24,800

Sector SemiconductorsKospi 1,961.98Kosdaq 483.48Market cap (common) W728.9bnOutstanding shares (common) 29.4mn shrs52W high (’11/08/03) W30,150 low (’11/05/23) W19,800Dividend yield (2011) 0.0%Foreign ownership 16.2%Major shareholders Jun-Ho Lee and 11 others 42.0%

Share performance (%)3M 6M 12MAbsolute +0.4 -10.1 +4.4Relative +6.2 -8.4 +14.2

45

Duksan Hi-Metal www.wooriwm.com

II. Valuation

1. Target price of W33,000 based on RIM valuation Target price of W33,000—36% upside potential

We initiate our coverage on Duksan Hi-Metal with a Buy recommendation and a target price of W33,000. Our RIM-derived target price assumes a market risk premium of 7.0%, a risk free rate of 4.0%, and a beta of 1.2, with a CoE of 12.4%. The target price is equivalent to a 2012 P/E of 28.6x (EPS forecasted at W1,153) and a 2013 P/E of 18.9x (EPS at W1,744).

RIM valuation (Units: Wbn, won)

2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023FNet profit 34 51 67 82 108 140 170 207 250 303 364 433 Shareholder’s equity 172 224 290 372 480 620 787 985 1,221 1,500 1,827 2,208

Forecast ROE (FROE) 21.8% 25.9% 26.0% 24.7% 25.3% 25.5% 24.1% 23.4% 22.7% 22.3% 21.9% 21.5%Spread (FROE-COE) 9.4% 13.5% 13.6% 12.3% 12.9% 13.1% 11.7% 11.0% 10.3% 9.9% 9.5% 9.1%

Residual income 15 27 35 41 55 72 82 97 114 134 157 183

Cost of equity (COE) 12.4% Beta 1.2 Market risk premium (Rm-Rf) 7.0% Risk-free rate (Rf) 4.0%

Beginning shareholder’s equity 139 PV of forecast period RI 410 PV of continuing value 317

Equity value (C+P) 866 No of shares (common, thou) 29 12m TP Fair price (C) 33,105 Current price (C) 24,800 Upside (-downside) 33.5% Implied P/B (x) 6.5 Implied P/E (x) 24.5

Note: The residual income model is a cash flow approach that yields a fair shareholder value (value of equity) by adding shareholders’ equity and present value of residual income (meaning income excluding cost of equity).

Value of equity = shareholders’ equity + sum of present value of future residual income * Residual income (RIt) = NP (t) – shareholders’ equity (t-1) * cost of equity (t)= shareholders’ equity (t-1) * (ROEt - COEt) Woori I&S uses RIM as our primary valuation model as RIM is an objective model that minimizes subjectivity of valuation indicators while producing same results as the

dividend discount model (DDM) and DCF.

Market risk premium assessment guidelines Mega cap Large cap Mid cap Small cap

Criteria Market cap of W10tn or higher + credit rating of 'AAA' or higher

Market cap of W1~10tn + credit rating of 'A0' or higher

Market cap of W200bn-1tn + credit rating of 'BBB+' or higher

Market cap of less than W200bn + credit rating of 'BBB-' or higher

Risk premium 5.2% 6.0% 7.0% 8.0% * Risk Free Rate = 4.0%( standardized)

46


III. Earnings forecasts 1Q12 preview: Estimate sales of W32.6bn and operating profit of W8.3bn

We predict that Duksan Hi-Metal will post 1Q12 sales of W32.6bn (down 11.6% q-q), and operating profit of W8.3bn (down 30.2%). We attribute the likely disappointing earnings to: 1) the entry of new competitors into the HTL market; 2) lower ASPs; and 3) a likely lack of a significant increase in SMD’s OLED shipments (based on area). However, we expect to see Duksan Hi-Metal’s earnings improve gradually going forward, based on: 1) anticipated material demand growth following the start of operations of SMD’s A2 P3 line in 2Q12; and 2) the likelihood that its market share will remain stable.

2012 annual earnings forecasts: Earnings growth to weaken slightly y-y

Looking at full-year 2012, we believe that Duksan Hi-Metal will register sales of W148.4bn (up 14.7% y-y) and operating profit of W39.3bn (up 12.4% y-y). The company’s earnings growth should weaken y-y on: 1) a market share decline upon the entry of new competitors; and 2) lower ASPs.

However, we expect earnings growth momentum to pick up strongly after 2H12, believing that HTL demand will surge in the wake of: 1) the start up of operations of SMD’s A2 P3 line in 2Q12 and of its A3 line in 2012; and 2) anticipated mass production of WOLED TVs. Furthermore, any decline in market share should be limited as Duksan Hi-Metal should be a primary beneficiary of anticipated OLED industry expansion, supported by the tendency of client companies to limit their number of vendors to three or less in order to prevent technology leaks. All in all, we view Duksan Hi-Metal as being positioned to be a primary beneficiary of anticipated growth of the OLED industry going forward.

Quarterly sales and operating profit forecasts (Units: Wmn, %)

1Q11 2Q11 3Q11 4Q11 1Q12E 2Q12F 3Q12F 4Q12F 2011 2012E 2013FSales 23,256 33,860 35,370 36,955 32,671 36,974 38,408 40,351 129,441 148,404 197,778

Semicon 12,576 15,217 16,117 15,494 15,240 16,218 17,700 17,866 59,404 67,024 73,493 Organic materials 10,680 18,643 19,253 21,461 17,431 20,756 20,708 22,485 70,037 81,380 124,285

Adj operating profit 5,580 8,540 11,061 14,157 8,570 9,932 10,684 11,072 39,338 40,258 62,462Adj operating margin 24.0 25.2 31.3 38.3 26.2 26.9 27.8 27.4 30.4 27.1 31.6 Operating profit 5,517 8,474 9,832 10,902 8,377 9,867 10,180 10,674 34,726 39,098 61,162 Operating margin 23.7 25.0 27.8 29.5 25.6 26.7 26.5 26.5 26.8 26.3 30.9 Source: Woori I&S Research Center estimates

