Korean Discount Chun Hobin Kim Jaesun Park Jungho TEAM 5

 Introduction Problem of Korean Discount  Body Reasons  Conclusion Solutions & Recommendation Contents

2001 PER2008 PER MSCI world Emerging Markets Asia (Ex-Japan) Emerging Europe Latin America Korea Merrill Lynch August 3, 2001 Analyst’s Report Hana Securites May 5, 2008 Stocks in Morgan Stanley Capital International(MSCI) Korean Discount

NationPERS&P Sovereign Credit Rating Moody’s Sovereign Credit Rating Brazil11.2BBB-Ba2 Chile15.6BBBA2 China14.2AA2 Hong Kong16.7AAAA2 Korea11.2AA2 India16.7BBBBaa3 Taiwan13.4AA-Aa3 United States13.9AAAAaa Singapore13.5AAAAaa Japan13.2AAAaa 1) PER – MSCI May ) Moody's Rating - Country ceiling long-term foreign currency bond rating ) S&P rating - Sovereign rating 2008 PER & Sovereign Credit Rating

 2007 Operating Profit(E) – 594 Billion KRW  2008 Operating Profit(E) – 987 Billion KRW  2007 Debt ratio – 26.50%  2008 Debt ratio(E) – 25.23%  2007 PER –  2008 PER(E) – Samsung Electronics

CompanyNationMarket ShareSales(US$Mn.)2007 EPS SamsungKorea 25.2%1,933$43 HynixKorea23.3%1,529$0.7 QimondaGermany12.9%992-$7.1 ElpidaJapan12.6%905-$ MicronUSA11.2%828-$1.84 DRAMeXchange, November 2007 Reuters Competitors

 Influence on Sovereign Credit Rating 0.35 % interest rate difference by 1 level Foreign Exchange Equalization Fund  Vulnerability to Hostile Takeover ex) SK versus Sovereign Global  Underestimation of corporate value Problems

 Political Problems 1) North Korea 2) Government Regulations 3) Militant labor union & Anti-FI culture  Economic problems 1) Corporate Governance 2) Accounting Principle 3) Low Dividend Yield Reasons

 Cross Share holding  Illegal Insider Trading Corporate Governance

Samsung Group

 Window dressing settlement SK global  Different from Global Standard IFRS versus K-GAAP Accounting Standards

0801Country Opacity ScoreAccounting Corporate Governance Opacity 11Finland91 22Hong Kong121 33Singapore14 44Sweden151 55Australia151 66Denmark Austria Japan Taiwan Brazil India South Korea3130 Milken Institute, 2008 Opacity Index by Milken Institute

NationDividend Yield 1Taiwan4.06% 2Thailand3.37% 3Hong Kong3.36% 4Malaysia2.76% 5China1.82% 6South Korea1.5% 7Japan1.28% 8India0.81% Hanhwa Securities, 2008 Low Dividend Yield

 Deregulation  Change of militant labor and Anti-Foreign Capital culture  Deal with North Korea Risk Solutions for Political reasons

 Improvement on Corporate Governance Transformation to Holdings Company Division between Ownership and Management ex) LG  Introduction to IFRS  Change of Anti-Shareholder culture and policy Solutions for Economic reasons

LG (Before transforming to Holding Company) LG Electronics LG Chemical LG Cable LG International Corps LG Securites LG Petrochemical LG Card LG Caltex LG Retail LG IT LG Telecom Goo & Huh’s Families LG Home shopping

LG GS Chemical Retail Home shopping Chemi cal Electr onics Dacom Telecom … Holdings Company Structure … LS LG Holdings April PER 3.9 7,760 won June 2008 – PER ,200 won

 Some of Top 30 Chaebols declared transformation to Holdings Company 2007 – Kumho, CJ, SK, Hanjin, Dongyang 2008 – Doosan  Introduction to IFRS LG, Samsung Electronics 2011 – All Korean Companies Recommendation

 Momentum to increase corporate value & Competitiveness of each son company  Easy M&A(Global & Domestic)  Power shift from Owner to Shareholders  Division between Ownership and Management -> Good Chance to Invest Paradigm Shift from 70s Model to new Model Recommendation