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  • 1. Industry update Handsets Korea / Handsets Into the storm 5 March 2013 OVERWEIGHT We maintain our OVERWEIGHT weighting for Korean handset makers and recommend Samsung Electro-Mechanics (SEMCO; 009150 KS) as our sector top pick. Smartphone demand growth in 2013 will be driven by emerging markets. The recent rapid market share gains by Chinese smartphone makers will lower industry-wide ASPs and margins, but help enhance the average hardware performance of handsets, thus boosting demand for high-end Stocks under coverage components going forward. In addition, the expected market share expansion Company Rating Price Target price by SEC in 2013 should lead to qualitative and quantitative growth of SEMCO, LG Electronics (066570 KS) BUY 78,300 88,000 the largest parts supplier for SEC. SEMCO (009150 KS) BUY 95,500 125,000 LG Innotek (011070 KS) BUY 75,700 83,000 Melfas (096640 KS) BUY 20,550 35,000 Chinese handset makers to expand local market share Silicon Works (108320 KS) BUY 21,300 38,000 Note: Prices are in KRW; price close as of 1 Mar. 2013 Chinese smartphone makers ZTE, Huawei and Lenovo are aiming to expand local market share in 1H13; we expect their combined market share in China Global handset market share in 4Q12 to rise by 3.9ppt YoY to 22.2% in 2013, as a result. At the Mobile World Congress (MWC), we confirmed that the three Chinese handset makers are: 1) Others, 30.4% SEC, 23.6% rapidly advancing, in terms of smartphone hardware competitiveness; 2) competitive against peers, in terms of production costs; and 3) set to see HTC, 1.4% shipment growth, with new smartphones slated for release in early 2Q12 through local telecom carriers (China Mobile, China Unicom and China RIM, 1.6% Nokia, Telecom). We expect the three Chinese smartphone makers to swiftly expand Google, 1.7% 18.3% their market shares in mid- to low-end smartphones and steadily eat into the Sony, 1.7% white-box smartphone market going forward. Apple, Lenovo, 10.1% Huawei, 1.8% 2.9% LGE, 3.3% ZTE, 3.4% Profitability of mid-to-low-end smartphones to decline in 2H13 We expect market competition among handset makers to stiffen further in 2H13, Source: Gartner, Mirae Asset Research with the three Chinese companies set to post rapid growth in 1H13 and new flagship models to be released by Samsung Electronics and Apple in 2Q13. Global smartphone market share in 4Q12 Meanwhile, we believe the increasing size of the Chinese market and the rise in Others, 22.0% Chinese handset makers’ global market share will pull down worldwide SEC, 30.1% smartphone ASP by 13.6% YoY in 2013, driving up the cost burden of Google, 2.2% components for handset makers, as a result. Moreover, the aggressive release of Sony, 3.4% new smartphones in 2H13 should spark subsidy competition, driving down the LGE, 4.1% profitability of mid-to-low-end smartphones even further going forward. We thus Nokia, 3.2% expect the operating margin of SEC’s IM division to decrease by 1.9ppt to 16.0% ZTE, 4.0% Apple, in 2013 and the operating margin of LG Electronics’ MC division to increase to a Huawei, 4.2% 20.9% high of 4.1% in 3Q13, before decreasing to 3.4% in 4Q13. HTC, 3.2% RIM, 3.5% Source: Gartner, Mirae Asset Research Return of smartphone paradigm identity and eco-system At this year’s MWC, we noted that handset suppliers are focusing on building the identities of new flagship models through UX and killer applications, while seeking to develop an independent ecosystem by diversifying platforms beyond the oligopolistic Android (whose smartphone OS market share stood at 64% in 2012) in 2013. Through these efforts, handset makers are seeking to protect the premium of high-margin flagship smartphones, reinforce customer loyalty through the emphasis on differentiation and reduce marketing costs for Jinho Cho, Analyst 82 2 3774 3831 jcho@miraeasset.com mid- to low-end models. Between 2011 and 2012, competition in the handset industry had focused primarily on developing advanced hardware features. Yongjei Jeong However, due to the rapid improvement in flagship smartphone hardware, 82 2 3774 1938 yongjei@miraeasset.com competition to find differentiation points in hardware ceased in 2013, with latecomers closing the gap with top-tiers, in terms of hardware competitiveness.See the last page of this report for important disclosures
  • 2. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets SEMCO remains our top pick, LG Electronics our second pick We expect Samsung Electronics’ global market share to continue to grow by 0.4ppt YoY to 23.6% in 2013, benefiting its largest parts supplier, SEMCO (009150 KS). SEMCO remains our top pick, as: 1) parts shipments are set to grow visibly, with Samsung Electronics’ smartphone shipments forecast to rise by 34.4% YoY to 290m units in 2013; 2) backed by 89% YoY growth in Samsung Electronics’ flagship smartphone shipments to 146m units in 2013, product mix improvement should drive up SEMCO’s profitability; and 3) market prices of handsets components are unlikely to decline, despite the recently improved profitability of Japanese parts makers. LG Electronics (066570 KS) is selected as our second top pick, given: 1) the steady improvement in the competitiveness of its flagship smartphones; and 2) forecasts for market share recovery in Korea and Latin America and improvement in profitability in 1H13, backed by a competitive smartphone lineup and its platform-sharing strategy. 22Mirae Asset Securities
  • 3. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets T a b l e o f c o n t e n t s Ⅰ. Executive Summary 4 1. Summary 4 2. Valuation 6 Ⅱ. Investment Points 13 1. Continued demand growth in emerging markets 13 2. Chinese peers to expand local market share on reinforced competitiveness 15 3. SEC to outshine peers in cost and supply chain competitiveness 22 4. Smartphone industry paradigm returning to identity and ecosystem 26 5. SEMCO (009150 KS) remains our top-pick, LGE is our second pick 32 Ⅲ. Appendix 33 1. 1Q13E smartphone peers’ earnings guidance & consensus 33 2. Handset peers’ shipment portions by country 35 3. Handset market share by vendor in 2012 36 4. Smartphone market share by vendor in 2012 37 5. Tablet PC market share and line-up in 2013 38 Company Analysis 39 Samsung Electro-Mechanics (009150 KS, BUY, TP: KRW125,000) 40 LG Electronics (066570 KS, BUY, TP: KRW88,00) 54 33Mirae Asset Securities
  • 4. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Ⅰ. Executive summary 1. Summary Demand growth to be driven by emerging markets Demand: Global demand We forecast global demand for handsets and smartphones in 2013 to reach 1.89bn units (+8.7% growth will continue into YoY) and 897m units (+32.4% YoY), respectively. We expect China to drive global demand 2013, driven by China growth in 2013, as demand for handsets and smartphones in China should expand by 21.8% YoY (to 495m units) and 56% YoY (to 270m units), respectively. Notably, China’s contribution to global demand should rise by 4.6ppt YoY to 30.2% in 2013. We see ample upside in demand growth in China, given that: 1) smartphone users’ portion of mobile phone subscribers in China remains relatively low, at 24% (compared with 48% in North America); and 2) the smartphone penetration rate in China is also lower than that of North America (42.6%, versus 65.3%); and 3) the portion of white-box smartphones in China is also high (45.2% in 2012). Top-3 Chinese handset makers to expand local market share Supply: Top-three Chinese The top-three Chinese smartphone makers, ZTE, Huawei and Lenovo, are aiming to expand smartphone makers (ZTE, local market share in 1H13; as a result, we expect their combined market share in China to Huawei and Lenovo) to expand their local market rise by 3.9ppt YoY to 22.2% in 2013. At this year’s Mobile World Congress (MWC), we share confirmed that the three Chinese handset makers are: 1) rapidly advancing, in terms of smartphone hardware competitiveness; 2) competitive against peers, in terms of production costs; and 3) set to see shipment growth, with new smartphones slated for release in early 2Q12 through local telecom carriers (China Mobile, China Unicom and China Telecom). We expect the three Chinese smartphone makers to rapidly expand their market shares in low-to mid-end smartphones and steadily eat into the white-box smartphone market going forward. SEC to outshine peers in cost and supply chain competitiveness Competitive landscape: SEC We expect market competition among handset makers to stiffen further in 2H13, with the top- to outshine peers in cost three Chinese companies set to post rapid growth in 1H13 and new flagship models to be and supply chain competitiveness released by SEC and Apple in 2Q13. Meanwhile, we believe the increasing weight of the Chinese market in global demand and the rise in Chinese handset makers’ global market share will lower worldwide smartphone ASP by 13.6% YoY in 2013, driving up the cost burden of components for handset makers as a result. Moreover, the aggressive release of new smartphones in 2H13 should spark subsidy competition, driving down the industry’s profitability even further going forward. Nevertheless, we expect SEC to continue to expand its Chinese and global market share in 2013, outpacing market growth with limited fluctuations in profitability. With a relatively high portion of in-house produced components and strict control exerted over its (financially sound) supply chain, we believe SEC still has the scope for additional reductions in components’ portion of total costs. Smartphone paradigm returning to identity and eco-system Industry paradigm At this year’s MWC, we noted that handset suppliers are focusing on building the identities of returning to identity and their new flagship models through UX and killer applications, while seeking to develop an eco-system independent ecosystem by diversifying platforms beyond the oligopolistic Android (whose smartphone OS market share stood at 64% in 2012) in 2013. Through these efforts, handset makers are seeking to preserve the premium of high-margin flagship smartphones, reinforce customer loyalty through the emphasis on differentiation and reduce marketing costs for low-to mid-end models. Between 2011 and 2012, competition in the handset industry had focused primarily on developing advanced hardware features. However, due to the rapid improvement in flagship smartphone hardware, competition to find differentiation points in hardware ceased in 2013, with latecomers closing the gap with top-tiers, in terms of hardware competitiveness. Through efforts to establish a solid identity, handset makers are seeking to: 1) preserve margins for high-margin flagship smartphones; 2) increase customer loyalty and expand market share through the development of an independent ecosystem; 3) reduce marketing costs for low-to mid-end models; and 4) diversify profit models to software/content (after focusing primarily on hardware sales to date). In sharp contrast to Chinese smartphone makers, which continued to emphasize the advanced hardware performance of their flagship models at the 2013 MWC, other smartphone makers (SEC, LG Electronics, Nokia, HTC and Sony) focused on the identity and differentiated UX of their new smartphone models. 44Mirae Asset Securities
  • 5. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets SEMCO (009150 KS) remains our top-pick; LGE is our second pick SEMCO remains our sector- In light of the likely continued expansion in SEC’s global market share in 2013 (+0.4ppt YoY top pick, with an unchanged to 23.6%), we reiterate our BUY rating and target price of KRW125,000 for SEMCO, as a top- target price of KRW125,000 pick for the sector. We believe that: 1) 34.4% YoY growth in SEC’s smartphone shipments (to 290m units) expected in 2013 should drive up shipments of related components; 2) the expected 89% YoY growth in SEC’s flagship smartphone shipments (to 146m units) should improve SEMCO’s product mix, thus lifting its profitability; and 3) component ASPs are unlikely to decline, despite the recent margin improvement by Japanese component makers. Our second-pick for the sector is LGE, due to: 1) the gradual improvement in the competitiveness of its flagship smartphone models; and 2) the likely recovery in its market shares in both Korea and Latin America in 1H13, backed by its competitive new smartphone lineup and platform-sharing strategy.Figure 1 Handset shipment forecasts by supplier 1Q13E 2Q13E 3Q13E 4Q13E 2011 2012E 2013E 2014E 2015E Population/m 7,022 7,041 7,060 7,079 7,062 7,135 7,207 7,279 7,425 Subscriber/m 6,192 6,308 6,424 6,540 5,613 6,120 6,559 6,955 7,319 Shipment/m Total 415 445 489 543 1,776 1,741 1,892 2,026 2,106 Smartphone 201 212 233 251 473 678 897 1,108 1,319 QoQ/YoY (%) Total (12.0) 7.0 10.0 11.0 11.2 (2.0) 8.7 7.1 4.0 Smartphone (3.0) 5.0 10.0 8.0 58.2 43.3 32.4 23.5 19.1 Penetration (%) 48.5 47.6 47.6 46.3 26.6 38.9 47.4 54.7 62.6 Net added 584 506 439 396 365 Replacement 1,191 1,234 1,453 1,629 1,741 Replacement/month 51 55 51 48 48 ASP/US$ 130 149 157 142 139 Market sales/US$ bn 231 260 297 287 294 Shipment/m Total 415 445 489 543 1,776 1,741 1,892 2,026 2,106 Nokia 82 88 97 107 414 335 375 401 417 Samsung 100 108 114 123 328 405 446 536 615 LG Electronics 15 16 18 18 87 56 67 67 68 RIM 9 9 10 10 52 34 38 36 38 Sony 8 9 10 11 33 31 38 41 42 Google 8 8 11 13 41 34 41 48 49 Apple 35 37 43 50 91 134 166 207 259 HTC 9 8 8 12 43 32 36 45 46 ZTE 25 31 37 41 56 68 133 152 158 Huawei 17 22 29 38 41 47 106 142 147 Lenovo 12 13 15 16 16 28 57 61 63 MS (%) Nokia 19.8 19.8 19.8 19.8 23.3 19.2 19.8 19.8 19.8 Samsung 24.1 24.3 23.4 22.7 18.5 23.2 23.6 26.5 29.2 LG Electronics 3.7 3.6 3.6 3.3 4.9 3.2 3.5 3.3 3.2 RIM 2.2 2.1 2.0 1.8 2.9 2.0 2.0 1.8 1.8 Sony 2.0 2.0 2.0 2.0 1.8 1.8 2.0 2.0 2.0 Google 2.0 1.9 2.3 2.3 2.3 1.9 2.1 2.3 2.3 Apple 8.5 8.4 8.8 9.2 5.1 7.7 8.8 10.2 12.3 HTC 2.2 1.7 1.6 2.2 2.4 1.8 1.9 2.2 2.2 ZTE 6.0 7.0 7.5 7.5 3.1 3.9 7.1 7.5 7.5 Huawei 4.0 5.0 6.0 7.0 2.3 2.7 5.6 7.0 7.0 Lenovo 3.0 3.0 3.0 3.0 0.9 1.6 3.0 3.0 3.0 Smartphone shipments Nokia 6.4 6.7 7.4 8.0 85.9 35.0 28.5 35.2 41.9 Samsung 60.1 69.1 76.0 85.1 97.0 216.0 290.3 393.2 483.3 LG Electronics 9.4 10.3 12.4 13.0 19.0 26.2 45.2 51.8 56.5 RIM 9.1 9.3 9.8 9.8 52.7 35.2 38.0 36.5 37.9 Sony 7.7 8.0 8.6 8.8 19.6 24.5 33.1 38.8 42.2 Google 5.6 5.7 6.3 6.5 18.6 19.5 24.2 31.2 46.2 Apple 35.4 37.5 42.8 49.8 90.6 133.8 165.5 207.4 259.2 HTC 9.1 7.6 7.8 11.9 43.6 32.1 36.5 44.6 46.3 ZTE 8.1 8.5 9.3 10.1 10.5 26.8 35.9 44.3 52.8 Huawei 8.4 8.8 9.7 10.5 15.6 27.2 37.4 46.2 55.0 Lenovo 8.1 8.5 9.3 10.1 1.7 21.7 35.9 44.3 52.8Source: Gartner, IMF, Mirae Asset Research 55Mirae Asset Securities
  • 6. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets 2. Valuation Pure smartphone suppliers Pure smartphone suppliers, such as Apple, HTC and RIM, have traded at an average P/B of have traded within P/B 5.2x (3.6x-9.7x) since 2007, when the smartphone market began to expand significantly. band of 3.6-9.7x since 2007 These companies have enjoyed a price premium to feature-phone suppliers, such as LGE and Nokia, whose shares have traded at an average P/B of 2.1x (0.6x-6.3x) during the same period. Compared with feature-phone suppliers, pure smartphone suppliers: 1) have been able to achieve faster market share gains, thanks to steep increases in smartphone penetration rates; 2) have maintained stronger profitability; and 3) have seen higher BPS growth rate from 2007 to 2012 (+30.6%, compared with +28.2% for feature-phone vendors). Valuation premium versus However, smartphone demand growth began to slow from 1Q12 (when the penetration rate second-tiers should narrow of smartphones in North America exceeded 50%), while the rapid growth of Chinese handset going forward suppliers (ZTE, Huawei and Lenovo) intensified competiton over ASP. Moreover, SEC and Apple confirmed their competitiveness in the smartphone market by increasing their market shares. Handset suppliers’ valuation In 2013, handset suppliers valuations should remain almost unchanged (in 2012, smartphone should remain unchanged in suppliers’ average P/B was 2.3x, while that of feature-phone suppliers was 1.2x). Global 2013 demand should remain relatively strong, as handset and smartphone shipments should increase by 8.7% YoY and 32.4% YoY in 2013. However, the profitability improvement of second-tiers should remain limited, as: 1) the penetration rate of smartphones (+8.5ppt YoY to 47.4%) should increase at a slower pace; and 2) top-tiers SEC and Apple, as well as Chinese vendors, should continue to expand their shipments. China’s top-three smartphone makers should With their cost competitiveness, China’s top-three smartphone makers (ZTE, Huawei and achieve market share gains Lenovo) should rapidly expand their presence in China, as well as emerging markets and thus both in China and emerging markets and thus maintain see a continued increase in shipments in 2013. As such, they should enjoy a valuation valuation premium vs. peers premium to peers in 2013. Figure 2 Smartphone vendors’ (Apple, HTC, RIM) P/B band Figure 3 Handset vendors’ (Nokia, LGE) P/B band (x) (x) 16 7 14 6 12 5 10 High 4 8 3 6 Average Average High 2 4 Low Low 1 2 0 0 2007 2008 2009 2010 2011 2012E 2013E 2007 2008 2009 2010 2011 2012E 2013E Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 66Mirae Asset Securities
