130305 mirae handsets-into the storm

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%

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

Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com
Yongjei 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.

22
Mirae Asset Securities


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

33


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.

44


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 52.8
Source: Gartner, IMF, Mirae Asset Research

55


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

66


Figure 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 25.8
Source: Bloomberg, Mirae Asset Research
Note: Mirae Asset estimates for LGE and SEC (share price data as of 1 March 2013)

77


Figure 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 10.2

88


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

99


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


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


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


10
10


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


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


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


11
11


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


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


12
12


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
13


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


14
14


2. Chinese peers to expand local market share on reinforced competitiveness
Chinese smartphone makers Based on developments witnessed at this year’s MWC, we expect China’s top-three
to expand local market smartphone makers, i.e. ZTE, Huawei and Lenovo, to show visible progress in 1H13, as they
share in 1H13, backed by:
1) reinforced hardware aim to expand their local market shares. With the three Chinese companies (ZTE, Huawei, and
competitiveness; 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 2012-12-12
Source: Company data, PhoneArena, Mirae Asset Research

15
15


Figure 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 2013.02.09

16
16


Figure 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 3.0
Source: Mirae Asset Research Source: Mirae Asset Research

…and 3) wider telecom Buoyed by reinforced hardware/software competitiveness and reduced production costs, the
carrier 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 2012-12

17
17


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
18


Figure 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 999
Source: China Mobile, Mirae Asset Research

19
19


Figure 43 China Telecom’s smartphone sales in 1Q13
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 990
Source: China Telecom, Mirae Asset Research

20
20


Figure 44 China Unicom’s smartphone sales in 1Q13
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
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 2,888
Source: China Unicom, Mirae Asset Research

21
21


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


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
22


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 SEC's 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
23


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
24


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
25


4. Smartphone industry paradigm returning to identity and ecosystem
Smartphone industry At this year’s MWC, we noted that handset suppliers are focusing on building the identities of
paradigm returning to their new flagship models through UX and killer applications, while seeking to develop an
identity 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. 2013.1Q

Efforts to develop With platforms rising as a key element in competition this year, smartphone makers are likely
alternative platforms to to expand efforts to diversify smartphone OS. As such, market attention should once again
drive up R&D costs, raising
the cost burden for second focus on the competitiveness of SEC (relatively less burdened by development costs), Apple
tiers with higher fixed cost and RIM (companies offering proprietary platforms). For Android smartphones, the process of
portions ‘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
26


Figure 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 2013.2H

Figure 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


27
27


SEC’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 Barnes
2013, likely to emerge as
the 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 its
mini’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 2013.1Q
Source: LGE, PhoneArena, Mirae Asset Research

28
28


*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 HTC's 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 Sony's 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
29


*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 Nokia's 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. 2013.1Q
Source: 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 Lenovo's 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 2013.1Q
Source: Lenovo, PhoneArena, Mirae Asset Research

30
30


*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 ZTE's 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 2013.1Q
Source: 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 Huawei's 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 2013.2Q
Source: Huawei, PhoneArena, Mirae Asset Research

31
31


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
32


Ⅲ. Appendix
1. 1Q13E smartphone peers’ earnings guidance & consensus

Figure 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 Motorola's 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 Research
Note: Share price data as of 1 March 2013

33
33


Figure 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)
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)
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)
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)
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)
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)
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 34.1

34
34


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


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


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


35
35

Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Handset
Yongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com

3. Handset market share by vendor in 2012

Figure 75 Apple’s handset shipment market share in 4Q12


Mirae Asset Securities 36

36


4. Smartphone market share by vendor in 2012

Figure 76 Apple’s smartphone shipment market share in 4Q12



37


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%


Figure 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 Research

Figure 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
38


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
39

Korea Research

Company 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

Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com Samsung Electro-Mechanics
Yongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com 009150 KS

Figure 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 10.9

Figure 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) 95,500
Source: SEMCO, Mirae Asset Research

Figure 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 76

41


Figure 4 SEMCO’s P/B band

(KRW '000) Increasing demand for ASPs of LED 2Q11 earnings below Release of
MLCC, with SEMCO's 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


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)


42


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


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


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


43


Figure 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 6.4
Note: SEMCO’s earnings are Mirae Asset Research estimates; share prices as of 1 March

44


Figure 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 6.4

45


Figure 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 7.0

46


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


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


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


47


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


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


48


Figure 25 SEC’s smartphone market share in 4Q12

(‘000 units)


