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					Shipping
Industry Analysis
Jun 14, 2012




                                                        Shipping liners’ earnings to improve substantially
  Positive (Upgrade)
                                                        on rising freight rates
  Analyst
  Martin Song                                          Raise rating on sector to Positive and rating on Hanjin Shipping to Buy
  822)768-7473, martin.song@wooriwm.com
                                                       – We revise up our investment rating on the shipping sector from Neutral to Positive,
                                                         recommending Hanjin Shipping (HJS) as our top pick, with a target price of W20,000
                                                         (up from W14,000). After racing towards a bottom in 2011, we believe that the
                                                         shipping sector has now bottomed and that a cyclical upturn has begun. Given their
                                                         intrinsic value, we believe that domestic shipping shares are attractively valued; thus,
                                                         we recommend overweighting on the sector.

                                                       Further rate hikes likely on easing oversupply and rising trade volume
                                                       – Amid the stagnant global economy and oversupply conditions, the shipping sector
                                                         experienced tough times in 2011, with major liners continuing to record worsening
                                                         operating losses in 1Q12. Entering 2012, however, key players have changed their
                                                         focus from market share expansion to income stability. In particular, liners have made
                                                         strong efforts to control tonnage supply and demand balance by scrapping and laying up
                                                         vessels and by slow steaming. Moreover, in an effort to lift freight rates, global firms have
                                                         joined hands to form major alliances, which should reduce both market share competition
                                                         and pricing volatility. In particular, with demand fundamentals likely to improve on 3Q
                                                         peak seasonality (despite lingering eurozone risks), we believe that trade volume and
                                                         freight rates will increase.
                                                       – According to the SCFI, freight rates on Asia~EU and Asia~US routes are 117% and
                                                         25% higher than their historical lows in Dec 2011. Freight rates should rise further on
                                                         peak season surcharges implemented in June and additional general rate increases in
                                                         3Q12. Meanwhile, after hitting a surprising low of 647p in Feb 2012, the BDI remains
                                                         sluggish; however, we expect the BDI to pick up going forward.

                                                       HJS selected as shipping sector top pick
                                                       – HJS (Buy; TP of W20,000): In addition to being the leading domestic container
                                                         shipping liner, HJS ranks fourth on Asia~US routes. Backed by secured contracts with
                                                         shippers and its global competitiveness, we believe that HJS possesses mid- to long-
                                                         term growth potential. With the firm’s container freight rates presumed to have
                                                         surpassed breakeven point at end-April, the company should continue to witness an
                                                         improvement in its freight rates upon the implementation of peak season surcharges in
                                                         the summer. We anticipate that HJS will turn to black in 3Q12 (traditional peak
                                                         season), posting notable operating profit.
                                                       – STX Pan Ocean (Buy; W7,200): STX is the number-one domestic bulk shipping liner,
                                                         ranking fifth in the global market. Having a large portion of long-term dry cargo
                                                         contracts, the company benefits from a stable profit structure. In 2H12, we forecast that
                                                         the bulk market will recover, and that the STX Group will implement restructuring,
                                                         with both factors likely to act as share price drivers. Currently trading at a 2012 P/B of
                                                         4.0x, we view STX’s shares as being attractively valued.


Shipping sector’s investment ratings/indicators                                                                                         (Units: Wbn, %, x)

                                                           Target price          CP Operating margin         P/E              P/B            ROE
                          Code                Rating
                                                                  (won)   (won, 6/7) 2012E     2013F    2012E 2013F     2012E 2013F     2012E 2013F
Hanjin Shipping       (117930.KS)   Buy(Raise)            20,000(Raise)      13,100     1.3       4.0     N/A    10.8      0.9    0.8     -9.0   8.1
STX Pan Ocean         (028670.KS) Buy(Maintain)            7,200(Lower)       4,305    -1.4       2.3     N/A    17.2      0.4    0.4     -5.5   2.3
Source: Woori I&S Research Center estimates

www.wooriwm.com
CONTENTS
I. Investment Points............................................................................................... 3


II. Valuation Comparison ..................................................................................... 5
     1. Undervalued from long-term perspective
    2. Global Peer Analysis


III. Global Shipping industry rebounding after confirming bottom .................
                                                                                10
     1. Shipping industry supply-demand conditions improving
    2. Container shipping market to recover strongly from 3Q12
    3. Dry bulk market hits all-time low
    4. Despite unstable supply-demand conditions, oil tanker market secures
        support line


IV. Tonnage supply control strategy to stabilize container shipping
    market supply-demand conditions over mid- to long term .......................
                                                                                16
    1. Global alliances ease competition
    2. Positives: Increased demolition, slow steaming, and order
        cancellation/delay
    3. Future market barometer: Idle rate of containerships
    4. Increase in freight rate attributed to effective supply control


[Company Analysis]
    1. Hanjin Shipping(Buy, TP W20,000): Korea’s number-one container
       shipping company; ranks fourth globally on US routes ................................
                                                                                          26
    2. STX Pan Ocean (Buy, TP W7,200): Cargo shipping-focused
        business structure stable; STX Group-related risks fading ..........................
                                                                                          32
 Shipping                                                                                                                        www.wooriwm.com




                                        I. Investment points
 Raise industry rating                  We revise up our rating on the shipping industry from Neutral to Positive, while raising our
 to Positive                            rating on HJS from Hold (TP: W14,000) to Buy (TP: W20,000). Although shipping shares
                                        have dropped rapidly in recent months, most negatives appear to have been reflected.
                                        However, overall conditions are still relatively unstable, with shipping companies incurring
                                        massive operating losses in 1Q12, and a number of idle ships being reintroduced to the global
                                        fleet. Nonetheless, given the intrinsic value of shipping companies and the likely mid- to
                                        long-term industry upcycle, there is a strong possibility that shipping shares will rebound.
                                        Specifically, expecting profitability to improve in 2Q12 and substantial operating profits in
                                        3Q12, we believe that it is an opportune time to increase weighting of the sector.


 Shipping industry to                   In terms of the shipping industry’s long-term cycle, we believe that the industry bottomed at
 enter long-term                        end-2011 and that an upcycle will begin from 2012. Freight rates on Asia~Europe routes have
 upcycle                                surged in 2012, while rates on Asia~US routes started to rise from 2Q12. According to the
                                        Shanghai Containerized Freight Index (SCFI), freight rates on Asia~Europe and Asia~US
                                        routes are now 117% and 25% higher than their historic lows in Dec 2011. In addition, peak
                                        season surcharges will likely be implemented ahead of 3Q12. Meanwhile, after hitting a
                                        surprising low of 647p on Feb 3, the Baltic Dry Index (BDI) rose 36% to 878p on Jun 6.
                                        Although it remains sluggish compared to past levels, we forecast that the index will pick up
                                        rapidly from 3Q12 along with a global economic turnaround. Elsewhere, the Worldscale
                                        (WS) appears to have bottomed, with the index likely to increase steadily going forward.