  • 7. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsFigure 4 Handset peers’ valuation table LGE Apple SEC HTC Nokia RIM ZTE Lenovo Price (KRW,US$,HK$,NT$) 78,300 434 1,544,000 280.0 3.6 13.7 12.8 9.0 Market cap.(US$ m) 11,819 407,633 208,594 8,047 13,407 7,165 5,510 12,107 Sales (US$ m) 2010 48,239 65,225 133,789 8,858 56,309 19,907 10,330 21,594 2011 49,021 108,249 149,080 15,849 53,829 18,435 13,348 29,574 2012E 46,327 156,212 183,017 9,991 39,628 11,267 14,262 34,311 2013E 46,477 182,497 195,583 9,495 39,119 12,928 16,677 38,669 2014E 48,763 205,625 211,741 10,100 40,025 12,101 18,825 42,594 OP (US$ m) 2010 76 18,385 14,381 1,402 2,746 4,636 616 369 2011 310 33,790 13,964 2,341 24 1,845 426 594 2012E 1,022 55,252 26,413 661 115 (1,160) (34) 778 2013E 1,299 55,296 31,427 454 1,311 (458) 579 975 2014E 1,377 63,371 35,085 591 1,386 (374) 686 1,112 NI (US$ m) 2010 1,062 14,013 13,670 1,256 2,454 3,411 480 273 2011 (424) 25,922 12,070 2,109 (1,621) 1,164 319 473 2012E 83 41,811 21,677 578 (894) (629) (178) 619 2013E 916 42,016 25,818 438 144 (198) 329 764 2014E 979 47,935 28,805 495 545 (234) 432 885 P/E (x) 2010 48.3 19.3 8.8 18.6 15.5 10.4 22.4 20.1 2011 - 14.6 11.7 6.8 - 3.3 32.4 19.3 2012E 174.2 9.8 9.7 14.3 - - - 19.3 2013E 12.5 9.8 8.3 17.7 60.0 - 17.4 15.7 2014E 11.7 8.6 7.3 14.2 21.7 - 13.2 13.5 P/B (x) 2010 1.4 5.6 1.9 9.7 2.0 3.9 3.3 3.1 2011 1.0 4.9 1.8 4.1 1.2 0.7 2.8 3.9 2012E 1.0 3.5 2.2 2.7 1.2 0.8 1.5 4.5 2013E 1.0 2.8 1.8 2.6 1.3 0.8 1.4 3.7 2014E 1.0 2.3 1.5 2.4 1.2 0.8 1.3 3.3 EV/EBITDA (x) 2010 16.3 11.2 5.0 14.4 6.4 5.8 16.4 5.2 2011 11.5 8.3 5.3 4.6 6.9 1.6 17.2 7.0 2012E 7.2 4.8 4.6 7.9 10.7 8.5 195.6 8.5 2013E 6.6 4.6 3.7 10.5 4.4 4.2 10.4 6.4 2014E 6.3 3.9 3.0 9.3 3.3 6.3 8.7 5.2 ROE (%) 2010 11.3 35.3 21.2 56.3 13.5 41.2 16.3 15.9 2011 (3.7) 41.7 15.0 70.4 (8.9) 12.2 8.7 22.5 2012E 0.5 40.5 22.0 17.8 (15.2) (8.1) (4.9) 24.1 2013E 7.8 31.8 21.3 15.2 0.5 (2.3) 8.4 26.0 2014E 7.7 28.2 19.8 16.0 7.0 (2.8) 10.2 25.8Source: Bloomberg, Mirae Asset ResearchNote: Mirae Asset estimates for LGE and SEC (share price data as of 1 March 2013) 77Mirae Asset Securities
  • 8. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsFigure 5 Handset peers’ historical valuations 2007 2008 2009 2010 2011 2012E 2013E 2014E LGE (066570 KS) EPS KRW 7,625 2,717 14,197 7,612 (3,132) 422 6,249 6,678 BPS KRW 49,289 57,223 81,014 87,280 71,303 70,220 75,590 81,343 P/E (x) 13.1 27.5 8.6 48.3 - 174.2 12.5 11.7 high 73.2 27.5 54.7 48.3 50.8 174.2 low 13.1 9.2 8.6 6.5 22.3 13.5 P/B (x) 2.0 1.3 1.5 1.4 1.0 1.0 1.0 1.0 high 2.7 3.3 2.6 1.6 1.4 1.6 low 1.3 1.3 1.2 1.1 0.6 0.7 ROE (%) 31.5 14.7 30.2 11.3 (3.7) 0.5 7.8 7.7 Apple (AAPL US) EPS US$ 4.0 6.9 9.2 15.4 28.1 44.3 44.5 50.7 BPS US$ 16.7 25.1 35.2 52.2 82.4 124.6 154.2 192.2 P/E (x) 39.1 18.9 20.1 19.3 14.6 10.0 10.0 8.8 high 88.0 49.6 31.2 35.8 27.9 25.4 low 36.7 12.6 11.5 21.2 14.6 12.1 P/B (x) 9.2 5.1 5.2 5.6 4.9 3.6 2.9 2.3 high 17.1 11.7 8.4 9.3 8.1 8.5 low 7.1 3.4 3.1 5.5 4.9 4.2 ROE (%) 28.5 33.2 30.5 35.3 41.7 40.5 31.8 28.2 HTC (2498 TT) EPS US$ 1.0 1.0 0.8 1.5 2.5 0.7 0.5 0.7 BPS US$ 2.0 2.1 2.4 3.0 4.0 3.6 3.6 3.9 P/E (x) 11.9 8.6 12.8 18.6 6.8 14.2 17.5 14.1 high 11.9 17.6 14.1 31.8 26.8 14.9 low 6.9 5.4 8.2 9.7 6.8 2.6 P/B (x) 6.1 4.0 4.4 9.7 4.1 2.7 2.6 2.4 high 7.1 9.1 6.6 11.0 14.1 5.5 low 4.1 2.8 3.8 3.3 4.1 1.6 ROE (%) 58.7 49.1 35.8 56.3 70.4 17.8 15.2 16.0 Nokia (NOK US) EPS US$ 2.5 1.6 0.3 0.7 (0.4) (0.3) 0.1 0.2 BPS US$ 5.4 5.4 5.1 5.2 4.1 2.9 2.5 3.0 P/E (x) 14.3 10.4 37.1 15.5 - - 62.5 22.6 high 27.0 13.9 37.1 48.7 16.8 - low 13.8 5.4 6.5 15.5 6.9 - P/B (x) 7.1 2.9 2.5 2.0 1.2 1.3 1.3 1.3 high 9.8 7.0 3.1 3.3 2.2 1.4 low 5.0 2.7 1.8 1.9 0.9 0.4 ROE (%) 53.9 27.5 6.5 13.5 (8.9) (15.2) 0.5 7.0 RIM (BBRY US) EPS US$ 2.3 3.3 4.3 6.4 2.2 (1.2) (0.3) (0.4) BPS US$ 7.0 10.4 13.6 17.1 19.3 17.5 17.2 17.1 P/E (x) 46.3 12.2 16.6 10.4 3.3 - - high 71.3 65.3 26.0 17.8 11.0 4.2 low 23.3 12.3 10.7 9.1 2.0 1.5 P/B (x) 15.0 3.9 5.2 3.9 0.7 0.8 0.8 0.8 high 17.7 21.1 8.3 5.6 4.1 0.9 low 5.8 3.9 3.4 3.1 0.7 0.3 ROE (%) 40.3 38.6 36.5 41.2 12.2 (8.1) (2.3) (2.8) ZTE (763 HK) EPS US$ 0.1 0.1 0.1 0.1 0.1 (0.1) 0.1 0.1 BPS US$ 0.5 0.7 0.7 1.0 1.1 1.1 1.2 1.3 P/E (x) 30.4 14.4 30.2 22.4 32.4 (0.0) 18.0 13.7 high 57.9 34.8 35.4 33.6 32.4 33.1 low 30.4 7.9 13.5 14.1 12.2 12.4 P/B (x) 3.1 1.7 4.6 3.3 2.8 1.6 1.5 1.3 high 4.1 3.6 4.6 5.1 3.8 2.9 low 2.5 0.8 1.6 2.1 1.8 1.1 ROE (%) 10.9 12.6 15.8 16.3 8.7 (4.9) 8.4 10.2Source: Bloomberg, Mirae Asset Research 88Mirae Asset Securities
  • 9. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Figure 6 SEC handset division’s OP vs. stock price Figure 7 LGE MC division’s OP vs. stock price (KRW bn) (000 KRW) (KRW 100m) (KRW) 6,000 1,800 8,000 180,000 1,600 5,000 160,000 6,000 1,400 140,000 4,000 1,200 4,000 120,000 1,000 100,000 3,000 2,000 800 80,000 0 60,000 2,000 600 40,000 400 (2,000) 1,000 20,000 200 (4,000) 0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013 OP(LHS) KRW(RHS) OP(LHS) Price(RHS) Source: SEC, Bloomberg, Mirae Asset Research Source: LGE, Bloomberg, Mirae Asset Research Figure 8 Apple ( AAPL US) iPhone OP vs. stock price Figure 9 HTC (2498 TT) OP vs. stock price (US$ bn) (US$) (NT$ bn) (NT$) 14 800 25 1,400 12 700 1,200 20 600 10 1,000 500 15 8 800 400 6 600 300 10 4 400 200 5 2 100 200 0 0 0 0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 OP(LHS) Pirce(RHS) OP(LHS) Price(RHS) Source: Apple, Bloomberg, Mirae Asset Research Source: HTC, Bloomberg, Mirae Asset Research Figure 10 Nokia (NOK US) handset division’s OP vs. stock price Figure 11 RIM (RIMM US) OP vs. stock price (US$ bn) (EUR) (US$ m) (US$) 5 30 1,400 160 1,200 140 4 25 1,000 120 3 800 20 600 100 2 15 400 80 1 200 60 10 0 0 40 (200) (1) 5 (400) 20 (2) 0 (600) 0 2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013 OP(LHS) Price(RHS) Price(RHS) OP(LHS) Source: Nokia, Bloomberg, Mirae Asset Research Source: RIM, Bloomberg, Mirae Asset Research 99Mirae Asset Securities
  • 10. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Figure 12 SEC P/E band Figure 13 SEC P/B band (KRW 000) (KRW 000) 2,000 14x 2,500 1,800 12x 1,600 2,000 2.5x 1,400 10x 1,200 Share price 1,500 8x Share price 2.0x 1,000 1.0x 800 1,000 600 0.5x 400 500 200 0 0 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 14 LGE P/E band Figure 15 LGE P/B band (KRW 000) (KRW 000) Share price 500 180 400 Share price 160 140 2.0x 300 120 40x 200 100 1.5x 30x 100 20x 80 1.0x 10x 60 0 40 0.5x (100) 20 (200) 0 2002 2004 2006 2008 2010 2012 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 16 Apple (AAPL US) P/E band Figure 17 Apple (AAPL US) P/B band (US$) (US$) 1,200 1,200 9x 25x 1,000 1,000 20x 7x 800 800 15x Share price 600 5x 600 Share price 400 10x 400 3x 200 200 0 0 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 10 10Mirae Asset Securities
  • 11. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Figure 18 Nokia (NOK US) P/E band Figure 19 Nokia (NOK US) P/B band (US$) (US$) 120 70 100 Share price 60 Share price 80 50 60 40 40 30 20 10x 20 0 20x 6.0x 30x 4.5x (20) 10 40x 3.0x (40) 0 1.5x 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 20 RIM (RIMM US) P/E band Figure 21 RIM (RIMM US) P/B band (US$) (US$) 160 160 Share price 140 140 Share price 120 120 100 100 80 5.0x 80 60 60 3.5x 40 40 20 2.0x 20 0 5x 0.5x (20) 10x 0 15 2000 2002 2004 2006 2008 2010 2012 (40) 20x 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 22 HTC (2498 TT) P/E band Figure 23 HTC (2498 TT) P/B band (NT$) (NT$) 1,600 1,400 1,400 1,200 Share price 1,200 Share price 1,000 1,000 8x 800 800 6x 20x 600 600 15x 4x 400 400 10x 5x 200 2x 200 0 0 2003 2005 2007 2009 2011 2003 2005 2007 2009 2011 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 11 11Mirae Asset Securities
  • 12. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Figure 24 ZTE (763 HK) P/E band Figure 25 ZTE (763 HK) P/B band Share price (HK$) (HK$) 45 35 Share price 4x 40 30 35 25 3x 30 20 25 40x 2x 20 15 30x 15 10 20x 10 1x 5 5 10x 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 26 Sony (6758 JP) P/E band Figure 27 Sony (6758 JP) P/B band (JPY) (JPY) Share price 20 18 15 16 14 10 Share price 12 5 40x 10 0 30x 8 20x 3.5x (5) 10x 6 2.5x (10) 4 1.5x (15) 2 0.5x 0 (20) 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 12 12Mirae Asset Securities
  • 13. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Ⅱ. Investment points 1. Continued demand growth in emerging markets Global demand growth will We forecast global demand for handsets and smartphones in 2013 to reach 1.89bn units continue to be driven by (+8.7% YoY) and 897m units (+32.4% YoY), respectively. We expect China to drive global China in 2013 demand growth in 2013, as demand for handsets and smartphones in China should expand by 21.8% YoY (to 495m units) and 56% YoY (to 270m units), respectively. Notably, China’s contribution to global demand should rise by 4.6ppt YoY to 30.2% in 2013. We see ample upside in demand growth in China, given that: 1) smartphone users’ portion of mobile phone subscribers in China remains relatively low, at 24% (compared with 48% in North America); and 2) the smartphone penetration rate in China is also lower than that of North America (42.6%, versus 65.3%); and 3) the portion of white-box smartphones is high (45.2% in 2012). Figure 28 Global handset demand (new + replacement) and Figure 29 Smartphone users by country and portion YoY growth (m units) (%) (m people) (%) 2,500 35 300 70 30 250 60 2,000 25 50 200 20 40 1,500 150 15 30 100 1,000 10 20 50 10 5 500 0 0 0 il a y a UK Ge ce a n A ea 0 -5 an az si di in pa US an r ne Ch In Br rm Ko Ja 2006 2007 2008 2009 2010 2011 20122013E 2014E 2015E Fr do In New(LHS) Replacement(LHS) YoY(RHS) Smartphone Portion Source: Gartner, Mirae Asset Research Source: KPCB Mary Meeker, Mirae Asset Research Capex by China Mobile to Meanwhile, as of end-2012, 3G’s portion of mobile telecom network in Asia (including China) drive demand growth in stood at 19.9%, far lower than the 89.1% in North America. Given the sharp expansion of China handset demand in North America, buoyed by network upgrades resulting from massive investments in CDMA (2000) and 3G (2007), we believe that China’s smartphone demand growth in 2013 should also be driven by 3G coverage expansion and investments in TD-LTE by China Mobile (66.1% of total mobile subscribers in China, as of end-2012). Figure 30 China handset demand in 2012 Figure 31 China handset supply market share trend Mid-smartphone: (%) Low smartphone, CNY1,000~2,000 100 Others 16.6% 90 Ginoee 80 TCL 70 Yulong Mid 60 Lenovo smartphone, 50 Huawei 15.3% Feature, ZTE 40 57.4% HTC 30 20 Apple High LGE 10 smartphone, SEC 10.7% 0 Nokia 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 Source: Mirae Asset Research Source: Gartner, Mirae Asset Research 13 13Mirae Asset Securities
  • 14. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets China’s top-three We expect demand growth in China in 2013 to be led by demand increases for low-to mid-end smartphone suppliers (ZTE, smartphones (mid-end: RMB1,000-2,000, low-end: RMB1,000 or below). We forecast demand Huawei and Lenovo) to eat for mid-end and low-end smartphones in China to jump by 58.5% YoY (to 98.9m units) and rapidly into low-to mid-end market share in 2013 66.8% YoY (112.7m units), respectively. Chinese local smartphone suppliers plan to offer new high-end smartphone models, with specifications comparable to SEC’s Galaxy S series and Apple’s iPhone, for ASPs of RMB2,000 or below, thus stimulating demand for mid-end models. In addition, their aggressive lineup expansion should lower the ASP for low-end smartphones to the levels of feature-phones, thus boosting low-end demand. Figure 32 China-based makers’ shipments by price Figure 33 China-based makers’ shipment portions by price (m units) (%) 600 100 90 500 80 400 70 60 300 50 200 40 30 100 20 0 10 2011 2012 2013 2014 2015 2016 0 2011 2012 2013 2014 2015 2016 Less than $50 $51-$100 $101-$150 More than $150 Less than $50 $51-$100 $101-$150 More than $150 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research High-end smartphone Notably, high-end smartphone demand in China should remain solid in 2013, as its high-end demand in China to remain demand growth (YoY) should reach 35.6%, outpacing the global market grwoth (32.4% YoY). solid Likely continued concentration of mobile carriers’ subsidies in high-end smartphone models should keep gross margins for high-end models higher than those of low-to mid-end models. Figure 34 China handset supply market share in 4Q12 Figure 35 China smartphone supply market share in 4Q12 (%) (%) SEC, 10.7 ZTE, 5.0 SEC, 15.9 Huawei, 5.5 Apple, 8.7 Others, 44.1 Lenovo, 7.5 ZTE, 8.2 Others, 66.6 Apple, 4.6 Huawei, 9.4 Lenovo, 13.6 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research 14 14Mirae Asset Securities
  • 15. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets 2. Chinese peers to expand local market share on reinforced competitivenessChinese smartphone makers Based on developments witnessed at this year’s MWC, we expect China’s top-threeto expand local market smartphone makers, i.e. ZTE, Huawei and Lenovo, to show visible progress in 1H13, as theyshare in 1H13, backed by:1) reinforced hardware aim to expand their local market shares. With the three Chinese companies (ZTE, Huawei, andcompetitiveness; Lenovo) quickly catching up to global peers, in terms of hardware competiveness, existing players are finding it increasingly difficult to differentiate their products through enhancement of hardware features. ZTE’s flagship smartphone, Grand Memo, slated for release in 1Q13, employs Qualcomm Snapdragon 600, the fastest AP on the market, offering a 40% improvement in performance, compared with its predecessor, the Qualcomm S4 Pro. The Grand Memo model also adopts a 5.7”, 1280x720, 288ppi HD display, on par with other display-focused smartphone models, such as LG Electronics’ Optimus G Pro (5.5”, 1920x1080, 400ppi display) and Sony’s Xperia Z (5”, 1920x1080, 441ppi display). Moreover, ZTE’s new model runs on the latest version of the Android platform (4.1.2), demonstrating the company’s advancement, in terms of software competitiveness.…2) cost competitiveness; In addition to reinforcing hardware competitiveness, China’s top-three smartphone makers are seeking to cut ASP to improve price competitiveness, backed by lower production costs. ZTE’s Grand S, scheduled for market release in 1Q13, has an estimated bill of materials (BOM) of US$178, 16.7% lower than Galaxy S3’s BOM of US$213.5. In addition, it is forecast to sell for an ASP of US$499.99, US$100 cheaper than Galaxy S3. We do not expect the Chinese companies to see rapid growth in sell-through of their smartphone models within 1H13, given their absence of competitive brand images or differentiation points (setting their products apart from the flagship models of existing companies). However, due to expanded marketing spending, on the back of steady growth in shipments and reduction of materials costs, we believe Chinese smartphone makers will gradually eat into the high-end market shares of other second-tiers from 2H13.Figure 36 Chinese makers’ flagship smartphone line-up Vendor ZTE Huawei Lenovo Meizu OPPO Picture Name Grand S Ascend D2 K900 Meizu MX2 OPPO Find 5 Core Qualcomm S4 1.7GHz Hi-silicon K3V2 1.5GHz Intel Atom 2.0GHz 1.6GHz Quad core Qualcomm S4 1.5GHz OS Android 4.1 Android 4.1.2 Android 4.2 Android 4.1 Android 4.1.2 Display 5.5" (1920x1080), 5" (1920x1080),441ppi 5" (1920x1080),441ppi 4.4" (1280x800), 343ppi 5" (1920x1080), 441ppi 400ppi Size 142x69x6.9mm 140x71x9.4mm thickness: 6.9mm 124.9x64.9x10.2mm 141.8x68.8x8.9mm Weight TBA 170g 162g 142g 165g Memory 2GB RAM 2GB 2GB 2GB RAM 2GB RAM Storage 16GB 32GB 16GB 64GB 16GB Battery 1780mAh 3000mAh TBA 1800mAh 2500mAh Release 2013.1Q 2013.01 2013.04 2012-11-27 2012-12-12Source: Company data, PhoneArena, Mirae Asset Research 15 15Mirae Asset Securities
  • 16. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsFigure 37 Global handset makers’ smartphone line-up in 1Q13 Vendor Samsung LGE Apple RIM Sony Picture Name Galaxy S3 LTE Optimus G Pro iPhone 5 BlackBerry Z10 Xperia Z Core Exynos 4412 1.4GHz Qualcomm 600 1.7GHz A6 Qualcomm S4 1.5GHz Qualcomm S4 1.5GHz OS Android 4.1 Android 4.1 iOS 6 BlackBerry 10 Android 4.1.2 Display 4.8" (1280x720), 306ppi 5.5" (1920x1080) 4" (1136x640), 326ppi 4.2" (1280x768),355ppi 5" (1920x1080), 441ppi Size 136.6x70.6x9.0mm 150.2x76.1x9.4mm 123.8x58.6x7.6mm 130x65.6x9mm 139x71x7.9mm Weight 138.5g 172g 112g 138g 146g Memory 2GB RAM 2GB RAM 1GB RAM 2GB RAM 2GB RAM Storage 32GB 32GB 16GB~ 16GB 16GB Battery 2100mAh 3140mAH 1440mAh 1,800mAh 2330mAh Release 2012.05.29 2013.02.20 2012.09.21 2013.01.31 2013.02.09Source: Company data, PhoneArena, Mirae Asset Research 16 16Mirae Asset Securities