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

49


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

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

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


50


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 Research

Figure 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. TBA
Source: 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

51


Figure 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 unit

52


Summary financial statements
Profit & loss Balance sheet
Year end Dec 31 (KRWbn) 2011A 2012E 2013E 2014E Year end Dec 31 (KRWbn) 2011A 2012E 2013E 2014E
Revenue 6,032 7,913 8,773 9,865 Current assets 3,697 2,805 3,103 3,718
Cost of goods sold (5,050) (6,524) (7,242) (8,145) Cash & equivalents 526 671 947 1,331
Gross profit 981 1,389 1,531 1,721 Short-term financial asset 27 25 26 27
SG&A (704) (809) (872) (981) Accounts receivable 882 1,200 1,248 1,388
EBIT (Adj.) 278 580 659 740 Inventory 760 820 821 913
EBIT 321 608 659 740 Other current assets 1,502 90 61 58
Net interest income (loss) (35) (33) (31) (29) Non-current assets 3,632 4,344 4,372 4,409
Income (loss) from associates 0 (4) 0 0 Net fixed assets 2,278 2,698 2,728 2,750
Others 79 13 (52) (52) Investments 1,242 1,338 1,392 1,449
Recurring profit 364 584 576 659 Other long-term assets 112 308 252 210
Income tax (56) (165) (133) (151) Total assets 7,329 7,150 7,474 8,127
Net profit 392 446 444 507 Current liabilities 2,711 2,104 2,028 2,217
Net profit (Controlling Interests) 349 438 431 492 Accounts payable 605 800 847 942
EPS (Controlling Interests, KRW) 4,679 5,862 5,765 6,586 Short-term debt 1,096 954 954 954
Other current liabilities 1,011 350 228 321
Growth & margins (%) 2011A 2012E 2013E 2014E Non-current liabilities 742 1,056 1,070 1,085
Revenue growth 6.7 31.2 10.9 12.5 Long-term debt 495 687 687 687
Gross profit growth (16.1) 41.5 10.2 12.4 Other long-term liabilities 247 369 383 398
EBIT growth (35.6) 89.6 8.4 12.2 Total liabilities 3,453 3,159 3,098 3,302
Net profit growth (37.0) 25.3 (1.7) 14.2 Controlling Interests 3,507 3,922 4,308 4,756
EPS growth (37.0) 25.3 (1.7) 14.2 Non-Controlling Interests 368 68 68 68
Gross margin 16.3 17.6 17.4 17.4 Shareholder's equity 3,876 3,991 4,376 4,825
EBIT margin 5.3 7.7 7.5 7.5 BVPS(KRW) 45,198 50,542 55,511 61,294
Net profit margin 5.8 5.5 4.9 5.0

Source: SEMCO, Mirae Asset Research estimates Source: SEMCO, Mirae Asset Research estimates

Cash flow Ratio analysis
Year end Dec 31 (KRWbn) 2011A 2012E 2013E 2014E Year end Dec 31 2011A 2012E 2013E 2014E
Cash flow from operations 473 1,221 1,196 1,306 ROE (%) 10.0 11.8 10.5 10.9
Net profit 392 446 444 507 ROA (%) 5.5 6.2 6.1 6.5
Depr. & amortization 664 592 833 826 Inventory days 54.7 44.2 41.3 38.9
Others 108 88 14 14 Receivables days 52.1 48.0 50.9 48.8
Change in working capital (691) 96 (95) (41) Payable days 45.7 39.3 41.5 40.1
Cash flow from investing (973) (918) (861) (863) Net debt/equity (%) 26.8 23.7 15.3 5.9
Capital expenditures (1,070) (1,072) (800) (800) Interest cover (x) 9.2 18.3 21.3 25.2
Others 97 153 (61) (63)
Cash flow from financing 315 (200) (58) (58)
Dividends (88) (58) (58) (58)
Increase in equity
Increase in debt 471 (96)
Beginning cash 695 526 671 947
Ending cash 526 671 947 1,331
Source: SEMCO, Mirae Asset Research estimates Source: SEMCO, Mirae Asset Research estimates

53

Korea Research

Industry 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

Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.com LG Electronics

Figure 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 2013.1Q

Figure 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.Q1

Figure 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 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 2013.1Q

55


Figure 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




Source: LGE, SEC, PhoneArena, Mirae Asset Research

Figure 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)