47


Sales breakdown, by business (2012E) Sales, operating profit, and operating margin

Solderball44%

OrganicMaterials

56%

0

10

20

30

40

50

1Q10 3Q10 1Q11 3Q11 1Q12E 3Q12F

0

10

20

30

40

50Sales (LHS)Adj operating profit (LHS)Adj operating margin (RHS)

(Wbn) (%)

Source: Duksan Hi-Metal, Woori I&S Research Center estimates Source: Duksan Hi-Metal, Woori I&S Research Center estimates

WOLED structures

Single EML Multi EML Tandem

Source: Industry data

48


STATEMENT OF COMPREHENSIVE INCOME VALUATION INDEX (Wbn) 2011/12A 2012/12E 2013/12F 2014/12F 2011/12A 2012/12E 2013/12F 2014/12FSales 129 148 198 234 Price/Earnings (x) 21.5 21.5 14.2 10.9 Growth (%) 78.6 14.7 33.3 18.5 P/E (High, x) 27.3 23.9 15.8 12.1 COGS 76 92 115 131 P/E (Low, x) 16.3 18.4 12.2 9.4 Gross Profit 53 57 83 104 Price/ Book Value (x) 5.4 4.2 3.3 2.5 Gross margin (%) 41.1 38.3 41.7 44.3 P/B (High, x) 6.8 4.7 3.6 2.8 SG&A 14 17 20 23 P/B (Low, x) 4.1 3.6 2.8 2.2 GAAP Operating Income 39 40 62 81 Price/ Gross Cash Flow (x) 16.2 16.1 10.5 8.2 GAAP Operating margin (%) 30.4 27.1 31.6 34.4 Price/ Sales (x) 5.7 4.9 3.7 3.1 Other Operating Income(Exp.) -5 -1 -1 -1 P/E/ EPS growth (x) 0.9 0.6 0.5 0.4 EBITDA 43 46 70 90 P/E/ EBITPS growth (x) 0.8 0.6 0.5 0.4 Operating Income 35 39 61 79 P/E/ EBITDAPS growth (x) 0.8 0.7 0.5 0.4 Operating margin (%) 26.8 26.3 30.9 33.8 EV/ EBITDA (x) 17.0 15.0 9.6 7.1 Financial Income(Costs) 0 1 1 2 EV/ EBIT (x) 18.5 17.3 10.8 7.9 Other Non-Operating Profits 0 0 0 0 Enterprise Value (Wbn) 728 696 675 635 Gains(Losses) in Associates, Subsidiaries and JVs 0 0 0 0 EPS CAGR (3-Yr) (%) 24.4 34.1 28.2 28.1 Pre-tax Profit from Cont. Op. 35 40 63 81 EBITPS CAGR (3-Yr) (%) 26.8 34.4 27.1 27.1 Income Taxes 0 6 11 15 EBITDAPS CAGR (3-Yr) (%) 27.9 33.1 26.4 26.2 Profit from Continuing Op. 35 34 51 67 EBITPS (won) 1,344 1,370 2,125 2,743 Net Profit 35 34 51 67 EBITDAPS (won) 1,464 1,577 2,389 3,059 Net margin (%) 26.7 22.8 25.9 28.5 Fully diluted EPS (won) 1,181 1,153 1,744 2,272 Net Profit of Parent 35 34 51 67 BVPS (won) 4,713 5,866 7,611 9,883 Net Profit to Non-Controlling 0 0 0 0 CFPS (won) 1,563 1,542 2,354 3,026 Other Comprehensive Income 0 1 0 0 Sales PS (won) 4,424 5,049 6,729 7,973 Total Comprehensive Income 35 35 51 67 DPS (won) 0 0 0 0

CASH FLOW STATEMENT RIM & EVA (Wbn) 2011/12A 2012/12E 2013/12F 2014/12F 2011/12A 2012/12E 2013/12F 2014/12FOperating Cash Flow 36 37 52 71 RIM Net Profit 35 34 51 67 Spread (FROE-COE) (%) 16.7 9.4 13.8 14.0 Depreciation & Amortization 3 6 8 9 Residual Income 19.9 14.6 26.7 34.9 + Loss(Gains) from Subs 0 0 0 0 12M RIM Target Price (won) 33,105 + FC translation loss(profit) 0 0 0 0 EVA + Losses(Gains) on Disposal of Assets 0 0 0 0 Invested Capital 120.2 139.0 169.0 195.3 Gross Cash Flow 46 45 69 89 NOPAT 39.3 34.3 51.5 66.3 - Incr. (Decr.) in WC -7 -3 -7 -5 ROIC (%) 37.8 26.5 33.5 36.4 Investing Cash Flow -15 -42 -38 -36 ROIC - WACC (%) 26.2 14.8 22.0 25.0 + Decr. In Tangible Assets 0 0 0 0 EVA 31.5 20.6 37.1 48.8 - Incr. In Tangible Assets (capex) -22 -22 -30 -30 DCF + Disp.(Acq.) of Inv. Assets 11 0 -1 -1 EBIT 39.3 40.3 62.5 80.6 Free Cash Flow 14 15 22 41 + Depreciation/Amortization 3 6 8 9 Net Cash Flow 22 -5 14 35 - Capex -22.1 -22.0 -30.0 -30.0 Financing Cash Flow -6 0 1 0 - Incr. (Decr.) in Working Capital -8.2 -2.9 -7.7 -5.7 Equity Financing 6 0 0 0 Free Cash Flow for Firm 28.4 21.3 36.6 51.1 Debt Financing -12 0 1 0 WACC Incr.(Decr.) in Cash 15 -5 15 35 Cost of Debt (Tax Adj.) 4.0 3.4 3.4 3.4 Ending Cash and Cash Equivalents 21 16 30 66 Cost of Equity (COE) 12.3 12.4 12.1 12.0 Net Debt (Cash) -18 -33 -54 -94 WACC (%) 11.6 11.7 11.5 11.4

