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Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. Media/Telecom Service The world of pay TV Pay TV: Important to both media and telecom industries As part of the media industry’s value chain, pay-TV operators provide broadcast services and distribute content. Thanks to their monthly (fixed-sum) subscription systems, pay- TV service providers enjoy steady cash flows, just as telecom companies (which use similar fee structures) do. The pay TV business model, therefore, helps ensure stability amid the media industry’s rapid changes. We have noted the growing importance of media businesses within the telecom service industry. Faced with stagnant population growth, domestic media and telecom firms have had to actively diversify their subscriber-based businesses to ensure additional growth. Fortunately, the switch from analog to digital broadcasting has allowed such firms to diversify their sources of revenue, including VOD revenue from pay-TV subscribers, and N-screen subscription and mobile data revenue from wireless subscribers. Time for a turnaround In Korea, pay-TV service providers’ combined net profit has trended down steadily for the past three years, as intense competition for new subscribers amid the transition to digital broadcasting has resulted in lower ARPU and higher costs. However, it is worth remembering that in the US, pay-TV operators—whose ARPU increased only modestly during the digital conversion—saw a sharp increase in ARPU and accelerated cash flow after the digital transition ended and the industry consolidated via M&As. We believe the Korean pay-TV industry has reached a positive inflection point. The digital transition is coming to an end, and corporate M&As and policy support could provide a tailwind for the industry, helping to ease market competition. Moreover, business models are diversifying, and earnings are anticipated to expand YoY on a low base of comparison (due to one-off expenses recognized last year). Maintain Overweight; Key recommendations are SK Telecom and KT Skylife We maintain our Overweight stance on media and telecom services. Our key recommendations are SK Telecom (SKT) and KT Skylife, which stand to benefit, respectively, from growing personalization and improving picture quality in TV broadcasts, and which also offer attractive dividends. Considering SKT’s plan to own SK Broadband in its entirety, mobile momentum is likely to drive its media business. As for KT Skylife, we raise our target price in light of expected positive changes in the business environment after uncertainties lift. We also raise our target price for KTH and Nasmedia, which are aiding the expansion of the pay-TV business. Overweight (Maintain) Industry Report April 23, 2015 Daewoo Securities Co., Ltd. [Telecom Service / Media] Jee-hyun Moon +822-768-3615 [email protected] Market value of pay-TV operators expected to increase, backed by improving domestic pay-TV business environment and earnings recovery Notes: SK Broadband, CJ HelloVision, and KT Skylife combined Source: Company data, KDB Daewoo Securities Research 2,500 3,000 3,500 4,000 4,500 50 100 150 200 250 2011 2012 2013 2014 2015F 2016F (Wbn) (Wbn) Major pay-TV operators' combined net profit (L) Major pay-TV operators' combined market cap (R) - Depreciation on digital conversion - Marketing expenses - Fall in ARPU with expansion of bundled products - KT Skylife: One-off lawsuit cost - CJ HelloVision: Loss on disposable assets - Digital conversion nearing end - Slowing fall in ARPU - Removal of one-off costs - More room for dividends with FCF recovery
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The World of Pay TV

Apr 11, 2017

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Jeehyun Moon
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Page 1: The World of Pay TV

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

Media/Telecom Service The world of pay TV

Pay TV: Important to both media and telecom industries

As part of the media industry’s value chain, pay-TV operators provide broadcast services

and distribute content. Thanks to their monthly (fixed-sum) subscription systems, pay-

TV service providers enjoy steady cash flows, just as telecom companies (which use

similar fee structures) do. The pay TV business model, therefore, helps ensure stability

amid the media industry’s rapid changes.

We have noted the growing importance of media businesses within the telecom service

industry. Faced with stagnant population growth, domestic media and telecom firms

have had to actively diversify their subscriber-based businesses to ensure additional

growth. Fortunately, the switch from analog to digital broadcasting has allowed such

firms to diversify their sources of revenue, including VOD revenue from pay-TV

subscribers, and N-screen subscription and mobile data revenue from wireless

subscribers.

Time for a turnaround

In Korea, pay-TV service providers’ combined net profit has trended down steadily for

the past three years, as intense competition for new subscribers amid the transition to

digital broadcasting has resulted in lower ARPU and higher costs. However, it is worth

remembering that in the US, pay-TV operators—whose ARPU increased only modestly

during the digital conversion—saw a sharp increase in ARPU and accelerated cash flow

after the digital transition ended and the industry consolidated via M&As.

We believe the Korean pay-TV industry has reached a positive inflection point. The

digital transition is coming to an end, and corporate M&As and policy support could

provide a tailwind for the industry, helping to ease market competition. Moreover,

business models are diversifying, and earnings are anticipated to expand YoY on a low

base of comparison (due to one-off expenses recognized last year).

Maintain Overweight; Key recommendations are SK Telecom and KT Skylife

We maintain our Overweight stance on media and telecom services. Our key

recommendations are SK Telecom (SKT) and KT Skylife, which stand to benefit,

respectively, from growing personalization and improving picture quality in TV

broadcasts, and which also offer attractive dividends. Considering SKT’s plan to own SK

Broadband in its entirety, mobile momentum is likely to drive its media business. As for

KT Skylife, we raise our target price in light of expected positive changes in the business

environment after uncertainties lift. We also raise our target price for KTH and

Nasmedia, which are aiding the expansion of the pay-TV business.

Overweight (Maintain)

Industry Report

April 23, 2015

Daewoo Securities Co., Ltd.

[Telecom Service / Media]

Jee-hyun Moon

+822-768-3615

[email protected]

Market value of pay-TV operators expected to increase, backed by improving domestic

pay-TV business environment and earnings recovery

Notes: SK Broadband, CJ HelloVision, and KT Skylife combined

Source: Company data, KDB Daewoo Securities Research

2,500

3,000

3,500

4,000

4,500

50

100

150

200

250

2011 2012 2013 2014 2015F 2016F

(Wbn)(Wbn) Major pay-TV operators' combined net profit (L)

Major pay-TV operators' combined market cap (R)

- Depreciation on digital conversion- Marketing expenses - Fall in ARPU with expansion of bundled products- KT Skylife: One-off lawsuit cost- CJ HelloVision: Loss on disposable assets

- Digital conversion nearing end- Slowing fall in ARPU- Removal of one-off costs- More room for dividends with FCF

recovery

Page 2: The World of Pay TV

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KDB Daewoo Securities Research

KDB Daewoo Securities Research

C O N T E N T S

Pay TV set to turn around 3

1. The most stable business model in the media space 3

2. Investment strategy: Time to consider overweighting pay-TV service providers 5

Industry trends at home and abroad 6

1. Slowly changing market 6

2. Consolidation: Still too many players 8

3. Switch to digital broadcasting nearing completion 11

4. Platform revenue: Leveraging tool 13

5. Regulatory and policy issues 15

Domestic market outlook 17

1. Consolidation: Four conglomerates to be dominant 17

2. Digital broadcasting: Mobile is key 19

3. Business models: Diversification 22

4. Expectations for policy tailwinds 26

5. Potential expansion of foreign capital 27

Valuation 28

1. Valuation gap with global peers narrowing 28

2. Expectations for dividends 29

Key Recommendations 30

SK Telecom (017670 KS) 31

KT Skylife (053210 KS) 39

CJ HelloVision (037560 KS) 44

KT (030200 KS) 48

LG Uplus (032640 KS) 52

KT Hitel (036030 KQ) 56

Nasmedia (089600 KQ) 59

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KDB Daewoo Securities Research

KDB Daewoo Securities Research

Pay TV set to turn around

1. The most stable business model in the media space

(1) Digital conversion bringing new opportunities

Pay TV offers the most stable business model in the media segment. Pay-TV operators use

infrastructure (cable or internet networks) and distribution platforms to deliver content to

viewers. Monthly subscription systems (using fixed-term contracts) allow pay-TV operators to

enjoy stable revenue irrespective of changes in market conditions (a characteristic they share with

telecom service providers).

Currently, most monthly subscribers tend to use their subscriptions in combination with pay-per-

view (PPV). In the analog age, monthly subscriptions were the dominant source of revenue and

business growth, along with fees charged to home-shopping companies and commissions

collected from advertisers.

Now, the transition to digital broadcasting is offering more business opportunities to pay-TV

service providers. Besides monthly subscriptions, VOD revenue is growing (up to 20% of total

broadcast revenue for CJ HelloVision last year). Increasingly, VOD platforms are generating

revenue from related advertising, and there has also been a rise in T-commerce (data

broadcasting–based transactions). Alongside this business diversification, domestic pay-TV stocks

are rebounding gradually after the sluggishness caused by the digital transition and intensified

competition.

Figure 1. Relative share performances of global pay-TV operators: Korea has just joined the trend

Source: Thomson Reuters, KDB Daewoo Securities Research

Figure 2. Domestic pay-TV value chain and business model

Source: KDB Daewoo Securities Research

40

60

80

100

120

140

1/14 3/14 5/14 7/14 9/14 11/14 1/15 3/15

(1/2014=100) CJ HelloVision (KR) KT Skylife (KR)Charter (US) Time Warner Cable (US)Comcast (US) DirecTV (US)Dish Network (US) Sky Perfect JSAT (JP)

Product ion/

programmingDevice

Content provider

- Ter restr ia l

- Program provider

Cost Revenue

Subscr iber

Revenue Revenue

Adver t isers

Home shopping/

T -commerce

operators

Pay TV

- Cable SOs

- Satellite TV operators

- IPTV operators ( telcos)

- OTT operators

Service/distr ibut ion

Program

usage fee

Service

usage fee

T rans-

missionfees

Ad

costs

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KDB Daewoo Securities Research

KDB Daewoo Securities Research

(2) Adapting to rapid changes in the media environment

With regard to consumer behavior and media, two major trends currently driving the industry are

personalized broadcasting services and improvement in TV picture quality.

Regarding personalization, media companies face a growing need to cover demand from both

individuals (using mobile media) and households (using TV). CJ HelloVision is taking the lead in

this area with Tving, an over-the-top (OTT) video service. Telcos that provide IPTV services are

also starting to offer mobile IPTV services.

TV makers that had been focused on hardware innovations such as 3D TV and smart TV are now

turning their attention back to picture quality. According to DisplaySearch, UHD TVs will get on

the path to commoditization, with annual sales volume projected to account for 10% of total TV

sales globally this year. Given the probable launch of UHD broadcasting, the government is

considering allocating licenses in the 700MHz frequency band to both broadcasters and telcos. In

addition, domestic terrestrial channels plan to increase production of UHD content this year, and

CJ E&M and KT Skylife are launching UHD-only channels.

Amid such changes in the business environment, traditional performance measures like market

share are becoming less relevant as boundaries between media segments blur. While cable system

operators (SOs) concentrated on expanding their market shares, telcos penetrated into the IPTV

segment and added mobile services to their portfolios.

Accordingly, media firms and telcos need to pay attention to trends in consumers’ inclinations

and lifestyles. For such companies, even more important than gaining market share from

competition is gaining the “life share” of consumers—i.e., the extent to which consumers are

exposed to a company’s media and content in their day-to-day lives.

In the pay-TV industry, both the quantity and quality of users’ experiences will increase in

significance. To broaden the extent of such experiences, companies may begin to expand their

footholds beyond TV to mobile media. To improve quality, we believe they will have to expand

VOD content offerings and UHD services.

Figure 3. Instead of market share, content producers’ “life share” of consumers now holds the key

Source: KDB Daewoo Securities Research

Firm Firm

Market share “Life share”

Firm

FirmFirm

Firm Firm

FirmFirm

FirmFirm

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KDB Daewoo Securities Research

2. Investment strategy: Time to consider overweighting pay-TV service providers

(1) Earnings normalization + benefits from changing industry paradigm

Major domestic pay-TV firms have seen their combined net profit shrink YoY for three straight

years. As the transition to digital TVs accelerated from 50% to 70%, companies increased

investments, which led to a rise in depreciation costs. Amid intensifying competition for

subscribers, companies’ ARPU declined while marketing expenses climbed. Furthermore, one-off

costs in 2014 dragged down pay-TV firms’ net profit to the lowest level in three years.

However, we expect both the market environment and earnings to improve this year. With the

transition to digital TV now in the final stage, pay-TV operators should see additional business

opportunities emerge, while their investment burden should ease going forward. The government

plans to introduce regulations on pay-TV bundled products (pay TV + telecom services), which will

likely help increase Korea’s pay-TV ARPU, which is currently the lowest level in the world.

Earnings are projected to improve this year due to the dissipation of one-off factors, the addition

of new revenue sources, and progress in the consolidation of the pay-TV industry. Furthermore,

as media firms’ free cash flow improves, they will likely be able to pay out larger dividends in a

more stable manner, as telecom plays do.

We advise investors to overweight media and telecom services firms that offer pay-TV services,

and present SKT and KT Skylife as our top picks. SKT is likely to benefit from the growing

personalization in TV broadcast services. With SKT planning to buy out the stake in SK Broadband

it does not currently own, mobile momentum is likely to drive its media business. Meanwhile, KT

Skylife stands to benefit from improving TV picture quality. The introduction of UHD set-top

boxes (scheduled for 1H15), the launch of dish convergence solutions (DCS), and increasing

platform revenue are anticipated to provide newfound momentum for the company. Both

companies are also attractive dividend plays.

We forecast CJ HelloVision to see sharp earnings growth this year on the back of a low base of

comparison (due to one-off costs, including an asset charge, recorded in 2014) and decreasing

MVNO losses. KTH and Nasmedia also merit attention, as they are aiding the expansion of the

pay-TV business.

Figure 4. Major pay-TV companies’ combined net profit and market value trend and forecast

Notes: SK Broadband, CJ HelloVision, and KT Skylife combined; KT Skylife recognized one-off lawsuit cost in 3Q14

Source: Company data, Thomson Reuters, KDB Daewoo Securities Research

Table 1. Domestic pay-TV industry

Production and programing Service and distribution OTT Additional revenue

SK Telecom

IPTV Btv

(subsidiary SK Broadband) B tv Mobile

Subsidiary SK Broadband

(T-commerce)

Hoppin (subsidiary SK Planet)

CJ HelloVision Affiliate CJ E&M Cable SO Tving Parent CJ O Shopping

KT Skylife Subsidiary Skylife TV Satellite

LG Uplus

IPTV tv G Uplus HDTV

KT

IPTV Olleh TV Olleh tv mobile Subsidiary KTH (VOD, T-commerce)

Subsidiary Nasmedia (ad rep)

Source: KDB Daewoo Securities Research

2,500

3,000

3,500

4,000

4,500

50

100

150

200

250

2011 2012 2013 2014 2015F 2016F

(Wbn)(Wbn) Major pay-TV operators' combined net profit (L)

Major pay-TV operators' combined market cap (R)

- Depreciation on digital conversion- Marketing expenses - Fall in ARPU with expansion of bundled products- KT Skylife: One-off lawsuit cost- CJ HelloVision: Loss on disposable assets

- Digital conversion nearing end- Slowing fall in ARPU- Removal of one-off costs- More room for dividends with FCF

recovery

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KDB Daewoo Securities Research

KDB Daewoo Securities Research

Industry trends at home and abroad

1. Slowly changing market

(1) Market shakeup: Entry of telcos into pay TV via IPTV

The domestic pay-TV market has experienced two major developments over the past decade:

digital conversion and the entry of telcos.

During the era of analog broadcasting, cable SOs occupied monopolistic positions in their local

operating areas, allowing them to generate stable revenues and profits. As the conversion to

digital broadcasting accelerated, however, cable SOs incurred additional investments and

expenses due to the provision of set-top boxes and the payment of retransmission fees to

terrestrial broadcasters. In the process, cable SOs with weak capital bases were merged together

or acquired by multi-system operators (MSOs).

Changes in the pay-TV market accelerated in 2007, when telcos entered the market via the IPTV

business. This caused the market’s digital conversion to pick up speed, as IPTV services are a form

of digital broadcasting using internet networks. It also caused competition to intensify, as IPTV

services were offered nationwide whereas cable SOs’ operations were restricted to local areas.

When telcos first introduced IPTV, it was in the form of bundled products for existing broadband

internet customers. As such, KT was the first to see its IPTV market share climb, given its higher

fixed-line market share. Now, with the bundling of both fixed-line and wireless products, SK

Broadband and LG Uplus are also gaining market share.

Figure 5. In the domestic market, 8 years was needed to reach 60% pay-TV digital conversion vs. 3

years to reach 60% LTE conversion

Source: MSIP, KCC, KCTA, KISDI, KDB Daewoo Securities Research

Figure 6. Average annual number of subscribers (by technology type) in domestic pay-TV market

Notes: Redundancy caused by OTS (bundling of KT IPTV and KT Skylife) not removed

Source: KDB Daewoo Securities Research

62%

74%

2%

63%

0%

20%

40%

60%

80%

05 06 07 08 09 10 11 12 13 14

Digital conversion rate

LTE conversion rate

0

5

10

15

20

25

30

05 06 07 08 09 10 11 12 13 14

(mn persons)

IPTV (+18% over the past 3 years)

Satellite (+4% over the past 3 years)

Cable SO (-0.5% over the past 3 years)

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(2) Pay-TV ARPU has grown in overseas markets

With the digital conversion nearly complete, pay-TV ARPU is likely to climb, as the advanced

equipment required for digital broadcasting should enhance service quality. In the domestic pay-

TV market, monthly fixed-rate subscription fees for digital broadcasting range between W9,000

and W15,000, while those for analog broadcasting stand at W4,000-W5,000.

According to Informa data quoted by the Ministry of Science, ICT and Future Planning, Korea has

a monthly average pay-TV ARPU of around US$7, which is far lower than those of the US

(US$87), Australia (US$70), Japan (US$56), and even Indonesia (US$12).

Of note, in the US pay-TV market—which completed the digital conversion before Korea, in

2010—ARPU has been rising since 2011. In the Korean market, digital conversion is still

underway. As of end-2014, the overall conversion ratio reached 74%, while the SO market

conversion ratio stood at only 49%. CJ HelloVision, a major cable SO, saw a drop in average

revenue per subscriber (ARPS) despite the acceleration of digital conversion, as bundling

discounts increased due to higher competition for subscribers. However, we expect ARPU to pick

up going forward, aided by the completion of digital conversion and the government’s policy

support.

Figure 7. Pay-TV monthly ARPU by country: Korea has the lowest level

Source: MSIP, Informa, Bloomberg, KDB Daewoo Securities Research

Figure 8. Time Warner Cable’s pay-TV ARPU and share price Figure 9. CJ HelloVision’s pay-TV ARPS and share price

Source: Bloomberg, Thomson Reuters, KDB Daewoo Securities Research Notes: ARPS (average revenue per subscriber) refers to total service revenue

from one subscriber to CJ HelloVision, including broadband, VoIP, etc.

Source: Company data, Thomson Reuters, KDB Daewoo Securities Research

0

20

40

60

80

100

Korea US Australia Japan Singapore Hong Kong Indonesia

(US$)

10

20

30

40

50

70

72

74

76

78

1Q11 1Q12 1Q13 1Q14

(US$bn)(US$)

Pay-TV ARPU (L)

Market cap (R)

Overall uptrend

400

700

1,000

1,300

1,600

12,000

12,600

13,200

13,800

14,400

1Q11 1Q12 1Q13 1Q14

(Wbn)(W) Pay-TV ARPS (L)Market cap (R)

Digital conversion competition

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2. Consolidation: Still too many players

(1) There is still room for consolidation in the domestic market

A government license is required to engage in the pay-TV business, as it is an infrastructure-based

service similar to telecom services. Although pay-TV operators are protected by the government,

they cannot easily expand overseas.

As such, to achieve profitability, deregulation and integration are necessary. Regulatory easing is

important in light of the limited size of the domestic market. If pay-TV operators were to become

larger, they would be able to achieve economies of scale from their network investments while

exercising higher bargaining powers in dealing with content providers and home shopping

channels.

The number of domestic pay-TV operators fell from 35 in 2005 to 19 in 2014 due to M&As. During

this period, CJ HelloVision was able to increase its subscriber base thanks to M&As.

The government has already taken some deregulatory measures. Under the revised broadcasting

law (which passed cabinet approval in January 2014), the market share cap for SOs was increased

to one-third of the entire pay-TV market, from one-third of the cable SO market. This revision

should allow for larger-scale M&A deals in the market.

As of now, roughly 10 domestic cable SOs are not affiliated with conglomerates. And among

multiple-system operators (MSOs), C&M is currently available for sale. We believe M&A deals will

boost the enterprise value of buyers.

Figure 10. M&As between cable SOs led to fall in number of domestic pay-TV companies

Source: 2014 Broadcasting Industry Survey, KCTA, KDB Daewoo Securities Research

Figure 11. Acquisition of cable SOs was critical to CJ HelloVision’s growth in subscribers

Source: KDB Daewoo Securities Research

0

1

2

3

4

5

1,500

2,000

2,500

3,000

3,500

4,000

4,500

05 06 07 08 09 10 11 12 13 14

(no.)('000 persons)

Number of SO M&As (R)Broadcast subscribers (L)

2120

25 23 2321

18 19

11 10

0

10

20

30

40

05 06 07 08 09 10 11 12 13 14

(no.) IPTV operators

Satellite TV operators

Cable SOs

Cable MSOs

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(2) The US pay-TV market: A case of successful consolidation

We believe the US pay-TV market underwent successful consolidation. In that market, cable SOs

are a more dominant presence than IPTV service providers (i.e., telecom companies). Two giants,

Comcast and Time Warner Cable, attempted a merger deal in early 2014, though this deal did not

go through, given the FCC’s worries about monopoly. Nevertheless, M&A moves are still ongoing.

Charter acquired Bright House (and may be weighing additional M&A deals), while AT&T is

working to acquire DirecTV. Other cable service providers are also believed to be considering M&A

deals.

In 2009, Time Warner Cable was split off from Time Warner. Although Time Warner Cable

experienced sluggish earnings shortly after the split, its earnings have been growing since 2011,

mostly driven by M&A deals.

These robust M&A deals are partially attributable to the heavy retransmission fees paid to

broadcasters. Indeed, terrestrial broadcasters (e.g., CBS) and channel operators (e.g., Time

Warner ad Disney) charge pay-TV platforms per-subscriber fees, and the fees are raised often in

spite of slow subscriber growth. For that reason, pay-TV platforms have sought expansion as a

means to increase their negotiating power.

In 2012, Korea’s three terrestrial broadcasters also began charging digital pay-TV platforms

subscriber fees (approximately W280 per subscriber). They plan to renegotiate fees against cable

MSOs and IPTV service providers. In response, we believe pay-TV service providers could seek

M&As, just as US peers did.

Figure 12. M&As, share price, and earnings of US pay-TV operator Time Warner Cable

Source: Thomson Reuters, WSJ, KDB Daewoo Securities Research

Figure 13. Rising content-related costs, including retransmission fees, was one factor leading to

pay-TV consolidation in the US

Source: Bloomberg, KDB Daewoo Securities Research

0

2

4

6

8

0

40

80

120

160

1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15

(US$)(US$)

Time Warner Cable EPS (R)

Time Warner Cable share price (L) Acquired Insight

Acquired NaviSite

Announced plan to merge with Comcast

Acquired DukeNet

0

2

4

6

8

10

13 14 15F 16F 17F 18F

(US$bn)Cable SO retransmission fees

Satellite retransmission fees

Telco retransmission fees

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KDB Daewoo Securities Research

Figure 14. US pay-TV industry’s “Big Four” emerged after 20 years of integration

Source: WSJ, KDB Daewoo Securities Research

Figure 15. Total market value of major US pay-TV stocks

Source: Thomson Reuters, KDB Daewoo Securities Research

0

35

70

105

140

1Q95 1Q97 1Q99 1Q01 1Q03 1Q05 1Q07 1Q09 1Q11 1Q13 1Q15

(US$bn)

Comcast

Time Warner Cable

Charter

Small-scale M&As

Period of large M&As2012 digital conversion: Over 90%

2014: Comcast and Time Warner Cable announced merger

Medium to large-scale M&As begun in earnest2005 digital conversion: 50%

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KDB Daewoo Securities Research

3. Switch to digital broadcasting nearing completion

(1) Digital switch to be completed in two years

In Korea, more than 50% of pay-TV service providers switched to digital broadcasting in 2011,

and the proportion exceeded 70% in 2014. As for cable SOs, nearly 50% of companies went

digital last year. We believe the switch will be complete in two years.

