Daum car insurance estimates

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					Company Analysis
19 December 2005

Daum (035720)
                                                                                                                     Jong-gil Hong

Earnings improvement from increased traffic
Rating: Hold / Closing price: W40,300 (16 Dec 2005) / Price target: W40,800

!   Maintain Hold, but raise the six month price target 39.2% from W29,300 to W40,800,
    derived by applying an EV/ EBITDA of 8.0x to our 2006 earnings estimates due to the following:
    1) we expect profit to increase on the back of the company’s rapidly expanding search market
    share in line with the launch of its new Café Search service. We need to see whether the
    increase in the market share sustains, 2) earnings of subsidiaries, such as Lycos and Daum
    Direct Car Insurance should gradually improve. Competition in the online car insurance market
    should stiffen, which would negatively affect Daum’s Car Insurance business, 3) gift coupon
    sales which secure high operating margins should contribute to earnings, 4) the current stock
    price hike is attributable to the aforementioned improvement in fundamentals, but a visible
    earnings improvement is necessary for the stock’s price to rise further.

!   We forecast sales and operating profit in 4Q05 to increase 7.7% and 20.3% QoQ to
    W56.0bn and W10.6bn, respectively. Gift coupon sales, which the started in Sep 05 and
    generates monthly revenue of W1-2bn, should make a significant contribution to profit
    considering the high operating margin of 20-30%. Marketing expenditure in the e-commerce
    division should increase in 4Q05 due to high seasonal demand. Operating margin in 4Q05
    should improve 2.0%p to 18.9% thanks to revenue growth. We project recurring profit to turn
    black thanks to non-operating profit from a USD 10mn settlement fee with Microsoft.

!   Lycos’ CEO stated that Lycos might turn to black in Dec 05, in terms of EBITDA and plans
    to be listed within two years. A Daum spokesperson commented that the statement is the
    personal opinion of Lycos’ CEO and reaffirmed its original plan to achieve BEP in terms of
    EBITDA in 4Q06. There are 50,000 Planet (personal mini homepages) users and Lycos plans
    to increase traffic via the rising number of Planet users, rather than profiting directly from the
    service. The company is attempting to improve profitability by increasing the number of
    advertisements and communities. The company is pursuing a similar strategy with Taon Japan.

!   The search market share has rapidly grown along with the higher number search page
    views. The company’s search market share was 12.8% in Nov 05, up 0.2%p MoM and 1.1%p
    from Sep 05, respectively. The increased search market share stems from growing Café
    Search which provides search services for Café content. We project search advertisement
    sales in 4Q05 will grow 10.0% QoQ considering the decrease of CPM (Cost Per Thousand)
    sales in line with the in-house operation of CPC (Click Per Click) advertisements. Banner sales
    in 4Q05 should rise 3.5% QoQ due to the seasonal effect, even without a further increase in
    advertisement unit prices.

!   The company operates its shopping business via its B2C oriented d&shop and the C2C
    oriented Daum onket. It has transferred its open market business to Daum onket in an effort
    to lure power sellers. The company also plans to strengthen its marketing activities via
    advertising, considering the high market share of Auction and Interpark (G market) as well as
    the rapid growth of GS eStore.

                                      16 December 2005 / W40,300 / Mkt cap: USD610.5mn, KRW619.0bn
Yr to      Sales        OP         RP        NP       EPS       Chg. EBITDA     P/E EV/EBITDA    PBR    ROE
Dec       (W bn)     (W bn)     (W bn)    (W bn)     (Won)      %YoY (W bn)      (x)       (x)    (x)    (%)
2003A      141.4       37.6       29.3       25.2     1,731     769.8   54.1   31.0      14.1    6.3     23.7
2004A      187.4       35.6      -12.0      -18.3    -1,222       NM    55.9    NM       11.7    6.0    -15.2
2005F      207.8       38.9      -16.7      -27.2    -1,785       NM    61.8    NM       10.3    8.4    -28.4
2006F      250.2       54.5        6.5       4.7       305        NM    77.4 132.3        7.9    8.0     5.5
2007F      283.3       64.3       33.7      24.4     1,590      422.0   87.2 25.3         6.9    6.2    24.5
Source: Company data, Korea Investment & Securities estimates

The company has maintained the number two market position (13.7%) in the online car
insurance market following Kyobo Insurance (43.9%) as of end-Aug 05, according to the Korea
Deposit Insurance Corporation. Operating losses in 3Q05 declined W0.4bn QoQ to W1.5bn. The
company expects to achieve BEP in terms of net profit in 3Q06, considering the rapid growth of the
online car insurance market, sustainable market share, as well as asset management profit.
However, competition in the online car insurance market should stiffen along with the penetration
by off line companies from market expansion. The company might achieve economies of scale later
than expected due to lowered profitability. The rising loss rate in car insurance is another concern.