131.7x68.2x9.6mm Dimension 143.5x76.9x9.6mm

TBA Weight 162g



8M (1.3M) Main camera (front) 8M (2M)


Figure 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)


121.5x66.6x9.7mm Dimension 121.5x63x9.8mm

TBA Weight 112g





56


Figure 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 2.0

Figure 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 579 582 588 549 551 528 520 516 529 572 527 484

57


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

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

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


58


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


Figure 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 4,874
Source: 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

59


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

60


Figure 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
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
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
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
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 Bundle 69.99 Marquee 19.99
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 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
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
Spectrum2 LTE 79.99 Optimus G LTE 99.99 Optimus Elite 29.99
Intuition LTE 149.99 Optimus S 0
Mach LTE 49.99
Source: AT&T, Verizon, Sprint, Mirae Asset Research

61


Figure 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 11.7
Note: LGE’s earnings are Mirae Asset Research estimates; share prices as of 1 March

62


Figure 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

63


Figure 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 11.8

64


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


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


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


65


Figure 31 Philips (PHG US) P/E band Figure 32 Philips (PHG US) P/B band

(US$) (US$)
250 90
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


Figure 33 GE (GE US) P/E band Figure 34 GE (GE US) P/B band
(US$) (US$)
70 70

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


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


66


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


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


67


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


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


68


Summary financial statements
Profit & loss Balance sheet
Year end Dec 31 (KRWbn) 2011A 2012E 2013E 2014E Year end Dec 31 (KRWbn) 2011A 2012E 2013E 2014E
Revenue 54,257 50,960 51,125 53,640 Current assets 15,783 15,451 15,961 16,630
Cost of goods sold (42,058) (38,653) (38,517) (40,400) Cash & equivalents 2,345 1,317 1,201 1,188
Gross profit 12,199 12,307 12,608 13,241 Short-term financial asset 176 152 158 164
SG&A (11,856) (11,191) (11,179) (11,726) Accounts receivable 7,065 7,396 7,749 8,133
EBIT (Adj.) 343 1,116 1,429 1,514 Inventory 4,947 5,325 5,579 5,856
EBIT 280 1,125 1,429 1,514 Other current assets 1,250 1,262 1,275 1,287
Net interest income (loss) (228) (212) (246) (241) Non-current assets 16,875 16,798 17,697 18,542
Income (loss) from associates (331) 152 226 226 Net fixed assets 7,290 7,384 7,944 8,436
Others (121) (541) (100) (100) Investments 5,729 5,492 5,715 5,947
Recurring profit (399) 524 1,309 1,399 Other long-term assets 3,855 3,922 4,038 4,160
Income tax (33) (433) (301) (322) Total assets 32,658 32,249 33,659 35,172
Net profit (433) 91 1,008 1,077 Current liabilities 14,215 13,573 13,963 14,385
Net profit (Controlling Interests) (470) 69 1,023 1,093 Accounts payable 7,360 7,396 7,749 8,133
EPS (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 3,774
Growth & margins (%) 2011A 2012E 2013E 2014E Non-current liabilities 5,296 5,728 5,777 5,827
Revenue growth (2.7) (6.1) 0.3 4.9 Long-term debt 4,258 4,531 4,531 4,531
Gross profit growth (0.8) 0.9 2.4 5.0 Other long-term liabilities 1,038 1,197 1,246 1,297
EBIT growth 58.8 301.4 27.0 6.0 Total liabilities 19,510 19,301 19,740 20,213
Net profit growth TN TP 1,379.1 6.9 Controlling Interests 12,894 12,698 13,669 14,710
EPS growth TN TP 1,379.1 6.9 Non-Controlling Interests 254 250 250 250
Gross margin 22.5 24.2 24.7 24.7 Shareholder's equity 13,148 12,948 13,919 14,959
EBIT margin 0.5 2.2 2.8 2.8 BVPS(KRW) 71,303 70,220 75,590 81,343
Net profit margin (0.9) 0.1 2.0 2.0

Source: LGE, Mirae Asset Research estimates Source: LGE, Mirae Asset Research estimates