  • 17. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsFigure 38 Samsung Galaxy S3 BOM costs Figure 39 ZTE Grand S BOM costs Galaxy Note 2 ZTE Grand S Components Manufacturer Cost (US$) Components Manufacturer Cost (US$) BOM + manufacturing 213.5 BOM + manufacturing 178.0 Total BOM cost 205.5 Total BOM cost 175.0 Manufacturing cost 8.0 Manufacturing cost 3.0 Major cost drivers Major cost drivers Memory Samsung 20.0 Memory 23.0 Display/touchscreen Samsung/Melfas 62.0 Display/touchscreen 45.5 Processor Samsung 15.0 Processor Qualcomm 15.0 Wireless section Intel/Qualcomm 25.0 Wireless section 20.0 User interface User interface SEMCO/Infineon 16.5 13.0 & sensors & WLAN/BT/FM & sensors & WLAN/BT/FM Power management Maxim 11.0 Power management 10.0 Battery Samsung 5.0 Battery 4.5 Mech./electro-mech. SEMCO 30.0 Mech./electro-mech. 23.0 Camera SEMCOP/Patron 15.0 Camera 18.0 Box contents 6.0 Box contents 3.0Source: Mirae Asset Research Source: Mirae Asset Research…and 3) wider telecom Buoyed by reinforced hardware/software competitiveness and reduced production costs, thecarrier lineup top-three smartphone makers in China (ZTE, Huawei, Lenovo) are set to see visible shipment growth, with new smartphones slated for release in early 2Q12 (through local telecom carriers, i.e. China Mobile, China Unicom and China Telecom). In 1H13, we expect the three Chinese smartphone makers to rapidly expand their shares of the low-to mid-end smartphones and steadily eat into the white-box smartphone market, enhancing the brand image of their flagship models as a result. In 2H13, we expect the three companies to expand their footing aggressively in the US, Latin American and Indian handset markets. Overall, we expect the combined market share of the three companies in China to rise by 3.9ppt YoY to 22.2% in 2013.Figure 40 Specifications of smartphone line-ups in 1Q13 Company Product Display CPU Memory Storage Battery Launch (mAh) Global manufacturers SEC Galaxy S3 4.8” (1280x720), 306ppi Exynos 4412 1.4Ghz 1GB RAM 32GM 2,100 2012-05-22 LGE Optimus G Pro 5.5" (1920x1080), 400ppi Qualcomm 600 1.7GHz 2GB RAM 32GB 3.140 2013-02-20 LGE Optimus F7 4.7" (1280x720), 312ppi 1.5GHz Dual core 2GB RAM 8GB 2.540 2013.1Q LGE Optimus L7 Ⅱ 4.4" (800x480), 217ppi Qualcomm S4 1GHz 768MB RAM 4GB 2.460 2013.1Q Apple iPhone 5 4.0” (1136x640), 326ppi Apple A6 1.3GHz 1GB RAM 16GB 1,440 2012-09-21 RIM BlackBerry Z10 4.2" (1280x768), 356ppi Qualcomm S4 1.5GHz 2GB RAM 16GB 1,800 2013-01-31 Sony Xperia Z 5" (1920x1080), 441ppi Qualcomm S4 1.5GHz 2GB RAM 16GB 2,330 2013-02-09 HTC One 4.7" (1920x1080), 469ppi Qualcomm 600 1.7Ghz 2GB RAM 32GB 2,300 2013.1Q Chinese manufacturers ZTE Grand S 5" (1920x1080), 441ppi Qualcomm S4 1.7GHz 2GB RAM 16GB 1,780 2013.1Q ZTE Grand Memo 5.7” (1280x720), 258ppi Qualcomm S4 1.7GHz 2GB RAM 16GB 3,200 2013.1Q ZTE Nubia Z5 5.0” (1920x1280), 441ppi Qualcomm S4 1.5GHz 2GB RAM 32GB 2,300 2013.01 Huawei Ascend P2 4.7" (1280x720), 312ppi 1.5GHz Quad core 1GB RAM 16GB 2.420 2013.1Q Huawei Ascend D2 5.0” (1920x1280), 441ppi Hi-Silicon 1.5GHz 2GB RAM 32GB 3,000 2013.1Q Lenovo K900 5.5” (1920x1080), 401ppi Intel Atom 2GHz 2GB RAM 16GB TBA 2013-04 Meizu Meizu MX2 4.4” (1280x800), 343ppi 1.6GHz Quad core 2GB RAM 64GB 1,800 2012-11 OPPO OPPO Find 5 5.0” (1920x1080), 441ppi Qualcomm S4 1.5GHz 2GB RAM 16GB 2,500 2012-12Source: Company data, PhoneArena, Mirae Asset Research 17 17Mirae Asset Securities
  • 18. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Chinese local players’ rapid Meanwhile, we believe that any adverse impact from Chinese local players’ rapid market share market share gains will have gains in China on Korean smartphone makers should remain limited in 1H13, given that: 1) a marginal impact on SEC the portion of low-end models in SEC’s total smartphone shipments to China is low, at mere 5% levels; 2) SEC’s mid-end models should maintain a solid brand premium, despite improved price competitiveness; and 3) Chinese smartphone makers’ new flagship models, which have failed to secure their own identity, are unlikely to eat into the market shares of SEC’s Galaxy series. Chinese players should erode the market shares of peers with relatively low cost competitiveness and brand premiums, while rapidly absorbing demand for white-box smartphones, which represented a hefty 45.2% (-5.2ppt YoY) of global demand, as of end- 2012. Adverse impact on LGE LGE should see marginal impact from Chinese players’ market share gains in China in 1H13, in should also be limited in light of its negligible market share in China (0.2% as of end-2012) and the meager portion of 1H13; from 2H13, margin improvement could slow, China-bound shipments (1.3% in end-2012, down by 4.3ppt YoY). However, LGE could see a due to ASP declines slight fall in its market share in 2H13, due to an increase in COGS/sales ratio resulting from ASP declines and a subsequent slowdown in profitability improvement. Figure 41 Supply portion of China smartphone market by price (%) 100 90 Low 80 70 60 50 Mid 40 30 20 10 High 0 i h ia ee u M d E E C om l a C ei L e vo O ny s ta uc z LG pl pa er TC ol ZT SE HT k RI aw PP ei on To So no No Ap th or a To ol M O Xi Hu Gi Le ot O Co K- M Source: SEC, LGE. Gartner, Mirae Asset Research 18 18Mirae Asset Securities
  • 19. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsFigure 42 China Mobile’s smartphone sales in 1Q13 December January February Vendor Model (CNY) Vendor Model (CNY) Vendor Model (CNY) SEC B9062 2,599 SEC B9062 2,599 SEC B9062 2,399 I9050 1,999 I9050 1,999 I8250 1,599 I8250 1,599 I8250 1,599 Galaxy Note 9228 3,699 Galaxy Ace 1,499 7568 1,299 GalaxyS3 i9308 4,199 Galaxy S3 i9308 4,199 Galaxy Note 9228 3,499 Galaxy Note2 4,899 Galaxy Note2 5,199 Galaxy S3 i9308 4,199 Galaxy Ace 999 HTC S720t 3,899 Galaxy Note2 5,199 S6108 899 T328t 1,859 HTC S720t 3,899 S6358 999 Google MT680 1,199 T328t 1,859 HTC T327t 1,499 MT917 2,499 T329t 1,999 T329t 1,899 Coolpad 8870 2,299 Motorola MT680 1,199 T528t 2,499 8150 1,300 MT788 1,999 8S 1,999 8810 1,300 MT917 2,499 8X 3,999 8180 1,400 Nokia Lumia920T 4,599 Motorola MT887 2,800 Lenovo A698T 1,300 Coolpad 8870 2,299 MT788 1,999 ZTE U885 1,300 8020 399 Nokia Lumia920T 4,599 U880S 800 8190 1,099 ZTE I880F1 899 Huawei T8828 1,400 Lenovo A278T 399 U930 1,600 Hisense T96 1,300 U960S2 930 Coolpad 8950 2,199 8020+ 389 8190 999 8060 649 8070 999 8050 519 Lenovo A278T 399 A798T 999 Tianyu T6 999 T621 399 T619 599 Huawei T8951 999 Y310 599 Y220T 521 Hisense T950 998 Haier I710 799 Huawei T8951 999Source: China Mobile, Mirae Asset Research 19 19Mirae Asset Securities
  • 20. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsFigure 43 China Telecom’s smartphone sales in 1Q13 December January February Vendor Model (CNY) Vendor Model (CNY) Vendor Model (CNY) Apple iPhone 4S 16Gb 4,488 Apple iPhone 4S 16GB 4,488 Apple iPhone 4S 16GB 4,488 SEC Galaxy S3 i939 4,699 iPhone 5 16GB 5,288 iPhone 5 16GB 5,288 SCH-W689 4,980 iPhone 5 32GB 6,088 iPhone 5 32GB 6,088 HTC Desire VC T328d 1,690 iPhone 5 64GB 6,888 iPhone 5 64GB 6,888 Google XT928 3,980 SEC Galaxy S3 i939 4,699 SEC Galaxy S3 i939 4,699 XT882 3,599 SCH-W689 4,980 SCH-W689 4,980 Nokia Lumia 800C 2,399 Galaxy Note2 N719 5,699 Galaxy Note2 N719 5,699 Huawei C8810 990 HTC Desire VC T328d 1,690 Nokia Lumia 800C 2,399 C8812 839 Motorola XT882 3,599 ZTE N881E 990 C8812+ 990 Nokia Lumia 800C 2,399 Huawei C8812+ 990 G300C 1,490 ZTE N881E 990 C8812 990 Hisense ET919 1,590 Huawei C8810 990 Xiaomi M2 2,199 EG870 890 C8812 839 Hisense ET919 1,590 E89 459 C8812+ 990 EG870 890 K-touch E619 699 G300C 1,490 E89 459 Lamtam S600D 650 Hisense ET919 1,590 Lamtam S600D 650 S800 980 EG870 890 S800 980 Sharp SH7218T 1,390 E926 990 Coolpad 5860S 990 E89 459 Lamtam S600D 650 S800 980 Sharp SH7218T 1,390 Coolpad 5860S 990Source: China Telecom, Mirae Asset Research 20 20Mirae Asset Securities
  • 21. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsFigure 44 China Unicom’s smartphone sales in 1Q13 December January February Vendor Model (CNY) Vendor Model (CNY) Vendor Model (CNY) Apple iPhone 4 8GB 3,088 Apple iPhone 4 8GB 3,088 Apple iPhone 4 8GB 3,088 iPhone 4S 16GB 4,488 iPhone 4S 16GB 4,899 iPhone 4S 16GB 4,899 iPhone 4S 32GB 5,288 iPhone 4S 32GB 6,999 iPhone 4S 32GB 6,999 iPhone 4S 64GB 5,988 iPhone 4S 64GB 7,999 iPhone 4S 64GB 7,999 SEC Galaxy Ace S5838 2,298 iphone5 16GB 5,899 iphone5 16GB 5,899 B9120 9,999 iphone5 32GB 6,899 iphone5 32GB 6,899 I8150 2,599 iphone5 64GB 7,899 iphone5 64GB 7,899 I9103 3,599 SEC Galaxy Ace S5838 2,298 SEC Galaxy Ace S5838 1,398 Galaxy S3 i9300 4,699 B9120 9,999 B9120 9,999 S6102E 999 I8150 2,599 I8150 2,599 S5690 2,098 I9103 3,599 I9103 3,599 S5830I 1,398 Galaxy S3 i9300 4,699 Galaxy S3 i9300 3,999 S6352 1,199 Galaxy Note2 N7102 5,799 Galaxy Note2 N7102 5,799 S5380D 1,498 Galaxy Camera 3,999 S6102E 999 S5578 1,499 S6102E 999 S5690 2,098 Galaxy S2 i9100G 4,899 S5690 2,098 S6352 999 LGE Optimus L7 1,999 S6352 1,199 S5578 1,499 Optimus 3D P920 5,399 S5578 1,698 Galaxy S2 S9100G 4,899 HTC T328W 1,539 Galaxy S2 S9100G 4,899 Galaxy Wave Y S5380D 1,498 One SU T528W 2,699 LGE Optimus L7 1,999 Galax Grand 3,199 S510d 1,399 Optimus 3D P920 5,399 LGE Optimus L7 988 Pico A310e 899 HTC Desire T328W 1,539 Optimus 3D P920 5,399 Z710e 4,499 One SU T528W 2,699 HTC Desire T328W 1,299 RIM Bold 9900 5,498 S510d 2,499 One SU T528W 2,199 Torch 9800 4,663 Pico A310e 899 Z710e 4,499 Curve 9300 2,537 Z710e 4,499 8X 3,999 Google XT390 999 RIM Bold 9900 5,498 8S 1,999 XT316 1,499 Torch 9800 4,663 RIM Bold 9900 5,498 XT615 2,598 Curve 9300 2,537 Torch 9800 4,663 ME722 2,980 Google XT390 999 Curve 9300 2,537 DEFY XT536 1,399 XT316 1,499 Google XT390 999 RAZR MAXX XT910 4,298 XT615 2,598 XT316 399 ME860 4,198 ME722 2,980 ME722 2,980 XT319 1,698 DEFY XT536 1,399 Atrix 4G ME860 4,198 Atrix2 ME865 4,198 Razr MAXX XT910 4,298 XT319 1,698 XT300 1,497 Atrix 4G ME860 4,198 XT701 3,688 XT701 3,688 XT319 1,698 Nokia Lumia610 1,599 Nokia Lumia610 1,699 XT300 1,497 N9 4,218 N9 4,218 XT701 3,688 Lumia800 3,799 Lumia800 3,799 Nokia Lumia610 1,599 Lumia920 4,599 Sony LT26i 4,599 N9 4,218 ZTE V788D 599 MK16i 3,204 Lumia800 3,799 V889D 1,199 ZTE V889D 1,199 Sony LT26i 2,869 V889M 1,399 V889M 1,399 LT18i 2,268 V889S 799 V965W 1,899 MK16i 3,204 V965W 1,899 V960 1,598 MT27i 1,786 V955 1,199 V6500 1,399 ZTE V788D 599 V960 1,598 Huawei Honor 2,199 V889D 1,199 Huawei Honor 2,199 Ascend G600 1,599 V889M 1,399 Sonic+ 799 Ascend P1 2,799 V889S 1,199 Ascend G600 1,599 Ascend G330D 1,199 V965W 1,899 Ascend P1 2,099 U8500 1,159 V955 1,199 U8500 1,159 G300 1,599 V960 1,598 G300 1,599 Coolpad 7266 999 V6500 1,399 G510 998 7500 1,399 Huawei Honor 2,199 Y210 699 7290 1,199 Sonic+ 799 Y300 999 W770 4,100 Ascend G600 1,799 Coolpad 7011 700 Lenovo A789 1,199 Ascend P1 2,799 7019 799 A690 799 Ascend G330D 1,199 7266 999 A780 999 U8500 1,559 7260 999 A750 1,099 G300 1,599 7290 1,199 A800 1,188 G510 1,166 W770 4,100 Hisense U950 1,399 Y210 699 Lenovo A65 799 Haier W801 1,199 Lenovo A65 799 A789 819 N88W 1,799 A789 819 A60+ 599 Xiaomi 1S 1,766 A60+ 599 A789 1,199 Tianyu W806 1,699 A789 1,199 A690 639 W760 1,199 A690 799 A800 888 U6 1,199 A750 1,099 Xiaomi 1S 1,644 W700 2,888 A800 1,188 M2 2,399 Amoi N89 1,299 Coolpad 7266 999 Amoi N89 1,599 N79 1,159 7500 1,399 Meizu MX2 2,699 TCL W989 1,199 7290 1,199 Haier N88W 1,799 Philips W635 1,299 W770 4,100 Hisense U930 999 Malata i8 1,399 Xiaomi M2 2,499 Tianyu W700 2,888Source: China Unicom, Mirae Asset Research 21 21Mirae Asset Securities
  • 22. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets 3. SEC to outshine peers in cost and supply chain competitiveness Industry-wide profitability SEC is set to expand its shipments of the Galaxy S4 from 2Q13, while China’s top-3 to deteriorate in 3Q13 smartphone makers should significantly expand their smartphone shipments (within China) 1H13. In addition, Apple plans to launch a successor model to the iPhone in 3Q13, thus leading to fiercer subsidy competition among handset makers. Apple is highly likely to cut the ASP for the iPhone in 2013, in order to expand its market share in emerging markets. ASP declines and subsidy expansion should drive the handset industry’s average margin downwards by 7.1ppt QoQ in 3Q13. Limited demand growth vs. While global smartphone demand is forecast to reach 897m units (+32.4% YoY) in 2013, we increased supply and new expect the combined smartphone shipments by SEC/Apple and Chinese players in 2013 to smartphone lineup expansion reach 453m units (+32% YoY) and 284m units (+56% YoY), respectively. This suggests that second-tiers (excluding Chinese players) should see a mere 9.5% YoY increase in shipments (versus the industry average of 32.4% YoY) to 160m units in 2013. Significant shipment growth by Chinese makers in 2013 is highly likely, given their high shipment portions to emerging markets. Going forward, emerging markets (e.g. China and India) should drive global smartphone demand growth, as we forecast smartphone demand in China to climb by 56% YoY (to 270m units) in 2013. Figure 45 2013E global smartphone market share 897m units (+32.4% YoY) 678m units (+43.3% YoY) SEC, 32.4% ZTE 4.0% SEC, 31.9% ZTE 4.0% Huawei 4.0% Apple, 18.1% Huawei 4.2% RIM 5.0% RIM 4.2% Apple, 19.7% LGE, 5.0% Lenovo 3.2% Lenovo 4.0% HTC 4.7% LGE, 3.9% HTC 4.1% Sony 3.6% Sony 3.7% Nokia 5.6% Nokia 3.2% Google 2.8% Google 2.7% 2012E 2013E Source: Gartner, Mirae Asset Research Industry-wide margin The smartphone industry should suffer margin erosion in 2H13, for the following reasons: erosion expected in 2H13, due to: 1) ASP declines; 2) intensifying competition in 1) The Chinese market should increase its portion of global smartphone demand, while North America; and 3) Chinese smartphone makers should expand their global market shares. The sharp delays in market growth of Chinese players should lower the smartphone industry’s ASP by 13.6% restructuring YoY in 2013, while first-tier smartphone makers should see an increased portion of raw material costs in total costs and a rise in marketing costs. 2) Most second-tier smartphone makers (excluding SEC, Nokia and Chinese companies) strategically focus on the North American market, which is close to saturation point, with a smartphone penetration rate of 67.7% in 2012. 3) Latecomers (Amazon, Facebook, Google, Chinese players) also aim to enter the North American market, while some first-tiers (HTC, Sony and RIM, which has recently seen a downtrend in shipments) pursue shipment growth-backed turnarounds. 4) Given Apple’s firm resolve to expand its market share in emerging markets in 2013, we see a high possibility of the company offering the iPhone to China Mobile at lower prices. ASP declines and subsidy expansion should drive down the handset industry’s average margin by 7.1ppt QoQ in 3Q13, from its 2Q13 high. 22 22Mirae Asset Securities
  • 23. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Figure 46 OPM comparison of handset industry versus SEC’s and LGE’s handset divisions (%) 25 20 15 10 5 0 (5) (10) (15) 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 Handset industry SECs handset LGE handset Source: SEC, LGE, Gartner, Mirae Asset Research SEC has shown: 1) an In order to remain competitive in 2013, smartphone vendors should be able to: 1) cut increase in the portion of in- development costs, by having their low-to mid-end models share platforms with flagship house production for core components; 2) a diversified models; 2) reduce their bill of materials (BOM) by expanding the portion of in-house supply chain; and 3) strong production of core parts; and 3) promptly respond to constantly changing market needs by balance sheet shortening their new-model development cycles. Only those with price competitiveness versus Chinese players will be able to expand their market shares in both emerging and global markets. They will also be able to preserve operating margins, by maintaining both margins and shipments for flagship models at relatively high levels. SEC’s strong cost and supply We forecast SEC’s global market share to edge higher, by 0.4ppt to 23.6%, in 2013 and its chain competitiveness to be 2013E operating margin to exceed the industry average by 3.8ppt. SEC is positioned to: 1) in spotlight shorten its hardware development cycle, backed by its relatively high portion of in-house production of core components (e.g. AP, DRAM, NAND, display, batteries, MLCC, HDI and camera modules); and 2) further cut the portion of raw material costs, backed by strong financials and strict control of suppliers; and 3) improve its price and hardware competitiveness and thus increase its share of emerging markets. Figure 47 SEC parts’ internalisation portion (63.7%) Figure 48 LGE parts’ internalisation portion (46.8%) AP, 9.0% Display/touch 31.3% Others, Memory, 36.3% 13.1% Others, 53.2% Battery, 2.1% MLCC, 1.0% Display/touch Substrate, Motor, 0.2% 26.3% 3.0% Camera Camera module, Substrate, Battery, FPCB, 1.5% module, 9.0% 3.0% 2.1% Motor, 0.2% 9.0% Source: Mirae Asset Research Source: Mirae Asset Research 23 23Mirae Asset Securities
  • 24. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Figure 49 SEC’s smartphone supply chain Source: SEC, Mirae Asset Research Figure 50 LGE’s smartphone supply chain Source: LGE, Mirae Asset Research Figure 51 Apple’s smartphone supply chain Source: Apple, Mirae Asset Research 24 24Mirae Asset Securities
  • 25. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Figure 52 HTC’s smartphone supply chain Source: HTC, Mirae Asset Research Figure 53 RIM’s smartphone supply chain Source: RIM, Mirae Asset Research Figure 54 Sony’s smartphone supply chain Source: Sony, Mirae Asset Research 25 25Mirae Asset Securities