STATEMENT OF FINANCIAL POSITION PROFITABILITY & STABILITY (Wbn) 2011/12A 2012/12E 2013/12F 2014/12F 2011/12A 2012/12E 2013/12F 2014/12FCash and Cash Equivalents 21 16 30 66 ROE (%) 29.0 21.8 25.9 26.0 Accounts Receivables 9 10 13 16 ROA (%) 25.5 20.0 23.9 24.2 Total Current Assets 46 65 96 143 ROIC (%) 37.8 26.5 33.5 36.4 Tangible Assets 65 82 105 126 EBITDA/ equity (%) 30.9 26.9 31.4 31.0 Investment Assets 4 4 6 7 EBITDA/ asset (%) 28.2 24.8 29.1 28.9 Non-Current Assets 106 122 146 168 Dividend Yield (%) 0.0 0.0 0.0 0.0 Assets 152 187 242 311 Payout Ratio (%) 0.0 0.0 0.0 0.0 Short-Term Debt 6 7 7 8 Total Cash Dividend (Wbn) 0 0 0 0 Account Payables 5 5 7 8 Cash DPS (won) 0 0 0 0 Current Liabilities 11 12 15 17 Net debt(cash)/ equity (%) -13.2 -19.3 -24.2 -32.4 Long-Term Debt 0 0 0 0 Debt/ equity (%) 9.6 8.5 8.0 6.9 Long-Term Allowance 1 1 1 2 Net interest exp/ sales (%) 203.1 64.9 54.6 52.8 Non-Current Liabilities 2 2 3 3 Interest coverage (x) 149.7 418.2 578.7 652.1 Liabilities 13 15 18 20 Current Ratio (%) 403.9 521.5 638.9 852.1 Capital Stock 6 6 6 6 Quick Ratio (%) 293.1 405.0 510.2 716.1 Capital Surplus 82 82 82 82 Total shares (mn) 29 29 29 29 Retained Earnings 72 105 157 223 Par value (won) 200 200 200 200 Non-Controlling Interests Equity 0 0 0 0 Share price (won) 25,400 24,800 24,800 24,800 Shareholders' Equity 139 172 224 290 Market Cap (Wbn) 747 729 729 729

www.wooriwm.com

Equipment maker with higher value

Diversifying business portfolio from logistics to entire core processing

– Split off from Samsung Techwin in 1998, SFA is a comprehensive logistics equipment maker. Following its successful entry into the LCD industry in 2004 and OLED market in 2010, the company has emerged as Korea’s number-one logistics equipment maker.

– SFA’s operating margin stands at the 10%-level—the lowest among IT equipment players. Enjoying a diverse portfolio ranging from logistics equipment to all IT processing equipment (PECVD and deposition), the company’s margins should improve gradually going forward.

OLED division positioned to enjoy further order momentum

– SFA won OLED equipment orders worth W420bn in 2011 (orders related to SMD’s A2 P2 and A2 P3 lines partially reflected).

– In 2012, new OLED equipment orders should surpass W500bn, given: 1) SMD’s planned investment in its A3 line (144,000 sheets/month) in 2H12 (vs A2: 88,000 sheets/month); and 2) likely further orders for entire processing equipment in addition to logistics equipment.

– We also draw attention to the company’s 8G OLED organic material deposition equipment, noting that SMS (currently under development) is likely to be adopted for mass production.

SMD A3 line investments to benefit SFA in 2013

– Guidance projects that sales will rise 10% y-y in 2012 (vs 78% y-y in 2011).

– Benefits from SMD’s A3 line investments should gain traction in 2013, with SFA expected to win orders for 5.5G one-shot evaporation equipment in addition to logistics equipment.

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'11.4 '11.6 '11.8 '11.10 '11.12 '12.2 '12.4

SFA

KOSDAQ

SFA (056190.KQ) Company Analysis May 7, 2012


2009 307 15 18 18 1,004 16.9 1.3 10.8 8.0 35.6 -91 2010 632 106.0 66 56 56 2,192 118.3 22.4 3.3 9.9 15.5 83.8 -181 2011 753 19.1 95 76 76 4,943 125.5 12.3 3.1 8.4 28.4 62.1 -249

2012E 892 18.5 116 97 96 5,413 9.5 10.3 2.3 6.0 25.6 na na2013F 1,078 20.9 140 117 103 6,514 20.3 7.9 1.9 4.7 24.9 na na


Not Rated



CP (’12/4/25) W51,500

Sector MachineryKospi 1,961.98Kosdaq 483.48Market cap (common) W924.7bnOutstanding shares (common) 18.0mn shrs52W high (’11/07/27) W66,700 low (’11/10/18) W49,250Dividend yield (2011) 0.0%Foreign ownership 7.9%Major shareholders DY Assets and four others 42.0%Samsung Display 10.2%