 Supply glut to                         Meanwhile, the ongoing supply glut—the shipping industry’s Achilles’ heel—is likely to ease
 gradually ease                         going forward. Despite the arrival of a large number of new vessels, shipping firms are
                                        making strong efforts to control supply-demand balance by scrapping and laying up vessels
                                        and by slow steaming. In addition, the recent drop in new vessel orders in the shipbuilding
                                        industry should positively affect the shipping industry. Delivery volume is also likely to fall
                                        short of consensus due to order cancellations and delivery delays amid the economic
                                        downturn. While the global economy is still unstable, we believe that it has passed bottom,
                                        and that trade volume will increase in line with a steady global economic recovery.


 Operating profit to                    Following massive losses in 2011, operating losses at domestic shipping companies rose to
 rally from 3Q12                        record highs in 1Q12. However, amid an uptrend in container freight rates, we expect
                                        domestic shipping plays to turn to profit in 3Q12. In detail, we estimate a 3Q12 operating
                                        profit of W183.5bn for HJS and W40.7bn for STX Pan Ocean. Moreover, quarterly operating
                                        profit growth should continue over the mid- to long term led by further freight rates hikes.



CCFI and HRCI increase                                                        Bulk (dry + wet) shipping confirmed bottom

    (P)                  HRCI (LHS)                                    (P)        (P)                    BDI (LHS)                                (P)
  2,400                  CCFI (RHS)                                   1,400     12,000                   WS (RHS)                                 400


  1,800                                                               1,200      9,000                                                            300


  1,200                                                               1,000      6,000                                                            200


    600                                                               800        3,000                                                            100


       0                                                              600               0                                                         0
           '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12                              '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12


Source: Bloomberg, Shanghai Shipping Exchange, Woori I&S Research Center      Source: Bloomberg, Woori I&S Research Center

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 Shipping                                                                                                                        www.wooriwm.com




 Competition to ease                      In a concerted effort to lift freight rates, global firms have joined hands to form major
 thanks to global                         alliances of near equal size, a move which should help to reduce market share competition
 alliances                                and pricing volatility. In particular, the alliances are expected to bolster operating efficiency
                                          through vessel sharing. These cooperative efforts have been accompanied by vessel
                                          deployment restructuring, including the laying up and scrapping of vessels. We expect the
                                          strengthened cooperation among shipping companies to prove effective in controlling
                                          capacity, creating a positive environment for freight rate hikes.


 Top pick: HJS (Buy;                      We favor HJS as our top pick in the shipping sector. In addition to being the leading domestic
 TP of W20,000)                           container shipping liner, HJS ranks fourth on Asia~US routes in terms of operating fleet
                                          capacity. The company plays a major role in domestic export/import traffic and is competitive
                                          in the global arena. While HJS incurred a massive operating loss of W218.4bn in 1Q12,
                                          profitability should improve in 2Q12, with the container unit reaching breakeven point at the
                                          end of April. Moreover, we expect the firm to post an operating profit in 2012, thanks largely
                                          to an expected surge in operating profit in the peak season of 3Q. Following the company’s
                                          recent correction, we view its shares as being undervalued in absolute terms. Reflecting the
                                          upward revision to our earnings estimates, we revise up our target price from W14,000 to
                                          W20,000 and raise our investment rating from Hold to Buy.


 STX Pan Ocean                            We maintain a Buy rating on STX Pan Ocean and lower our target price from W9,800 to
 (Buy; TP of W7,200)                      W7,200. STX is the number-one domestic bulk shipping liner, ranking fifth in the global
                                          market. Backed by its large portion of long-term dry cargo contracts, the company benefits
                                          from a stable profit structure. While STX incurred an operating loss of W133.1bn in 1Q12,
                                          the firm should turn to profit (W40.7bn) in 3Q12. Although the shares have dropped sharply
                                          due to group-related risks, we forecast that the bulk carrier market will recover and that the
                                          STX Group will implement further restructuring measures, with both factors likely to act as
                                          share price drivers.



HJS: Container vessel                                                         STX Pan Ocean: Capesize bulk carrier




Source: Hanjin Shipping, Woori I&S Research Center                            Source: STX Pan Ocean, Woori I&S Research Center




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 Shipping                                                                                                                                      www.wooriwm.com




                                           II. Valuation comparison

                                           1. Undervalued from long-term perspective
 Recommend buying                          While the rebound in freight rates in early-2012 bolstered shipping liners’ shares, it failed to
 on dips over long                         boost their operating results due to time lag effects. However, after posting operating losses in
 term                                      1Q12, we believe that shipping companies will break even in 2Q12 and record massive
                                           operating profit in the peak season of 3Q12, allowing them to swing back to profit in 2012.
                                           Moreover, we expect domestic shipping liners to register solid earnings in 2013. As such,
                                           with an earnings turnaround likely approaching, we recommend overweighting on the
                                           shipping industry. In particular, we suggest dip-buying strategy for HJS and STX Pan Ocean.


 Massive operating                         HJS should post 2012 and 2013 sales of W10,852.8bn (up 14.0% y-y) and W11,794.1bn (up
 profit likely in 2013                     8.7% y-y), respectively, with operating profits of W143.9bn (TTP y-y) and W469.3bn (up
                                           226.1% y-y). Meanwhile, we expect STX Pan Ocean to record 2012 and 2013 sales of
                                           W5,612.7bn (down 2.3% y-y) and W6,471.6bn (up 15.3% y-y), respectively, with a 2012
                                           operating loss of W75.9bn (RR y-y) and a 2013 operating profit of W151.9bn (TTP y-y).


 HJS to swing back to                      We raise our target price on HJS from W14,000 to W20,000, while revising up our rating
 profit in 2012                            from Hold to Buy in reflection of a likely long-term industry upcycle and an increase in our
                                           2012 sales and operating profit estimates (up 7.5% and 14.0%, respectively). Despite
                                           forecasting a 2012 operating margin of only 1.3%, we believe that it is meaningful that the
                                           company is likely to turn to profit. In addition, the company’s operating profit should rise
                                           sharply in 2013, with operating margin climbing to 4.0% and EPS reaching W1,208.
                                           Currently, HJS’s shares are trading at a 2013 P/E of 10.8x and EV/EBITDA of 5.9x. Of note,
                                           we believe that shipping companies’ valuations should be viewed from a long-term
                                           perspective. Our RIM-based target price assumes a market risk premium of 6.0%, a risk-free
                                           rate of 4.0%, and a beta of 1.0, with a COE of 10%.