  • 26. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets 4. Smartphone industry paradigm returning to identity and ecosystemSmartphone industry At this year’s MWC, we noted that handset suppliers are focusing on building the identities ofparadigm returning to their new flagship models through UX and killer applications, while seeking to develop anidentity and eco-system independent ecosystem by diversifying platforms beyond the oligopolistic Android (whose smartphone OS market share stood at 64% in 2012) in 2013. Between 2011 and 2012, competition in the handset industry had focused primarily on developing advanced hardware features for flagship models and upgrading to higher versions of the Android OS. However, following the rapid improvement in flagship smartphone hardware, competition to find differentiation points in hardware temporarily ceased in 2013, with latecomers closing the gap with top tiers, in terms of hardware competitiveness. Efforts to develop Through efforts to establish solid identities, handset makers are seeking to: 1) protect the alternative platforms to premium of high-margin flagship smartphones; 2) reinforce customer loyalty and expand drive up R&D costs, raising the cost burden for second market share through the development of an independent ecosystem; 3) reduce marketing tiers with higher fixed cost costs for low-to mid-end models; and 4) diversify profit structures to software/contents, after portions focusing primarily on hardware sales to date. In sharp contrast to Chinese smartphone makers, which continued to emphasize the advanced hardware performance of their flagship models at the 2013 MWC, other smartphone makers (SEC, LG Electronics, Nokia, HTC and Sony emphasized the identity and differentiated UX of their new smartphone models.Figure 55 Smartphone line-up at MWC2013 Vendor Alcatel Sony Huawei HTC ZTE Picture Name One Touch idol x Xperia Z Ascend P2 One Grand memo Core 1.2GHz Quad core Qualcomm S4 1.5GHz 1.5GHz Quad core Qualcomm 600 1.7Ghz Qualcomm 600 1.7Ghz OS Android 4.1.2 Android 4.1.2 Android 4.1.2 Android 4.1 Android 4.1.2 Display 5" (1920x1080),441ppi 5" (1920x1080), 441ppi 4.7" (1280x720), 312ppi 4.7" (1920x1080),469ppi 5.7" (1280x720), 288ppi Size 140.4x67.5x7mm 139x71x7.9mm Unknown 137.4x68.2x9.3mm 159.9x82.6x8.5mm Weight TBA 146g Unknown 143g TBA Memory 2GB RAM 2GB RAM 1GB RAM 2GB RAM 2GB RAM Storage 16GB 16GB 16GB 32GB 16GB Battery 2,000mAh 2,330mAh 2.420mAh 2,300mAh 3,200mAh Release TBA 2013.02.09 2013.1Q 2013.03. 2013.1QSource: Company data, PhoneArena, Mirae Asset ResearchEfforts to develop With platforms rising as a key element in competition this year, smartphone makers are likelyalternative platforms to to expand efforts to diversify smartphone OS. As such, market attention should once againdrive up R&D costs, raisingthe cost burden for second focus on the competitiveness of SEC (relatively less burdened by development costs), Appletiers with higher fixed cost and RIM (companies offering proprietary platforms). For Android smartphones, the process ofportions ‘platform porting/optimization/application of UI/main application installation’ accounts for 50- 55% of the entire development process and uses up more than half of all R&D costs. In the long term, by adopting an alternative platform, smartphone makers would be able to: 1) reduce R&D expenses; 2) minimize R&D periods; and 3) increase customer loyalty, while differentiating flagship models by building an exclusive ecosystem. However, with the market share of Android OS reaching 66.1% (+19.4% YoY) at end-2012, we expect the platform’s oligopolistic control over the market (which started in 2011) to continue into 2013. Efforts to diversify platforms should drive up the R&D cost burden for second tiers, which struggle from higher fixed cost portions, due to their relatively lower shipment volumes. 26 26Mirae Asset Securities
  • 27. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsFigure 56 Upcoming smartphones using new OS Vendor Samsung ZTE Sony Alcatel Ubuntu Picture Name Tizen phone Open Xperia E One Touch Fire TBA Core TBA Qualcomm S1 Qualcomm S1 1GHz Qualcomm 1GHz TBA OS Tizen 2.0 Firefox OS Firefox OS Firefox OS Ubuntu Display TBA 3.5" (480x320), 165pi 3.5" (480x320), 165ppi 3.5"(480x320), 165ppi TBA Size TBA 114x62x12.5mm 113.5x61.8x11mm 116x62.3x12.2mm TBA Weight TBA TBA 116g TBA TBA Memory TBA 256MB RAM 512MB RAM 256MB RAM TBA Storage TBA 0.5GB 4GB 2GB TBA Battery TBA 1,200mAh 1,500mAh 1,400mAh TBA Release 2013.07. 2013.2Q 2014E 2013.06 2013.2HSource: Company data, PhoneArena, Mirae Asset ResearchFigure 57 Character comparisons among newest smartphones’ OS Apple: iOS6 Android: Jelly Bean (4.1/4.2) RIM: BlackBerry 10 Microsoft: Windows 8 New map app Improvement of touch screen response BlackBerry Hub New bookmark function Siri, multiple languages support (Korean) Expansion of alarm function BlackBerry keyboard Live tile custom option Integration of Facebook BBM video with screen To support multiple languages and keyboards Live app share Streaming share photos Camera with time shift Performance improvements both HTML5 and JSP Features for children mode Passbook USB audio output/multi-channel audio Blackberry Balance People Hub FaceTime, mobile comm. network support Media function improvement BlackBerry Remember Photo Hub New call function (e.g. Interruption-free Sharing made easy Performance improvement of home launcher Office Hub mode) with NFC Simple mail system Adjustment of Project Butter Voice control SkyDrive Improvement of Safari searching Chrome as a base browser Super-fast browsing Games Hub environment Guided access for handicapped Not supporting Adobe Flash Player Electronic wallet Camera panorama function SELinux Redesigned stores "Daydream" screensaver Additional function for Chinese users Power alarm management Improvement of locked screen To support multiple accounts in tablets Gesture typing Photosphere (panorama) Improvement of Google Now Wireless display (Miracast)Source: Apple, Google, RIM, Microsoft, Mirae Asset Research Figure 58 Global smartphone OS market share (%) 100 Others 90 80 Symbian 70 Microsoft 60 50 Bada 40 RIM 30 20 iOS 10 Android 0 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Source: Gartner, Mirae Asset Research 27 27Mirae Asset Securities
  • 28. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsSEC’s new tablet PC Galaxy *Samsung Electronics (005930 KS): We expect SEC’s Galaxy Note 8”, unveiled at MWC 2013,Note 8”, revealed at MWC to eat into the market shares of the iPad mini and tablet PC second tiers (Amazon and Barnes2013, likely to emerge asthe 8” category killer & Noble) within 1H13. We note that the Galaxy Note 8”: 1) placed emphasis on identity,product and eat into iPad leveraging on the design similarities with the Galaxy smartphone series (rather than itsmini’s market share predecessor, the Galaxy Note 10.1”), as well as the advanced features of its S-Pen stylus feature killer app; and 2) stands to secure market share within the 7-8” category in 1H13, with the new iPad mini model slated for release in end-2Q13. As such, we expect SEC’s tablet PC shipments to grow by 64.2% YoY to 30m units in FY13, driving up the company’s global market share to 20.5% (+6.1ppt YoY) as a result.Figure 59 Galaxy Note 8.0 vs. iPad mini Galaxy Note 8.0 Versus iPad mini 1.6Ghz Quad AP A5 1GHz 2GB RAM Memory 512MB RAM 8” Display size 7.9” Android 4.1.2 OS iOS6 4600mAh Battery 4400mAh 211x136x7.95mm Dimensions 200x134.7x7.2mm 338g Weight 312g 1280x800 Resolution 1024x768 189ppi Density 162ppi 5M (1.3M) Main camera (front) 5M (1.2M)Source: PhoneArena, SEC, Apple, Mirae Asset Research *LGE (066570 KS): At the Mobile World Congress (MWC), LG Electronics (LGE) unveiled the Optimus F series (entry-level LTE smartphones) and the Optimus L II series (3G smartphone successors to the Optimus L series). The Optimus F-series shares its platform (design, UI and UX) with the Optimus G Pro, unveiled last week. We believe LGE’s efforts to vertically integrate its smartphone lineup will partially reduce marketing and R&D costs and enable the company to compete with SEC’s three major entry-level smartphones, the Galaxy Ace2 (3.8”, 800x480, 768MB DRAM), Galaxy S3 mini (4.0”, 800x480, 1GB DRAM) and Galaxy Grand (5”, 800x480, 1GB DRAM). On a positive note, cumulative sales of the Optimus G Pro (260k units) have recently exceeded those of its predecessor, the Optimus G.Figure 60 LGE’s new smartphone line-up at MWC2013 Vendor LGE LGE LGE LGE LGE Picture Name Optimus L7 Ⅱ Optimus L5 Ⅱ Optimus L3 Ⅱ Optimus F7 Optimus F5 Core Qualcomm S4 1GHz 1GHz Qualcomm S1 1GHz 1.5GHz Dual core 1.2GHz Dual core OS Android 4.1 Android 4.1.2 Android 4.1.2 Android 4.1.2 Android 4.1.2 Display 4.3" (800x480), 217pp 4" (800x480), 233ppi 3.2" (320x240),125ppi 4.7" (1280x720),312ppi 4.3" (960x540),256ppi Size 121.5x66.6x9.7mm 117.5x62.2x9.2mm Unknown 131.7x68.2x9.6mm 126x64.5x9.3mm Weight TBA TBA Unknown TBA TBA Specs 768MB RAM 512MB RAM 512MB RAM 2GB RAM 1GB RAM Release 2013.1Q 2013.1Q 2013.1Q 2013.1Q 2013.1QSource: LGE, PhoneArena, Mirae Asset Research 28 28Mirae Asset Securities
  • 29. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets *HTC (2498 TT): At MWC 2013, HTC revealed its new One flagship smartphone model, scheduled for release in 80-plus markets around the world from March. The new flagship model offers: a new UX focusing on visual and auditory senses; advanced video recording and editing functions; a 4M ultra-pixel camera on the front; and Dolby Surround speakers. HTC’s global smartphone market share stood at 3.2% (-1.8ppt YoY) in 4Q12. We expect the company’s operating margin to remain flat QoQ, at 1% in 1Q13, despite a rise in demand for the One, owing to seasonal weakness and greater spending on R&D and marketing for new models.Figure 61 HTCs smartphone lineup in 1H13 Vendor HTC HTC HTC HTC HTC Picture Name 8S 8X J butterfly Droid DNA One Core Qualcomm S4 1.0GHz Qualcomm S4 1.2GHz Qualcomm S4 1.5GHz Qualcomm S4 1.5GHz Qualcomm 600 1.7Ghz OS Windows 8 Windows 8 Android 4.1 Android 4.1 Android 4.1 Display 4" (800x480) 4.3" (1280x720) 5" (1920x1080) 5" (1920x1080) 4.7" (1920x1080) Size 120.5x63x10.3mm 132.35x66.2x10.12mm 143x71x9.1mm 141x71x9.7mm 137.4x68.2x9.3mm Weight 113g 130g 140g 138g 143g Specs S-LCD / 512MB RAM S-LCD 2 / 1GB RAM Super LCD 2 / 2GB RAM 441ppi / 2GB RAM 468ppi Release 2012.11. 2012.11. 2012.12. 2012.11. 2013.03.Source: HTC, PhoneArena, Mirae Asset Research *Sony (6758 JP): After revealing its new Xperia Z flagship smartphone at the CES in February 2013, Sony announced plans to release the new model in 60-plus markets around the world within 1Q13, at US$849. The company also plans to release its new tablet PC Xperia Tablet Z within 1Q13. For the new model, Sony focused on emphasizing exquisite designs typical of Japanese products for the set and UI, added waterproof capabilities and reinforced marketing efforts. The company adopted the Bravia Engine for the new model to enhance display functions, and differentiated hardware features by installing an RGB image sensor. We expect Sony’s smartphone sales volume to rise by 4.6% QoQ to 9.1m units in 1Q13, backed by growth in market shares at home and in Europe. The company is likely to meet its targets to sell 34m (+51% YoY) smartphones in FY2012, considering its local market share of 7.5% (- 0.1ppt QoQ, fourth largest in terms of share of supply) at 4QFY12. We expect Sony’s shipment growth to have a limited impact on both SEC and LG Electronics, with the two companies’ Japanese market share standing at 6.5% (sixth largest, in terms of share of supply) and a mere 2%, respectively, in 2012 and shipments to the Japanese market accounting for only 1% of SEC’s total smartphone shipments.Figure 62 Sonys smartphone line-up in 1H13 Vendor Sony Sony Sony Sony Sony Picture Name Xperia T Xperia TL Xperia E Xperia Z Xperia ZL Core Qualcomm S4 1.5GHz Qualcomm S4 1.5GHz Qualcomm S1 Qualcomm S4 1.5GHz Qualcomm S4 1.5GHz OS Android 4.0 Android 4.0 Android 4.1 Android 4.1.2 Android 4.1.2 Display 4.6" (1280x720) 4.6" (1280x720) 3.5" (480x320) 5" (1920x1080),441ppi 5" (1920x1080),441ppi Size 129.4x67.3x9.35mm 129.4x67.3x9.4mm 114x62x11mm 139x71x7.9mm 132x69x9.8mm Weight 139g 148g 116g 146g 151g Specs 1GB RAM 1GB RAM 512MB RAM 2GB RAM 2GB RAM Release 2012.09 2012.11 2013.Q1 2013.01. 2013.01.Source: Sony, PhoneArena, Mirae Asset Research 29 29Mirae Asset Securities
  • 30. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets *Nokia (NOK US): Nokia unveiled four new low-end smartphone models (the Lumia720, Lumia620, Lumia301 and Lumia105) at Mobile World Congress (MWC) 2013. It plans to launch: 1) the Lumia720 (equipped with 4.3-inch display and 512MB RAM) in China in 1Q13 and then in Europe in 2Q13; 2) the Lumia620 (low-end model embedded with 4-inch display) in Hong Kong and Vietnam in 1Q13 and then in the US in 2Q13; and 3) the Lumia301 and Lumia105 at ultra-low prices (EUR65 and EUR15, respectively). Nokia’s continued expansion of low-end smartphone lineup is attributable to its strategy for increasing its emerging market share. The company accounted for 5.6% of the global smartphone market in 2012 (-12ppt YoY). Nokia saw a turnaround in its handset business in 4Q12, thanks to the rise in its smartphone sales (to 6.6m units, up 5.9ppt QoQ), following the launch of the Lumia920. However, its handset division should find it difficult to maintain positive earnings in 1Q13, without strengthening its price competitiveness against Chinese local brands and improving its currently low compatibility with Android OS (which dominates the mobile OS market).Figure 63 Nokias handset line-up in 1H13 Vendor Nokia Nokia Nokia Nokia Nokia Picture Name Lumia 920 Asha 205 Asha 206 Lumia 620 Lumia 720 Core Qualcomm S4 1.5GHz X X Qualcomm S4 1.0GHz Qualcomm S4 1.0GHz OS Windows 8 Series 40 UI Series 40 UI Windows 8 Windows 8 Display 4.5" (1280x768) 2.4" (320x240), 167ppi 2.4" (320x240), 167ppi 3.8" (800x480), 246ppi 4.3" (800x480), 217ppi Size 130.3x70.8x10.7mm 112.8x61.1x13mm 116x49.4x12.4mm 115.4x61.1x11mm 127.9x67.5x9mm Weight 185g 94g 91g 127g 128g Specs 1GB RAM 16MB RAM 16MB RAM 512MB RAM 512MB RAM Release 2012.11.13 2012.12. 2012.12 2013.01. 2013.1QSource: Nokia, PhoneArena, Mirae Asset Research *Lenovo (992 HK): Lenovo posted a turnaround in its handset business in 3Q12. At MWC 2013, it added a new model (the K900, which was first introduced at CES) to its flagship model lineup. The company has continued to expand its smartphone market share in China (FY12 market share: 12.2%, up 10.1% YoY). It is focused on expanding its market share in China in 1H13 and its global market share in 2H13.Figure 64 Lenovos smartphone & tablet line-up in 1H13 Vendor Lenovo Lenovo Lenovo Lenovo Lenovo Picture Name K800 K900 IdeaTab A1000 IdeaTab A3000 IdeaTab S6000 Core Intel Atom 1.6GHz Intel Atom 2.0GHz 1.2GHz Dual core 1.2GHz Quad core 1.2GHz Quad core OS Android 2.3 Android 4.2 Android 4.1 Android 4.1 Android 4.1 Display 5.5" (1920x1080), 10.2" (1280x800), 4.5" (1280x720), 326ppi 7" (1024x600), 170ppi 7" (1024x600), 170ppi 400ppi 149ppi Size 131x71x11mm Thickness: 6.9mm 199x121x107mm 194x120x11mm 260x180x8.6mm Weight 161g 162g 340g 340g 560g Specs 1GB 2GB 1GB 1GB 1GB Release 2012.01. 2013.04 2013.1Q 2013.1Q 2013.1QSource: Lenovo, PhoneArena, Mirae Asset Research 30 30Mirae Asset Securities
  • 31. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets *ZTE (763 HK): ZTE unveiled the 5.7-inch display phablet Grand Memo at MWC 2013, adding to its high-end smartphone lineup (which includes the Grand S and the Nubia Z5, introduced at CES 2013 in January). The company’s market share in China’s handset market rose by 1.8ppt YoY to 5.8% in 2012; in particular, its smartphone market share in China continued to grow to 8.4% in 2012 (+0.6ppt YoY). ZTE plans to launch the three new high-end smartphone models in China in 1Q13, before going global in 2Q13. Backed by increased smartphone shipments, we expect ZTE’s handset business to post a turnaround in 2013.Figure 65 ZTEs smartphone line-up in 1H13 Vendor ZTE ZTE ZTE ZTE ZTE Picture Name Grand X Grand X In Nubia Z5 Grand S Grand memo Core Nvidia Tegra2 1.2GHz Intel Z2460 1.6GHz Qualcomm S4 1.5GHz Qualcomm S4 1.7GHz Qualcomm 600 1.7GHz OS Android 4.0 Android 4.0 Android 4.1 Android 4.1 Android 4.1.2 Display 4.3" (960x540), 256ppi 4.3" (960x540) 5" (1920x1080) 5" (1920x1080),441ppi 5.7" (1280x720), 288ppi Size 127x64.6x9.9mm 127x65x9.9mm 138x69.2x7.6mm 142x69x6.9mm 159.9x82.6x8.5mm Weight 110g 140.8g 126g TBA TBA Specs 512MB RAM 1GB RAM 2GB RAM / 441ppi 2GB RAM 2GB RAM Release 2012.07.18 2012.09 2013.Q1 2013.1Q 2013.1QSource: ZTE, PhoneArena, Mirae Asset Research *Huawei (002502 CH): Huawei shipped 8.7m smartphone units in 4Q12 (+11% QoQ), the third largest shipments among smartphone makers. The company has focused on improving its brand image, with the launch of new flagship smartphones - the Ascend D2 (5’’ full HD), the Ascend Mate (5.5” full HD) and the Ascend P2 (4.7” 1280x720) - at CES 2013 and MWC 2013. Huawei aims to expand exports of the Ascend P2, following its launch in Europe in 2Q13, while expanding its domestic market share during 1H13. The Ascend P2, which will be available at an ASP of US$525, should help Huawei’s flagship models expand their combined market share in 2H13 (when they should see an additional fall in ASP, due to increased shipments).Figure 66 Huaweis smartphone line-up in 1H13 Vendor Huawei Huawei Huawei Huawei Huawei Picture Name 4Afrika Ascend D2 Ascend Mate W1 Ascend P2 Core Qualcomm S4 1.2GHz Hi-silicon K3V2 1.5GHz Hi-silicon K3V2 1.5GHz Qualcomm S4 1.2GHz 1.5GHz Quad core OS Windows 7.8 Android 4.1.2 Android 4.1.2 Windows 8 Android 4.1.2 Display 4" (800x480), 233ppi 5" (1920x1080),441ppi 6.1" (1280x720) 4" (800x480) 4.7" (1280x720), 312ppi Size TBA 140x71x9.4mm 163.5x865.7x9.9mm 124.5x63.5x10.2mm Unknown Weight TBA 170g 198g 130g Unknown Specs 512MB RAM 2GB 241ppi 220ppi 1GB RAM Release 2013.1H 2013.01 2013.02 2013.01 2013.2QSource: Huawei, PhoneArena, Mirae Asset Research 31 31Mirae Asset Securities