50

SFA www.wooriwm.com

STATEMENT OF COMPREHENSIVE INCOME VALUATION INDEX (Wbn) 2008/12A 2009/12A 2010/12\A 2011/12A 2008/12A 2009/12A 2010/12\A 2011/12ASales 431 307 632 753 Price/Earnings (x) 6.0 16.9 22.4 12.3 Growth (%) 40.4 -28.7 106.0 19.1 P/E (High, x) 14.1 27.8 24.0 14.4 COGS 355 270 529 610 P/E (Low, x) 3.5 13.9 7.3 9.1 Gross Profit 76 37 104 143 Price/ Book Value (x) 1.4 1.3 3.3 3.1 Gross margin (%) 17.6 12.0 16.4 19.0 P/B (High, x) 3.1 2.2 3.6 3.6 SG&A 22 22 38 48 P/B (Low, x) 0.8 1.1 1.1 2.3 GAAP Operating Income 54 15 66 95 Price/ Gross Cash Flow (x) 5.4 13.2 10.2 9.1 GAAP Operating margin (%) 12.4 4.9 10.5 12.6 Price/ Sales (x) 0.7 1.0 1.4 1.5 Other Operating Income(Exp.) 10 -1 4 -3 P/E/ EPS growth (x) 0.3 0.2 0.5 0.9 EBITDA 58 20 71 101 P/E/ EBITPS growth (x) 0.3 0.2 0.8 0.6 Operating Income 64 15 70 92 P/E/ EBITDAPS growth (x) 0.3 0.2 0.9 0.7 Operating margin (%) 14.8 4.8 11.1 12.2 EV/ EBITDA (x) 3.3 10.8 9.9 8.4 Financial Income(Costs) 4 7 4 4 EV/ EBIT (x) 3.6 14.0 10.6 8.9 Other Non-Operating Profits 0 0 0 0 Enterprise Value (Wbn) 190 213 699 846 Gains(Losses) in Associates, Subsidiaries and JVs 0 3 0 0 EPS CAGR (3-Yr) (%) 21.3 72.5 40.9 14.0 Pre-tax Profit from Cont. Op. 69 25 75 96 EBITPS CAGR (3-Yr) (%) 20.9 95.5 27.0 19.6 Income Taxes 19 7 18 20 EBITDAPS CAGR (3-Yr) (%) 20.3 82.6 25.9 18.3 Profit from Continuing Op. 50 18 56 76 EBITPS (won) 2,981 846 3,686 5,274 Net Profit 50 18 56 76 EBITDAPS (won) 3,231 1,100 3,951 5,627 Net margin (%) 11.6 5.9 8.9 10.0 Fully diluted EPS (won) 2,773 1,004 2,192 4,943 Net Profit of Parent 50 18 56 76 BVPS (won) 12,404 12,715 14,704 19,845 Net Profit to Non-Controlling 0 0 0 0 CFPS (won) 3,092 1,283 4,800 6,679 Other Comprehensive Income 0 0 -2 -2 Sales PS (won) 23,995 17,103 35,224 41,960 Total Comprehensive Income 0 0 54 74 DPS (won) 1,400 400 500 1,280

CASH FLOW STATEMENT RIM & EVA (Wbn) 2008/12A 2009/12A 2010/12\A 2011/12A 2008/12A 2009/12A 2010/12\A 2011/12AOperating Cash Flow 31 -3 91 112 RIM Net Profit 50 18 56 76 Spread (FROE-COE) (%) 12.7 -2.0 5.8 19.2 Depreciation&Amortization 4 5 5 6 Residual Income 27.0 -4.5 14.8 59.9 + Loss(Gains) from Subs 0 -3 0 0 12M RIM Target Price (won) N/R + FC translation loss(profit) -3 1 -1 -1 EVA + Losses(Gains) on Disposal of Assets 0 0 0 1 Invested Capital 79.3 102.4 88.0 82.8 Gross Cash Flow 56 23 86 120 NOPAT 40.5 12.0 59.7 61.6 - Incr. (Decr.) in WC -25 -26 5 -1 ROIC (%) 65.7 13.2 62.7 72.1 Investing Cash Flow 27 6 -48 -96 ROIC - WACC (%) 59.9 5.9 57.5 65.2 + Decr. In Tangible Assets 0 0 0 0 EVA 47.5 6.0 50.6 53.9 - Incr. In Tangible Assets (capex) -12 -5 -8 -24 DCF + Disp.(Acq.) of Inv. Assets -5 1 14 0 EBIT 53.5 15.2 66.2 94.7 Free Cash Flow 18 -8 83 88 + Depreciation/Amortization 4 5 5 6 Net Cash Flow 57 3 43 16 - Capex -12.4 -5.1 -8.4 -24.0 Financing Cash Flow -30 -12 -4 -9 - Incr. (Decr.) in Working Capital -21.6 -19.9 20.9 25.4 Equity Financing 0 0 0 0 Free Cash Flow for Firm 52.5 30.3 25.3 31.7 Debt Financing -30 -12 -4 -9 WACC Incr.(Decr.) in Cash 28 -10 40 7 Cost of Debt (Tax Adj.) 0.0 0.0 0.0 3.2 Ending Cash and Cash Equivalents 37 28 68 75 Cost of Equity (COE) 10.7 10.0 9.6 9.2 Net Debt (Cash) -110 -91 -181 -249 WACC (%) 5.7 7.4 5.2 6.9

STATEMENT OF FINANCIAL POSITION PROFITABILITY & STABILITY (Wbn) 2008/12A 2009/12A 2010/12\A 2011/12A 2008/12A 2009/12A 2010/12\A 2011/12ACash and Cash Equivalents 36 26 68 75 ROE (%) 23.4 8.0 15.5 28.4 Accounts Receivables 46 38 142 78 ROA (%) 12.5 5.0 13.7 14.1 Total Current Assets 274 167 380 400 ROIC (%) 65.7 13.2 62.7 72.1 Tangible Assets 90 91 94 107 EBITDA/ equity (%) 26.1 8.7 25.3 29.3 Investment Assets 43 44 29 29 EBITDA/ asset (%) 13.9 6.4 13.8 18.1 Non-Current Assets 143 143 134 158 Dividend Yield (%) 8.4 2.4 1.0 2.1 Assets 417 310 514 559 Payout Ratio (%) 24.9 19.6 22.5 25.5 Short-Term Debt 0 0 2 3 Total Cash Dividend (Wbn) 12 4 9 23 Account Payables 41 30 104 85 Cash DPS (won) 1,400 400 500 1,280 Current Liabilities 178 69 216 194 Net debt(cash)/ equity (%) -49.5 -40.0 -64.7 -72.2 Long-Term Debt 0 0 0 0 Debt/ equity (%) 87.2 35.6 83.8 62.1 Long-Term Allowance 16 12 10 19 Net interest exp/ sales (%) 0.0 0.0 0.0 0.0 Non-Current Liabilities 16 12 18 20 Interest coverage (x) N/A N/A N/A 4,686.5 Liabilities 194 81 234 214 Current Ratio (%) 154.1 240.5 175.9 206.1 Capital Stock 5 5 9 9 Quick Ratio (%) 92.7 201.8 173.2 202.5 Capital Surplus 25 25 20 20 Total shares (mn) 18 18 18 18 Retained Earnings 210 216 268 332 Par value (won) 500 500 500 500 Non-Controlling Interests Equity 0 0 0 0 Share price (won) 16,764 16,967 49,000 61,000 Shareholders' Equity 223 228 280 345 Market Cap (Wbn) 301 304 880 1,095

www.wooriwm.com

Offers good fit for SMD’s OLED investment plan

Specializes in laser technology-based OLED equipment

– AP Systems utilizes laser technology to manufacture OLED processing equipment. It is the only domestic company possessing a full range of processing capabilities (including TFT, deposition, and encapsulation processing equipment).