Recommendations and major indicators
                                    Unit                              Hanjin Shipping                                              STX Pan Ocean
Rating                                                                  Buy (raise)                                                 Buy (maintain)
Target price                        Won                                20,000 (raise)                                               7,200 (lower)
Current price (6/7)                 Won                                   13,100                                                        4,305
                                                       2011A          2012E             2013F        2014F           2011A          2012E            2013F    2014F
Sales                               Wbn               9,523.3       10,852.8        11,794.1       12,742.4         5,742.2        5,612.7        6,471.6    7,107.0
Operating profit                    Wbn                -492.6          143.9           469.3          567.7           -23.0          -75.9          151.9      265.4
   Operating margin                  %                    -5.2            1.3             4.0            4.5            -0.4           -1.4           2.3        3.7
EBITDA                              Wbn                -122.5         613.8.           948.5        1,053.6            25.2           85.6          315.7      431.4
   EBITDA margin                     %                    -1.3            5.7             8.0            8.3             0.4            1.5           4.9        6.1
Net profit                          Wbn                -823.9         -169.4           148.9          242.8           -22.0         -124.6           49.9      150.1
EPS                                 Won                -8,703         -1,375           1,208          1,970            -111           -627            251        756
BPS                                 Won               15,903         14,528          15,436         16,906           11,759         11,052         11,224     11,900
P/E                                  X                    N/A            N/A            10.8             6.7            N/A            N/A           17.2        5.7
P/B                                  X                     0.7            0.9             0.8            0.8             0.5            0.4           0.4        0.4
EV/EBITDA                            x                    N/A             9.0             5.9            5.4          101.0           29.5            8.8        6.8
ROE                                  %                  -35.6            -9.0             8.1          12.2             -0.9           -5.5           2.3        6.5
Note: Annual financial statement based on IFRS consolidated results; Hyundai Merchant Marine not covered due to research blackout (from Jan 12~Jul 31)
Source: Woori I&S Research Center estimates




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 Shipping                                                                                                                        www.wooriwm.com




 STX Pan Ocean                             We maintain our Buy rating on STX Pan Ocean, but reduce our target from W9,800 to
 shares trading at                         W7,200 to reflect our lowered 2012 earnings forecasts amid the sluggish BDI and a massive
 2012 P/B of 0.4x                          operating loss in 1Q12. In detail, in addition to revising down our 2012 sales forecast by
                                           8.2%, we now expect the company to turn to an operating loss. Despite the improvement in
                                           dry bulk shipping market conditions in 2012, margins are struggling to recover. However, we
                                           believe that the company will swing back to profit in 2013, with an operating margin of 2.3%
                                           and EPS of W251. Despite trading at a 2013 P/E of 17.2x and EV/EBITDA of 8.8x, we
                                           believe that the company’s shares are undervalued compared to its asset value (currently
                                           trading at a 2012~2013 P/B of only 0.4x). Our RIM-derived target (assumes a market risk
                                           premium of 6.0%, a risk free rate of 4.0%, and a beta of 1.0, with a COE of 10%) equates to a
                                           2012 P/B of 0.65x, offering ample upside.



Financial snapshot                                                                                                                    (Units: Won, x, %)

                                                          HJS                                                    STX Pan Ocean
                                  2010          2011       2012E         2013F        2014F      2010      2011        2012E       2013F        2014F
CPS                              11,237        -1,261       4,274         7,545        8,388     1,172       408          470       1,580        2,135
Sales/share                     110,949        99,207      86,822        94,353      101,939    31,426    27,894       27,265      31,437       34,524
EBITDA/share                     11,351        -1,276       4,911         7,588        8,429     1,063       122          416       1,534        2,095
P/C                                  3.2          -9.0         3.1           1.7          1.6       9.8     14.9           9.2         2.7          2.0
P/S                                  0.3           0.1         0.2           0.1          0.1       0.4       0.2          0.2         0.1          0.1
P/EBITDAPS                           1.1          -9.8         2.5           1.6          1.5       3.9     33.8           9.9         2.7          2.0
Total debts/total assets           26.7          27.8        30.3          31.9         33.1      26.7      27.8         30.3        31.9         33.1
Debt/equity                       290.4         452.9       539.5         524.2        487.4     146.6     188.9        217.3       228.6        229.2
Net borrowing ratio               119.3         190.7       206.2         199.0        186.1      21.6      52.8         71.0        81.3         83.8
EBIT/net interest rate               2.2          -1.6         0.4           1.4          1.7       1.5      -1.4         -0.9         1.3          2.1
Financial cost ratio                 3.1           3.3         3.0           2.8          2.6       1.0       1.5          1.8         1.7          1.7
ROA                                  3.0          -7.5        -1.5           1.2          2.0       1.4      -0.3         -1.7         0.7          1.9
ROIC                               10.4           -7.6         1.8           4.9          6.0       3.3      -2.6          2.8         3.1          5.9
Gross margin                       11.5           -0.4         6.1           8.7          9.2       3.3       0.0          0.6         4.3          5.7
Pre-tax margin                      3.9           -8.6        -1.5           1.4          2.1       1.3      -1.1         -2.8         0.9          2.3
Net margin                           3.0          -8.7        -1.6           1.3          1.9       1.2      -0.4         -2.2         0.8          2.1
Note: Based on Jun 5 closing prices (W13,100 for Hanjin Shipping; W4,305 for STX Pan Ocean)
Source: Woori I&S Research Center estimates




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 Shipping                                                                                                                                                    www.wooriwm.com




RIM valuation: HJS                                                                                                                                                      (Units: Wbn, won)

                                           2012E       2013F         2014F        2015F        2016F       2017F        2018F       2019F       2020F      2021F       2022F       2023F
Net profit                                   -172            151        246          298          387         445         472          500        531        562          596            632
Shareholder’s equity                        1,816          1,930      2,113        2,348        2,672       3,055       3,452        3,862      4,286      4,725        5,178          5,645

Forecast ROE (FROE)                         -9.0%           8.1%     12.2%        13.3%        15.4%       15.5%        14.5%       13.7%       13.0%      12.5%       12.0%       11.7%
Spread (FROE-COE)                          -19.0%          -1.9%      2.2%         3.3%         5.4%        5.5%         4.5%        3.7%        3.0%       2.5%        2.0%        1.7%
Residual income                              -362            -36          44           74           136       159          147         135        123         112         101            91
Cost of equity (COE)                       10.0%
Beta                                          1.0
Market risk premium (Rm-Rf)                 6.0%
Risk-free rate (Rf)                         4.0%
 Beginning shareholder’s equity             1,988
 PV of forecast period RI                     205
 PV of continuing value                       160
Equity value (C+P)                          2,353
No of shares (common, mn)                     125
                                                     12m TP
Fair price (C)                                        20,703
Current price (C)                                     13,100
Upside (-downside)                                    58.0%
Implied P/B (x)                                          1.4
Implied P/E (x)                                       -248.5



RIM valuation: STX Pan Ocean                                                                                                                                            (Units: Wbn, won)