Cable SOs’ digital transition accelerated in 2007, as telecom companies expanded into IPTV

services. In 2010, the move picked up further speed, as KT launched Olleh TV Skylife (OTS)

bundled products (IPTV Olleh TV service + Skylife service).

During 2010-2011, the transition was robust, as MSOs willing to go digital (e.g., CJ HelloVision)

aggressively sought M&As. In addition, the smooth subscriber acquisition of late entrants (e.g., SK

Broadband) played a role in accelerating the digital transition. Since 2013, SK Broadband has

maintained monthly net subscriber additions of around 50,000 people.

Figure 16. Digital conversion in domestic pay-TV market has reached over 70%

Notes: Cable SO, satellite, and IPTV combined

Source: KCC, KDB Daewoo Securities Research

Figure 17. Change in number of analog/digital subscribers in domestic cable SO market: Digital

conversion has reached around 50%

Source: KCTA, KDB Daewoo Securities Research

12%15%

23%

31%

37%

46%

54%

62%

69%

74%

0%

20%

40%

60%

80%

05 06 07 08 09 10 11 12 13 14

Digital conversion rate in pay TV

Entry into IPTV

KT pursues OTSin earnest

M&Asbetween

cable SOs

Expansion in SK Broadband's net subscriber additions

0

10

20

30

40

50

60

0

4

8

12

16

05 06 07 08 09 10 11 12 13 14

(%)(mn persons) Subscribers to analog cable (L) Subscribers to digital cable (L)Digital conversion rate (R)

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(2) In the US, OTT services have proliferated following completion of digital conversion

After the US pay-TV market finished the digital conversion (between 2010 and 2011), over-the-

top (OTT) services became available. The Korean market, on the other hand, is experiencing both

the digital conversion and the spread of OTT services simultaneously.

In the US, pay-TV ARPU did not climb markedly when the digital conversion sped up between

2006 and 2009. During that period, ARPU was weighed by high discounts on contracts amid

intense competition for subscribers among market players. However, ARPU began to rise notably

in 2011, when the digital conversion ratio reached nearly 90%. Korea is also likely to see the

downward pressure on ARPU ease when the digital conversion reaches its final stage.

OTT is currently a major buzzword in the US pay-TV market, as the number of N-screen service

subscribers is on the rise. OTT services refer to delivery of audio, video, and other media over the

internet without the involvement of an MSO in the control or distribution of content. Of note,

while converting to digital broadcasting, pay-TV operators also built broadband internet

infrastructure to enhance their pay-TV services, but this infrastructure created an environment

where independent OTT services proliferated in the market (an example of an external effect).

In the US, OTT services are currently having an enormous impact on the pay-TV market. For

conventional pay-TV services, the monthly fixed-rate scheme stands at US$125 (vs. US$80 when

including discounts for contract plans), whereas Netflix, a major US OTT service provider, offers

its services for only about US$10 per month. The situation in the Korean market is different in

that 1) the rate difference between conventional digital pay TV and OTT services is only modest,

and 2) the digital conversion and the proliferation of OTT services are progressing simultaneously

Figure 18. Pay-TV APRU in the US increased as digital conversion neared completion, after falling

during period of accelerating conversion

Source: KCC, Thomas et al. (2011), Bloomberg, Broadbandtvnews.com, KDB Daewoo Securities Research

Figure 19. Rapid growth in OTT-subscribing households represents both a threat and an

opportunity for the existing US pay-TV market

Source: Bloomberg, KDB Daewoo Securities Research

58%

66%

87%

89%

40

50

60

70

80

90

100

40

50

60

70

80

90

100

04 05 06 07 08 09 10 11 12 13 14

(US$)(%)

Avg. pay-TV ARPU (R)

Digital conversion rate (L)

As digital conversion accelerated,

ARPU fell

As digital conversion neared

completion, ARPU rose

0

4

8

12

16

20

11 12 13 14 15F 16F 17F 18F

(mn households)

US households with OTT subscriptions

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4. Platform revenue: Leveraging tool

(1) Home shopping and VOD models have taken root in Korea

In the pay-TV market, platform revenue plays a key role in earnings growth. For pay-TV operators,

achieving an ample subscriber base allows not only higher network efficiency and stronger

bargaining power in equipment purchasing—thus achieving economies of scale—but also the

creation of more revenue sources, including platform revenue.

Given the relatively low service rates that domestic pay-TV operators charge subscribers, they

need additional revenue from home shopping channels or advertisers. In the domestic market,

home shopping retransmission fees have taken root as a major platform revenue source since the

era of analog broadcasting. In particular, between 2010 and 2012, competition among home

shopping channels to secure so-called “golden channels” caused a sharp rise in retransmission fee

revenue.

As this two-sided market started to expand, any expansion in ARPU was limited, and pay-TV

operators did not need to raise ARPU. The digital conversion, however, has created additional

revenue opportunities, including VOD, in the direct consumer billing market. Since 2013, indirect

consumer billing growth (which includes home shopping revenues) has weakened, while the direct

consumer billing market has seen accelerated growth, suggesting that overall platform revenues

are growing.

Figure 20. Domestic home shopping transmission fee revenue: Significant variable for pay-TV

companies’ earnings

Notes: Accumulated pay-TV households (not accounting for redundancy due to OTS bundling)

Source: 2014 Broadcasting Industry Survey, KCC, KDB Daewoo Securities Research

Figure 21. Domestic pay-TV VOD market seeing double-digit growth every year

Source: KISDI, Nasmedia, Home Choice, KDB Daewoo Securities Research

10,000

15,000

20,000

25,000

30,000

0

200

400

600

800

05 06 07 08 09 10 11 12 13

(W)(Wbn)

Home shopping transmission fees (L)

Home shopping transmission fee revenue/no. of pay-TV households (R)

0

5

10

15

20

25

0

100

200

300

400

500

600

2011 2012 2013 2014

(%)(Wbn)

Cable VOD sales (L)

IPTV VOD sales (L)

VOD utilization rate (R)

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(2) Global trend: Increasing domestic platform revenue and expanding overseas via OTT

Overseas pay-TV firms are also endeavoring to increase platform revenue. Major US pay-TV firms’

platform revenues are composed of ad and e-commerce revenues. Until the end of 2011, ad

revenue exceeded e-commerce revenue, but starting in 2012, e-commerce revenue grew at a

CAGR of 28% and by 2014 was double the amount of ad revenue. The situation in the Korean

market is similar, as revenue related to home shopping channels has outstripped ad revenue.

PCCW, a Hong Kong-based company that engages in telecom services (HKT) and media

businesses, has recently been expanding its platform business overseas via OTT. In March of this

year, PCCW acquired Vuclip, a global mobile VOD service provider based in the US.

Pay-TV businesses based on offline infrastructure are limited in their ability to expand overseas, as

such services are governed by licensing rules in each country. However, OTT is a platform

business that can leverage existing infrastructure, allowing pay-TV firms to advance into global

markets rapidly via the internet and mobile connections. Assuming it is possible to resolve

broadcast copyright issues between countries, OTT services will likely expand platform revenue

globally.

Figure 22. Major US pay-TV companies have seen increase in platform revenue with increasing

focus on commerce

Notes: Comcast, Time Warner Cable, and Charter combined

Source: Bloomberg, KDB Daewoo Securities Research

Figure 23. PCCW seeking media business expansion through OTT platform

Notes: Vuclip, a mobile VOD service based in California, has coverage in India, Indonesia, Thailand, the UAE, etc.

Source: KDB Daewoo Securities Research

0

3

6

9

12

10 11 12 13 14

(US$bn)

Ad revenue (CAGR 4%)

Commerce revenue (CAGR 28%)

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5. Regulatory and policy issues

(1) Combined market share rule: The most important regulatory issue at present

The restriction on combined subscriber market share is currently the most important regulatory

issue in the domestic pay-TV market. It is likely to have the greatest impact on KT Group, which

has highest subscriber market share.

The enforcement decree of the Internet Multimedia Broadcasting Business Act (also dubbed the

IPTV act) has been revised to restrict the subscriber market share of a pay-TV operator—based on

the combined number of subscribers to all its pay-TV services—to no more than one-third. The

combined subscriber market share of KT’s parent-based IPTV business and subsidiary KT Skylife

will exceed the new cap (unless redundancy is removed as discussed below). The previous

regulation imposed separate restrictions on the subscriber market shares of KT’s IPTV business

and KT Skylife.

In enforcing the market share restriction, an important issue is how to count the number of

subscribers. KT has redundant subscribers due to OTS products (IPTV service bundled with

satellite broadcasting). Currently, the pay-TV subscriber figures of KT and KT Skylife include OTS

subscribers.

We think the current circumstances are not necessarily dismal for KT and KT Skylife. Under the

revised Internet Multimedia Broadcasting Business Act, the market share restrictions will be in

effect for only three years before authorities reassess the rules and decide whether to change

them. And it is unlikely that OTS subscribers will be counted redundantly. Based on the number of

set-top boxes, we estimate that KT’s pay-TV market share will come out to approximately 29%,

well below the one-third threshold.

Table 2. Key provisions of the Internet Multimedia Broadcasting Business Act (revised)

Details

Chapter 3 Facilitation of fair competition

Article 13 (Restrictions on market share, etc.)

Clause 1

The number of subscribers to a single internet multimedia service provider shall not exceed one-third of

the combined subscribers to all pay-TV service providers, including cable operators, satellite TV services,

and broadband service providers. <Amended 2/29/2008, 3/23/2013, 3/27/2015>

Clause 2

If Clause 1 is breached, the Minister of the Ministry of Science, ICT and Future Planning (MSIP) shall

issue an order for correction and set a deadline of within six months. <Amended 2/29/2008,

3/23/2013>

Clause 3 Operators subject to correction orders under Clause 2 shall make necessary changes before the

deadline.

Clause 4 In counting the number of subscribers, the MSIP minister may exclude mountainous areas and islands

that receive only satellite broadcasting (under Clause 1 ) <New 3/27/2015>

Clause 5 Counting the number of subscribers under Clause 1 is based on a presidential decree <New 3/27/2015>

Notes: Provisions will be in effect for three years before reassessment

Source: National Assembly, KDB Daewoo Securities Research

Figure 24. KT Group subscribers (to be subject to combined market share restrictions)

Source: Company data, KDB Daewoo Securities Research

0

2,000

4,000

6,000

8,000

10 11 12 13 14

('000 persons)

KT Skylife only

OTS bundling

KT IPTV only

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(2) Net neutrality is a heated issue overseas

In overseas pay-TV markets, net neutrality—the principle that internet service providers and

governments should treat all internet data equally, not discriminating based on content, mode of

communication, service, platform, or user—is emerging as an important issue.

Network providers (i.e., pay-TV service providers and telcos) are against this principle, as strict

enforcement of net neutrality would likely cause an increase in network costs and investment

burden. Indeed, given that most fixed-line subscriptions are based on unlimited data plans, if

some subscribers or specific services use data especially heavily, it could cause traffic disruptions

without additional charges.

In February 2015, the US Federal Communications Commission (FCC) approved open internet

rules (slated to take effect in June 2015). Under the rules, broadband internet services (including

pay-TV services) will be reclassified as telecom services. This will give the FCC the authority to

regulate internet service providers.

The net neutrality policy will benefit internet companies and content providers such as over-the-

top (OTT) companies, whereas pay-TV and cable service providers will inevitably be hit hard.

Considering that US pay-TV service providers’ broadband internet services have shown robust

revenue growth for the past four years, the implications of net neutrality appear to be especially

gloomy for them.

Those voicing support for the government’s stance include major US internet giants such as

Google and Facebook, which are expanding overseas. If net neutrality is guaranteed in their home

country, it might be used as a reference in overseas markets. Indeed, some European countries

once considered introducing usage-based internet pricing due to the heavy traffic to US-based

services (e.g., YouTube).

Figure 25. US FCC now supports net neutrality: Negative to pay-TV

Notes: Tom Wheeler, chairman of FCC, approving open internet order

Source: KDB Daewoo Securities Research

Figure 26. High-speed data has recently had a significant effect in driving growth of major US pay-

TV companies

Source: Bloomberg, KDB Daewoo Securities Research

-4

0

4

8

12

2010 2011 2012 2013

(%, YoY) High-speed data General cable Digital cable

Phone Commerce and other Broadcasting service

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Domestic market outlook

1. Consolidation: Four conglomerates to be dominant

(1) KT, CJ, SK, and Taekwang worth watching

We believe the domestic pay-TV market is likely to undergo consolidation, with four

conglomerates—KT, CJ, SK, and Taekwang—anticipated to dominate the market.

KT boasts the largest number of pay-TV subscribers, followed by CJ, Taekwang, and SK. As of end-

2014, KT had 7.77mn subscribers (including both IPTV and Skylife subscribers), compared to

4.21mn for CJ HelloVision, 3.3mn for T-Broad, and 2.83mn for SK Broadband. SK Broadband

recorded the strongest subscriber growth, followed by KT, CJ HelloVision, and T-Broad. Net

subscriber additions have increased more quickly for IPTV services than for cable services.

Notably, KT and CJ have the most extensive value chains in the broadcasting business.

KT has the largest subscriber base. It holds Skylife TV (a second-tier subsidiary engaged in

production and programming). KT (IPTV), KT Skylife (digital satellite broadcasting), and the Olleh

TV mobile unit (OTT) are distributing content. Recently, Skylife has expanded the Skylife TV

business.

CJ has the strongest competitiveness in content, with the program producer CJ E&M. CJ

HelloVision holds cable SOs and Tving (an online/mobile distributor). CJ E&M and CJ HelloVision

have assumed the leading positions in the cable content and platform segments, respectively.

Recently, the content business (CJ E&M) has shown more promising growth potential than the

platform business (CJ HelloVision).

Taekwang holds T-Cast (a cable channel operator with 10 channels, including E-Channel) and T-

Broad (a service provider and content distributor). The company expanded into the OTT market in

March 2015 by launching the T-Broad mobile TV app.

SK—unlike the three conglomerates just mentioned—does not have a program producer under

its umbrella. SK Telecom sold off a program producer, while SK Broadband is prohibited from

directly operating channels under the IPTV law. On the other hand, SK is showing the quickest

growth in the service/distribution segment. SK Broadband is enjoying the strongest net

subscriber additions for IPTV services, and the mobile app is also enjoying robust traffic based on

SKT’s mobile subscriber base.

Figure 27. Healthy subscriber numbers for domestic “Big Four” pay-TV companies

Notes: In calculating KT figure, redundancy was removed (OTS subscribers counted only once)

Source: KCTA, company data, KDB Daewoo Securities Research

+12%

+4%

-1%+35%

0

2,000

4,000

6,000

8,000

KT, KT Skylife CJ HelloVision Tbroad SK Broadband

('000 persons)

Number of subscribers in 2014Number of subscribers in 2013

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Figure 28. Broadcast business value chain of “Big Four” domestic pay-TV companies

Source: KDB Daewoo Securities Research

(2) M&A of C&M

The sale of C&M will likely mark the beginning of Korea’s pay-TV industry consolidation. C&M, an

MSO with 2.37mn subscribers, was put up for sale in January 2014, after the enforcement decree

of the Broadcasting Act was revised (lifting limits on cable SOs’ market share expansion and

eliminating zone restrictions).

C&M is currently 93.81% held by Kookmin Cable Investment (KCI), which was established by

private equity firms MBK Partners and Macquarie. The firm has several subsidiaries (cable SOs)

operating mostly in Seoul and the neighboring Gyeonggi province, and recently added several

cable channels and entertainment and production businesses via its April acquisition of iHQ. In

March, only foreign companies submitted letters of intent because of the high offering price.

However, we believe C&M’s business lineup makes it an attractive M&A target for domestic cable

TV operators, as the eventual buyer will be able to secure subscriber bases in the Seoul capital

area as well as add the content business.

Table 3. C&M’s 2014 consolidated earnings and subsidiaries (%, Wmn)

Consolidated Assets Liabilities Capital Operating

revenue Net profit

C&M 1,155,312 905,511 249,801 609,372 39,057

Subsidiary Owner-

ship Assets Liabilities Capital

Operating

revenue Net profit

CU Media 73.25 101,631 25,355 76,276 68,578 7,617

Gyeonggi NCS 100 492 1 491 - 4

Nowon CATV 100 5,015 3,063 1,952 - -125

C&M Media One 100 2,199 6,227 -4,028 8,035 -1,031

C&M Teleworks 100 2,261 6,747 -4,485 10,485 -1,301

C&M Eastern Gyeonggi CATV 100 21,029 4,639 16,390 16,033 643

C&M Gangnam CATV 84.97 123,098 16,734 106,364 63,697 10,341

IHQ 58.86 61,133 26,590 34,543 35,946 -5,721

CU Media’s subsidiary Owner-

ship Assets Liabilities Capital

Operating

revenue Net profit

AXN Korea 51 9,638 5,987 3,651 7,816 -3,146

Notes: Acquired stake in IHQ in Apr. 2015; 2014 figures reported on a non-consolidated basis

Source: FSS, company data, KDB Daewoo Securities Research

Product ion

Production Programming Services Distribution

Ter restr ia l

Satellite

OTT

IPTV

S O

DMB

Distr ibut ionContent

consumption

Devices

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2. Digital broadcasting: Mobile is key

(1) OTT has yet to take off full swing

OTT services (N-screen) emerged as a game changer in the US pay-TV market following the

completion of that country’s digital transition. We believe Korean pay-TV operators will also need

to brace for the growth of the mobile platform in digital broadcasting.

OTT has not yet begun full-swing growth in Korea. Currently, mobile platforms in Korea offer

exactly the same video content that can be enjoyed at home, but we now see a growing need for

mobile-specific strategies.

Among N-screen services available in the domestic market, Tving—the first to hit the market—is

believed to have the largest subscriber base. Among Android users, however, mobile IPTV services

had more unique users (as of March 2015), possibly thanks to the large number of telcos’ existing

mobile subscribers. Telcos offer such services at a discount for existing customers via bundling,

and we believe they are better positioned to launch mobile-specific services given their

experience in the wireless business.

In the US, the emergence of OTT had a damaging impact on existing pay-TV services due to its

unrivalled price competitiveness. Given that Korea’s pay-TV ARPU is already low, however, OTT is

likely to have a muted impact on the domestic market, and should simply become another source

of revenue. And it should generate more and more revenue as service coverage widens (from

indoors to outdoors/on-the-go, and from households to single-person households and individual

subscribers).

Figure 29. Subscribers and monthly unique visitors to domestic N-screen apps (including mobile

IPTV)

Notes: Number of subscribers includes free subscribers (as of Jan.16th); Monthly unique visitors is based

on Android app traffic in Mar. 2015; pooq is built in mobile IPTV, B tv mobile, U+HDTV, Olleh tv mobile, as PIP

Source: Digital Times, Koreanclick, KDB Daewoo Securities Research

Figure 30. Mobile OTT likely to become new revenue source

Source: KISDI, company data, KDB Daewoo Securities Research

TV

54%

PC

17%

Smartphone

25%

Tablet PC

4%

Media used to watch VOD

General household

(ARPU about W10,000)

Single household,

outdoor/mobile

environment

(ARPU W3,000-W10,000)

Hellovision

0

2

4

6

8

Tving Hoppin pooq Btv mobile U+HDTV Olleh TV mobile

CJ HelloVision SK Telecom(SK Planet)

Content AlliancePlatform

SK Telecom(SK Broadband)

LG Uplus KT

(mn persons)

Number of subscribers Monthly unique visitors

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(2) Global OTT strategies: Netflix is a global success

OTT service providers can expand overseas with relative ease, as the business does not require

licenses or its own network infrastructure. Netflix, an internet streaming-media service

headquartered in the US, operates in around 50 countries, having recently added Cuba, Australia,

and New Zealand. It plans to expand into other countries, including China and Japan, next year,

and hopes to increase its coverage to 200 countries by end-2016.

Netflix’s stronger-than-anticipated net subscriber addition (4.88mn) in 1Q15 has sent the stock

higher. At the initial stage of growth, Netflix attracted customers with cheap prices. However, its

strategy is evolving, as evidenced by the in-house production of the hugely popular show House

of Cards. Now, an increasing number of viewers are purchasing subscriptions for Netflix’s

exclusive content, and not simply because of its cheap price or high-quality streaming. The strong

subscriber numbers in 1Q—driven mainly by the addition of exclusive content—has stoked

particularly strong demand for Netflix’s stock given that subscriber growth slowed last year.

In April, the traditional media company Time Warner launched a new streaming service called

HBO Now (after debuting the service via Apple in March). HBO is one of the most popular cable

TV channels in the US, airing shows such as Game of Thrones. Although a monthly subscription to

HBO Now is roughly US$7 more expensive than Netflix, we are upbeat on the new service given

the growing importance of content in the OTT business.

Figure 31. Netflix’s number of subscribers and total market value

Notes: 1Q15 subscriber data based on end-1Q; Total market cap as of 1Q earning release

Source: Netflix, Thomson Reuters, KDB Daewoo Securities Research

Figure 32. Netflix’s coverage distribution: Entry into Asia planned for next year

Source: Company data, KDB Daewoo Securities Research

0

10

20

30

40

0

10

20

30

40

50

60

70

2011 2012 2013 2014 1Q15

(US$bn)(mn persons)

Free streaming subscribers (L)

Paid streaming subscribers (L)

Netflix market value (R)

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(3) Telcos expand into OTT

Aside from traditional media and internet service providers, an increasing number of telcos are

also expanding into OTT around the globe. Korean telcos—which were the first to introduce LTE

services—have taken the lead once again, becoming the first telcos to release OTT services,

including mobile IPTV (where content can be viewed over an LTE network). Foreign telcos

followed suit, with Singtel (early this year), PCCW (March) and Deutsche Telekom (March)

acquiring or launching OTT services. European carriers and SoftBank of Japan also moved

proactively to tap into the OTT market at the end of last year.

While telecom carriers have been reluctant to introduce OTT over their fixed-line networks, citing

net neutrality, they seem more open to mobile-based OTT, given the possibility of additional

revenue generation. Indeed, telcos can charge for such data use in addition to monthly

subscriptions. Moreover, as mobile data is charged on a pay-per-use basis, mobile-based OTT is

relatively free from net neutrality concerns.