Top-line growth to continue on supply of new equipment (LLO and LITI)

– In line with SMD’s A3 line investments, we expect AP Systems to enjoysustainable top-line growth in 2012, believing that the firm will see improvedmargins thanks to its supply of new equipment (including LLO and LITI).

– LLO is a type of equipment that employs lasers to separate flexible substrates. We expect LLO to be used in SMD’s mass production of flexible OLED.

– LITI is a type of equipment that employs lasers to project organic material ontodonor film. Thanks to its high-resolution, we anticipate that the equipment will be used as part of the production process at SMD’s A3 line (however, due to the need for additional components and equipment, LITI is unlikely to be used for the entire production process at the A3 line).

– We believe that AP Systems’ advanced ELA and encapsulation (glass, metal) equipment represents a long-term growth engine for the company, drawing attention to the fact that that it is highly likely that this equipment will be used at SMD’s 8G production line.

Offers good fit for SMD’s OLED investment plan

– According to 2012 guidance, sales are to total W327bn (up 47% y-y) and operating margin is to reach 11% (up 39.4% y-y). By division, we project OLED sales ofW275bn, semiconductor equipment sales of W45bn, and LCD and other equipment sales of W7bn.

– AP Systems supplies a wide range of equipment for SMD’s A1 and A3 lines. Going forward, the company is to further benefit from the likely continuation of SMD’s increased line investments.

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AP Systems

KOSDAQ

Sales Chg OP NP NP to parent EPS Chg P/E P/B EV/EBITDA ROE Debt/equity Net debtYE Dec (Wbn) (%) (Wbn) (Wbn) (Wbn) (won) (%) (x) (x) (x) (%) (%) (Wbn)

2009 92 4 2 2 115 37.3 1.3 6.4 3.2 97.0 -1 2010 134 45.6 12 -12 -12 -645 TTL -11.8 2.5 10.1 -18.2 90.8 6 2011 222 66.1 26 12 12 497 TTP 26.1 3.5 9.3 14.5 233.9 4

2012E 318 43.2 36 30 28 1,418 185.3 8.2 2.4 6.2 29.5 N/A N/A2013F 372 16.9 44 38 36 1,772 24.9 6.6 1.8 4.8 27.9 N/A N/A


AP Systems (054620.KQ) Company Analysis May 7, 2012

Not Rated



CP (’12/4/25) W11,650

Sector SemiconductorKospi 1,961.98Kosdaq 483.48Market cap (common) W251.6bnOutstanding shares (common) 21.6mn shrs52W high (’11/08/03) W16,850 low (’11/10/05) W10,150Dividend yield (2011) 0.0%Foreign ownership 16.1%Major shareholders Gi-Ro Jung and four others 10.2%Fid Series Emrg Mrkts Fund 8.4%


52

AP Systems www.wooriwm.com

STATEMENT OF COMPREHENSIVE INCOME VALUATION INDEX (Wbn) 2008/12A 2009/12A 2010/12\A 2011/12A 2008/12A 2009/12A 2010/12\A 2011/12ASales 20 92 134 222 Price/Earnings (x) 8.8 37.3 -11.8 26.1 Growth (%) -52.2 353.2 45.6 66.1 P/E (High, x) 18.7 62.6 -15.1 34.3 COGS 13 74 115 178 P/E (Low, x) 6.9 26.4 -6.5 15.6 Gross Profit 7 18 19 45 Price/ Book Value (x) 1.1 1.3 2.5 3.5 Gross margin (%) 33.7 19.9 14.4 20.1 P/B (High, x) 2.4 2.2 3.2 4.5 SG&A 6 15 8 18 P/B (Low, x) 0.9 0.9 1.4 2.1 GAAP Operating Income 1 4 12 26 Price/ Gross Cash Flow (x) 4.5 5.6 17.2 7.4 GAAP Operating margin (%) 4.5 3.9 8.7 11.9 Price/ Sales (x) 1.8 0.8 1.1 1.3 Other Operating Income(Exp.) 2 -1 -12 -1 P/E/ EPS growth (x) 1.0 0.3 N/A 0.2 EBITDA 4 12 17 31 P/E/ EBITPS growth (x) 0.1 0.3 -0.2 0.4 Operating Income 3 2 -1 26 P/E/ EBITDAPS growth (x) 0.2 0.8 -0.2 0.4 Operating margin (%) 12.9 2.2 -0.6 11.6 EV/ EBITDA (x) 23.7 6.4 10.1 9.3 Financial Income(Costs) 0 -2 0 -1 EV/ EBIT (x) 104.4 21.6 14.6 10.8 Other Non-Operating Profits 0 0 0 0 Enterprise Value (Wbn) 96 77 169 284 Gains(Losses) in Associates, Subsidiaries and JVs 0 0 0 -8 EPS CAGR (3-Yr) (%) 8.5 138.0 -258.3 105.2 Pre-tax Profit from Cont. Op. 3 0 0 17 EBITPS CAGR (3-Yr) (%) 142.7 117.5 76.8 66.7 Income Taxes -2 -2 0 3 EBITDAPS CAGR (3-Yr) (%) 55.7 49.6 58.8 59.8 Profit from Continuing Op. 4 2 0 14 EBITPS (won) 86 199 618 1,227 Net Profit 4 2 -12 12 EBITDAPS (won) 377 668 892 1,425 Net margin (%) 20.5 2.2 -9.0 5.3 Fully diluted EPS (won) 390 115 -645 497 Net Profit of Parent 4 2 -12 12 BVPS (won) 3,084 3,306 3,057 3,763 Net Profit to Non-Controlling 0 0 0 0 CFPS (won) 770 764 444 1,758 Other Comprehensive Income 0 0 0 -1 Sales PS (won) 1,901 5,147 7,131 10,337 Total Comprehensive Income 0 0 -12 11 DPS (won) 0 0 0 0