                                           2012E       2013F         2014F        2015F        2016F       2017F        2018F       2019F       2020F      2021F       2022F       2023F
Net profit                                   -129             52        156          178          205         240         254          269        285        301          319            337
Shareholder’s equity                        2,275          2,311      2,450        2,612        2,801       3,025       3,257        3,497      3,745      4,002        4,267          4,540
Forecast ROE (FROE)                         -5.5%           2.3%       6.5%         7.0%        7.6%         8.3%        8.1%        8.0%        7.9%       7.8%        7.7%            7.7%
Spread (FROE-COE)                          -15.5%          -7.7%      -3.5%        -3.0%       -2.4%        -1.7%       -1.9%       -2.0%       -2.1%      -2.2%       -2.3%           -2.3%
Residual income                              -364           -178         -82          -75           -65        -51         -60         -69        -77         -86         -95           -103
Cost of equity (COE)                       10.0%
Beta                                          1.0
Market risk premium (Rm-Rf)                 6.0%
Risk-free rate (Rf)                         4.0%
 Beginning shareholder’s equity             2,421
 PV of forecast period RI                    -891
 PV of continuing value                      -181
Equity value (C+P)                          1,349
No of shares (common, mn)                     206
                                                     12m TP
Fair price (C)                                         7,205
Current price (C)                                      4,305
Upside (-downside)                                    67.4%
Implied P/B (x)                                           0.6
Implied P/E (x)                                        -38.3
 Note: RIM (Residual Income Model) is a cash flow approach that yields a fair shareholder value (value of equity) by adding shareholders’ equity and present value of residual
       income (meaning income excluding cost of equity).
           Value of equity = shareholders’ equity + sum of present value of future residual income
           * Residual income (RIt) = NP (t) – shareholders’ equity(t-1) * cost of equity (t)= shareholders’ equity (t-1) * (ROEt - COEt)
       Woori I&S uses RIM as our primary valuation model as RIM is an objective model that minimizes subjectivity of valuation indicators while producing same results as
       DDM (dividend discount model) and DCF.

 Market risk premium assessment guidelines
                              Mega cap                                      Large cap                                  Mid cap                              Small cap
                                                                     Market cap of W1~10tn
                       Market cap of W10tn or higher                                                         Market cap of W200bn-1tn            Market cap of less than W200bn
      Criteria                                                     + credit rating of 'A0' or hig
                      + credit rating of 'AAA' or higher                                                  + credit rating of 'BBB+' or higher    + credit rating of 'BBB-' or higher
                                                                                her
  Risk premium                      5.2%                                       6.0%                                     7.0%                                   8.0%
  * Risk Free Rate = 4.0% (standardized)




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 Shipping                                                                                                                                           www.wooriwm.com




                                                 2. Global peer analysis
 Korean shipping                                 Backed by their strong competitiveness, we expect HJS and STX Pan Ocean to perform
 industry globally                               soundly going forward. In particular, following their recent sharp pullback, domestic shipping
 competitive                                     liners appear more attractively valued than their global peers. While global players recorded
                                                 massive operating losses in 1Q12 amid depressed shipping industry conditions, operating
                                                 conditions should improve in 2H12. In particular, global shippers are likely to benefit from
                                                 reduced fuel costs and improved efficiency following the introduction of new vessels.



Global peer analysis I - Earnings                                                                                                                              (Unit: US$mn)

                                                                   Hyundai
                                  Hanjin           STX Pan                                            Kawasaki          Nippon           APM-
Company                                                           Merchant Yang Ming     COSCO                                                      Evergreen               CSD
                                Shipping             Ocean                                              K-Line           Yusen          Maersk
                                                                    Marine
Share price (6/7, US$)                   11.2            3.7           22.3        0.4        0.5                1.8         2.6        6,332.5            0.5            0.5
Market cap                            1,401.6         758.6         3,183.5   1,128.2    6,834.4            1,373.4     4,438.4        27,262.7        1,675.2        2,490.1
                                       Korea          Korea          Korea    Taiwan       China             Japan       Japan         Denmark         Taiwan           China
Sales                  2011             8,209         4,950           6,494     3,335    13,098             12,323      22,912          60,273             523          1,881
                      2012E             9,866         5,102           6,760     4,148    14,325             14,004      25,009          58,300             N/A          2,168
                      2013F           10,722          5,883           7,423     4,566    15,726             14,413      26,076          60,441             N/A          2,551
OP                     2011              -425            -20           -288      -373     -1,593               -514        -306           9,272            -26            143
                      2012E               131            -69           -193      -136       -204                214         653           8,408            148            176
                      2013F               427           138             267       145        350                359         920           9,278            N/A            327
EBITDA                 2011              -106             22             -80     -266     -1,038                120         972         14,671              27            413
                      2012E               558             78            136       110        315                876       2,013         13,144             N/A            385
                      2013F               862           287             517       254        930              1,043       2,349         13,630             N/A            551
NP                     2011              -710            -19           -428      -320     -1,624               -524        -923           2,839           -105            162
                      2012E              -154          -113            -469        -76      -334                122         309           3,627             83             91
                      2013F               135             45              51        89       187                173         505           3,300            195            186
EPS (US$)              2011               -7.5          -0.1            -3.0      -0.1       -0.2               -0.7        -0.5          650.2            0.0            0.0
                      2012E               -1.2          -0.5            -3.5       0.0        0.0                0.2         0.2          806.0            0.0            0.0
                      2013F                1.0           0.2             0.2       0.0        0.0                0.2         0.3          749.4            0.1            0.1
BPS (US$)              2011              13.7          10.2              9.8     0.34         0.5                3.8         4.1        7,754.2            0.6            1.1
                      2012E              12.5            9.5            N/A      0.32         0.5                4.3         4.6        8,136.6            0.6            1.1
                      2013F              13.3            9.7             9.8     0.36         0.6                4.4         4.9        8,783.8            N/A            1.1
Net debt               2011             3,329         1,106           4,330     1,235      4,772              5,888     10,950          16,485             560          3,343
(-net cash)           2012E             3,479         1,477             N/A     1,280      6,157              5,982     12,142          14,158             N/A          4,576
                      2013F             3,558         1,716           4,795     1,214      6,718              5,710     12,179          13,780             N/A          4,634
Note: Taiwanese companies based on 2011-2013E results (non-consolidated)
      Hanjin Shipping and STX Pan Ocean based on Woori I&S estimates; others based on Bloomberg estimates
Source: Bloomberg, Woori I&S Research Center estimates



 Container shipping companies’ share prices                                               Bulk carriers’ share prices

      (P)                             Hanjin Shipping              NOL                        (P)                                  STX Pan Ocean            CSD
     250                                                                                      200                                  U-Ming                   Pacific Basin
                                      Evergreen                    COSCO

     200                                                                                      160

     150                                                                                      120

     100                                                                                       80

        50                                                                                     40

         0                                                                                       0
             '09.1   '09.7    '10.1       '10.7     '11.1      '11.7   '12.1                        '09.1      '09.7   '10.1   '10.7        '11.1   '11.7     '12.1


Note: Shares in early-2009 = 100                                                         Note: Shares in early-2009 = 100
Source: Bloomberg, Woori I&S Research Center                                             Source: Bloomberg, Woori I&S Research Center




                                                                                                                                                                              8
 Shipping                                                                                                                                                www.wooriwm.com