Quarterly Earnings                                                                                                      (W bn)
                                      2004                                                   2005
                          1Q         2Q         3Q         4Q           1Q        2Q        3Q        4QF       QoQ       YoY
Sales                   44.1       46.9       49.5       47.0         48.8      51.0      52.0       56.0       7.7%    19.2%
  Banner ad             15.9       15.9       18.0       14.2         15.0      16.8      16.2       16.7     3.5%      18.1%
  Search ad              7.1        8.8        8.8       10.9         13.1      14.6      14.3       15.7    10.0%      44.7%
  E-commerce            11.5       12.8       12.4       13.4         14.5      15.4      15.5       18.2    16.9%      35.9%
 Transaction             9.6        9.5       10.3        8.6          6.3       4.2       6.0        5.4    -10.0%    -37.3%
OP                      11.1       11.7       10.0        2.8          8.5      11.1       8.8       10.6     20.3%    282.9%
 OP margin            25.3%      25.0%       20.3%      5.9%         17.3%    21.8%     16.9%       18.9%
RP                       5.5        5.0         0.9     -23.4          -9.9     -2.3      -9.2         4.7       NM        NM
NP                       1.5        1.9         0.2     -21.9         -12.3     -5.3     -11.2         1.6       NM        NM
Notes: Open market sales has transferred to Daum onket from Sep 05
Source: Company data, Korea Investments & Securities estimates

Search page view market share of major domestic search sites

 14.0%                                                                                                                 72.0%

 12.0%                                                                                                                 70.0%

 10.0%                                                                                                                 68.0%

   8.0%                                                                                                                66.0%

   6.0%                                                                                                                64.0%

   4.0%                                                                                                                62.0%
                                                                     Daum (LHS)                  Yahoo! (LHS)
   2.0%                                                                                                                60.0%
                                                                     Empas (LHS)                 NAVER (RHS)
   0.0%                                                                                                                58.0%
           Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05                 Jul-05   Aug-05 Sep-05 Oct-05 Nov-05

Source: Koreanclick, M/S recalculated by Korea Investments & Securities based on the major eight

Company Description
Daum is a leading domestic Internet portal and has a large community and e-mail service market
share. The company generated 59.6%, 29.9% and 10.4% of its revenue from advertising (search,
branding), e-commerce and others (transaction services), respectively in 1H05. The company is
pursuing a community portal business in the US and Japanese markets through overseas
subsidiaries (Lycos-US and Taon-Japan).

Statement of Risk
The company has subsidiary related risks (US Lycos, Daum Direct-car insurance), and the
declining market share of portals. Daum’s high weight of banner advertisement and e-commerce
sales are significantly influenced by the domestic economic situation and advertisement market

Change in recommendation and price target
Company (Code)                                                            Date                Recommendation                      Price target
Daum Communications Corp. (035720)                                      05-14-03                       Hold                           W63,000
                                                                        07-27-04                       Hold                           W51,600
                                                                        08-03-04                       Hold                           W37,400
                                                                        01-10-05                       Hold                           W23,800
                                                                        05-04-05                       Hold                           W20,500
                                                                        07-11-05                       Hold                           W23,200
                                                                        09-20-05                       Hold                           W29,300
                                                                        12-19-05                       Hold                           W40,800

                                               Target Price

                                   Closing price

■ Korea Investment & Securities Co., Ltd. stock recommendation classifications based on 6-month forward share price performance relative to market index performance.
   ! Strong Buy: Assumes over 30% out performance relative to market index
   ! Buy: Assumes 10~30% out performance relative to market index
   ! Hold: Assumes -10~10% share price performance relative to market index
   ! Underweight: Assumes over 10% share price under performance relative to market index

■ Korea Investment & Securities Co., Ltd. sector recommendation classifications based on 6-month forward performance of sector’s portfolio weight to KOSPI (KOSDAQ)
  market capitalization weight
   ! Overweight: Assumes sector’s portfolio weight to outperform KOSPI (KOSDAQ) market capitalization weight
   ! Neutral: Assumes sector’s portfolio weight to have same return as KOSPI (KOSDAQ) market capitalization weight
   ! Underweight: Assumes sector’s portfolio weight to under perform KOSPI (KOSDAQ) market capitalization weight

■    Analyst Certification
    I/We, as the research analyst/analysts who prepared this report, do hereby certify that the views expressed in this research report accurately reflect my/our personal views about the
    subject securities and issuers discussed in this report. I/We do hereby also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific
    recommendations or views contained in this research report.

Korea Investment & Securities Co., Ltd. does not own over 1% of the companies mentioned this report as of 19 December 2005. Korea Investment & Securities Co., Ltd. has provided this
report to various third parties. Neither the analysts covering these companies nor their spouses own any shares of the companies mentioned in this report as of 19 December 2005. The
contents of this report accurately reflect the analyst’s views. Under no circumstances were there any external pressures or intervention during the analysis process or the preparation of this
report.                                                                                                                                                          Prepared by: Jong-gil Hong

This report was written by Korea Investment & Securities Co., Ltd. to help its clients invest in securities over which Korea Investment & Securities Co., Ltd. holds the copyright. This report
cannot be copied, redistributed, forwarded or altered in any way without the consent of Korea Investment & Securities Co., Ltd. This report has been prepared by Korea Investment &
Securities Co., Ltd. and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. We make no
representation as to its accuracy or completeness and it should not be relied upon as such. The company accepts no liability whatsoever for any direct or consequential loss arising from
any use of this report or its contents. The final investment decision is based on the client’s judgment, and this report cannot be used as evidence in any legal dispute related to investment


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