CASH FLOW STATEMENT RIM & EVA (Wbn) 2008/12A 2009/12A 2010/12\A 2011/12A 2008/12A 2009/12A 2010/12\A 2011/12AOperating Cash Flow -1 26 -6 26 RIM Net Profit 4 2 -12 12 Spread (FROE-COE) (%) -1.7 -7.3 -28.3 4.8 Depreciation&Amortization 3 8 5 4 Residual Income -0.8 -4.7 -18.9 3.5 + Loss(Gains) from Subs 0 0 0 8 12M RIM Target Price (won) N/R + FC translation loss(profit) 0 0 0 1 EVA + Losses(Gains) on Disposal of Assets 0 1 2 0 Invested Capital 85.6 66.1 61.6 64.5 Gross Cash Flow 8 14 8 38 NOPAT -1.7 20.0 7.0 22.1 - Incr. (Decr.) in WC -9 12 -26 -13 ROIC (%) -2.4 26.3 11.0 35.1 Investing Cash Flow -12 1 -2 -37 ROIC - WACC (%) -7.8 8.5 5.7 28.8 + Decr. In Tangible Assets 0 8 0 0 EVA -6.7 5.6 3.5 18.6 - Incr. In Tangible Assets (capex) -1 -1 -5 -22 DCF + Disp.(Acq.) of Inv. Assets -1 1 -4 -6 EBIT 0.9 3.6 11.6 26.4 Free Cash Flow -1 25 -11 5 + Depreciation/Amortization 3 8 5 4 Net Cash Flow -13 27 -8 -10 - Capex -0.8 -1.0 -5.4 -21.7 Financing Cash Flow 13 -24 11 49 - Incr. (Decr.) in Working Capital 2.9 11.1 -19.0 3.2 Equity Financing 20 4 4 5 Free Cash Flow for Firm 0.9 13.8 30.3 0.8 Debt Financing -6 -27 6 45 WACC Incr.(Decr.) in Cash 1 4 3 39 Cost of Debt (Tax Adj.) 0.0 25.5 0.0 4.9 Ending Cash and Cash Equivalents 9 13 16 55 Cost of Equity (COE) 11.2 10.5 10.1 9.7 Net Debt (Cash) 36 -1 6 4 WACC (%) 5.4 17.9 5.3 6.3

STATEMENT OF FINANCIAL POSITION PROFITABILITY & STABILITY (Wbn) 2008/12A 2009/12A 2010/12\A 2011/12A 2008/12A 2009/12A 2010/12\A 2011/12ACash and Cash Equivalents 8 10 14 46 ROE (%) 9.5 3.2 -18.2 14.5 Accounts Receivables 21 34 37 56 ROA (%) 4.3 1.6 -9.3 5.9 Total Current Assets 53 79 86 214 ROIC (%) -2.4 26.3 11.0 35.1 Tangible Assets 41 28 24 39 EBITDA/ equity (%) 6.6 17.5 25.7 37.5 Investment Assets 4 4 7 13 EBITDA/ asset (%) 3.2 8.9 13.4 11.2 Non-Current Assets 73 55 39 59 Dividend Yield (%) 0.0 0.0 0.0 0.0 Assets 126 134 125 273 Payout Ratio (%) 0.0 0.0 0.0 0.0 Short-Term Debt 36 18 21 40 Total Cash Dividend (Wbn) 0 0 0 0 Account Payables 10 21 14 23 Cash DPS (w) 0 0 0 0 Current Liabilities 52 62 58 163 Net debt(cash)/ equity (%) 59.4 -2.1 8.5 5.4 Long-Term Debt 11 0 0 26 Debt/ equity (%) 108.4 97.0 90.8 233.9 Long-Term Allowance 3 3 1 2 Net interest exp/ sales (%) 2.7 1.8 0.1 1.2 Non-Current Liabilities 14 4 2 28 Interest coverage (x) 1.7 2.1 58.7 10.2 Liabilities 66 66 59 191 Current Ratio (%) 102.3 127.6 149.6 130.6 Capital Stock 10 10 11 11 Quick Ratio (%) 64.2 94.2 128.9 122.3 Capital Surplus 45 48 52 57 Total shares (mn) 20 21 21 22 Retained Earnings 13 15 3 14 Par value (won) 500 500 500 500 Non-Controlling Interests Equity 0 0 0 0 Share price (won) 3,445 4,275 7,640 13,000 Shareholders' Equity 61 68 65 82 Market Cap (Wbn) 60 78 164 280

www.wooriwm.com

Heat treatment technology is key in production of flexible OLED and oxide TFT

Secur heat treatment technology

– Listed on the Kosdaq in Nov 2011, Tera Semicon specializes in batch-type heat treatment technology, utilizing its specialized processing equipment and knowhow to produce semiconductor, OLED, and solar cell equipment.

– The company displayed lofty top-line growth (up 197.9% y-y) in 2011—OLED related sales jumped from W12.9bn in 2010 to W94.5bn in 2011, backed by increased investment at SMD.

Heat treatment tech—key to flexible OLED and oxide TFT production

– In 2012, Tera Semicon should enjoy order momentum for its heat treatment equipment in line with increased investment in flexible OLED and oxide TFT.

– Of note, curing equipment is required in order for flexible OLED to harden polyimide. Meanwhile, heat treatment equipment is used in the production of oxide TFT in order to stabilize IGZO material.