Table 4. Status of foreign telcos’ OTT video service releases

Date Telco Service Details

Mar. 2015 PCCW (HK) Vuclip Acquired global mobile VOD service Vuclip; Expanding coverage to

Asia, Middle East, etc. Mar. 2015 Deutsche Telekom VideoRise Offering VideoRise in partnership with global program provider

Vubiquity Jan. 2015 Singtel HOOQ Released service in Asia after establishing JV with Sony and Warner

Bros. Dec. 2014 Tele2 Russia Tele2 TV Released N-screen TV app for mobile devices in Russia

Dec. 2014 Cellcom Israel Cellcom TV Offering Cellcom TV in partnership with Vubiquity

Dec. 2014 T-Mobile Czech Nangu.TV Expanded existing partnership with OTT Nangu.TV

Nov. 2014 Softbank (JP) BB TV Next Operated by subsidiary TV Bank; Planning to expand to 50 channels

(from current 12) by spring 2016 Source: News reports, KDB Daewoo Securities Research

Figure 33. Domestic mobile video market growth being driven mainly by telcos’ OTT services

Notes: Based on monthly total service hours on Android app

Source: Koreanclick, KDB Daewoo Securities Research

Figure 34. LTE conversion has been an important factor for domestic telco’s ARPU growth;

Demand for mobile video expected to rise further

Notes: Sum of monthly total service hours for Mobile IPTV B tv mobile, Olleh TV mobile and U+HDTV Android app ; ARPU is

conversion of quarterly average to monthly basis

Source: SK telecom, KT, LG Uplus, Koreanclick, KDB Daewoo Securities Research

0

100

200

300

400

500

600

4/13 7/13 10/13 1/14 4/14 7/14 10/14 1/15

(mn min.) SKT B tv mobile LGU U+ HDTV

KT Olleh TV mobile CAP pooq for Android

SK Planet T store VOD CJ HelloVision Tving

SK Planet Hoppin

Top three telco OTTs

0

100

200

300

400

32,000

33,000

34,000

35,000

36,000

37,000

38,000

13.4 13.7 13.10 14.1 14.4 14.7 14.10 15.1

(mn min.)(W)

Avg. total usage time of three major telcos' IPTV (R)

Three major telcos' average ARPU (L)

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3. Business models: Diversification

(1) Platform business to add revenue

We believe domestic pay-TV companies are actively diversifying their business models. The domestic

market, despite its relatively small size, is a useful test bed for various pay-TV business models, given

the abundance of trend-conscious customers and the large number of companies.

In particular, we note the growth of the platform business, which directly affects pay-TV earnings. For

pay-TV operators, having a platform business means having an additional source of revenue from

existing businesses, such as T-commerce (from the home shopping business) and VOD ads (VOD

business).

First, the IPTV VOD ad market is growing rapidly. Compared to general TV ads, advertising via IPTV

VOD content allows advertisers to carry out more targeted ads to more active and engaged viewers.

After growing slowly from 2009 to 2012, the market has been expanding sharply since 2013.

In 2013, telcos operating IPTV channels and cable SOs providing VOD services agreed to extend the

holdback period—after which VOD content becomes free—from one to three weeks; this was done to

accommodate requests by terrestrial broadcasters for VOD price hikes. This policy change has been

one of the major drivers for the IPTV VOD market growth, as it pushed up demand for paid VOD, and

IPTV channels introduced various monthly subscription schemes. Accordingly, advertising via IPTV VOD

saw improved reach.

In 2014, while the overall ad market stagnated amid the aftermath of the ferry accident and the

economic slowdown, the IPTV ad market grew markedly. In our view, the environment remains

favorable for IPTV ads in 2015. Demand has strengthened since 2H14, with ad slots at three IPTVs

having been sold out since last July. As of end-2014, the number of IPTV-subscribing households

exceeded the 10mn mark. In addition, the average spending per advertiser is on the rise, which is

boosting expectations for higher ad rates at IPTVs. Nasmedia, as a leading new media rep, stands to

enjoy the greatest benefit from the growing IPTV VOD ad market.

Figure 35. IPTV VOD pre-loading ads draw attention from viewers

Source: KT Mhouse, Nasmedia, KDB Daewoo Securities Research

Figure 36. High growth in IPTV ad billings ; IPTV ads sold out since July 2014

Notes: Three major IPTV companies combined

Source: Nasmedia, KDB Daewoo Securities Research

0

20

40

60

80

100

09 10 11 12 13 14 15F

(Wbn)

Volume of IPTV ads handled

IPTV ad slots of three major operators sold out since July

Olleh TV: Only one or two ads before the program

Ads 1 Ads 2 Ads 3 Ads 4No. ofads

Terrestrial/cable: Many ads placed before the program

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The T-commerce market is beginning to pick up. With T-commerce, which is based on data

broadcasting technology, existing home shopping channels can be transmitted through both

analog and digital systems in real-time, as programs are aired. As the Ministry of Science, ICT, and

Future Planning withdrew plans to control T-commerce in December 2014, T-commerce

programs can be broadcast through VOD and in real-time, similar to home shopping programs.

Pay-TV operators, which receive commissions for transmitting home-shopping programs, will also

be able to receive commissions from T-commerce channels going forward. Currently, five non-

home shopping companies—KTH, SK Broadband, i-digital, Dream Commerce (Hwasung

Industrial), and TV Flea Market—as well as five home shopping channels (GS Home Shopping, CJ

O Shopping, Hyundai Home Shopping, Lotte Home Shopping, and NS Home Shopping) hold T-

commerce licenses.

Among those, the companies that have already launched T-commerce channels are mostly non-

retail firms: KTH (channel name: K Shopping), i-digital (Shopping & T), Dream Commerce (Dream

& Shopping), and SK Broadband (B shopping). Shinsegae is expected to acquire a stake in Dream

Commerce. If retailers affiliated with large conglomerates enter the T-commerce business, the

market’s growth should accelerate.

As of now, the T-commerce market is in the early stage of growth. Going forward, all of the

companies that hold T-commerce licenses can be expected to enter the market. After the

commoditization of services, channel operators will likely seek to expand coverage, pushing up

billings and transmission commissions for pay-TV companies. Pay-TV operators should see an

uptrend in transmission rates if an increase in billings leads to revenue growth, and if a rise in the

number of shopping channels sparks competition for better channel numbers.

Figure 37. T-commerce market has ample room for growth

Notes: Based on 2014; T-commerce has expanded channels to other platforms besides KT since 2015

Source: Korea On-Line Shopping Association, MSIP, KCTA, KDB Daewoo Securities Research

(2) Beefing up the content business

Besides the traditional platform business, pay-TV companies are now also turning to content in an

effort to widen their subscriber bases. For such firms, strengthening the content business can

help secure new sources of revenue. Such efforts could also serve as preemptive action ahead of

the expected increase in content costs.

Faced with last year’s sharp slowdown in net subscriber growth amid intensifying competition

and rising regulatory risks, KT Skylife began to beef up the content lineup at its operating

subsidiary, Skylife TV. In addition, to strengthen brand identity, the company rebranded channel

names to start with “Sky.”

Skylife TV increased the number of channels from seven to 11, including one—Sky Sports—that

has managed to secure broadcasting rights from the Korea Baseball Organization (KBO). Using

the technical advantages of satellite broadcasting, the company plans to raise the number of

UHD channels to three. In addition, through cooperation with KTH, the company will likely be

able to make VOD services available through all internet service providers. Previously, VOD

services were provided only to bundled-product (KT’s IPTV and KT Skylife’s satellite) subscribers.

31,960

41.1

77,728

13,140

40.6 32,396

9,290

29.7 31,305

170

7.82,185

Annual transaction value (Wbn) Platform users and households(mn persons)

Annual transaction value/users(W)

PC internet Mobile

Home shopping (live broadcasting) T-commerce (data broadcasting)

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Meanwhile, a potential increase in content costs is emerging as a major threat to domestic pay-TV

operators. Since terrestrial broadcasters and pay-TV operators agreed on retransmission fees (per

digital subscriber) for real-time content in 2012, digital subscribers incurred additional content

costs. Retransmission fees could be raised again once the contract expires. By strengthening the

content business, pay-TV companies should be able to secure additional sources of revenue,

including ads and license fees, and improve its bargaining power in negotiations with

broadcasters.

Figure 38. KT Skylife plans to increase the number of UHD channels to three by producing its own

UHD content

Source: Skylife TV, KDB Daewoo Securities Research

Figure 39. Increase in content costs could prompt pay-TV operators to begin content production

Notes: TV license fees only (except for program sales or additional revenue, etc.); KBS TV license fee (charged to viewers, not

pay-TV operators) are also included

Source: KCC, KDB Daewoo Securities Research

12 15

23

31

37

46

54

62

69

74

0

20

40

60

80

40

50

60

70

80

05 06 07 08 09 10 11 12 13 14

(%)(%) Pay-TV digital conversion rate (R)

Terrestrial+PP broadcasing fee/CATV (SO+satellite) broadcasting fee (L)

Terrestrial broadcasters and cable companies argue over

retransmission fees

IPTV entry

Plan to have three UHD channels

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(3) Sophistication of subscription models

Pay-TV operators are also seeking to expand revenue by strengthening existing businesses, which

includes efforts to make content subscription models more sophisticated. As broadcasting

services are intangible experience goods, well-designed payment models are required for content

to generate revenue. With Korea’s pay-TV ARPU at very low levels compared to global peers,

domestic broadcasting service providers need to come up with models that lead to less resistance

from consumers and encourage content consumption.

As mentioned previously, in 2013, telcos operating IPTV and cable SOs providing VOD services, at

the request of terrestrial broadcasters, extended the holdback period of VOD and raised content

prices to boost content revenue. Such measures gave rise to resistance from consumers. In an

effort to capture demand from viewers who were hesitant to purchase VOD content and seeking

more cost-efficient ways to consume content, pay-TV firms introduced fixed-rate monthly

subscription schemes, in which subscribers use an unlimited amount of content at fixed

subscription rates. After the extension of the holdback period of VOD in 2013, there was a sharp

rise in subscribers to fixed-rate monthly fee schemes.

Of note, the pattern of digital content consumption is shifting from downloading to streaming—

a shift already witnessed in the music market. In our view, a greater variety of monthly

subscription schemes is necessary for video content to attract more subscribers. Pay-TV

operators have already introduced subscription services for individual channels, as well as various

packages for specific content (e.g., movies, US TV shows, etc.). They have also launched products

targeting certain age groups. Going forward, we might also see products packaged by genre.

Figure 40. Price of VOD (W1,200) vs. monthly subscription (W4,900): Monthly subscriptions

encouraged by showing subscription price next to unit price

Source: Tving, Company data, KDB Daewoo Securities Research

Figure 41. Viewers are increasingly streaming rather than downloading videos

Notes: 2014 figures are based on KDB Daewoo estimates

Source: Company data, Parliament, Nasmedia, KDB Daewoo Securities Research

0

350

700

1,050

1,400

0

30

60

90

120

2011 2012 2013 2014

('000 persons)(Wbn) IPTV monthly plan revenue (L)

IPTV monthly plan subscribers (R)

Watching behavior shifting from download to streaming;Diversification of monthly plan types spurs subscriptions:- Domestic broadcasting channel classification

(terrestrial, CJ E&M, JTBC)- Film-dedicated- US drama-dedicated- Tailored to age, genre, etc.

W4,900 W1,200

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4. Expectations for policy tailwinds

(1) Regulations on bundled products to accelerate ARPU normalization

The government is currently working to revise regulations on telecom-pay TV product bundling under a framework of comprehensive measures to develop the broadcasting industry. The KCC plans to finalize the rule in 2H. The government believes improvement in ARPU for pay-TV platforms will be key for the broadcasting industry’s development, as any increase in ARPU should flow to content providers (terrestrial broadcasters and PPs).

New regulations on bundled products could include a ban on excessive discounts. Currently, MSIP does not allow discount rates for bundled products to exceed 30% of the price of individual products. A ban on excessive discounts would signal the ministry’s intention to remove downside pressure to ARPU and induce a steady rise in ARPU going forward. Easing price-cut competition would also lead to a decrease in marketing costs for companies.

Table 5. Revision to Notice on Telecommunication Bundled Products

Subject Details

KCC Set forth details on prohibited acts regarding bundled products; Expected to be announced in May-June. Task force teams to be assigned to investigate breaches.

MSIP Task force teams to be assigned to study the strengthening market power of dominant players (to set forth pre-approval conditions)

SK Telecom Oppose new regulations on bundled products (bundling allows the firm to offer products at cheaper prices)

KT, LG Uplus Largely favor the new regulation; SKT’s wireless market power affects the wired segment competition

Cable SOs Favor new regulations

Source: Media press, KDB Daewoo Securities Research

Figure 42. Telco’s IPTV and broadband subscriber trend

Source: Company data, MSIP, KCC, KDB Daewoo Securities Research

Figure 43. CJ HelloVision’s ARPS trend: Decreased amid competition for new subscribers, but likely

to rise if bundled product regulations are introduced

Notes: ARPS (average revenue per subscriber) refers to total service revenue from one subscriber to CJ HelloVision, including broadband, VoIP, etc.

Source: KDB Daewoo Securities Research

20

30

40

50

60

70

11,000

12,000

13,000

14,000

15,000

1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14

(%)(W)

Pay-TV ARPS (L)

Broadcasting digital conversion rate (R)

- ARPU fell as digital conversion acceleratedDiscounts on bundled products likely increased due to intensified competition for subscribers

- Positive impact expected if excessive discounts are banned

0

20

40

60

80

0

5

10

15

20

08 09 10 11 12 13 14

(%)(mn persons)

IPTV subscribers (L)

Telco broadband subscribers (L)

IPTV/broadband subscribers (R)

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5. Potential expansion of foreign capital

(1) Foreign ownership in pay-TV services remains restricted

With firms and private funds from overseas bidding to acquire C&M, the possibility of foreign capital

expanding in the domestic pay-TV market has emerged. In particular, since the US-Korea FTA provisions

related to the media service segment took effect in March, market watchers have paid keen attention to

whether the cap on foreign ownership will increase.

For now, foreign stakes in domestic pay-TV service providers remain capped at 49%. Under the US-Korea

FTA, regulations affecting pay-TV services (including pay-TV offered through cable SOs, satellite TV, and

IPTV) remain unchanged, or have been left for future negotiation. It seems unlikely that a foreign firm will

acquire Kookmin Cable Investment’s (KCI) entire stake (93.81%) in C&M.

Table 6. Foreign capital-related clauses of domestic broadcasting laws

Broadcasting law

Details Impact

Article 14 Investments by foreign capital

Clause 1 Terrestrial broadcasters and public radio broadcasters shall not attract investments

from foreign governments/institutions, foreigners, and entities in which foreign

governments/institutions have a stake exceeding a certain proportion. However,

subject to KCC approval, they may receive investments from foreign entities meant to

promote education, physical activities, religious activities, and charities. <Amended

2/29/2008, 3/23/2013>

Attract foreign capital

Clause 2 Multi-channel operators and relay cable operators shall not attract, respectively, stakes

exceeding 20% and 10% from foreign governments/institutions, foreigners, and

entities in which foreign governments/institutions have a stake exceeding a certain

proportion.

Protect management control from

foreign capital

Clause 3 SOs, satellite broadcasters, program providers, and network operators shall not attract

stakes exceeding 49% from foreign governments/institutions, foreigners, and entities

in which foreign governments/institutions have a stake exceeding a certain proportion.

Protect management control from

foreign capital

Internet multimedia

broadcasting law

Details Impact

Article 9 Restrictions on foreign ownership

Clause 1 Foreign governments/institutions, foreigners, and entities in which foreign

governments/institutions or foreigners have more than a 15% stake shall not own a

stake exceeding 49% in internet multimedia broadcast providers. <Amended,

12/30/2014>

Protect management control from

foreign capital

Source: Korea Ministry of Government Legislation, KDB Daewoo Securities Research

Table 7. US-Korea FTA media-related provisions (took effect on March 15th, 2015)

Domestic services

Details Impact

Terrestrial broadcasters,

satellite broadcasters, cable SOs

No changes in foreign ownership and broadcast quotas Neutral

Telecom/broadcasting

convergence services

No change to convergence (e.g., IPTV) services Neutral

Cable program providers Some regulations will be eased, as follows: PP market competition is likely to

intensify.

Foreign stakes in Korean program providers will still be capped at 49% in the case of

direct investments. However, foreigners that make indirect investments via a Korean

company will be allowed to own up to 100% (currently 50%) of Korean program

providers, excluding news providers, multi-content providers, and home shopping

channel operators.

US global media groups could

expand into Korea.

The ceiling on the proportion of foreign programs carried by program providers will

be eased. Program providers are currently required to have domestic content

account for at least 35% of animated programs and 25% of movies. The required

ratios will be lowered to 30% and 20%, respectively.

The number of foreign programs

could expand.

The quota will be lifted to 80% from 60% for any single country’s programs. The number of US programs

could expand.

Digital content Digital audio-video content services remain unregulated to promote competition.

However, the government might intervene if access to domestic audio-video content

is difficult.

US global media groups could

expand into Korea.

Source: Ministry of Trade, Industry and Energy, KDB Daewoo Securities Research

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Valuation

1. Valuation gap with global peers narrowing

(1) Valuation discount easing

Domestic pay-TV stocks traded at a discount to global peers last year, as they struggled with an

industry slump, one-off negatives, and uncertainties (e.g., regulatory risks).

On the other hand, overseas peers traded at a premium, buoyed by: 1) eased investment burden

following the completion of the digital transition, and 2) expectations for excess profits following

market consolidation. Some stocks are generating a dividend yield of more than 3% thanks to

stable free cash flow.

With domestic stocks picking up, however, the valuation gap has been narrowing. Nevertheless,

CJ HelloVision and KT Skylife still seem undervalued relative to global peers. Factoring in P/E,

ROE, and dividend yield, we believe KT Skylife is the most attractive among pay-TV stocks.

Table 8. Global pay-TV platforms (cable SO, satellite) profitability and valuation (Wbn, %, x)

Name of company Total

mkt. cap

OP margin P/E P/B EV/EBITDA ROE Dividend

yield 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F 14 15F 16F

CJ HelloVision (Korea) 925 8.0 9.3 9.7 28.6 12.0 10.4 0.8 0.9 0.9 4.3 4.0 3.5 3.0 8.2 8.7 0.6

KT Skylife 918 12.5 14.0 14.2 15.8 13.9 13.0 2.0 1.9 1.7 5.4 4.9 4.5 13.2 14.4 13.8 2.1

Hyundai HCN 568 18.5 18.9 19.0 12.9 12.9 12.4 1.0 1.0 0.9 3.0 3.7 3.6 8.5 8.4 8.1 0.8

Sky Perfect JSAT (Japan) 2,432 12.6 13.0 13.9 19.3 16.4 14.7 1.2 1.2 1.1 4.6 5.6 5.1 6.6 7.6 8.4 1.5

Comcast (US) 160,026 21.7 22.4 22.6 20.0 18.2 16.1 2.8 2.7 2.5 8.4 8.0 7.5 16.2 15.3 16.0 1.7

Time Warner Cable 45,568 20.3 21.0 21.6 19.5 18.6 16.8 5.2 4.3 3.6 8.2 7.5 7.1 27.2 26.9 22.9 2.0

Liberty Global 47,648 12.2 15.0 17.6 - 162.7 63.4 3.1 3.2 3.4 11.5 10.0 9.4 -5.2 1.5 4.9 -

Charter Communications 22,467 10.7 13.9 15.8 - 233.4 63.4 141.8 68.9 - 12.8 12.1 11.1 27.2 26.9 22.9 -

Cablevision 5,502 14.3 14.3 14.8 21.0 22.0 19.7 - - - 7.7 7.2 7.0 - -4.3 -4.2 3.3

DirecTV (US) 47,552 15.4 16.0 15.9 14.5 14.7 13.8 - - 34.1 7.5 7.1 6.9 - -87.4 139.7 -

Dish Network 34,968 12.5 12.0 11.7 35.0 42.0 40.2 16.0 11.3 8.4 13.3 12.7 12.5 63.2 32.6 24.9 -

Shaw Communications

(Canada) 11,509 27.5 27.1 27.6 15.0 15.6 14.8 2.7 2.5 2.3 8.9 8.1 7.9 17.3 17.0 16.5 4.3

British Sky (UK) 30,510 15.2 12.9 13.8 11.7 20.3 17.0 7.1 6.5 5.5 13.7 13.0 11.0 84.2 42.7 33.7 3.3

Beijing Gehua CATV

(China) 5,631 3.8 12.9 19.9 56.2 43.9 34.3 5.1 4.7 4.2 - 22.5 18.3 9.4 11.0 12.5 0.6

Average 14.7 15.9 17.0 17.8 16.5 14.9 4.3 3.6 3.1 8.4 9.0 8.2 12.3 13.7 13.5 2.0

Note: Skylife and CJ HelloVision figures are KDB Daewoo Securities estimates; Excluded outlying values when calculating average; Dividend yield is based on 2015 KDB

Daewoo Securities estimate

Source: Bloomberg, KDB Daewoo Securities Research

Figure 44. Pay-TV forward P/E trend Figure 45. Pay-TV forward EPS consensus revision trend

Source: Thomson Reuters, KDB Daewoo Securities Research Source: Thomson Reuters, KDB Daewoo Securities Research

5

10

15

20

25

30

35

4/14 6/14 8/14 10/14 12/14 2/15 4/15

(x) CJ HelloVisionKT SkylifeSK BroadbandTime Warner CableComcastDirecTVSky Perfect JSAT

Korean pay-TV stocks breaking away from undervaluation

20

40

60

80

100

120

140

160

14.4 14.6 14.8 14.10 14.12 15.2 15.4

(-1Y=100) CJ HelloVision KT SkylifeSK Broadband Time Warner CableComcast DirecTVSky Perfect JSAT

Korean pay-TV stocks adjusting upward this year

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2. Expectations for dividends

(1) Steady dividend plays could trade at a premium

Like telecom stocks, pay-TV stocks are generating stable dividend yields, as their business models

are not vulnerable to the economy. Steady dividend payout should provide support for these

stocks. Overseas telecom stocks often trade at a premium owing to high dividend yields.

US-based Comcast saw a full-swing improvement in free cash flow as the country’s digital

transition neared completion. Since then, the company’s dividend yield has remained at roughly

2%.

Currently, KT Skylife is generating a dividend yield of around 2%, partly in order to help its parent

company KT make up for deteriorating cash flow. Last year, KT Skylife maintained a dividend

payout ratio of 30% despite a decline in operating profit (caused by one-off expenses associated

with an international lawsuit and a requirement to switch standard-definition subscribers to high-

definition broadcasting). With the dissipation of one-off factors, dividend yields are likely to be

stable.

Among telecom stocks that operate IPTV businesses, SKT appears the most attractive in terms of

dividend yields (mid-3% level). In addition, we note the possibility that SKT might buy back shares

to acquire the remaining stake in SK Broadband.