  • 32. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets 5. SEMCO (009150 KS) remains our top-pick, LGE is our second pick We maintain our target In light of the likely continued expansion in SEC’s global market share in 2013 (+0.4ppt YoY price of KRW12,500 for to 23.6%), we reiterate our BUY rating and target price of KRW125,000 for SEMCO. We SEMCO, as our sector top- pick believe that: 1) the 34.4% YoY growth in SEC’s smartphone shipments (to 290m units) expected in 2013 should drive up shipments of related components; 2) the expected 89% YoY growth in SEC’s flagship smartphone shipments (to 146m units) should improve SEMCO’s product mix, thus lifting its profitability; and 3) component ASPs are unlikely to decline, despite the recent margin improvement by Japanese component makers. SEMCO shares are currently trading at a 2013E P/E of 16.6x and P/B of 1.7x (versus ROE of 10.5%). Our target price of We maintain our BUY rating and target price of KRW88,000 for LGE, as: 1) efforts to vertically KRW88,000 maintained for integrate its smartphone lineup should gradually sharpen competitiveness; 2) the sales LGE, as our second pick for outlook for its new flagship smartphone, the Optimus G Pro, remains bright in 1H13; and 3) the sector profitability should improve in 1H13, driven by shipment growth and higher ASP, following a rise in smartphone market share. LGE shares currently trade at FY13E P/E of 12.4x and P/B of 1.0x (versus ROE of 7.8%), while competitors (RIM, HTC and ZTE) are trading at FY13E P/E average of 13.9x and P/B average of 1.6x (versus ROE average of 7.1%). 32 32Mirae Asset Securities
  • 33. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Ⅲ. Appendix 1. 1Q13E smartphone peers’ earnings guidance & consensusFigure 67 1Q13E smartphone peers earnings guidance Company Market cap. 2013E 1Q13E guidance (US$ m) (code) P/E (x) P/B (x) SEC 209,777 8.3 1.8 Smartphone and tablet PC demand expected to decrease QoQ, due to weak (005930 KS) seasonality. LGE 11,819 12.5 1.0 Smartphone shipments guidance in 1Q13 is 8.3m units (-3.5% QoQ). (066570 KS) Apple 417,477 10.0 2.9 Revenue guidance for 1Q13 is US$41-43bn, GPM 37.5-39.5%. (AAPL US) HTC 7,966 17.5 2.6 Revenue guidance for 1Q13 is NT$50-60bn, GPM 21-23%, OPM 0.5-1.0%. (2498 TT) RIM 6,945 - 0.8 Continued drag on operating margin from promotional costs for the launch of (RIMM US) Blackberry10 in 1Q13. Google 264,837 17.5 3.1 Reduction in demand, due to weak seasonality. (GOOG US) Pressure from Motorolas operating losses expected to continue. ZTE 5,502 18.0 1.5 Plans to enter Chinese local market with high-end smartphone. (763 HK) Sony 14,693 23.5 0.7 Smartphone shipment guidance for CY1Q13 is 9.1m units (+4.6% QoQ). (6758 JP) Nokia 14,118 62.5 1.3 OPM of -2% expected for handset business. (NOK US)Source: Company data, Mirae Asset ResearchNote: Share price data as of 1 March 2013 33 33Mirae Asset Securities
  • 34. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsFigure 68 Smartphone peers’ earnings consensus Company (code) / US$ m 2Q12 3Q12 4Q12 1Q13E 2011 2012E 2013E 2014E Apple (AAPL US) Total handset shipments 35 37 43 50 91 134 166 207 Sales 35,023 35,966 54,878 42,935 65,225 156,212 182,705 206,040 YoY (%) 22.6 27.2 18.4 9.6 (39.7) 139.5 17.0 12.8 OP 11,573 10,944 16,976 12,691 18,385 55,252 55,383 63,500 YoY (%) 23.4 25.6 (2.1) (17.5) (45.6) 200.5 0.2 14.7 OPM (%) 33.0 30.4 30.9 29.6 28.2 35.4 30.3 30.8 HTC (2498 TT) Total handset shipments 9 8 8 12 43 32 36 45 Sales 3,074 2,352 2,086 1,887 8,858 9,991 9,495 10,100 YoY (%) (28.7) (49.5) (37.7) (17.4) (44.1) 12.8 (5.0) 6.4 OP 277 165 38 42 1,402 661 454 591 YoY (%) (58.5) (76.2) (91.0) (75.7) (40.1) (52.9) (31.3) 30.2 OPM (%) 9.0 7.0 1.8 2.2 15.8 6.6 4.8 5.8 Nokia (NOK US) Total handset shipments 82 88 97 107 414 335 375 401 Smartphone shipments 6 7 7 8 86 35 29 35 Sales 9,678 9,056 10,581 8,901 56,309 39,628 39,119 40,025 YoY (%) (27.5) (28.6) (21.5) (7.7) 4.6 (29.6) (1.3) 2.3 OP (1,060) (721) 762 25 2,746 115 1,311 1,386 YoY (%) 51.2 618.4 315.9 (101.4) 11,501.1 (95.8) 1,043.1 5.7 OPM (%) (11.0) (8.0) 7.2 0.3 4.9 0.3 3.4 3.5 RIM (RIMM US) Total handset shipments 9 9 10 10 52 34 38 36 Sales 2,814 2,873 2,664 2,835 19,907 11,266 12,920 12,082 YoY (%) (42.7) (31.1) (48.4) (32.3) 8.0 (43.4) 14.7 (6.5) OP (308) (363) (280) (246) 4,636 (1,161) (463) (369) YoY (%) (134.3) (189.2) (185.3) (215.3) 151.3 (125.0) (60.2) (20.1) OPM (%) (10.9) (12.6) (10.5) (8.7) 23.3 (10.3) (3.6) (3.1) ZTE (763 HK) Total handset shipments 25 31 37 41 56 68 133 152 Smartphone shipments 8 8 9 10 11 27 36 44 Sales 3,728 2,809 4,657 3,203 10,330 14,262 16,677 18,825 YoY (%) 11.6 (12.2) 6.4 9.6 (22.6) 38.1 16.9 12.9 OP (37) (460) 233 N/A 616 (34) 579 686 YoY (%) (28.7) (604.0) 44.2 N/A 44.8 (105.6) (1,784.5) 18.6 OPM (%) (1.0) (16.4) 5.0 N/A 6.0 (0.2) 3.5 3.6 Sony (6758 JP) Total handset shipments 8 9 10 11 33 31 38 41 Smartphone shipments 8 8 9 9 20 24 33 39 Sales 18,925 20,407 21,988 17,051 84,029 72,306 74,795 75,374 YoY (%) 3.2 0.6 (6.7) (15.6) 2.1 (14.0) 3.4 0.8 OP 78 385 877 507 2,338 1,417 2,067 2,447 YoY (%) (76.8) (1,927.2) (173.9) (2,947.3) (374.2) (39.4) 45.9 18.4 OPM (%) 0.4 1.9 4.0 3.0 2.8 2.0 2.8 3.2 Google (GOOG US) Total handset shipments 8 8 11 13 41 34 41 48 Smartphone shipments 6 6 6 7 19 19 24 31 Sales 12,214 14,101 12,357 11,305 29,321 41,665 49,236 56,510 YoY (%) 35.3 45.1 16.8 6.2 (22.6) 42.1 18.2 14.8 OP 3,203 2,736 3,619 3,789 10,381 13,358 16,046 19,295 YoY (%) 11.2 (10.5) 3.2 11.8 (11.6) 28.7 20.1 20.3 OPM (%) 26.2 19.4 29.3 33.5 35.4 32.1 32.6 34.1Source: Bloomberg, Mirae Asset Research 34 34Mirae Asset Securities
  • 35. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets 2. Handset peers’ shipment portions by country Figure 69 SEC shipment portions by country in 4Q12 Figure 70 LGE shipment portions by country in 4Q12 (%) (%) China, 10.4 US, 30.0 US, 14.5 Others, 34.8 Others, 54.7 Spain, 2.4 India, 11.2 Korea, 5.4 Mexico, 6.4 Brazil, 5.1 Brazil, 21.1 Russia, 4.1 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research Figure 71 Nokia shipment portions by country in 4Q12 Figure 72 HTC shipment portions by country in 4Q12 (%) (%) China, 4.3 India, 16.3 China, 26.9 Others, 28.8 Brazil, 5.1 Mexico, 2.5 UK, 10.0 Others, 60.1 US, 22.6 Germany, Russia, 3.0 8.7 Japan, 3.0 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research Figure 73 RIM shipment portions by country in 4Q12 Figure 74 Apple shipment portions by country in 4Q12 (%) (%) US, 8.6 Spain, 4.4 China, 10.4 UK, 11.8 Others, 39.2 US, 35.7 Others, 57.6 Mexico, 10.2 UK, 4.6 Canada, 3.1 South Africa, Japan, 7.0 7.4 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research 35 35Mirae Asset Securities
  • 36. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Handset Yongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com3. Handset market share by vendor in 2012Figure 75 Apple’s handset shipment market share in 4Q12Source: Gartner, Mirae Asset ResearchMirae Asset Securities 36 36
  • 37. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Handset Yongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com4. Smartphone market share by vendor in 2012Figure 76 Apple’s smartphone shipment market share in 4Q12Source: Gartner, Mirae Asset ResearchMirae Asset Securities 37 37
  • 38. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets 5. Tablet PC market share and line-up in 2013 Figure 77 Tablet PC MS in 2012 Figure 78 Tablet PC MS in 2013 Others, Others, 27.8% 33.3% Apple, Apple, 52.4% 51.7% SEC, 20.5% SEC, 14.4% Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset ResearchFigure 79 7-8” tablet PC line-up Vendor SEC Apple Amazon Google Barnes & Noble Picture Name Galaxy Note 8 iPad mini Kindle Fire HD Nexus 7 NOOK HD Core 1.6GHz Quad A5 OMAP4460 1.2Ghz Nvidia Tegra3 1.3Ghz TI OMAP4470 1.3Ghz OS Android 4.1.2 iOS6 Android 4.0 Android 4.1 Android 4.0 Display 8" (1280x800) 7.9" (1024x768), 162ppi 7.0" (1280x800) 7" (1280x600) 7" (1440x900) Size 211x136x7.95mm 200x134.7x7.2mm 193x137x10.3mm 198.5x12x10.45mm 194x127x11mm Weight 338g 312g 395g 340g 315g Specs 2GB RAM IPS LCD HD LCD 1GB RAM IPS LCD Release 2013.2Q 2012.11.02 2012.09.14 2012.07.13 2012.10.Source: PhoneArena, Mirae Asset ResearchFigure 80 Galaxy Note 10.1 (HSPA+, 16G) Galaxy Note 10.1 (HSPA+, 16G) Components Manufacturer Cost (US$) BOM + manufacturing 312.8 Total BOM cost 302.8 Manufacturing cost 10.0 Major cost drivers NAND Flash Samsung 45.0 DRAM Samsung/ Winbond Display/touch screen Samsung/Atmel 120.0 Processor Samsung 18.8 Wireless Section - BB/RF/PA 15.0 User Interface & sensors Murata / Intel / STMicro / Wacom 18.0 BT / WLAN / FM / GPS Power mgt. Maxim 12.0 Camera 15.0 Battery Samsung 18.0 Mech./ electro-mech. DAP 35.0 Box contents 6.0 38 38Mirae Asset Securities
  • 39. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Recommendations 종목별 투자의견 (12개월 기준) 업종별 투자의견 Buy : 현주가 대비 목표주가 +10% 초과 Overweight : 현 업종지수대비 +10% 초과 Hold : 현주가 대비 목표주가 ±10%이내 Neutral : 현 업종지수대비 ±10% 이내 Reduce : 현주가 대비 목표주가 –10%초과 Underweight : 현 업종지수 대비 –10%초과 단, 업종 투자의견에 의한 ±10%내의 조정치 감안 가능 Compliance Notice 본 자료는 투자자의 증권투자를 돕기 위하여 당사 고객에 한하여 배포되는 자료로서 어떠한 경우에도 복사되거나 대여될 수 없습니다. 본 조사자료에 수록된 내용은 당사 리서치센터가 신뢰할 만한 자료 및 정보로부터 얻어진 것 이나 당사는 그 정확성이나 완전성을 보장할 수 없습니다. 따라서, 어떠한 경우에도 본 자료는 고객의 증권투자의 결과에 대한 법적 책임소재에 대한 증빙자료로 사용될 수 없습니다. 동 자료는 기관투자가 또는 제3자에게 사전 제 공한 사실이 없습니다. 자료에 게재된 내용들은 본인의 의견을 정확하게 반영하고 있으며, 외부의 부당한 압력이나 간섭 없이 작성되었음을 확인함. Company Analysis 작 성 자: 조진호, 정용제 담당자 보유주식수 1%이상 유가증권 계열사 자사주 종목 담당자 종류 수량 취득가 취득일 보유여부 종목 담당자 종류 REMARK: Korean analyst is only responsible for Korean securities and relevant sectors only.  Samsung Electro-Mechanics (009150 KS, BUY, TP: KRW125,000)  LG Electronics (066570 KS, BUY, TP: KRW88,000) 39 39Mirae Asset Securities
  • 40. Korea ResearchCompany update Samsung Electro-Mechanics (009150 KS) Korea / Handsets Chinese seeking quality parts 5 March 2013 BUY We maintain our BUY rating and target price of KRW125,000 for Samsung Electro-Mechanics (SEMCO), as we expect: 1) growth in Samsung Electronics’ Target price KRW125,000 (SEC’s) smartphone sales to drive up SEMCO’s earnings in 2013; 2) SEMCO’s Last price (1 Mar 13) KRW95,500 improved product mix to lift its profitability; 3) limited capacity expansion by Japanese peers in 2013 to lead to balanced supply/demand in the market; and Upside/downside (%) 30.9 4) steady profitability of high value-added premium components to drive KOSPI 2026.49 Mkt. cap (KRWbn/US$bn) 7,133/6.6 SEMCO’s earnings growth in 2013. SEMCO shares currently trade at 16.6x 52 week range (KRW) 85,700 - 112,500 FY13E P/E and 1.7x P/B (versus ROE of 10.5%). Avg. trading volume daily (KRWbn) 50.6 Foreign ownership (%) 22.09 Earnings to improve visibly, after bottoming out in 1Q13 We now expect SEMCO to post sales of KRW2tn (+13.5% YoY, -4.4% QoQ) Forecast earnings & valuation and operating profit of KRW119bn (+11.5% YoY, -18% QoQ) for 1Q13. Fiscal year ending Dec-11 Dec-12 Dec-13 Dec-14 Earnings should improve visibly, after bottoming out in 1Q13. In 2Q13, we Revenue (KRWbn) 6,032 7,913 8,773 9,865 expect: 1) losses from FC-BGA sales to persist, amid sluggish PC demand; 2) EBIT (KRWbn) 320.9 608.3 659.2 739.7 the release of TV-related parts to gradually rise, on the release of new TV Net profit (KRWbn) 392.4 446.1 443.9 507.1 models; 3) Galaxy S4 sales growth to start in earnest, driving up SEC’s Net profit(underlying) 349.5 437.8 430.6 491.9 EPS (KRW) 4,679 5,862 5,765 6,586 flagship smartphone shipments to 35m units (+25% QoQ); 4) growth in EPS growth (%) (37.0) 25.3 (1.7) 14.2 demand for FC-CSP to remain steady, at 4.5% QoQ, on the release of new P/E (x) 16.6 16.9 16.6 14.5 smartphone models by non-SEC clients; and 5) the LCR division’s operating EV/EBITDA (x) 6.9 7.0 5.2 4.7 margin to improve by 1.5ppt QoQ to 9.5%, backed by a rise in the MLCC Dividend yield (%) 1.0 0.8 0.8 0.8 capacity utilization rate. We thus expect SEMCO to record sales of KRW2.1tn P/B (x) 1.7 2.0 1.7 1.6 (+12.3% YoY, +8.1% QoQ) and operating profit of KRW171.6bn (+9.9% YoY, ROE (%) 10.0 11.8 10.5 10.9 Net debt/equity (%) 26.8 23.7 15.3 5.9 +44.2% QoQ) in 2Q13. With 2Q13 earnings momentum remaining intact, we expect SEMCO’s valuation attractiveness to exceed that of peers. Performance SEMCO to benefit, as smartphone parts become increasingly complex Price(LHS) Rel. to KOSPI(RHS) Smartphone parts are likely to represent 55% of FY13E sales (based on FY12 results). SEMCO is set to see its profitability rise, backed by product mix KRW 122% 111,700 117% improvement, with smartphone parts becoming increasingly complex and high 106,700 101,700 112% value-added components accounting for a larger part of total shipments. We 96,700 107% note that Chinese smartphone makers are rapidly advancing, in terms of 91,700 102% hardware performance, and expect China’s three smartphone makers (ZTE, 86,700 97% 81,700 92% Huawei and Lenovo) to expand their mid- to high-end smartphone shipments Mar-12 Jun-12 Sep-12 Dec-12 visibly in 2H13. With demand for high value-added parts, such as HDI, MLCC and FC-CSP, forecast to rise by more than 32.4% YoY, but the number of suppliers expected to remain limited (MLCC: Murata, Taiyo Yuden, TDK; FC- CSP: Ibiden, Unimicron, Kinsus; HDI: Ibiden, Unimicron), we believe market Performance 1M 3M 12M Absolute (%) 4.5 (9.5) 1.8 supply/demand will remain in balance in 2013, driving up SEMCO’s operating Absolute (US$, %) 4.5 (9.7) 4.3 margin by 0.1ppt YoY to 7.5% in FY13 as a result. Relative to KOSPI (%) 1.0 (14.3) 2.0 MLCC supply/demand balance to lift profitability We maintain our forecast that the MLCC market will see a balance between supply and demand in 2013, and that the decline in SEMCO’s MLCC ASP will stand at the level of 2012 (around 4.9% YoY). We believe SEMCO’s LCR division will post sales of KRW2tn (+5.5% YoY) and operating profit of KRW181.5bn (+11.8% YoY) for FY13. We expect MLCC shipments to grow by 21.7% YoY, as SEC’s and other key clients’ smartphone shipments should increase to 290m units (+34.4% YoY) and 160m units (+21.9% YoY), respectively, in 2013. With the LCR division representing 27.5% of SEMCO’s Jinho Cho, Analyst FY13E earnings, the division’s growth should drive up the entire company’s 82 2 3774 3831 jcho@miraeasset.com operating profit in FY13. Meanwhile, we expect capacity expansion by Japanese rivals (Murata: +10% YoY; TDK: Partial expansion for 0402 size; Taiyo Yuden: Yongjei Jeong +5 % YoY) to fall below the sector average of +15% per annum in 2013. 82 2 3774 1938 yongjei@miraeasset.com Moreover, rivals are unlikely to pursue market share expansion by lowering ASP in 1H13, with their 4Q12 margins (Murata: high single-digit; TDK: continued losses; Taiyo Yuden: low single-digit) lower than that of SEMCO.See the last page of this report for important disclosures 40
  • 41. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KSFigure 1 SEMCO peers’ historical valuations 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E SEMCO (009150 KS) EPS KRW 1,268 1,462 624 3,616 7,171 4,679 5,862 5,765 6.586 BPS KRW 23,869 26,362 26,233 34,371 46,410 45,198 50,542 55,511 61.294 P/E (x) 34.2 33.6 53.4 29.7 17.3 16.6 16.9 16.6 14.5 high 34.2 52.2 53.4 174.7 44.1 20.3 22.9 low 34.2 25.2 20.2 29.7 17.3 8.3 10.1 P/B (x) 1.8 1.9 1.3 3.1 2.7 1.7 2.0 1.7 1.6 high 2.0 2.8 2.1 4.2 4.6 2.9 2.6 low 1.2 1.3 1.1 1.3 2.7 1.3 1.2 ROE (%) 5.7 5.8 2.4 11.9 18.3 10.0 11.8 10.5 10.9Source: Bloomberg, Mirae Asset ResearchFigure 2 SEMCO’s P/B valuation BPS Sales OP OPM Note (KRW) (KRW bn) (KRW bn) (%) 1Q13E 50,764 1,983.1 119.0 6.0 Seasonal weak demand 2Q13E 52,260 2,143.1 171.6 8.0 SEC to release Galaxy S4 3Q13E 54,075 2,303.1 203.6 8.8 4Q13E 55,511 2,343.5 165.1 7.0 1Q14E 55,952 2,281.9 140.7 6.2 1Q14E BPS (KRW) 55,592 Target P/B (x) 2.12 Target price (KRW) 125,000 Upside potential 30.9% Current share price (KRW) 95,500Source: SEMCO, Mirae Asset ResearchFigure 3 SEMCO’s earnings summary (KRW bn) 1Q12 2Q12 3Q12 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E 2011 2012E 2013E Sales 1,748 1,908 2,183 2,074 1,983 2,143 2,303 2,344 6,045 7,886 8,773 QoQ/YoY (%) 5.1 9.2 14.4 (5.0) (4.4) 8.1 7.5 1.8 7.0 30.4 11.2 OP 107 145 184 145 119 172 204 165 278 581 659 QoQ/YoY (%) 7.8 35.7 27.1 (21.2) (18.0) 44.2 18.6 (18.9) (64.3) 109.0 13.6 OPM (%) 6.1 7.6 8.5 7.0 6.0 8.0 8.8 7.0 4.6 7.4 7.5 NI 70 135 143 97 76 116 141 111 392 446 444 NPM (%) 4.0 7.1 6.6 4.7 3.8 5.4 6.1 4.8 6.5 5.7 5.1 Sales by division Total 1,748 1,908 2,183 2,074 1,983 2,143 2,303 2,344 6,045 7,886 8,773 ACI 501 555 530 516 454 496 535 579 1,615 2,102 2,064 LCR 441 473 511 472 459 512 551 481 1,689 1,897 2,002 OMS 424 486 663 600 624 680 739 793 1,101 2,173 2,836 CDS 383 394 478 486 445 456 479 490 1,640 1,713 1,871 OPM by division (%) Total 6.1 7.6 8.5 7.0 6.0 8.0 8.8 7.0 4.6 7.4 7.5 ACI 10.7 13.5 14.0 12.0 10.0 14.0 14.0 12.5 6.4 12.0 12.7 LCR 5.9 9.5 9.8 8.8 8.0 9.5 9.8 8.8 9.0 8.6 9.1 OMS 3.9 4.9 6.9 4.5 3.9 5.2 6.0 4.5 2.6 5.2 4.9 CDS 2.8 3.2 6.4 3.0 2.8 4.0 6.4 3.0 2.4 3.0 4.1 OP by division Total 107 145 184 145 119 172 204 165 278 581 659 ACI 54 64 74 62 45 69 75 72 103 253 262 LCR 26 45 50 42 37 49 54 42 152 162 182 OMS 17 24 46 27 24 35 44 36 28 113 140 CDS 11 13 14 15 12 18 30 15 39 52 76Source: SEMCO, Mirae Asset Research 41Mirae Asset Securities 41
  • 42. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KS Figure 4 SEMCO’s P/B band (KRW 000) Increasing demand for ASPs of LED 2Q11 earnings below Release of MLCC, with SEMCOs expected to consensus due to TV Galaxy S3 160 market share rising decrease components FC-BGA: 140 Expanded LED Turning negative division & high 120 earnings Plans to establish expectations LED joint venture 2.1x 100 with SEC announced 1.7x 80 1.3x 60 40 3Q12 earnings Japan earthquake: surprise high earnings 20 1Q07 OPM 4.2% 1Q09 turn into the Under-supply of expectations for mobile components (-6.8ppt QoQ) red (OPM -1.1%) components 0 2007 2008 2009 2010 2011 2012 2013 Source: SEMCO, Mirae Asset Research Figure 5 SEMCO’s OP vs. share price (KRW bn) (KRW) 400 180,000 160,000 300 140,000 200 120,000 100 100,000 0 80,000 2007 2008 2009 2010 2011 2012 2013 60,000 (100) 40,000 (200) 20,000 (300) 0 OP(LHS) Price(RHS) Source: SEMCO, Mirae Asset Research 42Mirae Asset Securities 42