– Tera Semicon is currently in the process of developing super grain silicon (SGS) equipment. While SMD is highly likely to use ELA for its 8G line, it is also expected to purchase SGS.

Lofty growth expected on SMD’s investment in flexible OLED

– Guidance estimates 2012 sales of W170.0bn (up 21.4% y-y) and an operating margin of 17% (up 112.5% y-y). On the likely absence of one-off costs in 2012, the firm expects to see a rapid y-y rise in its operating margin (in 2012).

– Going forward, we believe that Tera Semicon is well positioned to be a primary beneficiary of SMD’s expanded investment in flexible OLED and oxide TFT.

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Tera Semicon

KOSDAQ

Tera Semicon (123100.KQ) Company Analysis May 7, 2012


2009 11 0 0 0 21 0.0 0.0 4.5 1.3 90.4 4 2010 47 321.2 7 6 6 1,053 4,826.0 0.0 0.0 0.1 47.2 147.3 1 2011 140 198.8 11 9 9 1,281 21.7 21.4 5.5 16.7 32.7 92.3 -2

2012E 194 38.6 36 30 30 3,741 192.0 7.4 3.4 6.3 54.5 N/A N/A2013F 276 42.2 48 42 42 5,219 39.5 5.3 2.3 4.4 45.6 N/A N/A


Not Rated



CP (’12/04/25 ) W27,600

Sector SemiconductorsKospi 1,961.98Kosdaq 483.48Market cap (common) W223.9bnOutstanding shares (common) 8.1mn shrs52W high (’11/08/03) W34,900 low (’11/10/05) W23,300Dividend yield (2011) 0.0%Foreign ownership 1.4%Major shareholders Taek-Yong Chang and 10 others 36.0%Shinhan BNP Paribas ITMC 6.2%

Share performance (%)3M 6M 12MAbsolute -8.0 N/A N/ARelative -2.7 N/A N/A

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Tera Semicon www.wooriwm.com

STATEMENT OF COMPREHENSIVE INCOME VALUATION INDEX (Wbn) 2008/12A 2009/12A 2010/12\A 2011/12A 2008/12A 2009/12A 2010/12\A 2011/12ASales 9 11 47 140 Price/Earnings(x) 0.0 0.0 0.0 21.4 Growth (%) -7.9 20.2 321.2 198.8 P/E (High, x) 0.0 0.0 0.0 23.6 COGS 7 8 33 118 P/E (Low, x) 0.0 0.0 0.0 15.8 Gross Profit 2 3 14 22 Price/ Book Value (x) 0.0 0.0 0.0 5.5 Gross margin (%) 26.6 27.3 30.0 15.5 P/B (High, x) 0.0 0.0 0.0 6.1 SG&A 3 3 7 10 P/B (Low, x) 0.0 0.0 0.0 4.1 GAAP Operating Income 0 0 7 11 Price/ Gross Cash Flow (x) 0.0 0.0 0.0 12.2 GAAP Operating margin (%) -3.3 1.3 16.0 8.1 Price/ Sales (x) 0.0 0.0 0.0 1.4 Other Operating Income(Exp.) 2 0 0 0 P/E/ EPS growth (x) 0.0 0.0 0.0 0.1 EBITDA 0 1 9 13 P/E/ EBITPS growth (x) 0.0 0.0 0.0 0.1 Operating Income 1 0 8 12 P/E/ EBITDAPS growth (x) 0.0 0.0 0.0 0.1 Operating margin (%) 14.1 3.4 16.4 8.3 EV/ EBITDA (x) 22.7 4.5 0.1 16.7 Financial Income(Costs) -1 0 -1 0 EV/ EBIT (x) -17.4 25.0 0.1 19.4 Other Non-Operating Profits 0 0 0 0 Enterprise Value (Wbn) 5 4 1 221 Gains(Losses) in Associates, Subsidiaries and JVs 0 0 0 0 EPS CAGR (3-Yr) (%) 231.2 450.0 117.8 194.5 Pre-tax Profit from Cont. Op. 0 0 7 11 EBITPS CAGR (3-Yr) (%) -405.9 448.7 116.1 193.2 Income Taxes 0 0 1 2 EBITDAPS CAGR (3-Yr) (%) 251.3 215.8 107.5 179.6 Profit from Continuing Op. 0 0 6 9 EBITPS (won) -55 26 1,315 1,580 Net Profit 0 0 6 9 EBITDAPS (won) 42 147 1,512 1,833 Net margin (%) 2.2 1.1 12.8 6.6 Fully diluted EPS (won) 35 21 1,053 1,281 Net Profit of Parent 0 0 6 9 BVPS (won) 1,308 1,325 2,332 4,978 Net Profit to Non-Controlling 0 0 0 0 CFPS (won) 139 154 1,523 2,256 Other Comprehensive Income 0 0 0 0 Sales PS (won) 1,666 2,003 8,223 19,404 Total Comprehensive Income 0 0 6 9 DPS (won) 0 0 0 0