Figure 46. Comcast paid out steady dividends with recovery of FCF at the end of digital conversion

Notes: FCF per share is applied with 12-month forward estimate

Source: Thomson Reuters, KDB Daewoo Securities Research

Figure 47. KT Skylife started to pay out dividends as subscriber growth (since 2012) helped FCF

recover

Notes: FCF per share is applied with 12-month forward estimate

Source: Thomson Reuters, KDB Daewoo Securities Research

0

2

4

6

8

0.0

0.5

1.0

1.5

2.0

2.5

1Q00 1Q02 1Q04 1Q06 1Q08 1Q10 1Q12 1Q14

(US$)(%)

Comcast FCF per share (R)

Comcast dividend yield (L)

Dividend payout begins- FCF per share recovers

amid end of digital conversion and industry integration

0

1,000

2,000

3,000

4,000

5,000

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1Q11 1Q12 1Q13 1Q14 1Q15

(W)(%)

KT Skylife FCF per share (R)

KT Skylife dividend yield (L)

Dividend payout begins-FCF per sharerecovers as earnings increase due to platform revenue

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Key Recommendations

SK Telecom (017670 KS/Buy) Making inroads into media based on mobile leadership

Pay TV: Mobile leadership to drive the media business

Focusing on mainstay telecom business as well as new businesses

Valuation: Maintain Buy and TP of W380,000; Top pick in media/telecom

KT Skylife (053210 KS/Buy) Uncertainties are dissipating

Pay-TV business: UHD and DCS to be the focus

Earnings forecast: Increase in earnings and dividend payout anticipated

Valuation: Upgrade to Buy; Raise TP to W24,000

CJ HelloVision (037560 KS/Buy) Combining prudent and bold strategies

Pay TV: ARPU to normalize; Digital conversion to provide earnings opportunity

Other business: MVNO to break even

Valuation: Raise TP to W16,000; Maintain Buy

KT (030200 KS/Buy) The light at the end of the tunnel

Combined market share regulations: Negative, but largely insignificant

Financial position to strengthen on proceeds from subsidiary sale (end-May)

Valuation: Maintain Buy with TP of W40,000

LG Uplus (032640 KS/Buy) Pursuing Netflix-style content strategy based on LTE strength

Pay TV: Pursuing exclusive mobile content strategy based on LTE strength

Major business: Net subscriber additions continued in the MNP market

Valuation: Reiterate Buy and TP of W16,000

KT Hitel (036030 KQ/Buy) Content and commerce businesses key for KT’s media strategy

Pay TV: Content and commerce businesses to play a key role in KT Group’s media strategy

Other flagship businesses: Coverage of T-commerce business to expand

Valuation: Upgrade to Buy; Raise TP to W17,000

Nasmedia (089600 KQ/Buy) Well-positioned to take advantage of current media usage trends

Pay TV: All of KT’s IPTV ad slots have been sold since June 2014

Major business: Solid mobile ad revenue growth

Valuation: Maintain Buy and raise TP to W40,000

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Pay TV: Mobile leadership to drive the media business

SK Telecom (SKT) stands to enjoy the most benefit from the increasing personalization

of broadcasting services. The company is the biggest telco in Korea, accounting for total

mobile phone subscribers. In addition, the company holds SK Broadband, the fastest-

growing IPTV operator, and B tv mobile, an OTT service provider, under its umbrella. SKT

is also set to take full ownership of SK Broadband on June 9th.

The media business is gaining increasing importance for telcos. SKT’s IPTV business has

been generating additional revenue sources, including monthly fixed-rate subscription

revenue, VOD ads, and T-commerce. The business also helps the company retain mobile

and fixed-line service subscribers. In addition, mobile OTT services boost data revenue.

Among the various N-screen applications available, an increasing amount of user traffic

is being concentrated in telcos’ mobile IPTV services such as B tv mobile. Accordingly,

SKT is expected to see growth in both the media and telecom businesses going forward.

Focusing on mainstay telecom business as well as new businesses

SKT is focusing on improving the profitability of its mainstay telecom business in 1H.

Although the company’s voluntary retirement program in 1Q should push up costs in the

short term, it should help reduce personnel and other related costs going forward. After

making SK Broadband a wholly-owned subsidiary, the company will likely carry out

organizational and business restructuring for the media business to further improve

efficiency and lower costs.

SKT also plans to spur growth in new businesses. The new CEO hopes to steer the

company toward a leading position in the platform segment. Among major global telcos,

Softbank has been the most aggressive in developing the platform business, having

pursued gradual expansion and M&A strategies based on the belief that telcos need to

focus on platforms to take advantage of the telecom infrastructure. In addition, because

of the nature of OTT platforms, it is relatively easy for them to expand into the global

market. It is worth paying attention to whether SKT’s outreach to the platform business

delivers the anticipated results.

Valuation: Maintain Buy and TP of W380,000; Top pick in media/telecom

We maintain our Buy call on SKT and our target price of W380,000. The short-term

outlook is unfavorable in light of retirement-related costs and the KCC’s expected

imposition of fines and a business suspension. However, the stock is anticipated to

regain attractiveness on the back of earnings recovery in 2H, an additional share

buyback, and larger dividend payout .

SK Telecom (017670 KS)

Making inroads into media based on mobile leadership

FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F

Revenue (Wbn) 16,141 16,602 17,164 17,942 18,641 19,203

OP (Wbn) 1,730 2,011 1,825 2,129 2,277 2,293

OP margin (%) 10.7 12.1 10.6 11.9 12.2 11.9

NP (Wbn) 1,152 1,639 1,801 2,119 2,251 2,263

EPS (W) 14,263 20,298 22,307 26,244 27,874 28,022

ROE (%) 9.8 13.0 12.9 13.9 13.5 12.4

P/E (x) 10.7 11.3 12.0 10.5 9.9 9.8

P/B (x) 0.9 1.2 1.3 1.2 1.1 1.0

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests

Source: Company data, KDB Daewoo Securities Research estimates

Telecom Service

(Maintain) Buy

Target Price (12M, W) 380,000

Share Price (04/23/15, W) 275,000

Expected Return 38%

OP (15F, Wbn) 2,129

Consensus OP (15F, Wbn) 2,186

EPS Growth (15F, %) 17.7

Market EPS Growth (15F, %) 38.8

P/E (15F, x) 10.5

Market P/E (15F, x) 11.0

KOSPI 2,173.41

Market Cap (Wbn) 22,205

Shares Outstanding (mn) 81

Free Float (%) 62.5

Foreign Ownership (%) 44.3

Beta (12M) 0.43

52-Week Low 203,000

52-Week High 301,000

(%) 1M 6M 12M

Absolute -1.6 2.4 34.8

Relative -7.8 -9.0 24.1

80

100

120

140

160

4.14 8.14 12.14 4.15

SK Telecom KOSPI

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Mobile leadership to drive the media business

The media business is gaining increasing importance for telcos. SKT’s IPTV business has

been generating additional revenue sources, including monthly fixed-rate subscription

revenue, VOD ads, and T-commerce. The business also helps the company retain mobile

and fixed-line service subscribers. In addition, mobile OTT services boost data revenue.

Unlike corporate groups that have pay-TV operators as subsidiaries, SK Group has no

subsidiary in charge of content production and programming. SKT sold a content

production subsidiary, and SK Broadband is banned from having a direct operating

channel under the IPTV Act.

Meanwhile, among major media groups (KT, CJ, Taekwang, and SK), SK Group has been

expanding its presence in the service/distribution segment the most rapidly. SK

Broadband’s Btv is seeing the highest net subscriber increase, and in the OTT service

segment, B tv mobile is enjoying the strongest traffic growth. SK Planet has already

been providing internet-based media services through Hoppin and T-store.

Among the various N-screen applications available, an increasing amount of user traffic

is being concentrated in telcos’ mobile IPTV services such as B tv mobile. Accordingly,

SKT is expected to see growth in both media and telecom businesses going forward.

Figure 48. SKT’s pay-TV value chain

Source: KDB Daewoo Securities Research

Figure 49. SKT’s media service subscriber trend

Notes: Number of OTT users based on Android app monthly unique users

Source: SK Broadband, Koreanclick, KDB Daewoo Securities Research

Product ion/

programmingDevice

Content

provider

Cost Revenue

Subscriber

S erv ice/dis t ribut ion

Pay TV

S K B roadband: B tv IPTV, B tv mobile

S K P lanet : OTT Hoppin, T store VOD

T-commerce operator

S K B roadband

(cooperation with SK Planet)

Revenue

Programusage fee

Service usagefee

Trans-mission

fees

0

2,000

4,000

6,000

8,000

4/13 7/13 10/13 1/14 4/14 7/14 10/14 1/15

('000 persons) OTT hoppin unique visitors

OTT T store VOD unique visitors

OTT B tv mobile unique visitors

IPTV B tv subscribers

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Media business to support telco’s core businesses

Aside from traditional media and internet service providers, an increasing number of

telcos are also expanding into OTT around the globe. While telecom carriers have been

reluctant to introduce OTT over their fixed-line networks, citing net neutrality, they

seem more open to mobile-based OTT.

Among Android users, mobile IPTV services had the most unique users as of March 2015.

And SKT’s B tv mobile is one of the leading choices among mobile IPTV users. We believe

the strong traffic to mobile IPTV services is attributable to telcos’ large number of

existing mobile subscribers. Telcos offer such services at a discount for existing

customers via bundling, and we believe they are better positioned to launch mobile-

specific services given their experience in the wireless business.

OTT services allow telcos to charge for data use in addition to monthly subscriptions.

Moreover, as mobile data charges are on a pay-per-use basis, mobile-based OTT is

relatively free from net neutrality concerns. The ease with which customers can be

charged (monthly subscription plus data charges) is another positive.

Telcos can also utilize OTT services to raise ARPU. Once the switch to LTE is complete,

mobile carriers will need to find ways (e.g., mobile video traffic such as OTT) to generate

additional revenue from existing LTE subscribers.

Moreover, OTT can become a useful tool for carriers to expand overseas. PCCW, which

operates telecom (HKT) and media businesses in Hong Kong, recently expanded its

operations to Asia and the Middle East by acquiring an equity stake in Vuclip, a global

mobile VOD service provider.

Table 9. OTT video service released by foreign telcos

Date Telco Service Detail

Mar. 2015 PCCW (HK) Vuclip Acquired Vuclip, a global mobile VOD service provider; expanding

regional coverage to include Asia and the Middle East

Mar. 2015 Deutsche

Telekom VideoRise

Offering VideoRise in partnership with Vubiquity,a global

contents program supplier

Jan. 015 Singtel HOOQ Launched services in Asia via a JV with Sony and Warner Bros.

Nov. 2014 Softbank (JP) BB TV Next Operated by subsidiary TV Bank; planning to expand to 50

channels by next spring

Source: News reports, KDB Daewoo Securities Research

Figure 50. SKT’s ARPU and total time spent on B tv mobile

Notes: Total time spent on B tv mobile based on total monthly service hours spent on Android app;

ARPU is monthly average for each quarter

Source: Company data, Koreanclick, KDB Daewoo Securities Research

0

100

200

300

400

500

600

33,000

34,000

35,000

36,000

37,000

38,000

4/13 7/13 10/13 1/14 4/14 7/14 10/14 1/15

(mn min.)(W)

SKT B tv mobile total usage time

SKT ARPU (L)

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SKT to take full ownership of SK Broadband

On June 9th, SKT will purchase the 49.44% stake in SK Broadband that it does not own

already, taking full ownership of the subsidiary. SKT will give 0.0168936 SKT treasury

shares for every common stock held by SK Broadband shareholders, at W285,434 for

SKT shares and W4,822 for SK Broadband shares.

For the acquisition, SKT will distribute 2.47mn treasury shares (out of 9.8mn; 12.15% of

total shares issued). Once the acquisition is finalized, the company may buy back

treasury shares to strengthen its managerial control and increase shareholder returns.

The value of SK Broadband’s traditional business (wired network) has declined

significantly, while that of its media business (IPTV) is growing. We see huge growth

potential in the media business, in light of the following: 1) SK Broadband’s media

content can be used on both wired and wireless LTE networks thanks to compatible

copyright (e.g., the B tv mobile service). 2) Media services are often offered via product

bundling (combined with traditional telecom services), helping prevent customer

attrition. 3) The digital transition is likely to lead to higher ARPU, aided by greater VOD

demand and T-commerce. 4) This year, new home shopping companies will begin

operations, and T-commerce, still in its infancy, has much room for growth, generating

platform revenue as well as monthly subscription revenue.

Meanwhile, SKT will need to strengthen its negotiating power to effectively deal with

growing risks in the media industry. SK Broadband’s IPTV business, SKT’s B tv Mobile (in

partnership with SK Broadband), and SK Planet’s Hoppin mostly function as content

distribution platforms, and thus face the risk of higher content prices (due to pressure

from content producers and broadcast stations). Competition from foreign rivals

(Netflix’s OTT platform, Disney’s content, etc.) also poses a risk. We believe SKT’s full

ownership in SK Broadband will help increase its negotiating power.

Table 10. Stock exchange between SKT and SK Broadband

SKT

(Parent company)

SK Broadband

(Wholly-owned

subsidiary)

Base price (W) 285,434 4,822

Share price for merger (W, per share) 285,434 4,822

Exchange ratio 1 0.0168936

Face value (W) 500 5,000

Number of SK Broadband shares currently owned 149,638,354

- Ownership (%) 50.56

Contract date March 23rd March 23rd

Confirmation of shareholder list April 6th April 6th

General shareholders’ meeting N/A April 21st

Submission of dissent April 6-20th April 21st-May 5th

General shareholders’ meeting for share exchange

approval May 6th May 6th

Appraisal rights Not assigned Assigned May 6- 26th

Exercise price for appraisal right (W) N/A 4,645

Surrender of old shares

Date of exchange/transfer

N/A

June 9th

May 7th-June 8th

June 9th

Number of outstanding shares 80,745,711 295,959,087

Delisting date N/A June 30th

Source: Company data, FSS, FnGuide, KDB Daewoo Securities Research

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Table 11. SK Broadband’s annual earnings (Wbn, %, ‘000 persons)

2012 2013 2013 2014 2015F

Revenue 2,492 2,539 2,539 2,654 2,862

Broadband 935 909 909 861 867

IPTV 220 345 345 477 629

Home phones 257 197 197 161 130

B2B 928 1,028 1,028 1,117 1,196

Other 153 60 60 40 40

Operating profit 82 73 73 58 82

OP margin 3.3 2.9 2.9 2.2 2.9

Net profit 23 12 12 4 34

Net margin 0.9 0.5 0.5 0.2 1.2

YoY

Revenue 8.6 1.9 1.9 4.5 7.8

Broadband -2.8 -2.8 -2.8 -5.3 0.7

IPTV 44.6 56.7 56.7 38.3 31.9

Home phones -8.7 -23.2 -23.2 -18.6 -18.8

B2B 20.2 10.8 10.8 8.6 7.1

Other 19.3 -60.7 -60.7 -34.1 0.0

Operating profit 25.7 -10.7 -10.7 -20.5 41.5

Net profit TTB -46.8 -46.8 -64.9 686.4

Key indicators

Broadband 4,394 4,569 4,569 4,810 5,047

IPTV subscribers 1,445 2,096 2,096 2,829 3,539

Phones subscribers 4,510 4,568 4,568 4,513 4,492

Notes: All figures are based on non-consolidated K-IFRS; 2015F is KDB Daewoo estimates

Source: Company data, KDB Daewoo Securities Research

Figure 51. SK Broadband is increasing its UHD content and offering benefits via product

bundling

Source: Company data, KDB Daewoo Securities Research

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Platform business and corporate value

In unveiling next-generation platform strategies at a press conference in April, SKT

discussed plans to focus on three platforms: 1) lifestyle, 2) media, and 3) IoT services. It

also announced plans to build an open ecosystem based on its telecom infrastructure,

transitioning from the traditional, closed ecosystem of telcos. The announcement shows

SKT’s determination to retain its mobile customers while also expanding customer base

by offering innovative services that meet users’ needs.

1) To promote the lifestyle platform, SKT said it will focus on “three “Cs”—content,

community, and commerce. In addition to its well-established commerce business

through SK Planet’s 11th Street and SK Broadband’s B Shopping, the company is

expected to further develop content and community services.

2) In the media segment, SKT aims to become a comprehensive media services provider.

The company plans to expand the number of mobile and fixed-line service subscribers to

15mn by 2018, almost double the end-2014 level. The acquisition of full ownership in SK

Broadband and SK Planet’s business portfolio adjustment are in line with this goal.

3) In the IoT service area, the company in May plans to launch a smart home service,

whereby home appliances can be controlled using its Mobius platform. For this business,

the company is cooperating with NSOK (SKT’s security subsidiary) and iRiver (a

consumer electronics company).

Among major global telcos, Softbank has been the most aggressive in developing the

platform business, having pursued gradual expansion and M&A strategies based on the

belief that telcos need to focus on platforms to take advantage of the telecom

infrastructure. In addition, because of the nature of OTT platforms, it is relatively easy

for them to expand into the global market. It is worth paying attention to whether SKT’s

outreach to the platform business delivers the anticipated results.

Figure 52. SKT’s next-generation platform strategy

Source: SK Telecom, Seoul finance, KDB Daewoo Securities Research

Figure 53. Softbank is increasing its enterprise value via global platform business

Source: Softbank, KDB Daewoo Securities Research

Next-generation platforms

Lifestyle platform Media platform IoT service platform

Open ecosystem based on telecoms network

Innovative services that satisfy the needs of customers

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Telecom margins to improve; New businesses to take off

SKT is focusing on improving the profitability of its mainstay telecom business in 1H.

Although the company’s voluntary retirement program in 1Q should push up costs in the

short term, cutting surplus staff should help the company reduce personnel and other

related costs going forward. Once SK Broadband becomes a wholly-owned subsidiary,

the company will likely carry out organizational and business restructuring for the media

business to further improve efficiency and lower costs.

SKT also plans to spur growth in new businesses, with platform likely to be the main

focus. New businesses are anticipated to generate over W1tr in revenue this year, up

from W900bn in 2014.

Table 12. Quarterly and annual earnings trends (Wbn, %, ‘000 persons)

1Q14 2Q14 3Q14 4Q14 1Q15F 2Q15F 3Q15F 4Q15F 2013 2014 2015F

Revenue 4,202 4,305 4,368 4,289 4,287 4,429 4,492 4,734 16,602 17,164 17,942

Parent 3,264 3,265 3,304 3,181 3,246 3,275 3,312 3,506 12,860 13,013 13,339

Wireless 3,037 3,035 3,055 2,926 2,994 3,021 3,035 3,222 12,008 12,053 12,271

New 227 229 249 255 252 254 276 285 852 960 1,067

Subsidiaries 938 1,040 1,064 1,110 1,041 1,154 1,180 1,227 3,742 4,151 4,603

Operating profit 252 546 537 490 514 474 584 557 2,011 1,825 2,129

OP margin 6.0 12.7 12.3 11.4 12.0 10.7 13.0 11.8 12.1 10.6 11.9

Net profit 267 498 531 503 537 483 573 535 1,609 1,799 2,128

Net margin 6.4 11.6 12.2 11.7 12.5 10.9 12.8 11.3 9.7 10.5 11.9

QoQ

Revenue -2.2 2.5 1.5 -1.8 -0.1 3.3 1.4 5.4

Parent -1.6 0.0 1.2 -3.7 2.0 0.9 1.1 5.9

Wireless -1.0 -0.1 0.7 -4.2 2.3 0.9 0.5 6.1

New -8.5 0.9 8.7 2.4 -1.2 0.9 8.7 3.0

Subsidiaries -4.2 10.9 2.3 4.3 -6.2 10.9 2.3 4.0

Operating profit -50.6 116.5 -1.7 -8.7 5.0 -7.9 23.3 -4.7

Net profit -9.0 86.2 6.7 -5.2 6.6 -10.1 18.8 -6.6

YoY

Revenue 3.4 4.6 5.9 -0.1 2.0 2.9 2.9 10.4 1.9 3.4 4.5

Parent 4.9 1.7 2.5 -4.1 -0.6 0.3 0.2 10.2 4.3 1.2 2.5

Wireless 3.4 1.0 1.9 -4.6 -1.4 -0.5 -0.6 10.1 2.7 0.4 1.8

New 29.

7 11.7 11.2 2.8 11.0 11.0 11.0 11.7 33.5 12.7 11.2

Subsidiaries -1.6 14.6 17.9 13.4 11.0 11.0 11.0 10.6 -5.7 10.9 10.9

Operating profit -37.7 0.1 -2.7 -3.8 104.1 -13.2 8.8 13.6 14.3 -9.2 16.6

Net profit -22.7 6.4 5.7 71.4 100.8 -3.0 8.0 6.3 44.2 11.8 18.3

Key indicators

Wireless

subscribers 27,814 27,889 28,403 28,613 28,400 28,596 28,791 29,183 27,352 28,613 29,183

LTE subscribers 14,773 15,381 16,212 16,737 17,295 17,853 18,411 18,969 13,487 16,737 18,969

Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests

Source: Company data, KDB Daewoo Securities Research

Table 13. Earning forecast revisions (Wbn, W, %)

Previous Revised % chg.

Notes 15F 16F 15F 16F 15F 16F

Revenue 17,926 18,559 17,942 18,641 0.1 0.4 - Revised up number of LTE subscribers

Operating profit 2,251 2,260 2,129 2,277 -5.4 0.8 - Reflected voluntary retirement costs and later effects

Net profit 2,207 2,221 2,128 2,260 -3.6 1.8 - Reflected dividend income from SK Hynix and KCC penalty

EPS 27,397 27,577 26,244 27,874 -4.2 1.1

OP margin 12.6 12.2 11.9 12.2

Net margin 12.3 12.0 11.8 12.1

Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to accumulation of controlling interests and minority interests;

EPS is based on controlling interests

Source: KDB Daewoo Securities Research

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SK Telecom (017670 KS/Buy/TP: W380,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(Wbn) 12/14 12/15F 12/16F 12/17F (Wbn) 12/14 12/15F 12/16F 12/17F

Revenue 17,164 17,942 18,641 19,203 Current Assets 5,083 6,049 6,583 8,230

Cost of Sales 0 0 0 0 Cash and Cash Equivalents 834 1,359 1,748 3,249

Gross Profit 17,164 17,942 18,641 19,203 AR & Other Receivables 3,083 3,402 3,498 3,603

SG&A Expenses 15,339 15,814 16,364 16,910 Inventories 268 295 307 316

Operating Profit (Adj) 1,825 2,129 2,277 2,293 Other Current Assets 898 993 1,030 1,062

Operating Profit 1,825 2,129 2,277 2,293 Non-Current Assets 22,858 23,936 24,410 24,519

Non-Operating Profit 429 538 555 554 Investments in Associates 6,298 6,951 7,222 7,440

Net Financial Income -264 -232 -192 -131 Property, Plant and Equipment 10,568 10,730 10,737 10,441

Net Gain from Inv in Associates 906 830 850 850 Intangible Assets 4,402 4,552 4,702 4,852

Pretax Profit 2,254 2,667 2,832 2,847 Total Assets 27,941 29,985 30,993 32,750

Income Tax 455 539 572 575 Current Liabilities 5,420 5,863 5,263 5,411

Profit from Continuing Operations 1,799 2,128 2,260 2,272 AP & Other Payables 1,657 1,829 1,901 1,958

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 1,151 1,151 367 367

Net Profit 1,799 2,128 2,260 2,272 Other Current Liabilities 2,612 2,883 2,995 3,086

Controlling Interests 1,801 2,119 2,251 2,263 Non-Current Liabilities 7,273 7,412 7,470 7,516

Non-Controlling Interests -2 9 9 9 Long-Term Financial Liabilities 5,930 5,930 5,930 5,930

Total Comprehensive Profit 1,771 2,128 2,260 2,272 Other Non-Current Liabilities 1,343 1,482 1,540 1,586

Controlling Interests 1,778 2,125 2,256 2,268 Total Liabilities 12,693 13,275 12,733 12,927

Non-Controlling Interests -7 3 4 4 Controlling Interests 14,506 15,959 17,500 19,054

EBITDA 4,717 5,117 5,370 5,489 Capital Stock 45 45 45 45

FCF (Free Cash Flow) 669 1,376 1,555 1,815 Capital Surplus 2,916 2,916 2,916 2,916

EBITDA Margin (%) 27.5 28.5 28.8 28.6 Retained Earnings 14,189 15,641 17,182 18,736

Operating Profit Margin (%) 10.6 11.9 12.2 11.9 Non-Controlling Interests 742 750 760 769

Net Profit Margin (%) 10.5 11.8 12.1 11.8 Stockholders' Equity 15,248 16,709 18,260 19,823

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/14 12/15F 12/16F 12/17F 12/14 12/15F 12/16F 12/17F

Cash Flows from Op Activities 3,677 4,526 4,655 4,715 P/E (x) 12.0 10.5 9.9 9.8

Net Profit 1,799 2,128 2,260 2,272 P/CF (x) 4.5 4.4 4.2 4.2

Non-Cash Income and Expense 2,979 2,929 3,007 3,052 P/B (x) 1.3 1.2 1.1 1.0

Depreciation 2,892 2,988 3,093 3,196 EV/EBITDA (x) 5.9 5.5 5.0 4.6

Amortization 0 0 0 0 EPS (W) 22,307 26,244 27,874 28,022

Others 87 -59 -86 -144 CFPS (W) 59,177 62,628 65,235 65,941

Chg in Working Capital -707 211 125 71 BPS (W) 206,159 224,145 243,233 262,471

Chg in AR & Other Receivables -221 -248 -103 -83 DPS (W) 9,400 10,000 10,000 10,000

Chg in Inventories 0 -28 -12 -9 Payout ratio (%) 37.1 33.3 31.4 31.2

Chg in AP & Other Payables -335 29 12 10 Dividend Yield (%) 3.5 3.6 3.6 3.6

Income Tax Paid -183 -539 -572 -575 Revenue Growth (%) 3.4 4.5 3.9 3.0

Cash Flows from Inv Activities -3,683 -3,482 -3,325 -3,111 EBITDA Growth (%) -2.6 8.5 4.9 2.2

Chg in PP&E -2,983 -3,150 -3,100 -2,900 Operating Profit Growth (%) -9.2 16.7 7.0 0.7

Chg in Intangible Assets -120 -150 -150 -150 EPS Growth (%) 9.9 17.6 6.2 0.5

Chg in Financial Assets -178 -182 -75 -61 Accounts Receivable Turnover (x) 7.4 7.1 6.9 6.9

Others -402 0 0 0 Inventory Turnover (x) 77.2 63.7 61.9 61.6

Cash Flows from Fin Activities -559 -696 -1,521 -735 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0

Chg in Financial Liabilities 413 0 -784 0 ROA (%) 6.6 7.3 7.4 7.1

Chg in Equity 0 0 0 0 ROE (%) 12.9 13.9 13.5 12.4

Dividends Paid -667 -667 -709 -709 ROIC (%) 10.2 11.4 12.0 12.2

Others -305 -29 -28 -26 Liability to Equity Ratio (%) 83.2 79.4 69.7 65.2

Increase (Decrease) in Cash -564 525 388 1,502 Current Ratio (%) 93.8 103.2 125.1 152.1

Beginning Balance 1,399 834 1,359 1,748 Net Debt to Equity Ratio (%) 36.6 29.8 20.7 11.4

Ending Balance 834 1,359 1,748 3,249 Interest Coverage Ratio (x) 5.6 6.8 7.7 8.2

Source: Company data, KDB Daewoo Securities Research estimates

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Pay-TV business: UHD and DCS to be the focus

Uncertainties over KT Skylife are gradually dissipating. The stock has underperformed on

1) uncertainties arising from the upcoming restriction on combined subscriber market

share, and 2) a slowdown in subscriber growth. However, the combined market share

restriction, in its final form, is unlikely to impact the company significantly, in our view.