  • 43. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KS Figure 6 SEMCO’s P/E band Figure 7 SEMCO’s P/B band (KRW 000) (KRW 000) 250 250 200 28x 200 4x 150 Share price 21x 100 150 3x 14x Share price 50 7x 100 2x 0 50 1x (50) (100) 0 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 8 SEMCO peers’ 3M performance Figure 9 SEMCO peers’ YTD performance (%) (%) 50 40 35 40 30 30 25 20 20 15 10 10 5 0 0 (5) (10) (10) (20) (15) K en k ko n a a CO K en k ko n a a CO te TD er de at te TD r de at in id ce in no id M ur oc no Yu M ur Sh Ib Yu Sh Ib SE o M In SE Ky M In Ky yo yo LG LG i Ta i Ta Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 10 SEMCO’s share price, relative to peers Figure 11 SEMCO’s share price, relative to peers (x) (x) 1.5 1.6 1.4 1.4 1.3 Murata Kyocera 1.2 Taiyo 1.2 Shinko Yuden 1.1 1.0 1.0 SEMCO SEMCO Ibiden 0.9 TDK 0.8 0.8 0.6 0.7 0.6 0.4 Mar-12 Jun-12 Sep-12 Dec-12 Mar-12 Jun-12 Sep-12 Dec-12 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 43Mirae Asset Securities 43
  • 44. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KSFigure 12 SEMCO peers’ valuations SEMCO Murata TDK Taiyo Yuden Ibiden Shinko Kyocera Price(KRW,JPY,USD) 95,500 6,100 3,175 1,011 1,431 743 7,950 Market Cap. (US$ m) 6,564 14,683 4,396 1,302 2,307 1,073 16,251 Sales (US$ m) 2010 6,030 7,231 10,203 2,462 3,568 1,649 14,825 2011 5,450 7,410 10,323 2,329 3,813 1,595 15,093 2012E 7,194 7,244 9,047 2,098 3,069 1,352 13,836 2013E 7,975 8,123 9,576 2,245 3,268 1,421 14,741 2014E 8,968 8,527 9,932 2,307 3,376 1,467 15,211 OP (US$ m) 2010 636 907 753 103 396 54 1,824 2011 251 570 237 -102 197 -47 1,238 2012E 553 600 262 53 69 17 865 2013E 599 969 515 128 202 81 1,443 2014E 673 1,138 602 153 234 88 1,528 NI (US$ m) 2010 480 626 530 -64 231 28 1,433 2011 316 390 -31 -274 135 -28 1,006 2012E 405 412 86 35 26 22 681 2013E 404 677 339 75 132 54 1,034 2014E 461 808 392 89 153 58 1,117 P/E (x) 2010 16.7 24.0 13.9 - 19.1 47.9 12.6 2011 16.6 34.0 100,637.3 - 28.5 - 17.5 2012E 16.9 34.1 52.1 36.6 88.3 46.6 23.4 2013E 16.6 20.9 13.1 17.4 16.7 20.8 15.4 2014E 14.5 17.1 11.4 14.7 14.1 19.2 14.3 P/B (x) 2010 2.8 1.6 1.2 1.0 1.4 0.9 1.1 2011 1.7 1.3 1.2 1.0 1.1 0.8 0.9 2012E 2.0 1.6 0.8 1.1 0.8 0.8 1.0 2013E 1.7 1.5 0.8 1.1 0.7 0.8 0.9 2014E 1.6 1.4 0.7 1.0 0.7 0.7 0.9 EV/EBITDA (x) 2010 10.1 8.2 4.9 4.8 4.2 3.6 5.0 2011 6.9 8.8 7.1 11.3 4.6 5.9 5.9 2012E 7.0 10.1 5.2 6.0 3.8 3.6 7.4 2013E 5.2 7.9 4.2 4.5 3.3 2.6 5.4 2014E 4.7 6.9 3.8 4.2 2.9 2.4 4.6 ROE (%) 2010 8.4 6.6 8.4 (4.1) 7.4 1.8 8.9 2011 10.0 3.8 (0.5) (18.6) 4.0 (1.7) 5.5 2012E 11.8 5.0 2.2 3.6 1.0 2.1 4.2 2013E 10.5 7.4 6.1 6.5 4.6 4.1 6.3 2014E 10.9 8.8 6.9 7.3 5.1 4.4 6.4Source: Bloomberg, Mirae Asset ResearchNote: SEMCO’s earnings are Mirae Asset Research estimates; share prices as of 1 March 44Mirae Asset Securities 44
  • 45. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KSFigure 13 SEMCO peers’ historical valuations 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E SEMCO (009150 KS) EPS KRW 1,268 1,462 624 3,616 7,171 4,679 5,862 5,765 6.586 BPS KRW 23,869 26,362 26,233 34,371 46,410 45,198 50,542 55,511 61.294 P/E (x) 34.2 33.6 53.4 29.7 17.3 16.6 16.9 16.6 14.5 high 34.2 52.2 53.4 174.7 44.1 20.3 22.9 low 34.2 25.2 20.2 29.7 17.3 8.3 10.1 P/B (x) 1.8 1.9 1.3 3.1 2.7 1.7 2.0 1.7 1.6 high 2.0 2.8 2.1 4.2 4.6 2.9 2.6 low 1.2 1.3 1.1 1.3 2.7 1.3 1.2 ROE (%) 5.7 5.8 2.4 11.9 18.3 10.0 11.8 10.5 10.9 Murata (6981 JT) EPS US$ 2.7 3.1 0.2 1.2 2.9 1.8 1.9 3.2 3.9 BPS US$ 31.5 38.5 36.8 39.9 46.2 46.4 41.6 43.7 46.3 P/E (x) 26.8 14.2 229.4 46.0 24.0 34.0 34.1 20.9 17.1 high 33.3 28.9 229.4 282.2 49.6 34.0 35.5 low 25.0 18.3 8.1 39.9 22.9 15.7 25.6 P/B (x) 2.3 1.3 1.0 1.4 1.6 1.3 1.6 1.5 1.4 high 2.6 2.5 1.6 1.4 1.6 1.7 1.3 low 2.0 1.6 0.7 0.9 1.1 1.0 1.0 ROE (%) 9.0 9.3 0.4 3.1 6.6 3.8 5.0 7.4 8.8 TDK (6762 JT) EPS US$ 4.5 4.8 (4.9) 1.1 4.1 (0.2) 0.7 2.6 3.0 BPS US$ 49.0 55.6 43.3 45.1 50.0 47.9 42.9 44.7 46.8 P/E (x) 19.3 10.7 - 59.3 13.9 - 52.1 13.1 11.4 high 29.8 22.5 14.7 59.3 62.6 73,171.3 103,105.0 low 17.9 13.9 4.7 53.9 15.9 6.9 52.1 P/B (x) 1.8 1.1 0.8 1.5 1.2 1.2 0.8 0.8 0.7 high 1.9 2.1 1.5 1.5 1.6 1.5 1.2 low 1.5 1.3 0.5 0.7 1.0 0.6 0.7 ROE (%) 9.6 9.7 (9.9) 2.5 8.4 (0.5) 2.2 6.1 6.9 Taiyo Yuden (6976 JT) EPS US$ 0.9 0.8 (1.2) (0.1) (0.5) (2.3) 0.3 0.6 0.7 BPS US$ 12.1 14.1 11.9 12.6 13.1 10.7 9.8 10.3 11.1 P/E (x) 22.6 10.9 - - - - 36.6 17.4 14.7 high 84.8 26.6 19.5 - - - - low 19.3 15.4 4.5 - - - - P/B (x) 1.7 0.7 0.6 1.2 1.0 1.0 1.1 1.1 1.0 high 1.7 2.0 1.2 1.1 1.3 1.3 1.0 low 1.0 1.2 0.3 0.4 0.8 0.5 0.7 ROE (%) 8.0 6.3 (9.3) (0.5) (4.1) (18.6) 3.6 6.5 7.3 Ibiden (4062 JT) EPS US$ 2.8 2.7 (0.6) 0.9 1.6 0.9 0.2 0.9 1.1 BPS US$ 15.7 20.1 17.8 19.5 22.6 22.9 20.2 20.9 22.0 P/E (x) 18.6 12.6 - 39.4 19.1 28.5 88.3 16.7 14.1 high 33.9 30.8 23.0 40.3 44.0 21.2 29.0 low 18.3 16.9 4.0 39.4 18.7 10.9 12.3 P/B (x) 3.3 2.0 1.3 1.8 1.4 1.1 0.8 0.7 0.7 high 4.3 5.5 3.6 2.0 2.0 1.6 1.1 low 3.1 3.0 0.6 0.9 1.1 0.8 0.5 ROE (%) 19.3 16.2 (3.2) 4.6 7.4 4.0 1.0 4.6 5.1 Kyocera (6971 JT) EPS US$ 4.8 5.0 1.6 2.4 7.8 5.5 3.7 5.6 6.0 BPS US$ 67.3 76.7 72.6 78.4 93.4 96.9 88.6 92.9 97.4 P/E (x) 20.6 14.8 41.2 41.7 12.6 17.5 23.4 15.4 14.3 high 31.6 24.9 41.2 53.7 44.3 17.5 18.2 low 20.8 17.5 8.0 33.8 12.4 9.2 14.0 P/B (x) 1.4 1.1 0.9 1.2 1.1 0.9 1.0 0.9 0.9 high 1.7 1.7 1.4 1.2 1.3 1.2 1.0 low 1.2 1.2 0.6 0.7 1.0 0.8 0.8 ROE (%) 15.2 8.1 (4.4) 2.4 1.8 (1.7) 4.2 6.3 6.4Source: Bloomberg, Mirae Asset Research 45Mirae Asset Securities 45
  • 46. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KSFigure 14 SEMCO peers’ earning consensus Company(code) / US$ m 2Q12 3Q12 4Q12E 1Q13E 2011 2012E 2013E Murata (6981 JP) Sales 1,781 2,189 1,725 1,901 7,410 7,244 8,123 YoY (%) 1.4 11.3 (10.3) 7.5 2.5 (2.2) 12.1 OP 76 232 73 154 570 600 969 YoY (%) (63.9) 30.6 (49.7) 338.9 (37.1) 5.3 61.4 OPM (%) 4.3 10.6 4.2 8.1 7.7 8.3 11.9 NI 44 147 58 73 390 412 677 NPM (%) 2.5 6.7 3.3 3.8 5.3 5.7 8.3 TDK (6762 JP) Sales 2,606 2,632 2,450 2,695 10,323 9,047 9,576 YoY (%) 2.7 (2.8) (1.2) 3.9 1.2 (12.4) 5.8 OP 115 142 (97) 142 237 262 515 YoY (%) 66.4 35.2 (206.3) (627.5) (68.5) 10.8 96.4 OPM (%) 4.4 5.4 (3.9) 5.3 2.3 2.9 5.4 NI 56 67 (37) 84 (31) 86 339 NPM (%) 2.1 2.5 (1.5) 3.1 (0.3) 1.0 3.5 Taiyo Yuden (6976 JP) Sales 581 622 540 593 2,329 2,098 2,245 YoY (%) 0.7 (3.6) (5.7) 11.0 (5.4) (9.9) 7.0 OP 14 4 (44) 5 (102) 53 128 YoY (%) (271.5) (131.3) 37.2 (109.7) (198.7) (152.3) 141.3 OPM (%) 2.4 0.7 (8.1) 0.8 (4.4) 2.5 5.7 NI (8) 0 (98) (5) (274) 35 75 NPM (%) (1.3) 0.0 (18.1) (0.9) (11.8) 1.7 3.3 Ibiden (4062 JP) Sales 869 908 1,039 918 3,813 3,069 3,268 YoY (%) 3.7 (1.8) 7.6 (15.5) 6.9 (19.5) 6.5 OP 49 28 60 55 197 69 202 YoY (%) (4.5) (5.8) 45.9 (24.6) (50.3) (65.0) 194.1 OPM (%) 5.6 3.1 5.8 6.0 5.2 2.2 6.2 NI (1) 10 41 38 135 26 132 NPM (%) (0.2) 1.1 4.0 4.1 3.5 0.8 4.0 Shinko (6967 JP) Sales 422 398 419 456 1,595 1,352 1,421 YoY (%) 12.1 12.8 6.0 (2.8) (3.3) (15.2) 5.1 OP 31 3 3 24 (47) 17 81 YoY (%) (1384.4) (108.1) (110.7) 17.4 (185.7) (135.7) 388.7 OPM (%) 7.3 0.8 0.7 5.3 (2.9) 1.2 5.7 NI 25 4 0 13 -28 22 54 NPM (%) 5.9 1.1 0.1 2.9 (1.8) 1.6 3.8 Kyocera (6971 JP) Sales 3,719 3,951 3,661 3,929 15,093 13,836 14,741 YoY (%) (0.7) 2.6 0.7 1.9 1.8 (8.3) 6.5 OP (25) 355 171 278 1,238 865 1,443 YoY (%) (106.1) (20.0) (35.8) 137.0 (32.2) (30.1) 66.9 OPM (%) (0.7) 9.0 4.7 7.1 8.2 6.3 9.8 NI 82 239 89 197 1,006 681 1,034 NPM (%) 2.2 6.1 2.4 5.0 6.7 4.9 7.0Source: Bloomberg, Mirae Asset Research 46Mirae Asset Securities 46
  • 47. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KS Figure 15 Murata (6981 JP) P/E band Figure 16 Murata (6981 JP) P/B band (JPY) (JPY) 30,000 30,000 25,000 25,000 20,000 20,000 Share price Share price 15,000 4x 15,000 3x 10,000 10,000 2x 40x 5,000 30x 5,000 20x 1x 0 10x 0 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 17 TDK (6981 JP) P/E band Figure 18 TDK (6981 JP) P/B band (JPY) (JPY) 20,000 18,000 Share price 16,000 15,000 14,000 Share price 10,000 25x 12,000 5,000 20x 10,000 15x 0 10x 8,000 2.0x 6,000 1.5x -5,000 4,000 1.0x -10,000 2,000 0.5x -15,000 0 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 19 Ibiden (4062 JP) P/E band Figure 20 Ibiden (4062 JP) P/B band (JPY) (JPY) 15,000 12,000 Share price 13,000 10,000 Share price 11,000 9,000 8,000 7,000 6,000 5,000 40x 3,000 30x 4,000 2.0x 20x 1.5x 1,000 10x 2,000 1.0x -1,000 0.5x -3,000 0 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 47Mirae Asset Securities 47
  • 48. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KS Figure 21 Shinko (6967 JP) P/E band Figure 22 Shinko (6967 JP) P/B band (JPY) (JPY) 6,000 4,000 Share price Share price 5,000 3,500 4,000 3,000 3,000 2,500 2,000 40x 2,000 2.0x 1,000 30x 20x 1,500 1.5x 0 10x -1,000 1,000 1.0x -2,000 500 0.5x -3,000 0 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 23 Kyocera (6971 JP) P/E band Figure 24 Kyocera (6971 JP) P/B band (JPY) (JPY) 30,000 20,000 Share price Share price 18,000 25,000 2.0x 16,000 20,000 14,000 1.5x 12,000 40x 15,000 10,000 1.0x 30x 8,000 10,000 20x 6,000 4,000 0.5x 5,000 10x 2,000 0 0 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 48Mirae Asset Securities 48
  • 49. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KS Figure 25 SEC’s smartphone market share in 4Q12 (‘000 units) Source: Gartner, Mirae Asset Research Figure 26 Major shareholders of SEMCO Figure 27 SEC shipment portions by country in 4Q12 (%) (%) SEC, 23.7 (%) China, 10.4 US, 14.5 National Pension service, 6.1 Others, 54.7 India, 11.2 Others, 64.9 Korea Brazil, 5.1 Investment Trust, 5.3 Russia, 4.1 Source: SEMCO, Bloomberg, Mirae Asset Research Source: Gartner, Mirae Asset Research 49Mirae Asset Securities 49
  • 50. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KS Figure 28 4Q12 global handset MS Figure 29 4Q12 global smartphone MS (%) (%) Nokia, 18.3 Others, 21.6 SEC, 30.1 Others, 38.0 Others, 38.7 ZTE, 3.4 SEC, 23.6 ZTE, 4.2 ZTE, 4.0 Nokia, 20.9 Apple, 20.9 Apple, 10.1 Google, 2.2 Google, 3.2 LGE, 4.1 LGE, 3.5 LGE, 3.3 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research Figure 30 4Q12 Korea handset MS Figure 31 4Q12 US handset MS ( (%) (%) Apple, 8.9 Others, 0.4 Others, 17.0 Apple, 33.6 Pantech, Google, 4.1 11.8 Huawei, 4.3 LGE, 9.2 LGE, 14.7 SEC, 31.8 SEC, 64.1 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research Figure 32 4Q12 Brazil handset MS Figure 33 4Q12 Mexico handset MS ( (%) (%) SEC, 24.5 Others, 16.9 Others, 35.3 Others, 30.3 SEC, 29.2 ZTE, 5.1 Nokia, 18.2 Google, 9.3 ZTE, 8.3 ZTE, 4.2 LGE, 8.3 9.5 Nokia, 22.7 Google, 9.5 Google, 9.2 LGE, 16.8 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research 50Mirae Asset Securities 50
  • 51. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KS Figure 34 SEMCO’s sales breakdown Figure 35 SEMCO’s OP breakdown (KRW tn) (%) (m) 2.5 12 1000 2.0 10 800 8 1.5 600 6 400 1.0 4 200 0.5 2 0 0.0 0 1Q12 3Q12E 1Q13E 3Q13E (200) 2003 2005 2007 2009 2011 2013E ACI LCR OMS CDS OPM(RHS) ACI LCR OMS CDS Samsung LED Source: SEMCO, Mirae Asset Research Source: SEMCO, Mirae Asset ResearchFigure 36 1H13 SEC smartphone lineup Vendor Samsung Samsung Samsung Samsung Samsung Picture Name Galaxy S3 LTE Galaxy Note 2 Galaxy S3 Mini Ativ S Galaxy S4 Core Exynos 4412 1.4GHz Exynos 4412 1.6GHz 1Ghz Dual-core Qualcomm S4 1.5Ghz TBA OS Android 4.0 Android 4.1 Android 4.1 Windows 8 TBA Display 4.8" (1280x720) 5.5" (1280x720) 4" (800x480) 4.8" (1280x720) TBA Size 136.6x70.6x9.0mm 151.1x80.5x9.4mm 121.55x63x9.9mm 137.2x70.5x8.7mm TBA Weight 138.5g 180g 111.5g 135g TBA Specs AMOLED / 2GB RAM AMOLED / 2GB RAM AMOLED AMOLED / 1GB RAM TBA Release 2012.05.29 2012.09.26 2012.11.02 2012.11. TBASource: SEC, Mirae Asset Research Figure 37 SEMCO’s price vs. debit balance vs. foreign ownership (KRW) (m share, %) 180,000 40 160,000 35 140,000 30 120,000 25 100,000 20 80,000 15 60,000 40,000 10 20,000 5 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Debit balance(RHS) Foreign ownership(RHS) Price(LHS) Source: Quantiwise, Mirae Asset Research 51Mirae Asset Securities 51
  • 52. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KSFigure 38 State of SEMCO parts production by application Smartphone Computer TV (incl. feature) (incl. Tablet) (incl. LCD, PDP) RF components In mold antenna Chipset FC-BGA Power Power driver(LED) MLCC MLCC SMPS Chip inductor UT CSP LED driver IC Chip bead Memory BOC Super OP board Crystal unit MLCC Inverter Network Wifi+BT Combo module Chip resistor Tuner Digital tuner NFC module HDD HDD motor Slim tuner Power Tantalum capacitor Network Wifi+BT Combo module Network WLAN module for CE device Chip inductor CDMA cellular module Wifi module Chip bead NFC module Main board PBGA MLCC WiMAX module FC-BGA Chip resistor DVD ODD motor MLCC Wireless power transfer Power Adapter Chip inductor Adapter Server power Chip bead Motor Vibration motor Main board HDI Chip resistor Multimedia Camera module MLCC LCD panel LED driver IC Optical navigation module Tantalum capacitor Display HDI-flex Chip inductor Chipset FC-CSP Chip bead RF-SiP Chip resistor UT CSP Crystal unit Crystal unit Others Camera module Main board HDI LED driver IC HDI-flex Vibration motor Chip bead Chip inductor MLCC Chip resistor Crystal unitSource: SEMCO, Mirae Asset Research 52Mirae Asset Securities 52
  • 53. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-MechanicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KSSummary financial statementsProfit & loss Balance sheetYear end Dec 31 (KRWbn) 2011A 2012E 2013E 2014E Year end Dec 31 (KRWbn) 2011A 2012E 2013E 2014ERevenue 6,032 7,913 8,773 9,865 Current assets 3,697 2,805 3,103 3,718Cost of goods sold (5,050) (6,524) (7,242) (8,145) Cash & equivalents 526 671 947 1,331Gross profit 981 1,389 1,531 1,721 Short-term financial asset 27 25 26 27SG&A (704) (809) (872) (981) Accounts receivable 882 1,200 1,248 1,388EBIT (Adj.) 278 580 659 740 Inventory 760 820 821 913EBIT 321 608 659 740 Other current assets 1,502 90 61 58Net interest income (loss) (35) (33) (31) (29) Non-current assets 3,632 4,344 4,372 4,409Income (loss) from associates 0 (4) 0 0 Net fixed assets 2,278 2,698 2,728 2,750Others 79 13 (52) (52) Investments 1,242 1,338 1,392 1,449Recurring profit 364 584 576 659 Other long-term assets 112 308 252 210Income tax (56) (165) (133) (151) Total assets 7,329 7,150 7,474 8,127Net profit 392 446 444 507 Current liabilities 2,711 2,104 2,028 2,217Net profit (Controlling Interests) 349 438 431 492 Accounts payable 605 800 847 942EPS (Controlling Interests, KRW) 4,679 5,862 5,765 6,586 Short-term debt 1,096 954 954 954 Other current liabilities 1,011 350 228 321Growth & margins (%) 2011A 2012E 2013E 2014E Non-current liabilities 742 1,056 1,070 1,085Revenue growth 6.7 31.2 10.9 12.5 Long-term debt 495 687 687 687Gross profit growth (16.1) 41.5 10.2 12.4 Other long-term liabilities 247 369 383 398EBIT growth (35.6) 89.6 8.4 12.2 Total liabilities 3,453 3,159 3,098 3,302Net profit growth (37.0) 25.3 (1.7) 14.2 Controlling Interests 3,507 3,922 4,308 4,756EPS growth (37.0) 25.3 (1.7) 14.2 Non-Controlling Interests 368 68 68 68Gross margin 16.3 17.6 17.4 17.4 Shareholders equity 3,876 3,991 4,376 4,825EBIT margin 5.3 7.7 7.5 7.5 BVPS(KRW) 45,198 50,542 55,511 61,294Net profit margin 5.8 5.5 4.9 5.0Source: SEMCO, Mirae Asset Research estimates Source: SEMCO, Mirae Asset Research estimatesCash flow Ratio analysisYear end Dec 31 (KRWbn) 2011A 2012E 2013E 2014E Year end Dec 31 2011A 2012E 2013E 2014ECash flow from operations 473 1,221 1,196 1,306 ROE (%) 10.0 11.8 10.5 10.9Net profit 392 446 444 507 ROA (%) 5.5 6.2 6.1 6.5Depr. & amortization 664 592 833 826 Inventory days 54.7 44.2 41.3 38.9Others 108 88 14 14 Receivables days 52.1 48.0 50.9 48.8Change in working capital (691) 96 (95) (41) Payable days 45.7 39.3 41.5 40.1Cash flow from investing (973) (918) (861) (863) Net debt/equity (%) 26.8 23.7 15.3 5.9Capital expenditures (1,070) (1,072) (800) (800) Interest cover (x) 9.2 18.3 21.3 25.2Others 97 153 (61) (63)Cash flow from financing 315 (200) (58) (58)Dividends (88) (58) (58) (58)Increase in equityIncrease in debt 471 (96)Beginning cash 695 526 671 947Ending cash 526 671 947 1,331Source: SEMCO, Mirae Asset Research estimates Source: SEMCO, Mirae Asset Research estimates 53Mirae Asset Securities 53