Global peer analysis II – Valuations
                                                         Hanjin     STX Pan                                         Kawasaki      Nippon         APM-        Ever-
Company                                                                           HMM Yang Ming          COSCO                                                              CSD
                                                       Shipping       Ocean                                           K-Line       Yusen        Maersk       green
P/E (x)                                       2011           N/A       N/A          N/A           N/A         N/A         7.7         7.0         11.0         N/A          12.8
                                             2012E           N/A       N/A          N/A           N/A         N/A       11.3         13.8          8.6        19.2          14.9
                                             2013F          10.8       17.2        61.5          10.4        24.8         7.8         8.5          7.7          8.3          8.2
P/B (x)                                       2011           0.7        0.5         2.2           1.2         0.9         0.6         0.8          0.9          0.9          0.6
                                             2012E           0.9        0.4         N/A           1.2         0.8         0.4         0.6          0.8          0.8          0.4
                                             2013F           0.8        0.4         2.3           1.1         0.8         0.4         0.5          0.7         N/A           0.4
EV/EBITDA                                     2011           N/A      101.0         N/A           N/A         N/A       67.8         18.1          3.5        87.9          13.2
(x)                                          2012E           9.0       29.5        60.4          24.1        46.7         8.5         7.9          3.4         N/A          16.2
                                             2013F           5.9        8.8        16.3          10.4        15.8         7.2         6.7          3.3         N/A          11.3
ROE (%)                                       2011         -35.6       -0.9       -21.3         -26.3       -25.4      -15.5        -11.5          8.1         -4.9          4.5
                                             2012E          -9.0       -5.5       -38.3           2.0        -6.0         4.1         4.2         10.2          9.2          2.9
                                             2013F           8.1        2.3         5.2          10.1         2.7         4.5         6.4          9.7         11.7          4.8
ROA (%)                                       2011          -7.5       -0.3        -5.5         -10.3        -6.8        -3.9        -3.4          3.9         -3.4          2.3
                                             2012E          -1.5       -1.7        -5.8          -3.7        -1.6         1.0         2.0         10.4         N/A           1.5
                                             2013F           1.2        0.7         0.4           3.6         1.0         2.0         3.0          8.5         N/A           2.2
Div yield (%)                                 2011           0.0        1.3         2.0          10.3         0.0         0.0         1.5          2.6          0.0          2.5
                                             2012E           0.0        1.9         0.5           0.0         0.2         1.6         2.0          2.7          0.6          2.2
                                             2013F           2.3        1.9         0.6           1.3         1.1         3.0         2.8          2.8          1.7          3.9
Source: Bloomberg, Woori I&S Research Center



 Share performance
                                                                                         Relative share performance (%)                   Absolute share performance (%)
                                            Company Name             Country
                                                                                   1W          1M        3M       6M        1Y      1W          1M       3M        6M        1Y
                                         Hanjin Shipping               Korea      -1.0       -11.2     -20.8     37.9     -32.4    -0.8      -16.6     -26.8      33.3     -40.1
                                         HMM                           Korea       1.7        -2.2      -8.9      4.3      -9.9     2.0        -8.1    -15.9       0.8     -20.1
                                         Yang Ming                    Taiwan      -2.6        -4.1     -19.2      3.6     -29.6    -3.3      -10.3     -27.8       4.0     -45.1
                    Container shippers




                                         K-Line                        Japan      -2.1         0.3      -6.1      0.1     -38.8    -2.8        -6.6    -18.0      -4.1     -46.0
                                         NYK                           Japan      -2.7        -3.1       0.2     10.3     -20.7    -3.3        -9.8    -12.5       5.7     -30.0
                                         Evergreen Marine             Taiwan      -3.3       -15.6     -18.1     -2.0     -20.0    -4.0      -21.0     -26.9      -1.7     -37.7
  Shipping liners




                                         COSCO Shipping                China      -6.9        -8.8     -20.8     -7.6     -37.1    -7.7      -17.8     -28.9     -11.0     -49.0
                                         China Shipping Container      China      -5.9       -19.2     -27.1     10.0     -22.0    -6.7      -27.1     -34.5       5.9     -36.8
                                         Neptune Orient Lines        Singapore     3.2        -5.4     -17.1     -6.2     -29.9     2.4      -10.7     -21.5      -6.9     -37.9
                                         AP Moller-Maersk            Denmark      -1.8       -11.2     -11.1    -14.0     -19.1    -3.9      -18.6     -16.7      -4.6     -24.1
                                         STX Pan Ocean                 Korea      -2.4       -23.2     -43.9    -25.1     -36.3    -2.2      -27.9     -48.2     -27.6     -43.5
                                         U-MING                       Taiwan       0.2        -2.1       0.6      0.0      -6.3    -0.6        -8.4    -10.2       0.3     -27.0
                    Bulk carriers




                                         CSD                           China      -9.3       -12.8     -20.9    -21.6     -37.8   -10.1      -21.4     -29.0     -24.5     -49.6
                                         Pacific Basin Shipping        Hong       -2.0        -7.0      -7.2      1.8      -8.6    -2.9      -16.1     -16.7      -2.0     -26.0
                                         Dryships Inc                  Kong
                                                                      Greece     -10.9       -24.3     -30.8    -20.3     -45.4   -10.8      -27.3     -32.2     -16.7     -44.2
                                         Eagle Bulk Shipping Inc        US       -16.0       -43.1     -49.3    -40.2     -74.5   -15.9      -45.3     -50.4     -37.5     -73.9
Source: Bloomberg, Woori I&S Research Center




                                                                                                                                                                                   9
Shipping                                                                                                                                        www.wooriwm.com




                                        III. Global shipping industry rebounding after confirming bottom

                                        1. Shipping industry supply-demand conditions improving
Supply-demand                           Due to large-scale vessel deliveries and slowing trade volume growth amid the global
conditions improve                      economic slowdown, the global shipping industry has been suffering from a serious supply
on capacity                             glut. With supply largely exceeding demand, freight rates have declined, resulting in
adjustments                             substantial operating losses at shipping companies. Recently, however, thanks to shipping
                                        companies’ efforts to control capacity, supply-demand conditions have been stabilizing,
                                        creating favorable conditions for freight rate hikes.


Vessel idling,                          In detail, shipping companies are limiting their capacity by scrapping and laying up vessels
scrapping, and slow                     and by slow steaming. A series of order cancellations (mostly for speculative orders) and
steaming increasing                     delayed vessel deliveries is also contributing to easing the oversupply burden. Meanwhile, on
                                        the demand side, although the global economy remains somewhat unstable, trade volume is
                                        expected to increase over the long term. Thus, we expect supply-demand conditions to
                                        improve. Of note, container traffic is estimated to expand 6.9% in 2012 and 7.9% in 2013,
                                        while container vessel supply should rise 6.9% in 2012 and 7.3% in 2013 (ie, demand growth
                                        to outpace supply growth).