In addition, the company will likely stage a recovery in net subscriber growth by

bolstering its technological strengths and making up for its weaknesses.

KT Skylife plans to make full use of the advantages of satellite TV. To take the lead in

picture quality improvement—one of the broadcast industry’s biggest trends at the

moment—the company is expected to release a UHD set-top box (in May), produce its

own UHD content, and increase the number of UHD channels in 1H. With UHD TVs

likely to get on the path to commoditization this year, it will be important to watch

whether the company can differentiate itself among pay-TV operators as a digital

satellite TV provider that is better positioned in terms of bandwidth. The company is

also likely to seek approval for the introduction of dish convergence solutions (DCS).

Furthermore, the company is anticipated to address its lack of VOD features, which is

often cited as one of the major weaknesses of satellite TV. Via its affiliate KTH, the

company plans to make VOD content available through any internet service provider.

We are encouraged by the company’s efforts to bolster its strengths and make up for its

weaknesses, as the essence of the pay-TV business is differentiation based on superior

service competitiveness.

Earnings forecast: Increase in earnings and dividend payout anticipated

This year, platform revenue is likely to increase, contributing to earnings improvement.

Home shopping commission revenue, one of the sources of platform revenue, appears to

be on the rise. In addition, negotiations on a home shopping commission hike are

currently underway. Of note, KT Skylife is expected to increase the number of T-

commerce channels.

Last year, the company’s earnings were dented by one-off expenses arising from 1) the

loss of a lawsuit and 2) mandatory conversion to HD channels for standard definition

(SD) channel subscribers. This year, with the elimination of one-off items, earnings are

expected to pick up, while dividend payout should increase as long as the company’s

payout ratio of 30% remains intact.

Valuation: Upgrade to Buy; Raise TP to W24,000

We upgrade our rating on KT Skylife from Trading Buy to Buy and raise our target price

to W24,000 (from W20,000). We eliminated the discount that we applied to our

previous target P/E, as uncertainties over the company are dissipating. Our target price

represents the average of 1) global peers’ average multiple times 2015F EPS, and 2)

2015F DPS divided by the stock’s 2014 dividend yield (1.9%). Various positive changes in

the pay-TV market are likely to boost the stock.

KT Skylife (053210 KS)

Uncertainties are dissipating

FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F

Revenue (Wbn) 551 600 623 637 661 682

OP (Wbn) 67 102 78 89 94 97

OP margin (%) 12.2 17.0 12.5 14.0 14.2 14.2

NP (Wbn) 56 73 56 66 71 73

EPS (W) 1,178 1,526 1,162 1,384 1,478 1,521

ROE (%) 17.6 19.3 13.2 14.4 13.8 13.0

P/E (x) 28.4 19.4 15.8 13.9 13.0 12.6

P/B (x) 4.6 3.4 2.0 1.9 1.7 1.5

Note: All figures are based on non-consolidated K-IFRS

Source: Company data, KDB Daewoo Securities Research estimates

Media

(Upgrade) Buy

Target Price (12M, W) 24,000

Share Price (04/23/15, W) 19,200

Expected Return 25%

OP (15F, Wbn) 89

Consensus OP (15F, Wbn) 96

EPS Growth (15F, %) 19.2

Market EPS Growth (15F, %) 38.8

P/E (15F, x) 13.9

Market P/E (15F, x) 11.0

KOSPI 2,173.41

Market Cap (Wbn) 918

Shares Outstanding (mn) 48

Free Float (%) 49.3

Foreign Ownership (%) 13.2

Beta (12M) 0.10

52-Week Low 15,150

52-Week High 27,400

(%) 1M 6M 12M

Absolute 23.5 -3.0 -20.8

Relative 15.7 -13.8 -27.1

50

70

90

110

130

4.14 8.14 12.14 4.15

KT Skylife KOSPI

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Focus on UHD and DCS, once uncertainties dissipate

Once uncertainties dissipate, shares should find revenue momentum from UHD and DCS,

as well as the platform business.

Recently, regulatory risks have been one of the biggest concerns for the company. The

enforcement decree of the Internet Multimedia Broadcasting Business Act (also dubbed

the IPTV act) has been revised to restrict the subscriber market share of a pay-TV

operator—based on the combined number of subscribers to all of its pay-TV services—to

no more than one-third; the regulation is slated to take effect in June. If redundancy is

not removed, KT will be in violation of the new subscriber cap, as the combined

subscriber market share of its parent-based IPTV business and subsidiary KT Skylife

exceeds the new cap.

We think the situation is not necessarily bleak for KT and KT Skylife, however. The

market share restriction has a sunset provision, meaning it will be in effect for only three

years before authorities reassess the rules and decide whether to change them. And it is

unlikely that OTS subscribers will be counted redundantly. Based on the number of set-

top boxes, we estimate that KT’s pay-TV market share will come out to approximately

29%, well below the one-third threshold.

Going forward, we expect KT Skylife to once again seek approval to introduce the DCS

business, while focusing on the UHD business.

Figure 54. Pay-TV value chain

Source: KDB Daewoo Securities Research

Figure 55. Media service subscriber trend

Source: Company data, KDB Daewoo Securities Research

P roduct ion/

programmingDevice

Content

provider

S kylife TV

(subsidiary)

Cost Revenue

Subscriber

S erv ice/dis t ribut ion

Pay TV

K T S kylife, satellite TV operator

Revenue

Home shopping/T-commerce

operators

Programusage fee

Service usagefee

Transmissionfees

49

50

51

52

53

54

55

56

3,800

3,900

4,000

4,100

4,200

4,300

4/13 7/13 10/13 1/14 4/14 7/14 10/14 1/15

(%)('000 persons)

KT Skylife subscribers (L)

% of KT-Skylife OTS bundling (R)

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Aggressive improvement in content lineup and T-commerce business

Lately, KT Skylife has been reinforcing the content business in an effort to widen its

subscriber base. The company suffered a sharp slowdown in net subscriber growth last

year amid intensifying competition and rising regulatory risks. Strengthening the

content business could help secure new sources of revenue, and could also serve as

preemptive action ahead of the expected increase in content costs.

KT Skylife has begun to beef up the content lineup at its channel operating subsidiary,

Skylife TV. In addition, the company rebranded channel names to start with “Sky” to

strengthen its brand identity. Skylife TV increased the number of channels from 7 to 11,

including one—Sky Sports—that has secured broadcasting rights from the Korea

Baseball Organization (KBO). Making full use of the technical advantages of satellite

broadcasting, the company plans to raise the number of UHD channels to three.

In addition, through cooperation with KTH, the company will likely be able to make VOD

services available through all internet service providers. Previously, VOD services were

provided to only bundled product (KT’s IPTV and Skylife TV’s satellite TV) subscribers.

We estimate that commissions paid by home shopping companies (recognized as

platform revenue) have been growing, and negotiations on a hike to existing home

shopping customers’ commissions are currently underway. KT Skylife has been the most

aggressive in the pursuit of T-commerce channel programs, which pay as much

commissions as home shopping companies. Currently, five non-home shopping

companies (including KTH and SK Broadband) and five home shopping companies (i.e.,

GS, CJ, Lotte, Hyundai, and NS) have licenses for T-commerce programs.

Figure 56. KT Skylife plans to increase the number of UHD channels to three by

producing its own UHD content

Source: Company data, KDB Daewoo Securities Research

Figure 57. T-commerce has ample room for growth

Notes: As of 2014 (in 2015, others besides KT Group have started expanding into T-commerce)

Source: Korea On-Line Shopping Association, MSIP, KCTA, KDB Daewoo Securities Research

31,960

41.1

77,728

13,140

40.6 32,396

9,290

29.7 31,305

170

7.82,185

Annual transaction value (Wbn) Platform users and households(mn persons)

Annual transaction value/users(W)

PC internet Mobile

Home shopping (live broadcasting) T-commerce (data broadcasting)

Obtained baseball broadcasting right Plan to have three UHD channels

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Earnings to improve on growing platform revenue and the dissipation of

one-off expenses

This year, platform revenue is likely to increase, contributing to earnings improvement.

Commissions paid by home shopping companies appear to be on the rise. Negotiations

on a home shopping commission hike are currently underway. Of note, KT Skylife is

expected to increase the number of T-commerce channels.

Last year, the company’s earnings were dented by one-off expenses arising from 1) the

loss of a lawsuit and 2) mandatory conversion to HD (from SD channel subscribers). This

year, with the elimination of one-off items, earnings are expected to pick up, while

dividend payout should increase as long as the company’s payout ratio of 30% remains

intact.

Table 14. Annual earnings (Wbn, %)

Notes: All figures are based on non-consolidated K-IFRS. Operating profit data pre-2014 is back-dated and adjusted for changes to accounting standards,

and thus differs from FSS disclosures

Source: Company data, KDB Daewoo Research estimates

1Q14 2Q14 3Q14 4Q14 1Q15F 2Q15F 3Q15F 4Q15F 2013 2014 2015F

Revenue 151 155 161 156 153 156 163 165 600 623 637

Service 97 96 94 92 92 92 92 96 391 378 371

Platform 30 31 35 35 36 36 39 40 108 130 152

Cost-related 14 14 14 12 13 13 13 12 54 53 52

Other 11 15 19 18 11 15 19 18 48 62 62

Operating profit 32 17 8 21 27 16 22 23 102 78 89

OP margin (%) 21.3 11.1 4.8 13.2 18.0 10.3 13.2 14.1 17.0 12.5 13.9

Net profit 24 14 4 13 22 12 16 17 73 56 66

Net margin (%) 15.8 9.3 2.6 8.4 14.1 7.7 10.0 10.0 12.2 8.9 10.4

QoQ growth

Revenue -2.7 2.3 3.7 -2.7 -2.4 2.4 4.5 1.4

Service -4.6 -1.1 -1.7 -2.6 0.0 0.2 0.3 4.0

Platform 0.4 4.4 11.4 0.2 5.2 0.0 7.8 2.0

Cost-related 6.7 0.0 0.1 -9.0 8.3 0.0 0.0 -10.0

Operating profit 61.3 -46.6 -55.2 167.5 33.5 -41.4 33.8 8.6

Net profit 101.2 -39.6 -71.4 217.3 64.7 -44.3 36.4 0.9

YoY growth

Revenue 1.7 5.0 7.7 0.5 0.9 0.9 1.7 5.9 8.9 3.7 2.3

Service 1.0 -1.2 -3.5 -9.6 -5.3 -3.9 -2.0 4.6 7.9 -3.4 -1.8

Platform 13.1 21.1 32.3 17.0 22.6 17.4 13.7 15.7 34.4 20.8 17.1

Cost-related -1.9 -1.5 -0.7 -2.8 -1.3 -1.3 -1.4 -2.6 -5.3 -1.3 -2.0

Operating profit -8.8 -5.9 -72.9 3.1 -14.7 -6.3 180.0 13.7 45.3 -23.6 13.7

Net profit -13.4 17.8 -80.7 10.2 -9.8 -16.8 297.1 26.3 22.4 -23.8 19.5

Key variables and assumptions

Cumulative subscribers

(‘000 persons) 4,218 4,244 4,258 4,261 4,262 4,281 4,300 4,338 4,181 4,261 4,338

% of OTS subscribers 54 54 55 55 54 54 55 55 53 55 55

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KT Skylife (053210 KS/Buy/TP: W24,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(Wbn) 12/14 12/15F 12/16F 12/17F (Wbn) 12/14 12/15F 12/16F 12/17F

Revenue 623 637 661 682 Current Assets 249 342 351 434

Cost of Sales 0 0 0 0 Cash and Cash Equivalents 108 100 102 153

Gross Profit 623 637 661 682 AR & Other Receivables 88 93 97 100

SG&A Expenses 545 548 567 585 Inventories 3 3 4 4

Operating Profit (Adj) 78 89 94 97 Other Current Assets 50 146 148 177

Operating Profit 78 89 94 97 Non-Current Assets 421 387 354 328

Non-Operating Profit -9 -6 -6 -6 Investments in Associates 25 26 27 28

Net Financial Income 1 2 5 8 Property, Plant and Equipment 309 273 238 211

Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 39 39 39 39

Pretax Profit 69 83 88 91 Total Assets 670 728 705 762

Income Tax 14 17 18 18 Current Liabilities 221 169 95 100

Profit from Continuing Operations 56 66 71 73 AP & Other Payables 0 0 0 0

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 80 20 -60 -60

Net Profit 56 66 71 73 Other Current Liabilities 141 149 155 160

Controlling Interests 56 66 71 73 Non-Current Liabilities 13 74 75 75

Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 60 60 60

Total Comprehensive Profit 52 66 71 73 Other Non-Current Liabilities 13 14 15 15

Controlling Interests 52 66 71 73 Total Liabilities 235 243 169 175

Non-Controlling Interests 0 0 0 0 Controlling Interests 436 485 536 587

EBITDA 149 157 152 147 Capital Stock 120 120 120 120

FCF (Free Cash Flow) 33 105 108 104 Capital Surplus 161 161 161 161

EBITDA Margin (%) 23.9 24.6 23.0 21.6 Retained Earnings 161 211 262 313

Operating Profit Margin (%) 12.5 14.0 14.2 14.2 Non-Controlling Interests 0 0 0 0

Net Profit Margin (%) 9.0 10.4 10.7 10.7 Stockholders' Equity 436 485 536 587

Cash Flows (Summarized)

Forecasts/Valuations (Summarized)

(Wbn) 12/14 12/15F 12/16F 12/17F 12/14 12/15F 12/16F 12/17F

Cash Flows from Op Activities 128 133 128 124 P/E (x) 15.8 13.9 13.0 12.6

Net Profit 56 66 71 73 P/CF (x) 5.6 6.2 6.5 6.9

Non-Cash Income and Expense 102 82 71 60 P/B (x) 2.0 1.9 1.7 1.5

Depreciation 68 65 55 47 EV/EBITDA (x) 5.4 4.9 4.5 4.1

Amortization 3 3 3 3 EPS (W) 1,162 1,384 1,478 1,521

Others 31 14 13 10 CFPS (W) 3,287 3,109 2,956 2,786

Chg in Working Capital -6 -1 0 1 BPS (W) 9,266 10,302 11,363 12,436

Chg in AR & Other Receivables 18 -5 -4 -3 DPS (W) 350 420 450 470

Chg in Inventories -3 0 0 0 Payout ratio (%) 30.0 30.2 30.3 30.7

Chg in AP & Other Payables -11 0 0 0 Dividend Yield (%) 1.9 2.2 2.3 2.4

Income Tax Paid -25 -17 -18 -18 Revenue Growth (%) 3.8 2.2 3.8 3.2

Cash Flows from Inv Activities -12 -123 -25 -51 EBITDA Growth (%) -9.7 5.4 -3.2 -3.3

Chg in PP&E -94 -28 -20 -20 Operating Profit Growth (%) -23.5 14.1 5.6 3.2

Chg in Intangible Assets -4 -3 -3 -3 EPS Growth (%) -23.9 19.1 6.8 2.9

Chg in Financial Assets 90 -92 -2 -28 Accounts Receivable Turnover (x) 6.6 7.0 7.0 6.9

Others -4 0 0 0 Inventory Turnover (x) 159.3 193.7 192.0 191.5

Cash Flows from Fin Activities -24 -17 -100 -21 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0

Chg in Financial Liabilities -1 0 -80 0 ROA (%) 8.3 9.5 9.9 9.9

Chg in Equity 0 0 0 0 ROE (%) 13.2 14.4 13.8 13.0

Dividends Paid -22 -17 -20 -21 ROIC (%) 20.6 23.6 28.2 32.9

Others -1 0 0 0 Liability to Equity Ratio (%) 53.9 50.1 31.6 29.7

Increase (Decrease) in Cash 91 -8 2 51 Current Ratio (%) 112.6 201.9 371.0 435.4

Beginning Balance 17 108 100 102 Net Debt to Equity Ratio (%) -16.8 -32.2 -44.7 -54.1

Ending Balance 108 100 102 153 Interest Coverage Ratio (x) 21.0 23.6 49.9 0.0

Source: Company data, KDB Daewoo Securities Research estimates

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Pay TV: ARPU to normalize; Digital conversion to provide earnings opportunity

CJ HelloVision, which holds cable SOs, has struggled with the changing business

environment. The company’s operating profit has declined for the past four years,

eroded by: 1) the increased investment burden and expenses associated with digital

conversion, and 2) entry into the MVNO business. While the digital conversion has

picked up speed, ARPU has deteriorated.

CJ HelloVision’s pay-TV business appears to have increasingly bright prospects. In the

US, pay-TV ARPU tended to stagnate when the digital conversion accelerated, but rose

markedly once the digital conversion and market consolidation were complete. As of

end-2014, CJ HelloVision’s digital subscribers already accounted for 60% of overall

subscribers.

Under a profit-oriented policy, CJ HelloVision is likely to move away from intensive

marketing campaigns for IPTV services and take a conservative marketing approach. If

the government limits excessive discounts on bundled plans, ARPU should improve and

marketing expenses should decrease. In addition, digital conversion should provide

opportunities to generate additional revenue. VOD revenue made a 20% contribution to

broadcasting service revenue in 2014, and is likely to continue to boost ARPU this year.

Given the launch of the T-commerce channel, commission incomes are forecast to grow.

Other business: MVNO to break even

CJ HelloVision suffered margin deterioration following expansion into the MVNO

business in 2012. However, the company enjoys a first-mover advantage, as it is the

leader in the MVNO market. With related revenue outstripping handset revenue, losses

have been declining. We expect the domestic MVNO market to undergo restructuring,

with some retailers (e.g., Homeplus) having discontinued the MVNO business and

second-tier players (e.g., Korea Post) suffering losses due to only meager net subscriber

growth. Market realignment should benefit top-tier firms such as CJ HelloVision.

Valuation: Raise TP to W16,000; Maintain Buy

We reiterate our Buy rating and raise our target price to W16,000 (from W13,000).

Although one-off losses emerged late last year, earnings are forecast to grow YoY this

year. We expect the company to see benefits from pay-TV/MVNO market restructuring.

Our target P/E corresponds to the average of global cable SOs’ P/Es (16x).

CJ HelloVision (037560 KS)

Combining prudent and bold strategies

FY (Dec.) 12/12 12/13 12/14F 12/15F 12/16F 12/17F

Revenue (Wbn) 891 1,160 1,270 1,349 1,438 1,499

OP (Wbn) 149 116 102 126 140 151

OP margin (%) 16.7 10.0 8.0 9.3 9.7 10.1

NP (Wbn) 104 77 26 77 89 96

EPS (W) 1,347 994 341 996 1,148 1,235

ROE (%) 15.5 9.6 3.0 8.2 8.7 8.7

P/E (x) 10.4 19.3 28.6 12.0 10.4 9.7

P/B (x) 1.5 1.7 0.8 0.9 0.9 0.8

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests

Source: Company data, KDB Daewoo Securities Research estimates

Media

(Maintain) Buy

Target Price (12M, W) 16,000

Share Price (04/23/15, W) 11,950

Expected Return 34%

OP (15F, Wbn) 126

Consensus OP (15F, Wbn) 117

EPS Growth (15F, %) 192.2

Market EPS Growth (15F, %) 38.8

P/E (15F, x) 12.0

Market P/E (15F, x) 11.0

KOSPI 2,173.41

Market Cap (Wbn) 925

Shares Outstanding (mn) 77

Free Float (%) 45.2

Foreign Ownership (%) 9.0

Beta (12M) 0.25

52-Week Low 8,640

52-Week High 17,800

(%) 1M 6M 12M

Absolute 19.5 7.2 -32.9

Relative 12.0 -4.7 -38.2

40

60

80

100

120

4.14 8.14 12.14 4.15

CJ HelloVision KOSPI

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ARPU to normalize; Digital conversion to provide earnings opportunity

CJ HelloVision holds cable SOs (broadcasting service providers/program distributors) and

Tving (an online/mobile distributor) under its umbrella. The company is a subsidiary of

CJ, which has the most extensive value chain in the broadcasting business. CJ

HelloVision is also affiliated with the program producer CJ E&M and with CJ O Shopping,

which pays commissions to CJ HelloVision for using its network.

CJ HelloVision’s pay-TV business appears to have increasingly bright prospects. In the

US, pay-TV ARPU tended to stagnate when the digital conversion accelerated, but rose

markedly once the digital conversion and market consolidation were complete. As of

end-2014, CJ HelloVision’s digital subscribers already accounted for 60% of overall

subscribers.

In addition, the digital conversion should provide opportunities to generate additional

revenue. VOD revenue made a 20% contribution to broadcasting service revenue in

2014, and is likely to continue to boost ARPU this year. With the launch of the T-

commerce channel, commission incomes are forecast to grow.

Under a profit-oriented policy, CJ HelloVision is likely to move away from intensive

marketing campaigns for IPTV services and take a conservative marketing approach. If

the government limits excessive discounts on bundled plans, ARPU should improve and

marketing expenses should decrease.