  • 54. Korea ResearchIndustry update Korea / Handsets LG Electronics (066570 KS) Optimus vertical integration 5 March 2013 BUY We maintain our BUY rating and target price of KRW88,000 for LG Electronics Target price KRW88,000 (LGE), as: 1) efforts to vertically integrate its smartphone lineup should Last price (1 Mar 13) KRW78,300 gradually sharpen competitiveness; 2) the sales outlook for its new flagship smartphone, the Optimus G Pro, remains bright in 1H13; and 3) profitability Upside/downside (%) 12.4 KOSPI 2026.49 should improve in 1H13, driven by shipment growth and higher ASP, following Mkt. cap (KRWbn/US$bn) 12,699/11.8 a rise in smartphone market share. LGE shares currently trade at FY13E P/E of 52 week range (KRW) 55,800 - 94,300 12.4x and P/B of 1.0x (versus ROE of 7.8%), while competitors (RIM, HTC and Avg. trading volume daily (KRWbn) 79.4 Foreign ownership (%) 17.9 ZTE) are trading at FY13E P/E average of 13.9x and P/B average of 1.6x (versus ROE average of 7.1%). Forecast earnings & valuation Fiscal year ending Dec-11 Dec-12 Dec-13 Dec-14 LGE to unveil mid-end Optimus series Revenue (KRWbn) 54,257 50,960 51,125 53,640 At the Mobile World Congress (MWC), which kicked off on 25 February, LG EBIT (KRWbn) 280.3 1,124.9 1,429.1 1,514.5 Electronics (LGE) unveiled the Optimus F series (entry-level LTE smartphones) Net profit (KRWbn) (432.8) 90.8 1,008.1 1,077.4 Net profit(underlying) (469.6) 69.1 1,022.6 1,092.9 and the Optimus L II series (3G smartphones, successors to the Optimus L EPS (KRW) (3,132) 422 6,249 6,678 series). The Optimus F-series shares its platform (design, UI and UX) with the EPS growth (%) TN TP 1,379.1 6.9 Optimus G Pro, unveiled last week. We believe LGE’s efforts to vertically P/E (x) - 174.2 12.5 11.7 integrate its smartphone lineup will partially reduce marketing and R&D costs EV/EBITDA (x) 11.5 7.2 6.6 6.3 Dividend yield (%) 0.3 0.3 0.3 0.3 and enable the company to compete with Samsung Electronics’ (SEC) three P/B (x) 1.0 1.0 1.0 1.0 major entry-level smartphones, the Galaxy Ace2 (3.8”, 800x480, 768MB ROE (%) (3.7) 0.5 7.8 7.7 DRAM), Galaxy S3 mini (4.0”, 800x480, 1GB DRAM) and Galaxy Grand (5”, Net debt/equity (%) 37.5 42.8 40.6 37.8 800x480, 1GB DRAM). Performance Success of Optimus G the key to successful vertical integration KRW Price(LHS) Rel. to KOSPI(RHS) As shown in the case of the Optimus F-series, LGE has adopted the strategy of 93,200 shared platforms for its smartphones; this is reminiscent of SEC’s strategy 88,200 105% 83,200 100% back in 2011-2012, when that company leveraged the identity of its flagship 78,200 73,200 95% 90% smartphones (the Galaxy S-series) for its entry-level models (the Galaxy Ace2 68,200 85% and Galaxy S3 mini). The previous success of its flagship smartphones enabled 63,200 80% 58,200 75% SEC to enjoy brisk entry-level smartphone sales during 2011-2012, backed by 53,200 Jan-12 Apr-12 Jul-12 Oct-12 70% its platform-sharing strategy. In a similar vein, we believe the success of the Optimus F series will hinge on the success of the Optimus G. MC division to outperform in 1H13 Performance 1M 3M 12M We expect LGE to report 1Q13 sales of KRW11.9tn (-11.7% QoQ) and Absolute (%) 8.8 2.6 (8.3) operating profit of KRW283.9bn (+164.8% QoQ). We forecast LGE’s Absolute (US$, %) 8.9 2.5 (5.7) Relative to KOSPI (%) 5.2 (2.2) (8.1) smartphone shipments to rise by 9.3% QoQ to 9.4m units, in light of limited supply of new smartphone models by rivals in the key markets of North America, Latin America and Korea (1Q13 has seen the release of Blackberry’s Z10, Sony’s Xperia series and HTC’s M7). As such, the MC division’s operating profit should improve by 7.8% QoQ to KRW60.7bn in 1Q13. For the full-year of 2013, we expect the MC division to report sales of KRW13tn (+29.3% YoY) and operating profit of KRW444bn (+657.7% YoY). Moreover, the division should enjoy a 2.8ppt YoY rise in operating margin to 3.4% in 2013, as increased sales should significantly reduce the portion of fixed costs Jinho Cho, Analyst (marketing costs). On a quarterly basis, MC division’s operating margins 82 2 3774 3831 jcho@miraeasset.com should decrease, after peaking at 4.1% in 3Q13, weighed down by continued rises in raw material and R&D costs resulting from the increased sales Yongjei Jeong contribution of flagship smartphones. We also reiterate our previous view that 82 2 3774 1938 yongjei@miraeasset.com subsidy competition among smartphone makers will further intensify in 3Q13.See the last page of this report for important disclosures 54
  • 55. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KSFigure 1 LGE’s new lineup at MWC2013 Vendor LGE LGE LGE LGE LGE Picture Name Optimus L7 Ⅱ Optimus L5 Ⅱ Optimus L3 Ⅱ Optimus F7 Optimus F5 Core Qualcomm S4 1GHz Unknown Unknown 1.5GHz Dual core 1.2GHz Dual core OS Android 4.1 Android 4.1 Android 4.1 Android 4.1.2 Android 4.1.2 Display 4.3" (800x480) 4" (800x480) 3.2" (320x240),125ppi 4.7" (1280x720),312ppi 4.3" (960x540),256ppi Size TBA TBA TBA 131.7x68.2x9.6mm 126x64.5x9.3mm Weight 121.5x66.6x9.7g TBA TBA TBA TBA Spec 217ppi / 768MB RAM TBA TBA 2GB RAM 1GB RAM Release 2013.1Q 2013.1Q 2013.1Q 2013.1Q 2013.1QSource: LGE, PhoneArena, Mirae Asset ResearchFigure 2 Peers’ new smartphone lineups in 1Q13 Vendor RIM Sony Huawei HTC ZTE Picture Name BlackBerry Z10 Xperia Z Ascend P2 One Grand S Core Qualcomm S4 1.5GHz Qualcomm S4 1.5GHz 1.5GHz Quad core Qualcomm 600 1.7Ghz Qualcomm S4 1.7GHz OS BlackBerry 10 Android 4.1.2 Android 4.1.2 Android 4.1 Android 4.1 Display 4.2" (1280x768), 355ppi 5" (1920x1080), 441ppi 4.7" (1280x720), 312ppi 4.7" (1920x1080) 5" (1920x1080), 441ppi Size 130x65.6x9 139x71x7.9 Unknown 137.4x68.2x9.3 142x69x6.9 Weight 138g 146g Unknown 143g TBA Spec 2GB RAM 2GB RAM 1GB RAM 2GB RAM 2GB RAM Release 2013.01.31 2013.02.09 2013.1Q 2013.03. 2013.Q1Source: LGE, PhoneArena, Mirae Asset ResearchFigure 3 Specifications of new smartphone lineup in 2013 Company Product Display CPU Memory Storage Battery Launch (mAh) LGE Optimus G Pro 5.5" (1920x1080), 400ppi Qualcomm 600 1.7GHz 2GB RAM 32GB 3.140 2013-02-20 LGE Optimus F5 4.3" (960x540), 256ppi 1.2GHz Dual core 1GB RAM 8GB 2.150 2013.1Q LGE Optimus F7 4.7" (1280x720), 312ppi 1.5GHz Dual core 2GB RAM 8GB 2.540 2013.1Q LGE Optimus L3 Ⅱ TBA TBA TBA TBA 1.540 2013.1Q LGE Optimus L5 Ⅱ 4.0" TBA TBA TBA 1.700 2013.1Q LGE Optimus L7 Ⅱ 4.4" (800x480), 217ppi Qualcomm S4 1Ghz 768MB RAM 4GB 2.460 2013.1Q RIM BlackBerry Z10 4.2" (1280x768), 356ppi Qualcomm S4 1.5GHz 2GB RAM 16GB 1,800 2013.01.31 Sony Xperia Z 5" (1920x1080), 441ppi Qualcomm S4 1.5GHz 2GB RAM 16GB 2,330 2013.02.09 Huawei Ascend P2 4.7" (1280x720), 312ppi 1.5GHz Quad core 1GB RAM 16GB 2.420 2013.1Q HTC One 4.7" (1920x1080) Qualcomm 600 1.7Ghz 2GB RAM 32GB 2,300 2013.1Q ZTE Grand S 5" (1920x1080), 441ppi Qualcomm S4 1.7GHz 2GB RAM 16GB 1,780 2013.1QSource: LGE, PhoneArena, Mirae Asset Research 55Mirae Asset Securities 55
  • 56. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KSFigure 4 Optimus G Pro vs. Galaxy Note 2 Optimus G Pro Versus Galaxy Note2 Qualcomm 600 1.7GHz AP Exynos 4412 1.6GHZ 2GB RAM Memory 2GB RAM 5.5" Display size 5.5" Android (4.1.2) OS Android (4.1.2) 3,140mAh Battery 3,100mAh 150.2x76.1x9.4mm Dimension 151x80.5x9.4mm 172g Weight 182g 1920x1080 Resolution 1280x720 400ppi Density 265ppi 13M (2.1M) Main camera (front) 8M (1.9M)Source: LGE, SEC, PhoneArena, Mirae Asset ResearchFigure 5 Optimus F7 vs. Galaxy Grand Optimus F7 Versus Galaxy Grand 1.5GHz Dual core AP 1.2GHz Dual core 2GB RAM Memory 1GB RAM 4.7” Display size 5.0” Android (4.1.2) OS Android (4.1.2) 2,540mAh Battery 2,100mAh 131.7x68.2x9.6mm Dimension 143.5x76.9x9.6mm TBA Weight 162g 1280x720 Resolution 800x480 312ppi Density 187ppi 8M (1.3M) Main camera (front) 8M (2M)Source: LGE, SEC, PhoneArena, Mirae Asset ResearchFigure 6 Optimus L7 Ⅱ vs. Galaxy S3 mini Optimus L7 Ⅱ Versus Galaxy S3 mini Qualcomm S4 1GHz AP 1GHz Dual core 768MB RAM Memory 1GB RAM 4.3” Display size 4.0” Android (4.1) OS Android (4.1.2) 2,460mAh Battery 1,500mAh 121.5x66.6x9.7mm Dimension 121.5x63x9.8mm TBA Weight 112g 800x400 Resolution 800x480 217ppi Density 233ppi 8M (0.3M) Main camera (front) 5M (0.3M)Source: LGE, SEC, PhoneArena, Mirae Asset Research 56Mirae Asset Securities 56
  • 57. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KSFigure 7 LGE earnings forecast summary (KRW 100m) 1Q12 2Q12 3Q12 4Q12 1Q13E 2Q13E 3Q13E 4Q13E 2011 2012 2013E 2014E Sales by division Total 122,279 128,590 123,758 134,973 119,155 122,489 128,187 141,420 542,566 509,600 511,252 536,404 QoQ/YoY (%) (11.5) 5.2 (3.8) 9.1 (11.7) 2.8 4.7 10.3 (2.7) (6.1) 0.3 4.9 HE 53,302 54,784 54,864 64,430 51,169 48,662 53,615 65,370 239,023 227,380 218,815 234,138 MC 24,972 23,212 24,476 28,116 29,276 30,359 35,053 35,587 116,925 100,776 130,276 137,866 Handset 24,520 22,862 24,231 27,793 28,957 30,070 34,777 35,297 114,364 99,406 129,102 136,724 HA 25,357 28,753 28,675 29,423 26,530 29,601 28,929 30,891 110,815 112,208 115,951 129,757 AC&ES 12,179 14,749 9,743 6,825 7,016 9,008 6,037 5,048 45,849 43,496 27,109 20,258 others 6,469 7,092 6,000 6,179 5,164 4,859 4,554 4,524 29,954 25,740 19,101 14,385 OP by division Total 3,753 5,074 1,461 1,072 2,839 4,020 4,266 3,165 3,789 11,360 14,291 15,145 QoQ/YoY (%) 338.4 35.2 (71.2) (26.6) 164.8 41.6 6.1 (25.8) 114.8 199.8 25.8 6.0 HE 1,684 3,103 442 192 601 777 1,824 1,171 4,748 5,421 4,372 5,235 MC 342 (280) (39) 563 607 1,204 1,425 1,205 (2,758) 586 4,440 4,225 HA 1,432 1,834 1,218 799 1,579 1,689 1,101 687 3,194 5,283 5,056 5,425 AC&ES 713 826 135 (111) 311 433 48 35 754 1,563 826 588 Others (418) (409) (295) (371) (258) (82) (131) 68 (2,149) (1,493) (403) (328) OPM (%) Total 3.1 3.9 1.2 0.8 2.4 3.3 3.3 2.2 0.7 2.2 2.8 2.8 HE 3.2 5.7 0.8 0.3 1.2 1.6 3.4 1.8 2.0 2.4 2.0 2.2 MC 1.4 (1.2) (0.2) 2.0 2.1 4.0 4.1 3.4 (2.4) 0.6 3.4 3.1 HA 5.6 6.4 4.2 2.7 6.0 5.7 3.8 2.2 2.9 4.7 4.4 4.2 AC&ES 5.9 5.6 1.4 (1.6) 4.4 4.8 0.8 0.7 1.6 3.6 3.0 2.9 Others (6.5) (5.8) (4.9) (6.0) (5.0) (1.7) (2.9) 1.5 (7.2) (5.8) (2.1) (2.3) Pretax income 4,498 2,361 1,787 (3,405) 2,539 3,710 3,964 2,880 (3,993) 5,240 13,093 13,993 Tax 2,073 771 216 1,273 584 853 912 662 335 4,332 3,011 3,218 NI 2,425 1,590 1,571 (4,678) 1,955 2,856 3,052 2,218 (4,328) 908 10,081 10,774 NPM (%) 2.0 1.2 1.3 (3.5) 1.7 2.4 2.3 1.5 (0.8) 0.2 2.0 2.0Source: LGE, Mirae Asset ResearchFigure 8 Major assumptions (000 units) 1Q12 2Q12 3Q12 4Q12 1Q13E 2Q13E 3Q13E 4Q13E 2011 2012 2013E 2014E KRW/US$ 1,131 1,152 1,133 1,090 1,050 1,030 1,010 1,005 1,108 1,127 1,024 1,024 Handset shipments Total 13,722 12,998 14,361 15,420 15,197 15,847 17,640 17,998 88,039 56,501 66,682 67,472 Smartphone 4,900 5,700 7,000 8,600 9,400 10,340 12,408 13,028 19,107 26,200 45,175 51,799 Feature 8,822 7,298 7,361 6,820 5,797 5,507 5,232 4,970 68,932 30,301 21,506 15,673 Handset ASP (US$) Total 156 154 148 165 181 184 195 195 117 156 189 202 Smartphone 300 250 229 252 255 250 252 247 219 255 251 246 Feature 77 74 70 64 63 61 60 59 89 72 61 56 TV shipments Total 8,375 8,409 8,355 10,542 8,786 8,807 9,981 12,325 36,834 35,681 39,899 47,190 LCD 5,819 5,990 6,193 8,600 6,880 6,983 8,321 10,709 25,908 26,602 32,893 41,207 TV ASP (US$) Total 557 572 576 561 534 516 514 513 560 544 519 479 LCD 579 582 588 549 551 528 520 516 529 572 527 484Source: LGE, Mirae Asset Research 57Mirae Asset Securities 57
  • 58. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KS Figure 9 4Q12 global handset MS Figure 10 4Q12 global smartphone MS (%) (%) Nokia, 18.3 Others, 21.6 SEC, 30.1 Others, 38.0 Others, 38.7 ZTE, 3.4 SEC, 23.6 ZTE, 4.2 ZTE, 4.0 Nokia, 20.9 Apple, 20.9 Apple, 10.1 Google, 2.2 Google, 3.2 LGE, 4.1 LGE, 3.5 LGE, 3.3 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research Figure 11 4Q12 Korea handset MS Figure 12 4Q12 US handset MS ( (%) (%) Apple, 8.9 Others, 0.4 Others, 17.0 Apple, 33.6 Pantech, Google, 4.1 11.8 Huawei, 4.3 LGE, 9.2 LGE, 14.7 SEC, 31.8 SEC, 64.1 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research Figure 13 4Q12 Brazil handset MS Figure 14 4Q12 Mexico handset MS ( (%) (%) SEC, 24.5 Others, 16.9 Others, 35.3 Others, 30.3 SEC, 29.2 ZTE, 5.1 Nokia, 18.2 Google, 9.3 ZTE, 4.2 ZTE, 8.3 LGE, 8.3 9.5 Nokia, 22.7 Google, 9.5 Google, 9.2 LGE, 16.8 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research 58Mirae Asset Securities 58
  • 59. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KS Figure 15 LGE P/B band (KRW 000) Decided to 180 increase capital 15m sales of "Chocolate" Earngnis shock: 4Q08 3Q10 MC divsion by issuing new 160 phone OPM 0.8%(-3.9ppt) OPM -10%, -6.5ppt QoQ) shares ) 140 120 100 1.16x 80 1.0x 60 0.8x 40 20 20m units comulative sales of full-touch phone Expectations about recovery: Released 2Q09 MC division OPM 10.3%(+4.7ppt QoQ) 1Q12 OPM 3.1%(+2.4ppt QoQ) Opimus G 0 2007 2008 2009 2010 2011 2012 2013 Source: LGE, Mirae Asset ResearchFigure 16 LGE’s sum-of-the-parts valuation Fair value Sales Noplat Peers’ mkt. relative avg. P/E (KRW bn) 2012E 2013E 2012E 2013E FY13E Peers HE 3,075 22,738 21,882 407 328 9.4x Panasonic, Sony MC 3,454 10,078 13,028 44 333 10.4x HTC HA 3,655 11,221 11,595 396 379 9.6x Electrolux, Philips, GE, Whirlpool AC&ES 510 4,350 2,711 117 62 8.2x Carrier, Daikin Others 2,574 1,910 (112) (30) 9.8x Other assets 3,699 0.75x Target Mkt. Cap. 14,393 50,960 51,125 852 1,072 7.4x Fair value (KRW) 88,000 Upside (%) 12.4 Share price (KRW) 78,300 (KRW, KRW bn, m) Share price Company (code) Shares (%) BVPS BV Mkt. value (28 Feb.) LG Display (034220 KS) 357.8 37.9 135.6 31,202 4,231 30,550 4,143 LG Innotek (011070 KS) 20.2 47.9 65,139 629 75,700 731 Value of listed holdings 4,861 4,874Source: Bloomberg, LGE, Mirae Asset Research* FY13E Market P/E: KOSPI of 9.4x, DOW of 12.5x, NIKKEI225 of 21.9x, TWSE of15.0x, HSI of 11.3x 59Mirae Asset Securities 59
  • 60. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KS Figure 17 LGE’s shareholders Figure 18 4Q12 LGE’s handset sales mix (%) (%) LG CORP, 33.7 US, 31.0 30.0 Others, 34.8 Others, 53.5 Spain, 2.4 Spain, 2.5 Korea, 5.6 Korea, 5.4 National Mexico, 6.4 6.6 Pension Serrvice, 9.4 Brazil, 21.1 Brazil, 21.1 Vanguard, 3.4 Source: Bloomberg, LGE, Mirae Asset Research Source: Gartner, Mirae Asset Research Figure 19 32” LCD panel vs. 32” LCD TV set price forecast Figure 20 40” LCD panel vs. 40” LCD TV set price forecast (US$) (%) (US$) (%) 1,600 50 5,000 45 1,400 45 4,500 40 40 4,000 1,200 35 35 3,500 30 1,000 30 3,000 25 800 25 2,500 20 600 20 2,000 15 15 1,500 400 10 10 1,000 200 5 500 5 0 0 0 0 Jan-06 Mar-07 May-08 Jul-09 Sep-10 Nov-11 Jan-13 Jan-06 Mar-07 May-08 Jul-09 Sep-10 Nov-11 Jan-13 TV 32"set(LHS) TV 32"LCD(LHS) LCD%(RHS) TV 40"set(LHS) TV 40"LCD(LHS) LCD%(RHS) Source: WitsView, Mirae Asset Research Source: WitsView, Mirae Asset Research 60Mirae Asset Securities 60
  • 61. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KSFigure 21 LGE’s smartphone lineup in North America (AT&T, Verizon, Sprint) Verizon AT&T Sprint Model 2-year contract Model 2-year contract Model 2-year contract ($) ($) ($) Jun Lucid LTE 79.99 Phoenix - Free Optimus S 19.99 Spectrum LTE 79.99 Nitro HD LTE 49.99 Optimus Elite 29.99 Enlighten Free Viper LTE LTE 79.99 Enlighten bundle 39.99 Ally Free Vortex Free Revolution LTE 69.99 Jul Lucid LTE 49.99 Phoenix Free Viper LTE Free Spectrum LTE 99.99 Nitro HD LTE 49.99 Optimus Elite Free Enlighten 29.99 Optimus S Free Enlighten Bundle 39.99 Revolution LTE 69.99 Aug Lucid LTE 49.99 Nitro HD LTE 49.99 Viper LTE 79.99 Spectrum LTE 49.99 Optimus Elite Free Enlighten Free Optimus S Free Enlighten Bundle 39.99 Revolution LTE 69.99 Sep Lucid LTE 49.99 Nitro HD LTE 49.99 Viper LTE 79.99 Lucid Bundle 94.99 Optimus Elite Free Spectrum LTE 99.99 Optimus S 19.99 Enlighten Free Enlighten Bundle 39.99 Revolution LTE 69.99 Intuition LTE 199.99 Oct Lucid LTE 19.99 Nitro HD LTE 49.99 Viper LTE 49.99 Lucid Bundle 64.99 Escape LTE 49.99 Optimus Elite Free Spectrum LTE 49.99 Optimus G LTE 199.99 Optimus S Free Enlighten 29.99 Marquee 19.99 Enlighten Bundle 69.99 Intuition LTE 149.99 Nov Lucid LTE 19.99 Nitro HD LTE 49.99 Optimus G LTE 199.99 Lucid Bundle 64.99 Escape LTE 49.99 Viper LTE 49.99 Spectrum2 LTE 99.99 Optimus G LTE 199.99 Optimus Elite Free Enlighten 29.99 Optimus S Free Enlighten Bundle 69.99 Marquee 19.99 Intuition LTE 149.99 Dec Lucid LTE 0 Nitro HD LTE 49.99 Optimus G LTE 199.99 Lucid Bundle LTE 44.99 Escape LTE 49.99 Viper LTE 49.99 Spectrum2 LTE 99.99 Optimus G LTE 199.99 Optimus Elite 29.99 Enlighten 29.99 Optimus S Free Enlighten Bundle 69.99 Marquee 19.99 Intuition LTE 149.99 Mach LTE 99.99 Jan Lucid LTE Free Nitro HD LTE 0.01 Optimus G LTE 199.99 Lucid Bundle LTE 44.99 Escape LTE 49.99 Viper LTE 49.99 Spectrum2 LTE 49.99 Optimus G LTE 199.99 Optimus Elite Free Intuition LTE 99.99 Optimus S Free Marquee 19.99 Mach LTE 99.99 Feb Lucid LTE 0 Nitro HD LTE 0.01 Optimus G LTE 19.99 Lucid Bundle LTE 44.99 Escape LTE 49.99 Viper LTE 49.99 Spectrum2 LTE 79.99 Optimus G LTE 99.99 Optimus Elite 29.99 Intuition LTE 149.99 Optimus S 0 Mach LTE 49.99Source: AT&T, Verizon, Sprint, Mirae Asset Research 61Mirae Asset Securities 61
  • 62. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KSFigure 22 LGE peers (TV set/home appliance) valuation table LGE Panasonic Electrolux Sony Philips Whirlpool GE UTX Daikin Price (KRW,JPY,SEK,US$) 78,300 666 166 1,390.0 21.6 114.4 23.2 90 3,520 Market cap.(US$ m) 11,819 17,457 7,957 15,030 26,878 8,981 241,136 82,617 11,025 Sales (US$ m) 2010 48,239 101,715 14,794 84,029 29,566 18,366 148,442 54,326 13,577 2011 49,021 99,441 15,667 82,293 31,439 18,666 142,224 55,754 15,446 2012E 46,327 78,669 16,892 71,980 33,337 18,240 146,589 57,988 13,758 2013E 46,477 81,117 17,566 74,522 32,760 18,778 149,355 65,072 16,244 2014E 48,763 81,585 18,277 75,226 33,937 19,547 155,051 68,884 17,051 OP (US$ m) 2010 76 3,572 905 2,338 2,759 1,082 13,961 7,186 883 2011 310 554 462 (853) (375) 928 15,855 7,846 1,029 2012E 1,022 1,582 683 1,507 1,989 928 20,072 7,940 940 2013E 1,299 2,675 874 2,087 2,932 1,317 22,201 9,314 1,281 2014E 1,377 3,092 1,027 2,458 3,283 1,571 24,148 10,460 1,474 NI (US$ m) 2010 1,062 866 556 (3,037) 1,918 619 11,644 4,373 233 2011 (424) (9,786) 318 (5,788) (1,803) 390 14,151 4,979 522 2012E 83 (8,140) 528 172 1,519 551 15,912 4,787 284 2013E 916 953 613 666 1,945 791 17,169 5,556 678 2014E 979 1,293 747 729 2,225 953 18,369 6,334 788 P/E (x) 2010 48.3 29.6 13.6 - 14.6 9.0 16.0 16.1 36.6 2011 - - 15.1 - - 6.7 12.9 13.7 15.9 2012E 174.2 - 14.1 99.5 18.0 16.4 15.4 16.9 39.1 2013E 12.5 16.9 12.4 24.5 12.8 11.8 13.8 14.8 16.3 2014E 11.7 12.5 10.2 20.9 11.3 10.0 12.6 12.9 14.1 P/B (x) 2010 1.4 0.9 2.9 1.0 1.4 1.6 1.6 3.4 1.5 2011 1.0 0.9 1.7 0.8 1.2 0.9 1.6 3.0 1.3 2012E 1.0 1.2 2.4 0.7 1.7 1.9 2.0 3.2 1.9 2013E 1.0 1.0 2.4 0.7 1.7 1.6 1.9 2.8 1.8 2014E 1.0 0.9 2.1 0.7 1.6 1.1 1.8 2.5 1.6 EV/EBITDA (x) 2010 16.3 4.7 6.0 4.7 6.0 4.9 8.0 9.4 7.4 2011 11.5 7.3 6.6 7.1 13.4 3.4 7.8 7.9 7.0 2012E 7.2 6.0 7.5 3.5 7.8 - 18.7 11.0 11.8 2013E 6.6 5.0 6.4 3.1 6.2 - 17.9 9.1 9.2 2014E 6.3 4.6 5.5 2.8 5.4 - 15.8 8.0 8.0 ROE (%) 2010 11.3 2.8 20.3 (9.4) 9.8 15.7 9.6 21.1 4.0 2011 (3.7) (34.4) 10.0 (20.0) (9.5) 9.3 11.1 23.0 8.3 2012E 0.5 (48.7) 14.4 0.8 6.3 10.6 12.4 19.5 5.9 2013E 7.8 5.9 17.4 3.4 12.9 14.8 13.8 19.9 10.9 2014E 7.7 7.9 19.6 4.5 13.9 13.3 14.8 21.2 11.7Source: Bloomberg, Mirae Asset ResearchNote: LGE’s earnings are Mirae Asset Research estimates; share prices as of 1 March 62Mirae Asset Securities 62