Solid traffic expected                  In 2012, we expect global container traffic to rise 6.9% y-y, thanks to: 1) the expansion of
in 2012; demand to                      emerging economies; 2) recovering consumption; and 3) rising demand in Asia. Of note,
expand in Asia                          excluding a 9.0% y-y contraction in 2009, container traffic has been uptrending steadily since
                                        2004. We expect container traffic growth to pick up going forward, as—despite the European
                                        economic recession—the US and Chinese economies have been reviving and as economic
                                        stimulus measures are expected in 2H12.



Global shipping market supply-demand outlook
                                                 2004        2005         2006         2007        2008         2009         2010           2011     2012E     2013F
Container
Container trade volume (mn TEU)                    96         106          118          131         137          125          141          151          162       174
   Growth (%)                                    14.3        10.4         11.3         11.0         4.6          -9.0        12.8          7.6          6.9       7.9
* Container shipping capacity (‘000 TEU)        9,206      10,183       11,581       12,952      14,426       15,136       16,367       17,495       18,709    20,078
   Growth (%)                                     7.9        10.6         13.7         11.8        11.4           4.9         8.1          6.9          6.9       7.3

Dry bulk carrier
Five major dry bulk trade (mn tons)             1,604       1,711        1,819        1,959        2,068       2,086        2,350           2,473     2,569     2,644
   Growth (%)                                      8.5         6.7          6.3          7.7          5.6         0.9         12.7             5.2       3.9       2.9
Total dry bulk trade (mn tons)                  4,391       4,611        4,869        5,133        5,328       5,056        5,675           5,998     6,289     6,528
   Growth (%)                                      6.8         5.0          5.6          5.4          3.8        -5.1        12.2              5.7       4.9       3.8
Dry bulk carrier capacity (mn DWT)              327.1       349.1        372.8        398.3        421.9       460.8        539.5           618.4     690.2     728.8
  Growth (%)                                       7.0         6.7          6.8         6.8          5.9          9.2        17.1            14.5      11.6       5.6

Crude oil carrier
Total demand (Crude+Product, mn tons)           308.4       325.2        336.3        347.6        352.6       328.8        344.9           343.7     352.5     366.1
  Growth (%)                                      6.1         5.4          3.4          3.4          1.4        -6.7          4.9            -0.3       2.6       3.9
Total supply (Crude+Product, mn tons)           302.7       323.2        340.2        346.5        362.2       385.4        399.9           424.8     449.3     464.7
  Growth (%)                                      5.6         6.8          5.3          1.9          4.5         6.4          3.8             6.2       5.8       3.4
Excess (tonnage)                                 -5.7        -2.0          3.9         -1.1          9.6        56.5         55.0            81.1      96.8      98.6
Note: * Including: Multi-purpose vessels, Ro-Ro, vehicle carriers, cargo liners, tramps, and conbulker
Source: Clarkson (Container Intelligence Monthly, Dry Bulk Trade Outlook, Oil and Tanker Trade Outlook 2012.5), Woori I&S Research Center




                                                                                                                                                                   10
 Shipping                                                                                                                                   www.wooriwm.com




 Capacity growth to                         In 2012, capacity is estimated to expand 23.8% for container vessels, 29.1% for bulk carriers,
 be smaller-than-                           and 15.7% for tankers (based on global shipbuilders’ order backlogs as of May 2012).
 expected due to                            However, 2012’s capacity growth marks a sharp drop y-y, suggesting that capacity growth
 delivery cancellation                      will shrink going forward. In addition, given that cancelled orders and delayed deliveries are
                                            not fully reflected in forecasted capacity growth, we believe that actual delivery will be
                                            smaller than expected. Accordingly, capacity growth is unlikely to be burdensome. Of note, in
                                            2011, 28% of planned container vessel delivery was either cancelled or delayed, resulting in
                                            much lower-than-expected capacity growth.


 Bulk carrier delivery                      As of May 2012, shipbuilders’ global order backlog (by vessel type) was as follows: 539
 to rise sharply in                         container vessels (3,739,000 TEU), 2,293 bulk carriers (186,700,000 DWT), and 660 tankers
 2012                                       (75,700,000 DWT). In particular, the volume of container vessels to be delivered in 2012 is
                                            estimated at 971,700 TEU, bulk carriers at 101,900,000 DWT, and tankers at 35,200,000
                                            DWT. Of note, the expected spike in bulk carrier delivery is likely to limit BDI increases.



Vessels in operation and delivery schedule, by vessel type
                                                   Capacity
                                                                                                          Order backlog                Delivery schedule
                       2008         2009         2010       2011       As of May 1, 2012
                                                                                     No. of                   No. of
                   ’000 TEU ’000 TEU ’000 TEU ’000 TEU                ’000 TEU                 ’000 TEU                   % fleet   2012        2013        2014~
                                                                                   vessels                   vessels
Container vessels 12,213.1      12,945.8     14,194.6    15,323.0      15,736.8       5,113     3,739.8          539        23.8    971.7     1,596.5      1,171.7
Multi-purpose      1,237.0       1,251.5      1,311.2     1,370.5       1,375.7      3,076        215.4          318        15.7    149.8        59.2          6.4

                                                                                      No. of                  No. of
                   mn DWT       mn DWT       mn DWT       mn DWT       mn DWT                  mn DWT                     % fleet   2012        2013        2014~
                                                                                     vessels                 vessels
Tankers                403.3        432.3        449.8       476.3        482.8        5,713       75.7          660        15.7     35.2       30.9          9.6
Bulk carriers          417.4        458.2        536.1       615.1        640.8        9,136      186.7        2,293        29.1    101.9       64.7         20.1
Ro-Ros                  10.4         10.2          9.7         9.6          9.5        2,315       0.74           47         7.7     0.33       0.20         0.21

                                                                                      No. of                  No. of
                   ’000 TEU ’000 TEU ’000 TEU ’000 TEU ’000 TEU                                ’000 TEU                   % fleet   2012        2013        2014~
                                                                                     vessels                 vessels
LPG carriers          17,953      18,704       19,339       19,617       19,754        1,209      2,206          103        11.2     371       1,322          513
LNG carriers          40,265      47,212       51,517       53,124       53,203          372     11,103           71        20.9     163       2,902        8,038
Source: Clarkson, Shipping Intelligence Weekly (2012.06.01), Woori I&S Research Center




                                                                                                                                                                11
 Shipping                                                                                                                             www.wooriwm.com




                                               2. Container shipping market to recover strongly from 3Q12
 Container shipping                            Due to an increase in speculative shipbuilding orders during the ‘super-cycle’ in 2007, global
 market begins to                              container shipping capacity has risen sharply. The frenzy of new shipbuilding orders,
 rebound                                       combined with the global economic recession, led to serious excess supply in the container
                                               shipping market. Meanwhile, a freight rate cut by Maersk (the global number-one shipping
                                               company) in an attempt to edge smaller players out the market resulted in a serious recession
                                               in 2011. Due to substantial losses at all container shipping companies, focus shifted from
                                               market share expansion, with some market participants even predicting that the industry
                                               recession would linger for longer than feared. However, thanks to container carriers’ efforts to
                                               limit capacity through scrapping and laying up vessels, and coordinated operations since end-
                                               2011, the market has started to rebound, a trend which is likely to continue going forward.