Figure 58. Pay-TV value chain

Source: KDB Daewoo Securities Research

Figure 59. Media service subscriber trend

Notes: OTT users based on monthly unique users

Source: Company data, Koreanclick, KDB Daewoo Securities Research

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

4/13 7/13 10/13 1/14 4/14 7/14 10/14 1/15

('000 persons) OTT Tving (web) unique visitor

OTT Tving (app) unique visitors

Cable CJ HelloVision subscribers

P roduct ion/

programmingDevice

Content

provider

S kylife TV

(subsidiary)

Cost Revenue

Subscriber

S erv ice/dis t ribut ion

Pay TVCJ HelloV is ion, cable SO

Revenue

Home shopping operator

CJ O Shopping (parent)

서비스

사용료Service usage

fee

Programusage fee

Trans-mission

fees

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Digital conversion to accelerate; MVNO to break even

We expect CJ HelloVision’s digital conversion to continue to accelerate this year. Digital

subscribers are anticipated to account for around 70% of the overall number by the end

of this year. The company is also considering M&A deals, but even without such deals,

the company should be able to continue expanding its digital subscriber base.

The company enjoys a first-mover advantage as the leader in the MVNO market. With

related revenue outstripping handset revenue, losses have been declining. We expect

the domestic MVNO market to undergo restructuring, and market realignment should

benefit top-tier firms such as CJ HelloVision.

Table 15. Quarterly and annual earnings trends (Wbn, %, ‘000 persons)

1Q14 2Q14 3Q14 4Q14 1Q15F 2Q15F 3Q15F 4Q15F 2013 2014 2015F

Revenue 307 317 326 320 322 334 335 359 1,160 1,270 1,349

TV 106 104 106 108 109 110 112 121 383 423 452

Internet/Phone 50 50 50 50 47 46 46 49 197 199 189

Ads (incl. home shopping) 62 65 66 69 67 71 72 75 232 262 284

New businesses 75 71 87 73 83 85 87 89 289 305 343

Other 14 28 17 21 15 21 20 24 59 81 81

Operating profit 27 28 25 22 27 33 31 36 116 102 126

OP margin 8.9 8.7 7.7 6.9 8.4 9.7 9.4 9.9 10.0 8.0 9.4

Net profit 15 16 12 -17 17 21 20 20 77 26 77

Net margin 5.0 5.0 3.6 -5.4 5.2 6.3 6.0 5.5 6.6 2.0 5.7

YoY

Revenue 12.1 11.4 9.0 5.7 4.8 5.1 2.8 12.1 30.2 9.5 6.2

TV 16.4 14.2 10.4 2.2 3.3 6.3 5.3 12.4 8.1 10.5 6.9

Internet/Phone 5.4 3.5 1.2 -5.8 -5.2 -6.2 -8.2 -0.8 8.6 0.9 -5.1

Ads (incl. home shopping) 14.5 18.0 16.8 4.3 7.8 7.9 8.0 9.2 10.1 13.0 8.3

New businesses 7.1 -6.9 5.9 19.9 10.7 19.9 0.1 21.7 183.3 5.8 12.4

Other 25.7 88.7 11.3 21.0 7.7 -23.5 13.9 14.2 39.1 36.2 0.0

Operating profit 6.4 16.6 -26.8 -31.6 -0.7 17.4 24.6 61.1 -22.5 -11.8 23.8

Net profit -6.9 -4.5 -54.2 TTR 9.1 31.2 72.9 -215.5 -26.3 -66.7 201.9

Key indicators

Broadcast subscribers 3,969 4,011 4,169 4,146 4,164 4,196 4,221 4,246 3,950 4,146 4,246

MVNO subscribers 657 731 789 832 884 936 988 1,040 599 832 1,040

Notes: All figures are based on consolidated K-IFRS; new businesses include MVNO services and revenue from device sales;

MVNO sales are booked on a net basis effective 4Q13; Net profit is attributable to controlling and non-controlling interests

Source: Company data, KDB Daewoo Securities Research estimates

Figure 60. Digital conversion rate Figure 61. MVNO business trends and forecast

Source: Company data, KDB Daewoo Securities Research estimates Notes: Excludes MVNO handset revenue

Source: Company data, KDB Daewoo Securities Research estimates

30

40

50

60

70

80

0

1,000

2,000

3,000

4,000

5,000

10 11 12 13 14 15F

('000 persons) (%)

Cable subscribers (L)

Digital conversion rate (R)

0

250

500

750

1,000

1,250

0

50

100

150

200

250

12 13 14 15F

(Wbn) ('000 persons)

MVNO service revenue (L)

MVNO subscribers (R)

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CJ HelloVision (037560 KS/Buy/TP: W16,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(Wbn) 12/14F 12/15F 12/16F 12/17F (Wbn) 12/14F 12/15F 12/16F 12/17F

Revenue 1,270 1,349 1,438 1,499 Current Assets 445 423 550 691

Cost of Sales 798 848 904 942 Cash and Cash Equivalents 85 42 144 268

Gross Profit 472 501 534 557 AR & Other Receivables 301 319 340 354

SG&A Expenses 370 375 394 406 Inventories 25 26 28 29

Operating Profit (Adj) 102 126 140 151 Other Current Assets 34 36 38 40

Operating Profit 102 126 140 151 Non-Current Assets 1,758 1,685 1,660 1,622

Non-Operating Profit -66 -23 -21 -22 Investments in Associates 4 4 4 5

Net Financial Income -24 -24 -17 -4 Property, Plant and Equipment 806 769 728 678

Net Gain from Inv in Associates -1 0 0 0 Intangible Assets 825 787 802 812

Pretax Profit 36 103 119 129 Total Assets 2,203 2,108 2,210 2,313

Income Tax 10 27 31 34 Current Liabilities 534 366 384 396

Profit from Continuing Operations 26 77 88 95 AP & Other Payables 188 199 212 221

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 284 101 101 101

Net Profit 26 77 88 95 Other Current Liabilities 62 66 71 74

Controlling Interests 26 77 89 96 Non-Current Liabilities 764 766 768 769

Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 737 737 737 737

Total Comprehensive Profit 25 77 88 95 Other Non-Current Liabilities 27 29 31 32

Controlling Interests 26 77 89 96 Total Liabilities 1,298 1,132 1,152 1,165

Non-Controlling Interests 0 0 -1 -1 Controlling Interests 904 975 1,058 1,148

EBITDA 388 421 456 481 Capital Stock 194 194 194 194

FCF (Free Cash Flow) 95 219 240 262 Capital Surplus 193 193 193 193

EBITDA Margin (%) 30.6 31.2 31.7 32.1 Retained Earnings 519 590 673 763

Operating Profit Margin (%) 8.0 9.3 9.7 10.1 Non-Controlling Interests 1 1 0 0

Net Profit Margin (%) 2.0 5.7 6.2 6.4 Stockholders' Equity 905 976 1,058 1,148

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/14F 12/15F 12/16F 12/17F 12/14F 12/15F 12/16F 12/17F

Cash Flows from Op Activities 320 369 400 422 P/E (x) 28.6 12.0 10.4 9.7

Net Profit 26 77 88 95 P/CF (x) 2.1 2.2 2.0 2.0

Non-Cash Income and Expense 335 345 364 368 P/B (x) 0.8 0.9 0.9 0.8

Depreciation 183 187 201 210 EV/EBITDA (x) 4.3 4.0 3.5 3.1

Amortization 103 108 115 120 EPS (W) 341 996 1,148 1,235

Others 49 50 48 38 CFPS (W) 4,667 5,449 5,836 5,978

Chg in Working Capital -7 -3 -5 -3 BPS (W) 11,669 12,590 13,663 14,823

Chg in AR & Other Receivables 2 -17 -19 -13 DPS (W) 75 75 75 75

Chg in Inventories -2 -2 -2 -1 Payout ratio (%) 22.1 7.6 6.6 6.1

Chg in AP & Other Payables -11 2 2 2 Dividend Yield (%) 0.8 0.6 0.6 0.6

Income Tax Paid -7 -27 -31 -34 Revenue Growth (%) 9.5 6.2 6.6 4.2

Cash Flows from Inv Activities -358 -222 -293 -292 EBITDA Growth (%) 13.5 8.5 8.3 5.5

Chg in PP&E -223 -150 -160 -160 Operating Profit Growth (%) -12.1 23.5 11.1 7.9

Chg in Intangible Assets 0 -70 -130 -130 EPS Growth (%) -65.7 192.1 15.3 7.6

Chg in Financial Assets -2 -2 -3 -2 Accounts Receivable Turnover (x) 4.8 4.8 4.8 4.8

Others -133 0 0 0 Inventory Turnover (x) 52.8 52.9 53.0 52.4

Cash Flows from Fin Activities 65 -189 -6 -6 Accounts Payable Turnover (x) 24.3 24.3 24.4 24.1

Chg in Financial Liabilities 87 -183 0 0 ROA (%) 1.2 3.6 4.1 4.2

Chg in Equity 0 0 0 0 ROE (%) 3.0 8.2 8.7 8.7

Dividends Paid -6 -6 -6 -6 ROIC (%) 4.2 5.3 6.1 6.6

Others -16 0 0 0 Liability to Equity Ratio (%) 143.5 116.1 108.8 101.5

Increase (Decrease) in Cash 25 -43 101 124 Current Ratio (%) 83.3 115.6 143.3 174.7

Beginning Balance 60 85 43 144 Net Debt to Equity Ratio (%) 101.6 79.8 63.9 48.0

Ending Balance 85 43 144 268 Interest Coverage Ratio (x) 3.0 3.8 4.7 5.1

Source: Company data, KDB Daewoo Securities Research estimates

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Combined market share regulations: Negative, but largely insignificant

KT has the largest pay-TV subscriber base in Korea, due to its subsidiary KT Skylife. As

such, compared to peers, the company has higher regulatory exposure to the upcoming

combined subscriber market share restrictions. However, we believe the negative impact

will not be as significant as many have anticipated.

As the regulation includes a three-year sunset provision, it will expire after three years

unless a decision is made to extend it following a review. Moreover, redundancy is likely

to be removed in counting OTS subscribers. Based on the number of set-top boxes, we

estimate that KT’s pay-TV market share will come out to approximately 29%, well below

the one-third threshold above which the rule will apply.

Faced with regulatory challenges, KT is expected to focus on maximizing its IPTV

platform revenue, including VOD monthly subscriptions, IPTV ads, and T-commerce;

these businesses tend to post higher profits than non-platform businesses.

Financial position to strengthen on proceeds from subsidiary sale (end-May)

In 2014, KT downsized its operations at both the parent and subsidiary levels, reporting

large net losses and failing to pay out any dividends. However, earnings will likely expand

this year on the back of lower fixed costs YoY.

At end-May, the company will recognize proceeds (roughly W60bn) from the sale of its

car rental subsidiary (KT Rental, for W1.02tr) as non-operating income. With operating

cash flow anticipated to improve from 2H, KT may resume dividend payments this year.

Valuation: Maintain Buy with TP of W40,000

We reiterate our Buy rating on KT with a target price of W40,000. This year, KT is

anticipated to see a turnaround in earnings, and thus is likely to pay dividends, unlike last

year. We expect to see stronger growth in 2H than in 1H, in light of the regulatory risks

that have weighed on shares in 1H. In addition to the sale of its car rental subsidiary,

earnings are improving across the board, at both the parent and subsidiary levels.

KT (030200 KS)

The light at the end of the tunnel

FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F

Revenue (Wbn) 23,856 23,811 23,422 22,683 22,826 23,184

OP (Wbn) 1,209 839 -292 1,147 1,215 1,373

OP margin (%) 5.1 3.5 -1.2 5.1 5.3 5.9

NP (Wbn) 1,046 -162 -1,055 1,131 665 805

EPS (W) 4,006 -622 -4,040 4,330 2,546 3,082

ROE (%) 8.7 -1.4 -9.5 10.4 5.7 6.6

P/E (x) 8.9 - - 6.8 11.6 9.6

P/B (x) 0.7 0.6 0.7 0.6 0.6 0.6

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests

Source: Company data, KDB Daewoo Securities Research estimates

Telecom Service

(Maintain) Buy

Target Price (12M, W) 40,000

Share Price (04/23/15, W) 29,650

Expected Return 35%

OP (15F, Wbn) 1,147

Consensus OP (15F, Wbn) 1,083

EPS Growth (15F, %) -

Market EPS Growth (15F, %) 38.8

P/E (15F, x) 6.8

Market P/E (15F, x) 11.0

KOSPI 2,173.41

Market Cap (Wbn) 7,742

Shares Outstanding (mn) 261

Free Float (%) 84.9

Foreign Ownership (%) 45.4

Beta (12M) 0.77

52-Week Low 28,500

52-Week High 36,800

(%) 1M 6M 12M

Absolute 0.7 -3.9 -9.2

Relative -5.7 -14.6 -16.4

70

80

90

100

110

120

4.14 8.14 12.14 4.15

KT KOSPI

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Largest pay-TV operator in Korea

KT has the largest pay-TV subscriber base in Korea. Its businesses include: 1) a

content production/programming company (Skylife TV, a second-tier subsidiary), and

2) service/distribution businesses, including IPTV (KT), digital satellite (KT Skylife), and

Olleh TV Mobile, KT’s OTT platform.

Until recently, the combined market share restrictions raised uncertainties over KT due

to its large pay-TV subscriber base. The revised law, taking effect in June, will prevent a

single pay-TV operator from holding a share of subscribers exceeding one-third of the

pay-TV market. The count will include subscribers to all of the operators’ pay-TV

subsidiaries, even across different technology platforms. As such, the cap will apply to

the combined subscribers of KT’s IPTV and subsidiary KT Skylife.

However, we believe the impact will be less significant than many have anticipated. As

the regulation includes a three-year sunset provision, it will expire after three years

unless a decision is made to extend it following a review. Moreover, it is likely that

redundancy will be removed in counting OTS subscribers. Based on the number of set-

top boxes, we estimate that KT’s pay-TV market share will come out to approximately

29%, well below the one-third threshold.

Looking ahead, KT is expected to see an increase in ARPU. Faced with regulatory

challenges, the company is likely to focus on maximizing its IPTV platform revenue,

including VOD monthly subscriptions, IPTV ads, and T-commerce.

Figure 62. Pay-TV value chain

Source: KDB Daewoo Securities Research

Figure 63. Media service subscriber trend

Notes: OTT users based on monthly unique users

Source: Company data Koreanclick, KDB Daewoo Securities Research

P roduct ion/

programmingDevice

Content provider

S kylife TV

Cost Revenue

Subscriber

Revenue Revenue

Ad rep company

Nasmedia

(subsidiary)

T-commerce

K TH

(subsidiary)

S erv ice/dis t ribut ion

Pay-TV

K T: Olleh TV (IPTV), Olleh TV Mobile (OTT)

K T S kylife, satellite subsidiary

Programusage fee

Service usagefee

Trans-mission

feesAd costs

0

2,000

4,000

6,000

8,000

10,000

4/13 7/13 10/13 1/14 4/14 7/14 10/14 1/15

('000 persons) OTT KT Olleh tv mobile unique visitors Skylife subscribers only

KT-Skylife OTS bundling subscribers KT IPTV subscribers only

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Proceeds from subsidiary sale to heighten dividend expectations

In 2014, the company downsized its operations at both the parent and subsidiary levels,

reporting large net losses and failing to pay out any dividends.

This year, however, earnings will likely expand on the back of lower fixed costs YoY. At

end-May, the company will recognize proceeds (roughly W60bn) from the sale of its car

rental subsidiary (KT Rental, for W1.02tr) as non-operating income. With operating cash

flow anticipated to improve from 2H, KT may resume dividend payments this year.

Table 16. Quarterly and annual earnings trends (Wbn, %, ‘000 persons)

1Q14 2Q14 3Q14 4Q14 1Q15F 2Q15F 3Q15F 4Q15F 2013 2014 2015F

Revenue 5,846 5,896 5,956 5,724 5,516 5,650 5,782 5,735 23,810 23,422 22,683

Service revenue 4,859 4,988 5,131 4,984 4,739 4,825 4,916 4,971 19,843 19,961 19,451

Wireless 1,783 1,799 1,913 1,820 1,842 1,843 1,887 1,904 6,977 7,315 7,476

Wireline 1,420 1,408 1,371 1,339 1,304 1,281 1,286 1,261 5,966 5,538 5,132

Media/content 370 381 396 362 378 387 395 507 1,355 1,508 1,667

Financial/rental 987 1,018 1,073 1,092 902 914 954 911 3,860 4,170 3,680

Other services 299 382 378 371 313 400 395 389 1,687 1,430 1,496

Product revenue 987 908 825 740 777 825 866 764 3,967 3,460 3,232

Operating profit 152 -813 335 34 317 334 329 167 840 -292 1,147

OP margin 2.6 -13.8 5.6 0.6 5.7 5.9 5.7 2.9 3.5 -1.2 5.1

Net profit -41 -757 74 -241 290 530 162 135 -61 -966 1,117

Net margin -0.7 -12.8 1.2 -4.2 5.3 9.4 2.8 2.3 -0.3 -4.1 4.9

QoQ

Revenue -4.2 2.4 3.8 -7.9 -5.7 -4.2 -2.9 0.2 -0.2 -1.6 -3.2

Service revenue -1.7 1.0 4.0 -0.9 -2.5 -3.3 -4.2 -0.2 3.1 0.6 -2.6

Wireless 1.5 2.7 11.6 3.8 3.3 2.4 -1.4 4.6 0.9 4.8 2.2

Wireline -6.7 -6.6 -6.2 -9.1 -8.2 -9.0 -6.3 -5.8 -6.7 -7.2 -7.3

Media/content 17.7 13.8 12.8 2.0 2.2 1.6 -0.2 40.2 26.8 11.3 10.5

Financial/rental 7.6 5.5 9.8 9.1 -8.6 -10.3 -11.1 -16.6 8.0 8.0 -11.8

Other services -30.7 1.0 -12.4 -16.7 4.5 4.7 4.6 4.8 29.0 -15.2 4.6

Product revenue -15.1 10.8 3.1 -37.5 -21.3 -9.1 5.0 3.2 -13.8 -12.8 -6.6

Operating profit -58.6 TTR 8.7 TTB 108.3 TTB -1.8 391.6 -31.4 TTR TTB

Net profit TTR TTR -45.8 -55.6 TTB TTB 118.9 TTB TTR RR TTB

YoY

Revenue

17,293 17,564 17,955 18,080 18,147 18,215 18,282 18,349 17,300 18,080 18,349

Service revenue 8,630 9,410 10,247 10,810 11,100 11,766 12,244 12,722 7,874 10,810 12,722

Wireless

30,984 31,020 31,211 31,248 31,313 31,126 31,033 30,940 31,053 31,248 30,940

Wireline 7,102 7,304 7,552 7,781 7,983 8,087 8,239 8,392 6,908 7,781 8,392

Notes: All figures are based on consolidated K-IFRS; Net profit is attributable to controlling interests; TTR, TTB, and RR refer to “turn to red,” “turn to black,” and

“remain red,” respectively; Earnings to be reclassified into discontinued operations and gain on disposal from 2015 due to the sell-off of KT Rental in 2Q15

Source: Company data, KDB Daewoo Securities Research estimates

Table 17. Earnings forecast revisions (Wbn, W, %)

Previous Revised % chg.

Notes 15F 16F 15F 16F 15F 16F

Revenue 23,360 23,435 22,683 22,826 -2.9 -2.6 - Moved to discontinued operations account due to the sale of

KT Rental

Operating profit 1,223 1,236 1,147 1,215 -6.2 -1.7 - Moved to discontinued operations account due to the sale of

KT Rental

Net profit 438 551 1,117 730 155.0 32.5 - Reflected reclassification related to the sale of KT Rental

EPS 1,509 1,921 4,330 2,546 186.9 32.5

OP margin 5.2 5.3 5.1 5.3

Net margin 1.7 2.1 5.0 2.9

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests

Source: KDB Daewoo Securities Research

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KT (030200 KS/Buy/TP: W40,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(Wbn) 12/14 12/15F 12/16F 12/17F (Wbn) 12/14 12/15F 12/16F 12/17F

Revenue 23,422 22,683 22,826 23,184 Current Assets 8,751 11,065 10,571 12,316

Cost of Sales 0 0 0 0 Cash and Cash Equivalents 1,889 4,191 3,652 5,290

Gross Profit 23,422 22,683 22,826 23,184 AR & Other Receivables 3,123 3,129 3,149 3,198

SG&A Expenses 23,713 21,536 21,611 21,811 Inventories 393 394 396 403

Operating Profit (Adj) -292 1,147 1,215 1,373 Other Current Assets 3,346 3,351 3,374 3,425

Operating Profit -292 1,147 1,215 1,373 Non-Current Assets 25,025 23,844 23,074 22,100

Non-Operating Profit -945 220 -278 -251 Investments in Associates 339 339 342 347

Net Financial Income -420 -422 -361 -310 Property, Plant and Equipment 16,468 15,685 15,233 14,504

Net Gain from Inv in Associates 18 613 0 0 Intangible Assets 3,544 3,144 2,821 2,558

Pretax Profit -1,237 1,367 937 1,122 Total Assets 33,776 34,909 33,645 34,416

Income Tax -271 270 206 247 Current Liabilities 9,992 10,005 8,194 8,305

Profit from Continuing Operations -966 1,097 730 875 AP & Other Payables 1,200 1,202 1,210 1,229

Profit from Discontinued Operations 0 20 0 0 Short-Term Financial Liabilities 3,000 3,000 1,145 1,145

Net Profit -966 1,117 730 875 Other Current Liabilities 5,792 5,803 5,839 5,931

Controlling Interests -1,055 1,131 665 805 Non-Current Liabilities 11,993 11,996 12,008 12,039

Non-Controlling Interests 89 -13 66 70 Long-Term Financial Liabilities 10,085 10,085 10,085 10,085

Total Comprehensive Profit -1,201 1,117 730 875 Other Non-Current Liabilities 1,908 1,911 1,923 1,954

Controlling Interests -1,277 1,114 727 872 Total Liabilities 21,985 22,001 20,203 20,344

Non-Controlling Interests 76 3 3 3 Controlling Interests 10,341 11,472 11,940 12,500

EBITDA 3,563 5,030 4,891 5,064 Capital Stock 1,564 1,564 1,564 1,564

FCF (Free Cash Flow) -936 1,892 1,723 2,107 Capital Surplus 1,440 1,440 1,440 1,440

EBITDA Margin (%) 15.2 22.2 21.4 21.8 Retained Earnings 8,571 9,702 10,171 10,731

Operating Profit Margin (%) -1.2 5.1 5.3 5.9 Non-Controlling Interests 1,449 1,436 1,502 1,572

Net Profit Margin (%) -4.5 5.0 2.9 3.5 Stockholders' Equity 11,790 12,908 13,442 14,072

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/14 12/15F 12/16F 12/17F 12/14 12/15F 12/16F 12/17F

Cash Flows from Op Activities 1,916 4,392 4,423 4,607 P/E (x) - 6.8 11.6 9.6

Net Profit -966 1,117 730 875 P/CF (x) 1.9 1.5 1.6 1.5

Non-Cash Income and Expense 5,368 3,966 4,244 4,248 P/B (x) 0.7 0.6 0.6 0.6

Depreciation 3,242 3,283 3,152 3,229 EV/EBITDA (x) 5.7 3.5 3.3 2.9

Amortization 612 600 524 462 EPS (W) -4,040 4,330 2,546 3,082

Others 1,514 83 568 557 CFPS (W) 16,859 19,467 19,049 19,618

Chg in Working Capital -2,023 5 17 42 BPS (W) 42,921 47,251 49,047 51,191

Chg in AR & Other Receivables 13 -6 -20 -49 DPS (W) 0 800 1,000 1,000

Chg in Inventories 267 -1 -2 -6 Payout ratio (%) 0.0 17.5 33.5 28.0

Chg in AP & Other Payables -418 2 8 19 Dividend Yield (%) 0.0 2.7 3.4 3.4

Income Tax Paid -84 -275 -206 -247 Revenue Growth (%) -1.6 -3.2 0.6 1.6

Cash Flows from Inv Activities -3,171 -2,702 -2,908 -2,720 EBITDA Growth (%) -20.1 41.2 -2.8 3.5

Chg in PP&E -2,775 -2,500 -2,700 -2,500 Operating Profit Growth (%) - - 5.9 13.0

Chg in Intangible Assets -569 -200 -200 -200 EPS Growth (%) - - -41.2 21.1

Chg in Financial Assets 150 -2 -8 -20 Accounts Receivable Turnover (x) 7.4 7.3 7.3 7.3

Others 23 0 0 0 Inventory Turnover (x) 46.5 57.6 57.8 58.0

Cash Flows from Fin Activities 1,072 0 -2,051 -244 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0

Chg in Financial Liabilities 1,292 0 -1,855 1 ROA (%) -2.8 3.3 2.1 2.6

Chg in Equity 0 0 0 0 ROE (%) -9.5 10.4 5.7 6.6

Dividends Paid -223 0 -196 -245 ROIC (%) -1.1 4.5 4.8 5.7

Others 3 0 0 0 Liability to Equity Ratio (%) 186.5 170.5 150.3 144.6

Increase (Decrease) in Cash -182 2,302 -538 1,637 Current Ratio (%) 87.6 110.6 129.0 148.3

Beginning Balance 2,071 1,889 4,191 3,652 Net Debt to Equity Ratio (%) 89.9 64.3 51.9 37.9

Ending Balance 1,889 4,191 3,652 5,290 Interest Coverage Ratio (x) -0.6 2.2 2.5 3.1

Source: Company data, KDB Daewoo Securities Research estimates

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Pay TV: Pursuing exclusive mobile content strategy based on LTE strength

LG Uplus has gained strength in LTE, as the company led the way in the spread of LTE

services. As such, the company has strong brand awareness, having achieved subscriber

growth at its wireless, fixed-line, and media businesses. In partnership with Google, the

company created TV G as a smart IPTV product. In 1Q, the company’s IPTV subscribers

exceeded the 2mn mark for the first time in its history. Among pay-TV operators, the

company currently ranks seventh in the number of subscribers. Moreover, its IPTV ads

have been completed sold out since June of last year.