Cash flow Ratio analysis
Year end Dec 31 (KRWbn) 2011A 2012E 2013E 2014E Year end Dec 31 2011A 2012E 2013E 2014E
Cash flow from operations 1,730 582 1,962 2,080 ROE (%) (3.7) 0.5 7.8 7.7
Net profit (433) 91 1,008 1,077 ROA (%) (1.3) 0.3 3.1 3.1
Depr. & amortization 1,202 1,306 1,362 1,430 Inventory days 46.9 48.5 51.7 51.7
Others 2,020 1,105 (178) (176) Receivables days 48.5 51.8 54.1 54.0
Change in working capital (1,060) (1,920) (230) (252) Payable days 64.9 69.7 71.8 71.7
Cash flow from investing (2,452) (1,159) (2,041) (2,055) Net debt/equity (%) 37.5 42.8 40.6 37.8
Capital expenditures (1,752) (1,089) (1,600) (1,600) Interest cover (x) 1.2 5.3 5.8 6.3
Others (700) (70) (441) (455)
Cash flow from financing 1,161 (433) (37) (37)
Dividends (43) (59) (37) (37)
Increase in equity 975 9
Increase in debt 228 (383)
Beginning cash 1,944 2,345 1,317 1,201
Ending cash 2,345 1,317 1,201 1,188
Source: LGE, Mirae Asset Research estimates Source: LGE, Mirae Asset Research estimates