 Supply control and                            Although the re-ignited Greek default crisis has raised concerns over slowing demand from
 demand recovery to                            Europe, we predict that container shipping companies will make a turnaround in 2Q12, and
 be keys to container                          proceed to post large-scale profits in 3Q12 thanks to freight rate hikes from early-2012. While
 shipping market                               it seems too early to expect an economic recovery for Europe, we believe that a demand
 recovery                                      recovery in the US and China will boost container carriers’ earnings. Over the mid- to long
                                               term, a demand recovery will likely be the key to a market rebound. However, assuming that
                                               container shipping companies avoid a reckless price war, we expect the container freight rate
                                               uptrend to be sustained.


HRCI                                                                              CCFI and SCFI

   (P)                                                                                (P)                 CCFI
  2,500                                                                              1,700
                                   2,093p                                                                 SCFI

  2,000                                                                              1,500
                                                   1,406p
  1,500                                                                              1,300

  1,000                                                             509.4p           1,100

    500                                                                               900

        0                                                                             700
            '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12                              '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Note: Weekly                                                                      Note: Weekly
Source: KMI, Woori I&S Research Center                                            Source: Shanghai Shipping Exchange, Woori I&S Research Center


Hanjin Shipping container freight rate index                                      HMM container freight rate index

  (P, '90.1=100)                                                                     (P, '08.1=100)
  160                                                                                110

                                                                                     100
  140
                                                                                      90
  120
                                                                                      80
  100
                                                                                      70
   80                                                                                 60

   60                                                                                 50
        '08           '09                '10            '11        '12                      '08          '09            '10             '11       '12

Note: Monthly                                                                     Note: Monthly
Source: Hanjin Shipping, Woori I&S Research Center                                Source: HMM, Woori I&S Research Center

                                                                                                                                                        12
 Shipping                                                                                                                                         www.wooriwm.com




                                            3. Dry bulk market hits all-time low
 Bulk market sluggish                       The Baltic Capesize Index (BCI)—the main dry bulk market—posted a sharp decline earlier
 due weak iron ore                          this year as iron ore output shrunk due to bad weather conditions in Brazil and Australia.
 demand from China                          Since then, the BCI has remained lackluster due to weak demand for commodities amid
                                            China’s economic slowdown. In 2011, iron ore accounted for roughly 30% of bulk cargo
                                            traffic, with China’s iron ore imports making up 60% of total iron ore supply volume. Thus,
                                            China’s weakening demand for iron ore appears to be having a direct impact on the BCI.


 BDI to gain traction                       On Feb 3, the BDI fell to a record low of 647p, before rallying to 1,165p (up 80% from its
 over mid- to long                          previous low) in May. The index has since declined to 878p (as of Jun 6; up 36% from its
 term                                       low). We believe that the BDI has bottomed and that recent movements are merely a
                                            correction phase. Also, given that the global economy is in the process of turning around, we
                                            expect the BDI to gain traction over the mid- to long term, in line with a global economic
                                            recovery.



BDI and BCI (daily)                                                                    BPI and BSI (daily)

    (P)                    BDI                                                              (P)                          BPI
  20,000                   BCI                                                           12,000                          BSI


  15,000                                                                                   9,000


  10,000                                                                                   6,000


    5,000                                                                                  3,000


          0                                                                                       0
              '05   '06     '07     '08         '09         '10     '11    '12                        '05    '06         '07     '08     '09    '10     '11   '12


Source: Bloomberg, Woori I&S Research Center                                           Source: Bloomberg, Woori I&S Research Center



China’s iron ore import volume                                                         Iron ore consumption and maritime transport demand

  (mn tons)                China's iron ore imports (LHS)                                    (P)                   Global iron ore consumption
                                                                            (y-y %)
  800                      Growth (RHS)                                         60          600                    China's iron ore consumption
                                                                                                                   Iron ore maritime transport demand
                                                                                            500
  600                                                                            40
                                                                                            400

  400                                                                            20         300

                                                                                            200
  200                                                                            0
                                                                                            100

     0                                                                           -20          0
              '00    '02      '04         '06         '08         '10     '12E                        '00   '02    '04     '06   '08   '10 '12E '14F '16F '18F '20F


Source: MIIT, Mysteel, Woori I&S Research Center estimates                             Note: 2000 traffic volume = 100
                                                                                       Source: BHP Billiton, Woori I&S Research Center




                                                                                                                                                                      13
 Shipping                                                                                                                         www.wooriwm.com




 Bulk carriers caught                      According to ICAP Shipping, the capacity of bulk carriers caught in congestion at ports in
 in port congestion                        Australia, Brazil, India, and China stood just above 60mn DWT (equivalent to around 10% of
 account for 10% of                        total capacity) as of end-May—the highest level for 13 weeks. Congestion has risen across all
 total capacity                            sectors from capesize to handysize, with capesize and panamax vessels totaling 37.7mn DWT
                                           (up 7% w-w) and 11.8mn DWT (up 9% w-w), respectively. The largest percentage increase in
                                           congestion was for supramax and handysize—which rose 15% w-w and 25% w-w,
                                           respectively, as of end-May. However, combined congestion in these two sectors still
                                           accounted for less than the total panamax congestion. Assuming that other market conditions
                                           remain unchanged, we believe that increased congestion at ports will provide some support
                                           for freight rates by tightening tonnage supply.


 Aggressive                                While the bulk shipping market performed sluggishly in 2011 due to a supply-demand
 demolition reduces                        imbalance, demand for bulk carrier demolition hugely increasing amid freight rate declines.
 supply volume                             In 2011, 30 bulk carriers were scrapped (23.02mn DWT), but higher delivery volume
                                           (98.29mn DWT) offset the increase in supply. As of May 2012, the demolition volume of
                                           bulk carriers stands at 14.1mn DWT, surpassing demolition volume of 11.02mn DWT during
                                           the same period last year. We anticipate that total demolition volume will hit an all-time high
                                           in 2012. Furthermore, we expect bulk shipping market supply-demand conditions to improve
                                           given declining bulk carrier deliveries and orders. Also, the demolition of bulk carriers should
                                           lead to an increase in steel trade volume, positive affecting the capsize market.



Sharp fall in bulk carrier order volume and backlog from 2011                 Sharp rise in demolition volume and demolition price

   (mn DWT)                                                   (mn DWT)           (mn DWT)                                                 (US$/ldt)
                                                                                                        Demolition volume (LHS)
   25                  Delivery volume (LHS)                        350            4.0                                                       800
                       Order volume (LHS)                                                               Demolition price (RHs)
   20                  Order backlog (RHS)                          280
                                                                                   3.0                                                          600

   15                                                               210
                                                                                   2.0                                                          400
   10                                                               140

                                                                                   1.0                                                          200
     5                                                              70

     0                                                              0              0.0                                                          0
         '00     '02       '04       '06       '08    '10     '12                        '00    '02       '04      '06      '08     '10   '12


Source: Clarkson, Woori I&S Research Center                                   Source: Clarkson, Woori I&S Research Center




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 Shipping                                                                                                                     www.wooriwm.com




                                        4. Despite unstable supply-demand conditions, oil tanker market secures
                                           support line
 Global petroleum                       The International Energy Agency (IEA) projects 2012 global petroleum demand to increase
 demand continues to                    0.9% y-y (800,000bp). In particular, the rise in demand is likely to stem from Japan, Russia,
 increase                               India, and Korea, with Japan expected to lead the way due to the closure of its nuclear plants
                                        following its earthquake in 2011.