With regard to its mobile business strategy, we note that LG Uplus has started to supply

exclusive mobile content based on its wide LTE bandwidth. The company’s exclusive

mobile content strategy is similar to that of Netflix, a major video-streaming service

provider in the US. In June 2014, LG Uplus launched Uflix Movie, which is optimized for

mobile video content. In addition, since signing a supply contract with the US cable

channel HBO in February 2015, the company has offered HBO content via its fixed-line

and wireless services. In March, the company rolled out an LTE-video plan to promote

the use of both TV services and mobile data.

Major business: Net subscriber additions continued in the MNP market

We believe LG Uplus was the sole telco in 1Q to see net subscriber additions in the

mobile number portability (MNP) market. As of March, the telco had added net

subscribers for 10 straight months, in sharp contrast to its rivals, which have suffered

net declines. The company has demonstrated strong business capabilities and profits in

the face of significant industry events, such as the introduction of the new handset

distribution law and the launch of the iPhone 6 (the first iPhone carried by the telco).

Along with robust net subscriber growth, traffic to U+ HDTV, the company’s mobile

IPTV service, is also increasing, bolstering its growth potential.

Since LG Uplus holds the largest share in the domestic payment gateway (PG) market,

the company is anticipated to benefit from the budding simplified payment services

market. Backed by its solid PG competitiveness, the company is currently expanding

partnerships with other simplified payment services, while beefing up its own simplified

payment service, Paynow.

Valuation: Reiterate Buy and TP of W16,000

We maintain our Buy rating and target price of W16,000 on LG Uplus. Dividend payout

in 2015 is likely to increase YoY considering the company’s financial condition (free cash

flow to turn positive in 2015). Although the company has a relatively small subscriber

base, we believe it has been making significant achievements in the domestic telecom

and broadcasting services market via a concentration strategy.

LG Uplus (032640 KS)

Pursuing Netflix-style content strategy based on LTE

strength

FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F

Revenue (Wbn) 10,905 11,450 11,000 10,781 10,934 10,985

OP (Wbn) 127 542 576 704 715 730

OP margin (%) 1.2 4.7 5.2 6.5 6.5 6.6

NP (Wbn) -60 279 228 361 385 412

EPS (W) -122 640 523 827 882 943

ROE (%) -1.6 7.2 5.6 8.3 8.3 8.4

P/E (x) - 16.8 22.0 12.4 11.6 10.9

P/B (x) 0.9 1.2 1.2 1.0 0.9 0.9

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests

Source: Company data, KDB Daewoo Securities Research estimates

Telecom Service

(Maintain) Buy

Target Price (12M, W) 16,000

Share Price (04/23/15, W) 10,250

Expected Return 56%

OP (15F, Wbn) 704

Consensus OP (15F, Wbn) 676

EPS Growth (15F, %) 58.1

Market EPS Growth (15F, %) 38.8

P/E (15F, x) 12.4

Market P/E (15F, x) 11.0

KOSPI 2,173.41

Market Cap (Wbn) 4,475

Shares Outstanding (mn) 437

Free Float (%) 63.9

Foreign Ownership (%) 34.0

Beta (12M) 0.53

52-Week Low 8,890

52-Week High 12,850

(%) 1M 6M 12M

Absolute -3.8 -6.0 1.5

Relative -9.8 -16.4 -6.6

70

80

90

100

110

120

130

4.14 8.14 12.14 4.15

LG Uplus KOSPI

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OTT services to expand thanks to wide LTE bandwidth

LG Uplus has been actively expanding its mobile video services, aided by its wide LTE

bandwidth. The company still has ample room to accommodate the simultaneous

growth of both the mobile subscriber base and per-capita data use.

In June 2014, LG Uplus launched Uflix Movie, which is optimized for mobile video

content. In March, the company rolled out an LTE-video plan to promote the use of both

TV services and mobile data.

Since February, LG Uplus has been pursuing an exclusive mobile content strategy, similar

to that of Netflix, based on its wide LTE bandwidth. Under this strategy, the company

exclusively offers HBO content via its fixed-line and wireless services (having signed a

supply contract with the US channel in February). HBO is famous for popular shows such

as Game of Thrones and The Newsroom. In April, LG Uplus signed a contract with MGM,

which is known for shows such as Vikings and The L Word, as well as movies such as

Terminator and The Silence of the Lambs.

LG Uplus’ LTE-based exclusive content strategy appears to be paying off, given that both

its fixed-line and mobile IPTV subscriber bases are expanding.

Figure 64. Pay-TV value chain

Source: KDB Daewoo Securities Research

Figure 65. Media service subscriber trend

Notes: OTT users based on monthly unique users,

Source: Company data, Koreanclick, KDB Daewoo Securities Research

P roduct ion/

programmingDevice

Content

provider

Cost Revenue

Subscriber

S erv ice/dis t ribut ion

Pay TV

LG Uplus: G TV (IPTV),

LG U+ HDTV (OTT)

Revenue

Home shopping/T-commerce

operators

Programusage fee

Service usagefee

Trans-missionfees

0

1,000

2,000

3,000

4,000

5,000

4/13 7/13 10/13 1/14 4/14 7/14 10/14 1/15

('000 persons)

OTT LG U+ HDTV unique visitors

IPTV G tv subscribers

LTE video-exclusive monthly plan

Uflix movie service

Free KBS VOD

HBO-exclusive plan

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Figure 66. Released Uflix Movie in June 2014 Figure 67. Released LTE video monthly plan in Mar. 2015

Figure 68. Signed exclusive contract with HBO in Feb. 2015 Figure 69. MGM has also signed a contract to supply content

Source: Company data, KDB Daewoo Securities Research

Table 18. Quarterly and annual earnings trends (Wbn, %, ‘000 persons)

1Q14 2Q14 3Q14 4Q14 1Q15F 2Q15F 3Q15F 4Q15F 2013 2014 2015F

Revenue 2,780 2,774 2,762 2,684 2,621 2,694 2,680 2,785 11,450 11,000 10,781

Service revenue 2,016 2,065 2,090 2,208 2,142 2,167 2,194 2,256 7,834 8,380 8,759

Wireless 1,249 1,275 1,297 1,390 1,345 1,365 1,393 1,444 4,768 5,212 5,547

Fixed-line 769 783 788 817 797 802 802 812 3,061 3,157 3,212

Handset revenue 760 704 667 471 475 523 481 524 3,599 2,602 2,004

% of revenue

Service revenue 72.5 74.5 75.7 82.3 81.7 80.4 81.9 81.0 68.4 76.2 81.2

Handset revenue 27.3 25.4 24.1 17.5 18.1 19.4 18.0 18.8 31.4 23.7 18.6

Operating profit 113 98 175 191 164 170 184 187 542 576 704

OP margin (%) 4.1 3.5 6.3 7.1 6.2 6.3 6.8 6.7 4.7 5.2 6.5

Net profit 27 34 82 85 88 87 95 91 279 228 360

Net margin (%) 1.0 1.2 3.0 3.2 3.4 3.2 3.5 3.3 2.4 2.1 3.3

YoY growth

Revenue -2.8 0.4 -4.1 -9.0 -5.7 -2.9 -3.0 3.8 5.0 -3.9 -2.0

Service revenue 9.1 6.7 5.1 7.1 6.2 4.9 5.0 2.2 11.7 7.0 4.5

Wireless 12.8 8.7 6.5 9.4 7.7 7.0 7.4 3.9 19.8 9.3 6.4

Fixed-line 4.0 2.8 2.1 3.7 3.5 2.4 1.7 -0.7 1.1 3.1 1.7

Handset revenue -24.4 -14.5 -24.6 -46.7 -37.5 -25.7 -27.9 11.4 -7.2 -27.7 -23.0

Operating profit -8.1 -32.3 17.4 52.5 44.6 73.4 5.2 -2.2 327.2 6.4 22.1

Net profit -63.9 -58.9 9.5 76.9 229.2 158.5 15.2 6.6 TTB -18.4 58.2

Key indicators

Wireless subscribers 10,875 11,008 11,159 11,267 11,411 11,589 11,678 11,767 10,874 11,267 11,767

LTE 7,462 7,813 8,182 8,457 8,784 9,112 9,439 9,767 7,089 8,457 8,457

Fixed-line subscribers 9,393 9,629 9,746 9,882 10,035 10,088 10,194 10,300 9,115 9,882 10,300

Media 1,672 1,784 1,875 1,949 2,040 2,075 2,137 2,200 1,550 1,949 2,200

Notes: All figures are based on consolidated K-IFRS; Net profit is attributable to controlling and non-controlling interests; TTB refers to “turn to black”;

Handset revenue recognized on a net basis from 4Q14

Source: Company data, KDB Daewoo Securities Research

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LG Uplus (032640 KS/Buy/TP: W16,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(Wbn) 12/14 12/15F 12/16F 12/17F (Wbn) 12/14 12/15F 12/16F 12/17F

Revenue 11,000 10,781 10,934 10,985 Current Assets 2,490 2,690 3,071 3,514

Cost of Sales 0 0 0 0 Cash and Cash Equivalents 416 524 851 1,250

Gross Profit 11,000 10,781 10,934 10,985 AR & Other Receivables 1,633 1,695 1,715 1,723

SG&A Expenses 10,423 10,077 10,219 10,255 Inventories 276 287 291 292

Operating Profit (Adj) 576 704 715 730 Other Current Assets 165 184 214 249

Operating Profit 576 704 715 730 Non-Current Assets 9,523 9,721 9,663 9,532

Non-Operating Profit -256 -248 -228 -209 Investments in Associates 9 0 0 0

Net Financial Income -171 -168 -149 -116 Property, Plant and Equipment 7,254 7,500 7,456 7,339

Net Gain from Inv in Associates 1 0 0 0 Intangible Assets 1,116 1,074 1,059 1,046

Pretax Profit 320 456 487 521 Total Assets 12,013 12,411 12,734 13,046

Income Tax 92 96 102 109 Current Liabilities 3,486 3,576 3,610 3,622

Profit from Continuing Operations 228 360 385 411 AP & Other Payables 1,427 1,481 1,502 1,509

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 1,129 1,129 1,129 1,129

Net Profit 228 360 385 411 Other Current Liabilities 930 966 979 984

Controlling Interests 228 361 385 412 Non-Current Liabilities 4,349 4,363 4,371 4,374

Non-Controlling Interests 0 0 0 -1 Long-Term Financial Liabilities 3,787 3,779 3,779 3,779

Total Comprehensive Profit 221 360 385 411 Other Non-Current Liabilities 562 584 592 595

Controlling Interests 221 361 385 412 Total Liabilities 7,835 7,938 7,981 7,996

Non-Controlling Interests 0 -1 -1 -1 Controlling Interests 4,177 4,473 4,753 5,051

EBITDA 2,082 2,326 2,324 2,311 Capital Stock 2,574 2,574 2,574 2,574

FCF (Free Cash Flow) -129 302 584 663 Capital Surplus 837 837 837 837

EBITDA Margin (%) 18.9 21.6 21.3 21.0 Retained Earnings 764 1,060 1,340 1,638

Operating Profit Margin (%) 5.2 6.5 6.5 6.6 Non-Controlling Interests 1 0 0 -1

Net Profit Margin (%) 2.1 3.3 3.5 3.8 Stockholders' Equity 4,178 4,473 4,753 5,050

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/14 12/15F 12/16F 12/17F 12/14 12/15F 12/16F 12/17F

Cash Flows from Op Activities 2,015 2,002 1,984 1,963 P/E (x) 22.0 12.4 11.6 10.9

Net Profit 228 360 385 411 P/CF (x) 2.2 2.0 2.0 2.0

Non-Cash Income and Expense 2,027 1,885 1,860 1,807 P/B (x) 1.2 1.0 0.9 0.9

Depreciation 1,334 1,454 1,444 1,418 EV/EBITDA (x) 4.6 3.8 3.7 3.5

Amortization 171 168 165 163 EPS (W) 523 827 882 943

Others 522 263 251 226 CFPS (W) 5,163 5,144 5,141 5,080

Chg in Working Capital -42 20 -10 -29 BPS (W) 9,567 10,244 10,886 11,569

Chg in AR & Other Receivables 254 -55 -21 -7 DPS (W) 150 240 260 280

Chg in Inventories 118 -11 -4 -1 Payout ratio (%) 28.8 29.1 29.5 29.7

Chg in AP & Other Payables -61 12 4 1 Dividend Yield (%) 1.3 2.3 2.5 2.7

Income Tax Paid -31 -96 -102 -109 Revenue Growth (%) -3.9 -2.0 1.4 0.5

Cash Flows from Inv Activities -2,307 -1,830 -1,552 -1,451 EBITDA Growth (%) 12.1 11.7 -0.1 -0.6

Chg in PP&E -2,136 -1,700 -1,400 -1,300 Operating Profit Growth (%) 6.3 22.2 1.6 2.1

Chg in Intangible Assets -175 0 -150 -150 EPS Growth (%) -18.3 58.1 6.7 6.9

Chg in Financial Assets 12 -5 -2 -1 Accounts Receivable Turnover (x) 7.3 7.3 7.3 7.2

Others -8 -125 0 0 Inventory Turnover (x) 32.8 38.3 37.9 37.7

Cash Flows from Fin Activities 309 -73 -105 -114 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0

Chg in Financial Liabilities 376 -8 0 0 ROA (%) 1.9 3.0 3.1 3.2

Chg in Equity 0 0 0 0 ROE (%) 5.6 8.3 8.3 8.4

Dividends Paid -65 -65 -105 -114 ROIC (%) 4.9 6.3 6.4 6.6

Others -2 0 0 0 Liability to Equity Ratio (%) 187.5 177.5 167.9 158.3

Increase (Decrease) in Cash 18 108 328 399 Current Ratio (%) 71.4 75.2 85.1 97.0

Beginning Balance 398 416 524 851 Net Debt to Equity Ratio (%) 106.7 97.1 84.4 71.5

Ending Balance 416 524 851 1,250 Interest Coverage Ratio (x) 2.7 3.3 3.3 3.4

Source: Company data, KDB Daewoo Securities Research estimates

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Pay TV: Content and commerce businesses to play a key role in KT Group’s

media strategy

KT Hitel (KTH) is focused on the content and commerce businesses. As the largest

copyright holder for movie VOD services, the company is providing content to almost all

pay-TV platforms (including KT). In addition, the company was one of first movers in the

T-commerce business.

KT, the parent company, boasts the largest media subscriber base, but might need to

change its media strategy in the face of regulatory risks related to subscriber market

share. Now seems to be the time to focus more on quality (e.g., securing additional

revenue sources) than quantity. We believe KTH will expand its role inside KT Group.

In addition, KTH provides IT services for KT Group, designs IPTV platforms, and develops

IPTV solutions, and has started to provide VOD content to KT Skylife channels. Due to

the technical nature of satellite broadcasting, KT Skylife relies on outside content

providers.

Other flagship businesses: Coverage of T-commerce business to expand

Currently, the T-commerce business is a flagship growth driver for KTH. Relevant

revenue contribution is forecast to grow quickly, to 30% in 2015 (from 6% in 2013 and

20% in 2014). We also estimate that T-commerce gross sales grew in 1Q. The company,

which had been providing T-commerce services only to KT Group’s platforms (Olleh TV

and KT Skylife), expanded T-commerce channel coverage to C&M in March and CJ

HelloVision in April. KTH plans to expand its coverage to almost every pay-TV platform.

The T-commerce market appears to have increasingly bright growth prospects. Recently,

several companies with T-commerce business licenses have moved to commercially

launch channels, and the large retailer Shinsegae is pushing to acquire a T-commerce

firm. Pay-TV platforms are also favorable to the T-commerce business, which should

provide commission revenue.

Valuation: Upgrade to Buy; Raise TP to W17,000

We upgrade KTH from Trading Buy to Buy, and raise our target price to W17,000 (from

W14,000). With the pay-TV business seeking additional revenue sources, the growth

prospects of the T-commerce market appear increasingly bright. The company’s T-

commerce business is expanding coverage and showing gross sales growth. In deriving

our target price, we applied a P/B of 2.8x (the level of domestic home shopping

companies during strong gross sales growth) to our 2016 BPS estimate.

KT Hitel (036030 KQ)

Content and commerce businesses key for KT’s media

strategy

FY (Dec.) 12/12 12/13 12/14F 12/15F 12/16F 12/17F

Revenue (Wbn) 127 130 136 159 179 197

OP (Wbn) -7 2 7 10 18 23

OP margin (%) -5.5 1.5 5.1 6.3 10.1 11.7

NP (Wbn) -11 2 12 11 17 22

EPS (W) -306 64 341 302 479 617

ROE (%) -6.4 1.4 6.5 5.4 7.9 9.4

P/E (x) - 121.1 22.4 41.7 26.3 20.4

P/B (x) 1.8 1.6 1.4 2.2 2.0 1.8

Note: All figures are based on non-consolidated K-IFRS

Source: Company data, KDB Daewoo Securities Research estimates

Media

(Upgrade) Buy

Target Price (12M, W) 17,000

Share Price (04/23/15, W) 12,600

Expected Return 35%

OP (15F, Wbn) 10

Consensus OP (15F, Wbn) 15

EPS Growth (15F, %) -11.4

Market EPS Growth (15F, %) 38.8

P/E (15F, x) 41.7

Market P/E (15F, x) 11.0

KOSDAQ 692.48

Market Cap (Wbn) 450

Shares Outstanding (mn) 36

Free Float (%) 32.9

Foreign Ownership (%) 4.6

Beta (12M) 0.53

52-Week Low 7,100

52-Week High 14,800

(%) 1M 6M 12M

Absolute -10.3 56.9 56.5

Relative -17.1 27.9 27.8

70

90

110

130

150

170

190

4.14 8.14 12.14 4.15

KTH KOSDAQ

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Pay TV: Content and commerce businesses to play a key role in KT Group’s

media strategy

KTH is focused on the content and commerce businesses. As the largest copyright

holder for movie VOD services, the company is providing content to almost all pay-TV

platforms (including KT). In addition, the company was one of first movers in the T-

commerce business.

Currently, the T-commerce business is a flagship growth driver for KTH. Relevant

revenue contribution is forecast to grow quickly, to 30% in 2015 (from 6% in 2013 and

20% in 2014). We also estimate that T-commerce gross sales grew in 1Q. The company,

which had been providing T-commerce services only to KT Group’s platforms (Olleh TV

and KT Skylife), expanded T-commerce channel coverage to C&M in March and CJ

HelloVision in April. KTH plans to expand its coverage to almost every pay-TV platform.

The T-commerce market appears to have increasingly bright growth prospects. Recently,

several companies with T-commerce business licenses have moved to commercially

launch channels, and the large retailer Shinsegae is pushing to acquire a T-commerce

firm. Pay-TV platforms are also favorable to the T-commerce business, which should

provide commission revenue.