69


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

2


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”). MASHK and/or its
employees may participate or invest in financing transactions with the covered issuer(s) and new listing applicant(s), referred to in this research report,
perform financial and business services for or solicit investment banking business from such covered issuer(s) and new listing applicant(s), and/or have a
proprietary trading position or effect transactions in the securities or other financial instruments and related derivatives of covered issuer(s) or new listing
applicant(s) thereon. MASHK confirms that it (i) does not own 1% or more aggregate financial interests of market capitalization in any of the issuer(s) or new
listing applicant(s) reviewed; (ii) has no investment banking relationship with the issuer(s) or new listing applicant(s) covered within the preceding 12 months;
(iii) does not involve in market making activities in the securities of the covered issuer(s) or new listing applicant(s); or (iv) does not have any Individual
employed by or associated with MASHK serving as an officer of any issuer(s) or new listing applicant(s) reviewed. The aforesaid “Individual” means (i) any
individual employed by MASHK in accordance with whose directions or instructions the analyst is accustomed or obliged to act; (ii) employed by MASHK who
has influence on the subject matter or content, or the timing of distribution, of research report; or (iii) who is responsible for determining the remuneration of
the analyst.
This disclosure statement and above terms’ interpretations are made and defined pursuant to paragraph 16 of the “Code of Conduct for Persons Licensed by
or Registered with the Securities and Futures Commission”.
Disclaimers
This report is originally prepared by MASHK and/or Mirae Asset Securities Co. Ltd. (“MAS”) for distribution to their accredited professional and institutional
investor customers. It is not directed to, or intended for distribution to or use by any person or entity, who is a citizen or resident of or located in any other
jurisdiction, where the distribution, publication, availability or use would be contrary to such law or regulation or which would restrict MAS, MASHK or its
subsidiaries and affiliates (collectively “MAS Group”) to any registration or licensing requirement within such jurisdictions. It is not permitted to alter, transmit,
copy or distribute any materials, contents and copies of this report to any other persons or entity without the prior express written permission of MAS Group.
MAS Group owns all property rights of trademarks, service marks and logos used in this report.
The information, opinion and material presented in this report are provided for general information purposes only. This document is not and should not be
construed as an offer or the solicitation of an offer to sell, buy or subscribe for any investments of securities, financial instruments or related derivatives. MAS
Group may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. The contents of this report
do not constitute investment advice to any person and such person shall not be treated as a customer of MAS Group by virtue of receiving this report.
Information and opinions presented in this report have been obtained or derived from sources believed by MAS Group to be reliable, but MAS Group makes no
representation or warranty, express or implied as to their accuracy, fairness or completeness and MAS Group accepts no liability for any direct or
consequential loss arising from the use of the material presented in this report unless such liability arises under specific statutes or regulations. This report is
not to be relied upon in substitution for the exercise of independent judgment. MAS Group may have other issued reports that are inconsistent with, and reach
different conclusions from, the information presented in this report. This report reflects the different assumptions, views and analytical methods of the
analysts who prepared them. For the avoidance of doubt, views expressed in this report do not necessarily represent those of MAS Group and may not imply
comparable future performance. This report may provide the addresses of, or contain hyperlinks to, various websites. To the extent that this report refers to
material outside MAS Group’s own website, MAS Group has not reviewed the linked sites and takes no responsibility for the content contained therein. Such
address or hyperlink (including addresses or hyperlinks to MAS Group own website material) is provided solely for your convenience and information and the
content of the linked sites does not in any way form part of this report. Accessing such websites shall be at your own risks.
MAS Group may, to the extent permitted by law, participate or invest in financing transactions with the covered issuer(s) or the new listing applicant(s)
referred to in this report, perform various services for or solicit business from such covered issuer(s) or new listing applicant(s), have proprietary trading
position or effect transactions in the securities or other financial instruments and derivatives of the covered issuer(s) and new listing applicant(s) thereon.
MAS Group may have investments less than 1% in securities, financial instruments or derivatives of reviewed issuer(s) and new listing applicant(s) that may
trade them in different ways from those discussions in the reports. Employees of MAS Group who were not involved in the preparation of this report may have
investments in securities, financial instruments or derivatives of reviewed issuer(s) or the new listing applicant(s) and also may trade in different ways from
those discussions in the reports. MAS Group may, to the extent permitted by law, act upon or use the information or opinions presented herein, or the
research or analysis on which they are based, before the material is published. MAS Group, its officers or directors and the analysts preparing the report may
have relationships with, financial interests in or business relationships with any or all of the covered issuer(s) and new applicant(s) mentioned in this report. As
a result of abovementioned matters, you should be aware that MAS Group may have a conflict of interest that could affect the objectivity of MAS Group’s
research reports. You should consider the research produced by MAS Group as only a single factor in making your investment decisions.
Information, opinions and estimates are provided on an “as if” basis without warranty of any kind and may be changed at any time without prior notice. There
can be no assurance that future events or results will be consistent with any such opinion. Nothing in this report constitutes investment, legal, accounting or
tax advice nor a representation that any investment or strategy is suitable or appropriate to your individual circumstances. Nothing in this report constitutes a
personal recommendation to you.
This report has been prepared by the research analyst(s) who are licensed and regulated by the Securities and Futures Commission in Hong Kong or Korea
Financial Investment Association in Korea who are not associated persons of any issuers or new listing applicants mentioned in this report. These research
analysts are not registered as research analysts with FINRA or the NYSE, but instead have satisfied the registration requirements of Hong Kong or Korean
standards. These research analysts may not be associated persons of Mirae Asset Securities (USA) Inc. and may not be subject to FINRA Rule 2711 and NYSE
Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. This report is
prepared by MASHK for distribution in Hong Kong; in Korea by the holding company named MAS; in Vietnam by the joint venture company named Mirae Asset
Securities (Vietnam) Joint Stock Company; in the United Kingdom by the subsidiary named Mirae Asset Securities (UK) Ltd; in the United States by the
subsidiary named Mirae Asset Securities (USA) Inc; and in the People’s Republic of China by the subsidiary named Mirae Asset (Shanghai) Investment
Consulting Co., Ltd..
This information may only be issued or passed on to any person in the United Kingdom if that person is of a kind described in Article 19.5 of the Financial
Services and Markets Act 2000 (Financial Promotions) Order 2001 or otherwise pursuant to exemptions to section 21 of the Financial Services and Market Act
2000. In addition, no person who is an authorised person may issue or pass on this information, or otherwise promote MAS Group, to any person in the United
Kingdom other than under the rules of the Financial Services Authority applicable to such authorised persons. This report and any information, material and
contents herein are intended for general circulation only and do not take into account the specific investment objectives, financial situation or particular needs
or any particular person.
Any United States recipient of this report that would like further information regarding any security discussed herein should contact Mirae Asset Securities
(USA) Inc. Furthermore, any recipient of this report that would like to effect any transaction in any security discussed herein should contact and place the
orders with Mirae Asset Securities (USA) Inc. which, without in any way limiting the foregoing, accepts responsibility (solely for purposes of and within the
meaning of Rule 15a-6 under the SEC Act of 19.534) for this report and its dissemination in the United States.
If this report is being distributed by a financial institution other than MAS Group, that financial institution should take sole responsibility for its distribution. This
kind of report recipients should effect transactions in the securities mentioned in this report or require further information though such financial institution.
This report does not constitute investment advice by MAS Group to that kind of report recipients of the distributing financial institution. MAS Group and its

3


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.

4

130305 mirae handsets-into the storm

More Related Content

What's hot

Viewers also liked

Similar to 130305 mirae handsets-into the storm

More from MTKDMI

130305 mirae handsets-into the storm