  • 63. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KSFigure 23 LGE TV set/home appliance peers’ historical valuations 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E LG Electronics (066570 KS) EPS KRW 1,517 7,625 2,717 14,197 7,612 (3,132) 422 6,249 6,678 BPS KRW 35,871 43,149 50,011 60,914 76,009 71,303 70,220 75,590 81,343 P/E (x) 36.3 13.1 27.5 8.6 48.3 - 174.2 12.5 11.7 high 36.3 73.2 27.5 54.7 48.3 50.8 174.2 low 13.6 13.1 9.2 8.6 6.5 22.3 13.5 P/B (x) 1.3 2.0 1.3 1.5 1.4 1.0 1.0 1.0 1.0 high 2.2 2.7 3.3 2.6 1.6 1.4 1.6 low 1.2 1.3 1.3 1.2 1.1 0.6 0.7 ROE (%) (3.5) 31.5 14.7 30.2 11.3 (3.7) 0.5 7.8 7.7 Panasonic (6752 JT) EPS US$ 0.9 1.2 (1.8) (0.5) 0.4 (4.2) (3.6) 0.4 0.4 BPS US$ 15.5 17.8 13.5 14.4 14.9 10.1 5.9 7.3 7.3 P/E (x) 23.9 16.3 - - 32.3 - - 16.9 16.9 high 41.1 25.9 18.8 - 32.3 33.7 - low 23.9 17.4 7.6 - 29.6 17.9 - P/B (x) 1.3 1.2 0.8 1.1 0.9 0.9 1.2 1.0 1.0 high 1.7 1.4 1.4 1.1 1.2 1.0 0.9 low 1.2 1.1 0.6 0.8 0.8 0.5 0.5 ROE (%) 5.6 7.4 (11.6) (3.7) 2.8 (34.4) (48.7) 5.9 5.9 Electrolux (ELUXB SS) EPS US$ 1.8 1.5 0.2 1.2 2.0 1.1 1.8 2.1 2.1 BPS US$ 6.2 8.0 6.8 8.5 9.9 9.7 11.1 11.1 11.1 P/E (x) 14.9 10.4 51.6 18.2 13.6 15.1 14.1 12.4 12.4 high 38.0 20.7 51.6 142.4 21.2 15.1 24.7 low 14.9 10.4 5.1 18.2 13.6 6.8 15.4 P/B (x) 3.2 2.1 1.3 2.7 2.9 1.7 2.4 2.4 2.4 high 3.2 4.4 2.0 3.5 3.2 2.9 2.7 low 1.0 2.1 1.0 1.1 2.3 1.4 1.7 ROE (%) 19.7 20.0 2.3 14.8 20.3 10.0 14.4 17.4 17.4 Sony (6758 JT) EPS US$ 1.1 3.2 (1.0) (0.4) (3.0) (5.8) 0.2 0.6 0.6 BPS US$ 28.6 34.6 29.7 31.6 30.7 24.5 21.4 22.2 22.2 P/E (x) 47.5 10.8 - - - - 99.5 24.5 24.5 high 50.2 56.7 16.8 - - - 99.5 low 36.2 16.8 4.7 - - - - P/B (x) 1.8 1.1 0.7 1.2 1.0 0.8 0.7 0.7 0.7 high 1.9 2.1 1.8 0.9 1.2 1.2 0.9 low 1.4 1.5 0.5 0.5 0.8 0.5 0.4 ROE (%) 3.8 10.8 (3.1) (1.4) (9.4) (20.0) 0.8 3.4 3.4 Philips (PHG US) EPS US$ 5.8 6.2 (0.1) 0.6 2.0 (1.9) 1.6 2.2 2.2 BPS US$ 27.4 29.8 23.5 22.6 21.3 17.3 16.8 16.6 16.6 P/E (x) 37.3 6.4 - 41.4 - - 18.0 12.8 12.8 high 36.6 42.3 6.8 - - 16.5 71.1 low 7.7 7.0 2.9 - - 7.9 71.1 P/B (x) 1.4 1.4 0.8 1.3 1.4 1.2 1.7 1.7 1.7 high 2.1 1.6 1.4 1.3 1.7 1.6 1.6 low 1.4 1.3 0.6 0.6 1.3 0.8 1.0 ROE (%) 27.1 21.8 (0.5) 2.7 9.8 (9.5) 6.3 12.9 12.9 Whirlpool (WHR US) EPS US$ 5.8 8.2 5.6 4.4 8.1 5.1 7.0 9.7 9.7 BPS US$ 42.1 51.5 41.2 48.9 55.6 55.0 59.5 69.5 69.5 P/E (x) 12.2 9.3 6.1 13.2 9.0 6.7 16.4 11.8 11.8 high 14.3 17.1 10.7 13.2 18.5 9.3 14.6 low 11.1 9.3 3.5 2.9 9.0 4.6 6.9 P/B (x) 2.0 1.6 1.0 1.7 1.6 0.9 1.9 1.6 1.6 high 3.7 2.8 1.8 2.0 2.3 1.6 1.9 low 2.0 1.6 0.6 0.5 1.5 0.8 0.9 ROE (%) 17.2 17.8 12.1 9.8 15.7 9.3 10.6 14.8 14.8 GE (GE US) EPS US$ 2.0 2.2 1.7 1.0 1.1 1.2 1.5 1.7 1.7 BPS US$ 10.8 11.6 9.9 11.0 11.2 11.0 11.9 12.5 12.5 P/E (x) 10.8 11.6 9.9 11.0 11.2 11.0 15.4 13.8 13.8 high 20.0 16.9 8.4 12.5 16.0 13.1 16.6 low 21.7 22.6 17.5 12.5 16.1 18.9 13.1 P/B (x) 18.2 16.9 5.8 3.5 11.5 12.9 2.0 1.9 1.9 high 3.4 3.2 1.6 1.4 1.6 1.6 2.1 low 3.7 3.9 3.3 1.7 1.8 1.9 1.6 ROE (%) 3.1 3.1 1.1 0.7 1.3 1.3 12.4 13.8 13.8 Source: Bloomberg, Mirae Asset Research 63Mirae Asset Securities 63
  • 64. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KSFigure 24 LGE peers (TV set/home appliance) earnings consensus Company (Code) / US$ m 2Q12 3Q12 4Q12E 1Q13E 2011 2012E 2013E 2014E Panasonic (6752 JT) Sales 22,663 23,193 20,587 19,193 99,441 78,669 81,117 81,585 YoY (%) (4.2) (13.2) (18.8) (19.1) (2.2) (20.9) 3.1 0.6 OP 482 620 341 329 554 1,582 2,675 3,092 YoY (%) 604.9 14.6 (427.1) 522.6 (84.5) 185.4 69.2 15.6 OPM (%) 2.1 2.7 1.7 1.7 0.6 2.0 3.3 3.8 NI 160 (8,877) (192) (503) (9,786) (8,140) 953 1,293 NPM (%) 0.7 (38.3) (0.9) (2.6) (9.8) (10.3) 1.2 1.6 Electrolux (ELUXB SS) Sales 3,997 4,030 4,400 4,071 15,667 16,892 17,566 18,277 YoY (%) 3.6 1.7 4.6 6.2 5.9 7.8 4.0 4.0 OP 166 217 95 143 462 683 874 1,027 YoY (%) 39.1 27.8 4.0 2.3 (48.9) 47.9 27.9 17.5 OPM (%) 4.1 5.4 2.2 3.5 2.9 4.0 5.0 5.6 NI 110 146 174 104 318 528 613 747 NPM (%) 2.7 3.6 4.0 2.6 2.0 3.1 3.5 4.1 Sony (6758 JT) Sales 18,925 20,407 21,988 17,365 82,293 71,980 74,522 75,226 YoY (%) 3.2 0.6 (6.7) (14.0) (2.1) (12.5) 3.5 0.9 OP 78 385 877 734 (853) 1,507 2,087 2,458 YoY (%) (76.8) (1,927.2) (173.9) (4,219.7) (136.5) (276.8) 38.5 17.8 OPM (%) 0.4 1.9 4.0 4.2 (1.0) 2.1 2.8 3.3 NI (308) (197) 253 724 (5,788) 172 666 729 NPM (%) (1.6) (1.0) 1.2 4.2 (7.0) 0.2 0.9 1.0 Philips (PHG US) Sales 7,561 7,665 9,583 7,355 31,439 33,337 32,760 33,937 YoY (%) 0.7 0.6 5.9 (0.0) 6.3 6.0 (1.7) 3.6 OP 434 417 446 429 (375) 1,989 2,932 3,283 YoY (%) 29.9 8.0 (130.3) (25.3) (113.6) (631.0) 47.4 12.0 OPM (%) 5.7 5.4 4.7 5.8 (1.2) 6.0 9.0 9.7 NI 214 211 413 290 (1,803) 1,519 1,945 2,225 NPM (%) 2.8 2.8 4.3 3.9 (5.7) 4.6 5.9 6.6 Whirlpool (WHR US) Sales 4,511 4,495 4,885 4,370 18,666 18,240 18,778 19,547 YoY (%) (4.6) (2.8) (0.5) 0.5 1.6 (2.3) 3.0 4.1 OP 274 276 279 266 928 928 1,317 1,571 YoY (%) 15.6 60.5 (1.3) 11.1 (14.2) 0.0 42.0 19.2 OPM (%) 6.1 6.1 5.7 6.1 5.0 5.1 7.0 8.0 NI 113 74 176 136 390 551 791 953 NPM (%) 2.5 1.6 3.6 3.1 2.1 3.0 4.2 4.9 GE (GE US) Sales 36,108 35,562 38,439 33,794 142,224 146,589 149,355 155,051 YoY (%) 3.2 2.2 1.9 (2.4) (4.2) 3.1 1.9 3.8 OP 4,015 3,413 5,853 5,038 15,855 20,072 22,201 24,148 YoY (%) (1.7) 0.8 34.1 42.7 13.6 26.6 10.6 8.8 OPM (%) 11.1 9.6 15.2 14.9 11.1 13.7 14.9 15.6 NI 3,105 3,491 4,494 3,704 14,151 15,912 17,169 18,369 NPM (%) 8.6 9.8 11.7 11.0 9.9 10.9 11.5 11.8Source: Bloomberg, Mirae Asset Research 64Mirae Asset Securities 64
  • 65. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KS Figure 25 Panasonic (6752 JP) P/E band Figure 26 Panasonic (6752 JP) P/B band (JPY) (JPY) 6,000 Share price 4,000 3,500 4,000 Share price 3,000 2,000 2,500 0 2,000 10x 1,500 (2,000) 20x 2.8x 30x 1,000 40x 2.1x (4,000) 500 1.4x 0 0.7x (6,000) 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 27 Electrolux (ELUXB SS) P/E band Figure 28 Electrolux (ELUXB SS) P/B band (SEK) (SEK) 400 300 Share price 350 Share price 250 300 2.8x 200 250 24x 2.1x 200 150 18x 150 1.4x 12x 100 100 6x 50 0.7x 50 0 0 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 29 Sony (6758 JP) P/E band Figure 30 Sony (6758 JP) P/B band (JPY) (JPY) 20,000 18,000 Share price 16,000 15,000 10,000 14,000 12,000 5,000 10,000 Share price 0 8,000 (5,000) 10x 6,000 20x 2.0x (10,000) 4,000 1.5x 30x (15,000) 2,000 1.0x 0.5x 40x 0 (20,000) 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 65Mirae Asset Securities 65
  • 66. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KS Figure 31 Philips (PHG US) P/E band Figure 32 Philips (PHG US) P/B band (US$) (US$) 250 90 Share price Share price 200 80 70 150 60 100 40x 50 2.8x 50 30x 20x 40 2.1x 0 10x 30 (50) 1.4x 20 (100) 10 0.7x (150) 0 2002 2004 2006 2008 2010 2002 2004 2005 2006 2008 2009 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 33 GE (GE US) P/E band Figure 34 GE (GE US) P/B band (US$) (US$) 70 70 Share price Share price 60 60 50 50 4x 40 40 3x 20x 30 30 15x 2x 20 20 10x 10 10 1x 5x 0 0 2000 2001 2003 2005 2007 2009 2011 2012 2000 2001 2003 2005 2007 2009 2011 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 35 Whirlpool (WHR US) P/E band Figure 36 Whirlpool (WHR US) P/B band (US$) (US$) 200 180 2.8x 160 Share price 150 20x 140 100 15x 2.1x 120 10x 50 100 5x 1.4x 80 0 60 (50) Share price 40 0.7x (100) 20 (150) 0 2000 2001 2003 2005 2007 2009 2011 2012 2000 2001 2003 2005 2007 2009 2011 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 66Mirae Asset Securities 66
  • 67. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KS Figure 37 LGE’s share price, relative to handset peers Figure 38 LGE’s share price, relative to handset peers 1.4 1.6 1.2 1.4 SEC 1.2 Google RIM 1.0 LGE 1.0 Sony 0.8 Nokia Apple 0.8 LGE ZTE 0.6 0.6 HTC HTC 0.4 0.4 0.2 0.2 Feb 12 May 12 Aug 12 Nov 12 Feb 13 Feb 12 May 12 Aug 12 Nov 12 Feb 13 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 39 LGE’s share price, relative to TV set/home appliance peers Figure 40 LGE’s share price, relative to TV set/home appliance peers 1.8 1.6 1.6 Whirlpool Philips 1.4 1.4 1.2 GE 1.2 Electrolux 1.0 1.0 Panasonic 0.8 LGE 0.8 Sony Sony 0.6 0.6 0.4 LGE 0.2 0.4 12-Feb 12-May 12-Aug 12-Nov 13-Feb 12-Feb 12-May 12-Aug 12-Nov 13-Feb Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 67Mirae Asset Securities 67
  • 68. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KS Figure 41 LGE handset peers’ 3M performance Figure 42 LGE handset peers’ YDT performance (%) (%) 90 50 40 70 30 50 20 30 10 10 0 (10) (10) (30) (20) SEC LG E A pple H TC N okia RIM ZTE S ony G oogle SEC LG E A pple H TC N okia RIM ZTE S ony G oogle Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 43 LGE TV/home appliance peers’ 3M performance Figure 44 LGE TV/home appliance peers’ YDT performance (%) (%) 80 50 70 40 60 50 30 40 30 20 20 10 10 0 0 (10) (20) (10) ps l E x GE oc ny ps oo l E x GE oc ny oo lu LG lu LG i li on So ili rlp ro on So Ph rlp ro Ph ct s hi ct s na hi e na W e W El Pa El Pa Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 68Mirae Asset Securities 68
  • 69. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG ElectronicsYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 066570 KSSummary financial statementsProfit & loss Balance sheetYear end Dec 31 (KRWbn) 2011A 2012E 2013E 2014E Year end Dec 31 (KRWbn) 2011A 2012E 2013E 2014ERevenue 54,257 50,960 51,125 53,640 Current assets 15,783 15,451 15,961 16,630Cost of goods sold (42,058) (38,653) (38,517) (40,400) Cash & equivalents 2,345 1,317 1,201 1,188Gross profit 12,199 12,307 12,608 13,241 Short-term financial asset 176 152 158 164SG&A (11,856) (11,191) (11,179) (11,726) Accounts receivable 7,065 7,396 7,749 8,133EBIT (Adj.) 343 1,116 1,429 1,514 Inventory 4,947 5,325 5,579 5,856EBIT 280 1,125 1,429 1,514 Other current assets 1,250 1,262 1,275 1,287Net interest income (loss) (228) (212) (246) (241) Non-current assets 16,875 16,798 17,697 18,542Income (loss) from associates (331) 152 226 226 Net fixed assets 7,290 7,384 7,944 8,436Others (121) (541) (100) (100) Investments 5,729 5,492 5,715 5,947Recurring profit (399) 524 1,309 1,399 Other long-term assets 3,855 3,922 4,038 4,160Income tax (33) (433) (301) (322) Total assets 32,658 32,249 33,659 35,172Net profit (433) 91 1,008 1,077 Current liabilities 14,215 13,573 13,963 14,385Net profit (Controlling Interests) (470) 69 1,023 1,093 Accounts payable 7,360 7,396 7,749 8,133EPS (Controlling Interests, KRW) (3,132) 422 6,249 6,678 Short-term debt 3,192 2,478 2,478 2,478 Other current liabilities 3,663 3,699 3,736 3,774Growth & margins (%) 2011A 2012E 2013E 2014E Non-current liabilities 5,296 5,728 5,777 5,827Revenue growth (2.7) (6.1) 0.3 4.9 Long-term debt 4,258 4,531 4,531 4,531Gross profit growth (0.8) 0.9 2.4 5.0 Other long-term liabilities 1,038 1,197 1,246 1,297EBIT growth 58.8 301.4 27.0 6.0 Total liabilities 19,510 19,301 19,740 20,213Net profit growth TN TP 1,379.1 6.9 Controlling Interests 12,894 12,698 13,669 14,710EPS growth TN TP 1,379.1 6.9 Non-Controlling Interests 254 250 250 250Gross margin 22.5 24.2 24.7 24.7 Shareholders equity 13,148 12,948 13,919 14,959EBIT margin 0.5 2.2 2.8 2.8 BVPS(KRW) 71,303 70,220 75,590 81,343Net profit margin (0.9) 0.1 2.0 2.0Source: LGE, Mirae Asset Research estimates Source: LGE, Mirae Asset Research estimatesCash flow Ratio analysisYear end Dec 31 (KRWbn) 2011A 2012E 2013E 2014E Year end Dec 31 2011A 2012E 2013E 2014ECash flow from operations 1,730 582 1,962 2,080 ROE (%) (3.7) 0.5 7.8 7.7Net profit (433) 91 1,008 1,077 ROA (%) (1.3) 0.3 3.1 3.1Depr. & amortization 1,202 1,306 1,362 1,430 Inventory days 46.9 48.5 51.7 51.7Others 2,020 1,105 (178) (176) Receivables days 48.5 51.8 54.1 54.0Change in working capital (1,060) (1,920) (230) (252) Payable days 64.9 69.7 71.8 71.7Cash flow from investing (2,452) (1,159) (2,041) (2,055) Net debt/equity (%) 37.5 42.8 40.6 37.8Capital expenditures (1,752) (1,089) (1,600) (1,600) Interest cover (x) 1.2 5.3 5.8 6.3Others (700) (70) (441) (455)Cash flow from financing 1,161 (433) (37) (37)Dividends (43) (59) (37) (37)Increase in equity 975 9Increase in debt 228 (383)Beginning cash 1,944 2,345 1,317 1,201Ending cash 2,345 1,317 1,201 1,188Source: LGE, Mirae Asset Research estimates Source: LGE, Mirae Asset Research estimates 69Mirae Asset Securities 69
  • 70. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Handset Yongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Recommendations By stock (12 months) By industry Buy: A target price + 10% or more above the current price, Overweight: over +10% of the current industry index Hold: Target price within - 10% to +10% of the current price Neutral: -10% to +10% of the current industry index Reduce: A target price of –10% or less below the current price Underweight: -10% or less than the current industry index Compliance Notice This report is distributed to our clients only, and none of the report material may be copied or distributed to any other party. While Mirae Asset Securities have taken all reasonable care to ensure its reliability, we do not guarantee that it is accurate or complete. Therefore, Mirae Asset Securities shall not be liable for any result from the use of this report. This report has never been provided to any institutional investor or third party. This report has been prepared without any undue external influence or interference, and accurately reflects the personal views of the analyst on the company herein. [Analyst: Jinho Cho, Yongjei Jeong] Securities Held by the Analyst Holdings of Participation Involvement Treasury Number of Purchase Purchase share of in Issuance of Stock Analyst Type with Affiliates Stock Held Shares Price Date over 1% Securities REMARK: Korean analyst is responsible for Korean securities and relevant sectors only.Target Price and Recommendation Chart Stock Price & Target Price TrendStock PriceTarget Price Samsung Electro-Mechanics (009150 KS) ■ B - Buy■ H - Hold■ R - Reduce 12M target price Date Recommendation (KRW) 2012-11-28 BUY (Initiate) 125,000 140000 B 2013-01-03 BUY 125,000 2013-02-01 BUY 125,000 120000 2013-02-14 BUY 125,000 2013-03-05 BUY 125,000 100000 80000 60000 40000 20000 0 Feb-12 Aug-12 Feb-13 Stock Price & Target Price TrendStock PriceTarget Price LG Electronics (066570 KS) ■ B - Buy■ H - Hold■ R - Reduce 12M target price Date Recommendation (KRW) 100000 B 2012-11-28 HOLD (Initiate) 79,000 90000 2012-12-07 HOLD 79,000 2013-01-03 HOLD 79,000 80000 2013-01-31 HOLD 79,000 70000 2013-02-21 BUY 88,000(Up) 2013-03-05 BUY 88,000 60000 50000 40000 30000 H 20000 10000 0 Dec-11 Jun-12 Dec-12 2Mirae Asset Securities
  • 71. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com HandsetYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Hong Kong Compliance Disclosures The views expressed in this report accurately reflect the personal views of the analysts about the subject securities, issuer(s) or new listing applicant(s). Each Hong Kong analyst declares that neither he/she nor his/her associate serves as an officer or has any financial interests in relation to the issuer(s) or new listing applicant(s) reviewed by the analyst. None of the issuer(s) or the new listing applicant(s) reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analysts of Mirae Asset Securities (HK) Limited (“MASHK”). 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  • 72. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com HandsetYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com officers, directors and employees do not accept any liability whatsoever for any direct or consequential loss arising from the use of the contents of this report. Investments in general and, derivatives, in particular, involve numerous risks, including, inter alia, market risk, counterparty default risk and liquidity risk. The price of securities may go up as well as down. It may include the possibility of the invested capital loss. The past performance presented is not indicative of future performance. In some cases, securities and other financial instruments may be difficult to value or sell and reliable information about the value or risks related to the security or financial instrument may be absent. The investment(s) mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from an independent financial adviser regarding the suitability of such investment(s), taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to purchase any of such investment(s). The suitability of any particular investment or strategy whether opined on, or referred to in this report or otherwise will depend on a person’s individual circumstances and objectives and should be confirmed by such person with his advisers independently before adoption or implementation thereof. Copyright January 2012 MAS Group. All rights reserved. 4Mirae Asset Securities

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