Table 19. Annual earnings trends (Wbn, %)

2012 2013 2014 2015F 2016F

Revenue 127 130 136 159 179

Content distribution 44 51 48 51 53

Smart solutions 68 70 62 60 60

T-commerce - 8 26 48 67

Mobile service 14 2 - - -

Proportion of revenue

Content distribution 34.9 38.8 35.0 32.3 29.3

Smart solutions 53.9 53.5 45.6 37.8 33.5

T-commerce 0.0 5.9 19.4 29.9 37.1

Operating profit -7 2 7 10 18

OP margin -5.8 1.7 5.1 6.2 9.9

Net profit -11 2 12 11 17

Net margin -8.3 1.8 9.0 6.6 9.8

YoY

Revenue -2.9 2.7 4.5 16.7 12.8

Content distribution 25.9 14.2 -5.7 7.5 2.5

Smart solutions -6.3 1.9 -11.0 -3.2 0.0

T-commerce 240.6 80.0 40.0

Operating profit RR TTB 213.6 43.8 77.8

Net profit RR TTB 430.4 -13.8 66.1

Note: All figures are based on non-consolidated K-IFRS; TTB and RR refer to “turn to black” and “remain red,” respectively

Source: KDB Daewoo Securities Research estimates

Figure 70. T-commerce (screen shot of “K shopping” service) Figure 71. T-commerce has ample room for growth

Source: KTH, KDB Daewoo Securities Research Notes: As of 2014 (in 2015, others besides KT Group have started expanding into

T-commerce)

Source: Korea On-Line Shopping Association, MSIP, KCTA, KDB Daewoo

Securities Research T커머스는 2015년부터 KT 외의 플랫폼으로 채널 확대

Source: 온라인쇼핑협회, 미래창조과학부, KCTA, KDB DAEWOO SECURITIES

RESEARH

31,960

41.1

77,728

13,140

40.6 32,396

9,290

29.7 31,305

170

7.82,185

Annual transaction value(Wbn)

Platform users andhouseholds

(mn persons)

Annual transactionvalue/users

(W)

PC internet

Mobile

Home shopping (live broadcasting)

T-commerce (data broadcasting)

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KT Hitel (036030 KQ/Buy/TP: W17,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(Wbn) 12/14F 12/15F 12/16F 12/17F (Wbn) 12/14F 12/15F 12/16F 12/17F

Revenue 136 159 179 197 Current Assets 120 123 136 154

Cost of Sales 120 138 150 165 Cash and Cash Equivalents 32 19 19 25

Gross Profit 16 21 29 32 AR & Other Receivables 25 29 32 36

SG&A Expenses 9 11 11 9 Inventories 1 1 1 1

Operating Profit (Adj) 7 10 18 23 Other Current Assets 62 74 84 92

Operating Profit 7 10 18 23 Non-Current Assets 107 120 129 137

Non-Operating Profit 5 2 1 2 Investments in Associates 1 1 1 2

Net Financial Income 0 0 0 0 Property, Plant and Equipment 17 19 17 16

Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 25 26 26 27

Pretax Profit 12 12 19 25 Total Assets 227 243 265 291

Income Tax 0 1 2 2 Current Liabilities 30 35 39 43

Profit from Continuing Operations 12 11 17 22 AP & Other Payables 23 27 30 33

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0

Net Profit 12 11 17 22 Other Current Liabilities 7 8 9 10

Controlling Interests 12 11 17 22 Non-Current Liabilities 1 2 2 2

Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0

Total Comprehensive Profit 12 11 17 22 Other Non-Current Liabilities 1 2 2 2

Controlling Interests 12 11 17 22 Total Liabilities 31 36 41 45

Non-Controlling Interests 0 0 0 0 Controlling Interests 196 207 224 246

EBITDA 23 26 34 39 Capital Stock 36 36 36 36

FCF (Free Cash Flow) 38 16 26 32 Capital Surplus 214 214 214 214

EBITDA Margin (%) 16.9 16.4 19.0 19.8 Retained Earnings -69 -58 -41 -19

Operating Profit Margin (%) 5.1 6.3 10.1 11.7 Non-Controlling Interests 0 0 0 0

Net Profit Margin (%) 8.8 6.9 9.5 11.2 Stockholders' Equity 196 207 224 246

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/14F 12/15F 12/16F 12/17F 12/14F 12/15F 12/16F 12/17F

Cash Flows from Op Activities 40 21 28 34 P/E (x) 22.4 41.7 26.3 20.4

Net Profit 12 11 17 22 P/CF (x) 19.3 17.8 13.9 11.9

Non-Cash Income and Expense 2 15 15 16 P/B (x) 1.4 2.2 2.0 1.8

Depreciation 3 3 3 3 EV/EBITDA (x) 9.4 15.3 11.6 9.9

Amortization 13 13 13 13 EPS (W) 341 302 479 617

Others -14 -1 -1 0 CFPS (W) 396 708 904 1,058

Chg in Working Capital 22 -6 -5 -5 BPS (W) 5,487 5,790 6,268 6,886

Chg in AR & Other Receivables 11 -4 -4 -3 DPS (W) 0 0 0 0

Chg in Inventories -1 0 0 0 Payout ratio (%) 0.0 0.0 0.0 0.0

Chg in AP & Other Payables 11 4 3 3 Dividend Yield (%) 0.0 0.0 0.0 0.0

Income Tax Paid 0 -1 -2 -2 Revenue Growth (%) 4.6 16.9 12.6 10.1

Cash Flows from Inv Activities -33 -34 -29 -27 EBITDA Growth (%) 21.1 13.0 30.8 14.7

Chg in PP&E -2 -5 -2 -2 Operating Profit Growth (%) 250.0 42.9 80.0 27.8

Chg in Intangible Assets -21 -14 -14 -14 EPS Growth (%) 432.8 -11.4 58.6 28.8

Chg in Financial Assets -11 -15 -13 -11 Accounts Receivable Turnover (x) 4.6 6.1 6.0 5.9

Others 1 0 0 0 Inventory Turnover (x) 393.8 244.3 240.1 237.5

Cash Flows from Fin Activities 5 0 0 0 Accounts Payable Turnover (x) 7.0 5.6 5.3 5.2

Chg in Financial Liabilities - - - - ROA (%) 5.6 4.6 6.7 7.9

Chg in Equity 0 0 0 0 ROE (%) 6.5 5.4 7.9 9.4

Dividends Paid 0 0 0 0 ROIC (%) 8.2 10.9 18.1 22.0

Others - - - - Liability to Equity Ratio (%) 15.9 17.6 18.3 18.3

Increase (Decrease) in Cash 24 -12 0 6 Current Ratio (%) 405.4 354.3 347.1 357.5

Beginning Balance 8 32 19 19 Net Debt to Equity Ratio (%) -27.9 -22.3 -21.9 -23.8

Ending Balance 32 19 19 25 Interest Coverage Ratio (x) 0.0 0.0 0.0 0.0

Source: Company data, KDB Daewoo Securities Research estimates

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Pay TV: All of KT’s IPTV ad slots have been sold since June 2014

As KT Group’s media representative (a company that takes orders from advertisers on

behalf of media firms), Nasmedia takes orders for IPTV ads, which usually last one to two

minutes and play before KT Olleh TV’s VOD content begins playing.

KT’s IPTV ad slots have been completely sold since June 2014, pointing to strong

demand from advertisers. KT Group’s media power and brand awareness have

strengthened, as the group’s combined IPTV subscribers exceeded 10mn as of end-2014.

In addition, ad rates are expected to rise in light of the increase in average spending per

advertiser.

Major business: Solid mobile ad revenue growth

Nasmedia started out in online display ads, but has since expanded to mobile display ads,

which are the company’s major growth driver. The revenue contribution of mobile ads

stood at less than 10% in 2013, but has climbed to more than 20%. For 2015, we expect

online ads, including mobile ads, to account for 69% of total revenue, followed by

outdoor ads (digital signage, 19%) and IPTV ads (12%).

We are encouraged by the increase in orders from large customers. In particular, global

mobile gaming companies are mounting all-out marketing campaigns, increasing ad

orders for domestic media firms. Demand for cross-media marketing (combining mobile

and outdoor ads) is showing particularly strong growth. Nasmedia is well-positioned to

benefit from this trend, as the company’s business portfolio includes both mobile and

outdoor ads.

In addition, the company has diversified its ad media since being acquired by KT in 2008.

On behalf of KT, the company takes a variety of ad orders, including IPTV, satellite TV,

mobile, and outdoor ads. Outdoor ads include subways, bus shelters, airports, apartment

town boards, convenience stores, and movie theaters. Baseball park ads have recently

been added thanks to the launch of the baseball team KT Wiz.

Valuation: Maintain Buy and raise TP to W40,000

We maintain our Buy call on Nasmedia and raise our target price to W40,000 (from

W33,000). The company is one of the beneficiaries of new media ad market growth. We

revised our 2015 EPS estimate by 11%. We derived our target by applying the average

P/E (31x) of Asian internet firms’ and global advertising companies’ multiples.

Nasmedia (089600 KQ)

Well-positioned to take advantage of current media

usage trends

FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F

Revenue (Wbn) 23 25 30 36 41 46

OP (Wbn) 8 6 9 12 16 19

OP margin (%) 34.8 24.0 30.0 33.3 39.0 41.3

NP (Wbn) 6 6 8 11 13 16

EPS (W) 887 681 965 1,301 1,610 1,910

ROE (%) 15.7 11.2 13.4 16.1 17.4 17.8

P/E (x) - 16.6 24.7 23.9 19.3 16.3

P/B (x) - 1.7 3.1 3.6 3.1 2.7

Note: All figures are based on non-consolidated K-IFRS

Source: Company data, KDB Daewoo Securities Research estimates

Media

(Maintain) Buy

Target Price (12M, W) 40,000

Share Price (04/23/15, W) 31,050

Expected Return 29%

OP (15F, Wbn) 12

Consensus OP (15F, Wbn) 12

EPS Growth (15F, %) 34.8

Market EPS Growth (15F, %) 38.8

P/E (15F, x) 23.9

Market P/E (15F, x) 11.0

KOSDAQ 692.48

Market Cap (Wbn) 256

Shares Outstanding (mn) 8

Free Float (%) 30.0

Foreign Ownership (%) 3.9

Beta (12M) 1.03

52-Week Low 14,900

52-Week High 34,250

(%) 1M 6M 12M

Absolute 6.7 27.5 91.1

Relative -1.3 3.9 56.0

70

120

170

220

4.14 8.14 12.14 4.15

Nasmedia KOSDAQ

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KT’s IPTV ad slots have been completely sold since June 2014

Nasmedia takes IPTV ad orders from advertisers on behalf KT. IPTV ad revenue grew by

15% YoY in 2014, accounting for 15% of total revenue. IPTV ads, which usually last for

one to two minutes and play before VOD content begins playing, tend to attract higher

attention than conventional TV ads, as: 1) VOD viewers watch content more

purposefully; and 2) the number of IPTV ads allocated to a VOD is limited to one or two.

The IPTV ad market has been growing markedly since 2013, aided by changes in VOD

policies. In August 2013, at the request of terrestrial broadcasters, telcos operating IPTV

channels and cable SOs providing VOD services agreed to extend the holdback period—

after which VOD content becomes free—from one to three weeks, leading to higher

VOD sales and increasing IPTV ad exposure to viewers.

We believe the business environment in 2015 is bright. KT’s IPTV ad slots have been

completely sold since June 2014, pointing to strong demand from advertisers. KT

Group’s media power has strengthened, with combined IPTV subscribers exceeding

10mn as of end-2014. In addition, ad rates are expected to climb in light of the rising

average spending per advertiser. We project Nasmedia’s IPTV ad revenue to grow by

22% YoY in 2015.

Figure 72. IPTV VOD pre-loading ads drawing attention from viewers

Source: KT Mhouse, Company data, KDB Daewoo Securities Research

Figure 73. High growth of the IPTV ad market; KT IPTV ads have been sold out since last

June

Notes: Combined volume handled by three major IPTV companies

Source: Company data, KDB Daewoo Securities Research

0

20

40

60

80

100

09 10 11 12 13 14 15F

(Wbn)

Volume of IPTV ads handled

Olleh TV: Only one or two ads before the program

Ads 1 Ads 2 Ads 3 Ads 4No. ofads

Terrestrial/cable: Many ads placed before the program

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Well-positioned to grow in the ad market

As a new media rep, Nasmedia is well-positioned to grow in the ad market. Its flagship

mobile ad business is expanding, while ad orders are on the rise. Of note, as KT has the

largest IPTV subscriber base, it could overhaul its IPTV ad strategy, given that the media

firm is facing the combined subscriber market share restriction.

We revised up our 2015 revenue estimate to reflect mobile and IPTV ad market growth.

We also raised our expense estimate in light of the addition of manpower and

investments in new ad solutions arising from business expansion. However, we expect

operating profit to increase by 41% YoY, as revenue growth should exceed expense

growth.

Table 20. Annual earnings trends (Wbn, %)

2012 2013 2014 2015F 2016F

Revenue 23 25 30 36 41

Online/mobile ads 19 17 21 25 28

IPTV ads 2.0 3.2 3.6 4.4 5.1

Digital outdoor ads 2.4 4.9 5.2 6.7 7.4

Proportion of revenue

Online/mobile ads 81.1 67.4 70.3 68.9 69.5

IPTV ads 8.5 12.8 12.1 12.3 12.4

Digital outdoor ads 10.2 19.7 17.4 18.7 18.0

Operating profit 7.6 6.1 8.6 12.2 15.5

Operating margin 32.4 24.5 28.8 33.8 37.8

Net profit 6.5 5.6 8.0 10.7 13.3

Net margin 27.5 22.7 26.7 29.8 32.4

YoY

Revenue 8.3 5.5 20.5 20.6 13.9

Online/mobile ads 1.3 -12.3 25.7 18.2 14.9

IPTV ads 38.8 58.6 14.5 22.0 14.7

Digital outdoor ads 98.9 103.8 6.5 29.5 9.8

Operating profit -2.8 -20.4 42.0 41.5 27.4

Net profit 7.5 -13.0 41.7 34.7 24.0

Note: All figures are based on non-consolidated K-IFRS

Source: Company data, KDB Daewoo Securities Research

Table 21. Earnings forecast revisions (Wbn, W, %)

Previous Revised % chg. Notes

15F 16F 15F 16F 15F 16F

Revenue 35 40 36 41 1.5 3.0 - Reflected mobile and growth in IPTV ads

Operating profit 12 15 12 16 -2.5 2.0 - Revised wage and new business investment estimates

Net profit 10 12 11 13 11.5 13.5 - Revised non-operating profit and effective tax rate estimates

EPS 1,167 1,419 1,301 1,610 11.5 13.5

OP margin 36.1 37.5 33.3 39.0

Net margin 27.8 30 30.6 31.7

Note: All figures are based on non-consolidated K-IFRS

Source: KDB Daewoo Securities Research estimates

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Figure 74. Nasmedia’s advertising business is embracing new media

Source: Company data, KDB Daewoo Securities Research

Figure 75. Mobile business driving earnings growth

Source: Company data, KDB Daewoo Securities Research

Figure 76. KT’s wide media coverage (broadcasting, mobile, outdoor digital ads, and

baseball park)

Source: Company data, KDB Daewoo Securities Research

Nasmedia ads business

Internet ads

Mobile ads

Digital broadcasting ads Solution

Network ads

Outdoordigital ads

Outdoor ads

MobileBroadcasting (IPTV, satellite)

Traffic media- Subway - Bus- Airport

Life media- Convenience store- Main street- Theater

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Nasmedia (089600 KQ/Buy/TP: W40,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(Wbn) 12/14 12/15F 12/16F 12/17F (Wbn) 12/14 12/15F 12/16F 12/17F

Revenue 30 36 41 46 Current Assets 90 106 123 142

Cost of Sales 0 0 0 0 Cash and Cash Equivalents 4 6 12 20

Gross Profit 30 36 41 46 AR & Other Receivables 59 71 81 90

SG&A Expenses 21 24 26 27 Inventories 0 0 0 0

Operating Profit (Adj) 9 12 16 19 Other Current Assets 27 29 30 32

Operating Profit 9 12 16 19 Non-Current Assets 7 7 7 7

Non-Operating Profit 1 2 1 1 Investments in Associates 0 0 0 0

Net Financial Income 1 1 1 1 Property, Plant and Equipment 0 0 0 0

Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 1 1 1 1

Pretax Profit 10 14 17 20 Total Assets 98 113 130 149

Income Tax 2 3 4 5 Current Liabilities 33 40 46 51

Profit from Continuing Operations 8 11 13 16 AP & Other Payables 31 38 43 48

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0

Net Profit 8 11 13 16 Other Current Liabilities 2 2 3 3

Controlling Interests 8 11 13 16 Non-Current Liabilities 2 2 2 2

Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0

Total Comprehensive Profit 8 11 13 16 Other Non-Current Liabilities 2 2 2 2

Controlling Interests 8 11 13 16 Total Liabilities 35 42 48 54

Non-Controlling Interests 0 0 0 0 Controlling Interests 63 71 82 95

EBITDA 9 13 16 19 Capital Stock 4 4 4 4

FCF (Free Cash Flow) 1 6 9 12 Capital Surplus 22 22 22 22

EBITDA Margin (%) 30.0 36.1 39.0 41.3 Retained Earnings 36 45 56 69

Operating Profit Margin (%) 30.0 33.3 39.0 41.3 Non-Controlling Interests 0 0 0 0

Net Profit Margin (%) 26.7 30.6 31.7 34.8 Stockholders' Equity 63 71 82 95

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/14 12/15F 12/16F 12/17F 12/14 12/15F 12/16F 12/17F

Cash Flows from Op Activities 1 6 9 12 P/E (x) 24.7 23.9 19.3 16.3

Net Profit 8 11 13 16 P/CF (x) 18.3 19.7 15.7 13.1

Non-Cash Income and Expense 3 2 3 4 P/B (x) 3.1 3.6 3.1 2.7

Depreciation 0 0 0 0 EV/EBITDA (x) 18.5 17.6 13.5 10.8

Amortization 0 0 0 0 EPS (W) 965 1,301 1,610 1,910

Others 3 2 3 4 CFPS (W) 1,304 1,574 1,974 2,362

Chg in Working Capital -9 -6 -5 -5 BPS (W) 7,587 8,598 9,918 11,539

Chg in AR & Other Receivables -2 -2 -2 -2 DPS (W) 290 290 290 290

Chg in Inventories 0 0 0 0 Payout ratio (%) 30.1 22.3 18.0 15.2

Chg in AP & Other Payables -7 6 5 5 Dividend Yield (%) 1.2 0.9 0.9 0.9

Income Tax Paid -2 -3 -4 -5 Revenue Growth (%) 20.0 20.0 13.9 12.2

Cash Flows from Inv Activities 3 -2 -2 -2 EBITDA Growth (%) 50.0 44.4 23.1 18.8

Chg in PP&E 0 0 0 0 Operating Profit Growth (%) 50.0 33.3 33.3 18.8

Chg in Intangible Assets 0 0 0 0 EPS Growth (%) 41.7 34.8 23.8 18.6

Chg in Financial Assets 4 -2 -2 -2 Accounts Receivable Turnover (x) 3.3 3.6 3.5 3.5

Others -1 0 0 0 Inventory Turnover (x) 0.0 0.0 0.0 0.0

Cash Flows from Fin Activities -1 -2 -2 -2 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0

Chg in Financial Liabilities - - - - ROA (%) 8.2 10.2 10.9 11.3

Chg in Equity 0 0 0 0 ROE (%) 13.4 16.1 17.4 17.8

Dividends Paid -1 -2 -2 -2 ROIC (%) 23.5 27.0 30.4 33.3

Others - - - - Liability to Equity Ratio (%) 55.8 59.4 58.7 56.6

Increase (Decrease) in Cash 3 2 6 8 Current Ratio (%) 269.9 263.0 267.7 276.4

Beginning Balance 1 4 6 12 Net Debt to Equity Ratio (%) -49.2 -48.5 -50.5 -53.4

Ending Balance 4 6 12 20 Interest Coverage Ratio (x) 0.0 0.0 0.0 0.0

Source: Company data, KDB Daewoo Securities Research estimates

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APPENDIX 1

Important Disclosures & Disclaimers

2-Year Rating and Target Price History

Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price

CJ HelloVision(037560) 04/24/2015 Buy 16,000 08/03/2014 Buy 310,000

11/06/2014 Buy 13,000 10/29/2013 Buy 290,000

08/12/2014 Buy 20,000 07/19/2013 Buy 280,000

11/08/2013 Buy 22,000 06/11/2013 Buy 270,000

07/22/2013 Buy 23,000 No Coverage

KT Skylife(053210) 04/24/2015 Buy 24,000 LG Uplus(032640) 01/25/2015 Buy 16,000

01/28/2015 Trading Buy 20,000 10/01/2014 Buy 15,000

10/30/2014 Trading Buy 23,000 07/31/2014 Buy 11,500

10/05/2014 Trading Buy 25,000 04/28/2014 Buy 13,000

07/28/2014 Buy 29,000 01/20/2014 Buy 15,000

04/29/2014 Buy 30,000 07/19/2013 Buy 16,000

10/29/2013 Trading Buy 34,000 06/11/2013 Buy 15,000

10/02/2013 Trading Buy 32,000 No Coverage

07/30/2013 Buy 41,000

07/22/2013 Buy 45,000 KT(030200) 01/20/2015 Buy 40,000

05/02/2013 Buy 50,000 10/01/2014 Buy 42,000

04/19/2013 Buy 42,000 05/01/2014 Buy 40,000

KTH(036030) 04/24/2015 Buy 17,000 01/20/2014 Trading Buy 36,000

03/10/2015 Trading Buy 14,000 11/03/2013 Trading Buy 38,000

11/26/2014 Trading Buy 10,000 08/04/2013 Buy 44,000

No Coverage 07/19/2013 Buy 45,000

Nasmedia(089600) 04/24/2015 Buy 40,000 06/11/2013 Buy 50,000

11/26/2014 Buy 33,000 No Coverage

SK Telecom(017670) 10/01/2014 Buy 380,000

Stock Ratings Industry Ratings

Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving

Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes

Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening

Sell : Relative performance of -10%

Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆))

* Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months.

* Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material

development.

* The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of

future earnings.

* The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic

conditions.

0

10,000

20,000

30,000

40,000

50,000

60,000

Apr 13 Apr 14 Apr 15

(W) KT Skylife

0

5,000

10,000

15,000

20,000

Apr 13 Apr 14 Apr 15

(W) KTH

0

10,000

20,000

30,000

40,000

50,000

60,000

Apr 13 Apr 14 Apr 15

(W) KT Skylife

0

5,000

10,000

15,000

20,000

25,000

Apr 13 Apr 14 Apr 15

(W)CJ HelloVision

0

10,000

20,000

30,000

40,000

50,000

Apr 13 Apr 14 Apr 15

(W) Nasmedia

0

10,000

20,000

30,000

40,000

50,000

Apr 13 Apr 14 Apr 15

(W) Nasmedia

0

5,000

10,000

15,000

20,000

Apr 13 Apr 14 Apr 15

(W) LG Uplus

0

100,000

200,000

300,000

400,000

Apr 13 Apr 14 Apr 15

(W) SK Telecom

0

10,000

20,000

30,000

40,000

50,000

60,000

Apr 13 Apr 14 Apr 15

(W) KT

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Analyst Certification

The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean

securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions

expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this

report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s

area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified

herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been

promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific

recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by

overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and

private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of

the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.

Disclaimers

This report is published by Daewoo Securities Co., Ltd. (“Daewoo”), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange.

Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been

independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or

correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English

translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this

report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This

report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any

securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of

the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any

laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof.

Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or

form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers,

employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a

purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or

agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment

banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to

in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to

future performance. Future returns are not guaranteed, and a loss of original capital may occur.

Distribution

United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within

Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other

persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant

Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its

contents.

United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional

investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance

thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that

they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed

herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The

securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or

sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements.

Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong

Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for

distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws

of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person.

All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or

its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its

affiliates to any registration or licensing requirement within such jurisdiction.

Disclosures

As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for single stock futures backed by shares of KT as an underlying asset,

and other than this, Daewoo Securities has no other special interests in the covered companies.

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KDB Daewoo Securities International Network

Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc.

Head Office

34-3 Yeouido-dong, Yeongdeungpo-gu

Seoul 150-716

Korea

Two International Finance Centre

Suites 2005-2012

8 Finance Street, Central

Hong Kong, China

320 Park Avenue

31st Floor

New York, NY 10022

United States

Tel: 82-2-768-3026 Tel: 85-2-2845-6332 Tel: 1-212-407-1000

Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Ltd. Tokyo Branch

41st Floor, Tower 42

25 Old Broad St.

London EC2N 1HQ

United Kingdom

Six Battery Road #11-01

Singapore, 049909

7th Floor, Yusen Building

2-3-2 Marunouchi, Chiyoda-ku

Tokyo 100-0005

Japan

Tel: 44-20-7982-8000 Tel: 65-6671-9845 Tel: 81-3- 3211-5511

Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office

2401A, 24th Floor, East Tower, Twin Towers

B-12 Jianguomenwai Avenue

Chaoyang District, Beijing 100022

China

Room 38T31, 38F SWFC

100 Century Avenue

Pudong New Area, Shanghai 200120

China

Suite 2103, Saigon Trade Center

37 Ton Duc Thang St,

Dist. 1, Ho Chi Minh City,

Vietnam

Tel: 86-10-6567-9299 Tel: 86-21-5013-6392 Tel: 84-8-3910-6000

Daewoo Investment Advisory (Beijing) Co., Ltd. Daewoo Securities (Mongolia) LLC PT. Daewoo Securities Indonesia

2401B, 24th Floor, East Tower, Twin Towers

B-12 Jianguomenwai Avenue,

Chaoyang District, Beijing 100022

China

#406, Blue Sky Tower, Peace Avenue 17

1 Khoroo, Sukhbaatar District

Ulaanbaatar 14240

Mongolia

Equity Tower Building Lt.50

Sudirman Central Business District Jl.

Jendral Sudirman Kav. 52-53, Jakarta Selatan

Indonesia 12190

Tel: 86-10-6567-9699 Tel: 976-7011-0807 Tel: 62-21-515-1140