CASH FLOW STATEMENT RIM & EVA (Wbn) 2008/12A 2009/12A 2010/12\A 2011/12A 2008/12A 2009/12A 2010/12\A 2011/12AOperating Cash Flow 4 3 6 7 RIM Net Profit 0 0 6 9 Spread (FROE-COE) (%) -12.6 -12.7 33.5 19.3 Depreciation & Amortization 1 1 1 2 Residual Income -1.1 -1.2 4.3 5.5 + Loss(Gains) from Subs 0 0 0 0 12M RIM Target Price (won) N/R + FC translation loss(profit) 0 0 0 0 EVA + Losses(Gains) on Disposal of Assets 0 0 0 0 Invested Capital 14.2 12.1 22.4 40.1 Gross Cash Flow 1 1 9 16 NOPAT -0.1 0.2 7.5 9.4 - Incr. (Decr.) in WC 3 2 -3 -8 ROIC (%) -0.5 1.3 43.7 30.1 Investing Cash Flow -1 1 -5 -14 ROIC - WACC (%) -9.8 -8.9 24.7 18.3 + Decr. In Tangible Assets 0 0 0 0 EVA -1.4 -1.1 5.5 7.4 - Incr. In Tangible Assets (capex) -1 -2 -6 -13 DCF + Disp.(Acq.) of Inv. Assets 0 0 -1 -1 EBIT -0.3 0.1 7.5 11.4 Free Cash Flow 3 1 0 -6 + Depreciation/Amortization 1 1 1 2 Net Cash Flow 3 4 1 -7 - Capex -0.9 -2.0 -5.8 -12.9 Financing Cash Flow -2 -1 -1 7 - Incr. (Decr.) in Working Capital 3.6 2.5 -2.3 -5.6 Equity Financing 0 0 2 12 Free Cash Flow for Firm -4.2 -3.7 4.5 3.8 Debt Financing -2 -1 -3 -5 WACC Incr.(Decr.) in Cash 1 2 0 0 Cost of Debt (Tax Adj.) 3.1 5.9 22.6 10.1 Ending Cash and Cash Equivalents 1 3 4 4 Cost of Equity (COE) 14.8 14.1 13.7 13.3 Net Debt (Cash) 5 4 1 -2 WACC (%) 9.3 10.2 19.0 11.8

STATEMENT OF FINANCIAL POSITION PROFITABILITY & STABILITY (Wbn) 2008/12A 2009/12A 2010/12\A 2011/12A 2008/12A 2009/12A 2010/12\A 2011/12ACash and Cash Equivalents 1 1 4 4 ROE (%) 2.2 1.3 47.2 32.7 Accounts Receivables 5 4 6 7 ROA (%) 1.1 0.7 20.8 15.7 Total Current Assets 8 7 19 44 ROIC (%) -0.5 1.3 43.7 30.1 Tangible Assets 8 9 16 27 EBITDA/ equity (%) 2.6 8.9 53.1 32.7 Investment Assets 0 0 2 3 EBITDA/ asset (%) 1.4 4.7 21.5 17.0 Non-Current Assets 9 11 21 34 Dividend Yield (%) N/A N/A N/A 0.0 Assets 17 18 40 78 Payout Ratio (%) 0.0 0.0 0.0 0.0 Short-Term Debt 2 2 10 2 Total Cash Dividend (Wbn) 0 0 0 0 Account Payables 1 2 7 8 Cash DPS (won) 0 0 0 0 Current Liabilities 4 5 20 32 Net debt(cash)/ equity (%) 58.6 39.7 4.0 -4.0 Long-Term Debt 4 3 3 2 Debt/ equity (%) 88.3 90.4 147.3 92.3 Long-Term Allowance 0 0 0 0 Net interest exp/ sales (%) 4.6 2.6 2.5 0.3 Non-Current Liabilities 4 4 4 6 Interest coverage (x) -0.7 0.5 6.5 27.4 Liabilities 8 8 24 37 Current Ratio (%) 196.3 149.4 96.0 138.0 Capital Stock 2 2 3 4 Quick Ratio (%) 163.5 120.4 80.6 116.5 Capital Surplus 6 6 6 17 Total shares (mn) 7 7 7 8 Retained Earnings 1 2 10 19 Par value (won) 500 500 500 500 Non-Controlling Interests Equity 0 0 0 0 Share price (won) 0 0 0 27,450 Shareholders' Equity 9 9 16 40 Market Cap (Wbn) 0 0 0 222

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Rating and target price update

Company Code Date Rating Target price

Cheil Industries 001300.KS 2012.04.26 Buy W115,000(12M) 2012.01.19 Covering analyst changed 2011.09.02 Buy W130,000(12M) 2011.01.26 Buy W140,000(12M) 2010.09.01 Buy W130,000(12M) 2010.05.06 Buy W93,000(12M) 2010.04.02 Buy W77,000(12M)

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'10.4 '10.8 '10.12 '11.4 '11.8 '11.12

Closing price

Target Price(12M)

(won)

Company Code Date Rating Target price

DS Hi-Metal 077360.KQ 2012.04.26 Buy W33,000 (12M) 2012.01.19 Covering analyst changed 2011.11.08 Buy W40,000(12M) 2011.02.16 Buy W35,000(12M) 2010.10.22 Buy W30,000(12M)

0

10,00020,000

30,00040,000

50,000

'10.4 '10.7 '10.10 '11.1 '11.4 '11.7 '11.10 '12.1

Closing price

Target price(12M)

(won)

Woori investment & Securities stock ratings

1. Period: Uniform 12-month 2. Rating System: Based on a stock’s absolute return from the date of publication

Strong Buy: High conviction Buy rated stocks Buy: Greater than +15% Hold: 0% and +15% Reduce : Less than 0%

Compliance notice

Woori Investment & Securities does not have a stake greater than or equal to 1% in companies mentioned in this material as of the preparation date Woori Investment & Securities has not provided this material to any institutional investors or other third party in advance. The Korean version of this material was distributed on Apr 26, 2012 The analyst and his/her spouse do not own any securities mentioned in this material as of the preparation date. Woori I&S is an issuer and liquidity provider of ELWs taking ‘Cheil Industries, SFA’ as an underlying asset. ‘SFA’, ‘AP Systems’, and ‘Tera Semicon’ are not under coverage at Woori I&S. Thus, Woori I&S does not present a rating, and target price on the counter. This material is for reference purpose only. This report correctly reflects the analyst’s opinion and was written without any external influence or intervention.

Disclosures The research is based on current public information that Woori I&S considers reliable, but Woori I&S does not represent it as accurate or complete and it should not be relied on as such. Furthermore, the research does not take into account particular investment objectives, financial situations or individual client needs, and Woori I&S is in no way legally responsible for future returns or loss of original capital. All materials in this report are the intellectual property of Woori I&S. Copying, distributing, transmitting, transforming or lending of this material without Woori I&S’ consent is prohibited.

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