 Despite traffic                        In 2012, crude trade volume is expected to grow 2.1% y-y, with higher demand from China
 growth, excess                         and India likely to offset weakening demand from the US and Europe. Despite the strong
 supply continues                       demand momentum, crude tanker capacity is expected to increase only 6.4% y-y in 2012.
                                        Supply-demand conditions are projected to improve slightly from 2011, but excess supply is
                                        set to continue in 2012. Meanwhile, product trade volume is likely to grow 3.8% y-y in 2012,
                                        versus a capacity increase of 3.9% y-y. Of note, due to the high inventory of product tankers,
                                        excess supply is likely to continue having a negative impact on profitability in 2012.


 Worldscale remains                     While the oil tanker market is posting stagnant growth due to continued excess supply and
 flat at 50p level                      weakening demand from the slow-paced global economic recovery, supply-demand
                                        conditions should improve as orders for tankers have sharply declined in the global
                                        shipbuilding industry. Meanwhile, the WS stood at 49bp as of Jun 1. While we expect to
                                        observe fluctuations between the 40~60p-range over the short-term, the index is likely to
                                        trend up over the long term.



Weekly Worldscale                                                          Weekly VLCC earnings

   (P)                                                                       (USD$/day)                                       280,000t Gulf - Europe
  350                                                                        300,000                                          265,000t Gulf - S.Korea
                                                                                                                              265,000t Gulf - Japan
  300                                                                        250,000
                                                                                                                              280,000t Gulf - US Gulf
  250
                                                                             200,000
  200
                                                                             150,000
  150
                                                                             100,000
  100
   50                                                                         50,000

     0                                                                              0
         '05   '06      '07      '08     '09    '10   '11    '12                        05     06      07      08        09    10      11       12


Source: Clarkson, Woori I&S Research Center                                Source: Clarkson, Woori I&S Research Center




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                                          IV. Tonnage supply control strategy to stabilize container shipping
                                             market supply-demand conditions over mid- to long term

                                          1. Global alliances ease competition
 Market share                             On Oct 28, 2011, Maersk launched new its Daily Maersk service on the Asia-North Europe
 competition hurts                        trade route, deploying 70 large-sized vessels. The daily service, which required a 21~25%
 shipping companies’                      fleet increase, helped to raise Maersk’s European market share to a historic-high of 19.4% at
 margins                                  end-2011. However, Maersk’s aggressive market share expansion strategy resulted in
                                          container freight rates falling, with all global container carriers—including Maersk—
                                          suffering from deteriorated earnings.


 Container shipping                       In order to compete against the Daily Maersk service, global container liners joined hands to
 companies form                           form three major alliances, before carrying out fleet realignment. In detail, in order to
 alliances, limiting                      compete with Maersk on Asia~Europe routes: 1) MSC and CGM-CMA, the world’s second
 excessive competition                    and third largest ocean carriers, signed an agreement to join forces, creating the biggest fleet
                                          on Asia~Europe routes; 2) Grand Alliance and New World Alliance formed the G6 Alliance,
                                          launching G6 Alliance loops that cover the Asia-to-Europe-and-Mediterranean markets from
                                          March; and 3) The four ocean carriers that belong to the CKYH Alliance and the Evergreen
                                          Line began European routes services from March.


 Asia~Europe routes                       In the wake of the new alliances, four players now operate on Asia~Europe routes, versus
 dominated by four                        seven companies previously. In addition, with each alliance equipped with mega-scale fleets
 main players                             (of near equal size), individual companies no longer benefit from economies of scale.
                                          Entering 2012, following the lead of Maersk, container shipping companies, which posted
                                          large-scale losses in 2011, have announced a series of freight rate hike plans, indicating that
                                          they are no longer engaged in market share competition, and that they are shifting their focus
                                          towards improving profitability. All in all, the formation of new global alliances should help
                                          to ease excessive market competition, setting the tone for future freight rate increases.



Global container carriers’ newly-formed alliances
                   Maersk                            MSC & CMA CGM                                 CKYH                                           G6
                                 Fleet                                 Fleet                                      Fleet                                    Fleet
                                         M/S                                 M/S                                        M/S                                        M/S
Ranking      Company         capacity        Ranking Company       capacity      Ranking     Company          capacity      Ranking Company            capacity
                                         (%)                                 (%)                                        (%)                                        (%)
                                (TEU)                                 (TEU)                                      (TEU)                                    (TEU)
    1         Maersk        2,663,567    16.2   2           MSC   2,220,009 13.5    4         COSCO            708,602 4.3     6    Hapag-Lloyd         642,291    3.9
                                                3     CMA-CGM 1,338.,421     8.1    5        Evergreen         654,902   4.0    7           APL         611,619    3.7
                                                                                    9       Hanjin Shipping    554,568   3.4   10       MOL             484,597    2.9
                                                                                   14        Yang Ming         354,152   2.2   11       OOCL            422,263    2.6
                                                                                   15          K Line          348,566   2.1   12      NYK Line         419,696    2.6
                                                                                                                               16       HMM             324,602    2.0
          Total             2,663,567    16.2       Total         3,558,430 21.6           Total              2,620,790 16.0        Total              2,904,996 17.7
Source: Alphaliner (as of Jun 6, 2012)




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Global container carriers form three major alliances on Asia~Europe routes

                                                   Maersk
                                                                                                                   Maersk
                      Others                        16%                            Others                           16%
                       28%                                                            28%

                                                               MSC
                                                               14%
                                                                                                                                MSC + CMA

                     Grand                                                                                                        CGM
                                                             CMA CGM                                                              22%
                   Alliance
                                                               8%          GA + TNWA =
                      9%
                               TNWA                                              G6                        CKYH +
                                                   CKYH
                                9%     Evergreen                                18%
                                                   12%                                                    Evergreen
                                          4%
                                                                                                             16%

Source: Alphaliner, Woori I&S Research Center



Market share breakdown for Asia~EU routes (post-alliance)              Market share breakdown for Asia~West US routes

                              Others                                                                                   Maersk
                              9.7%                  Maersk                                  Others                     9.8%     MSC
                                                    23.7%                                   21.5%                               7.3%
                G6
                                                                                                                                   CMA CGM
              18.8%
                                                                                                                                       6.7%


                                                                                New World
                                                                                  15.9%
                                                                                                                                 CKYH
                  CKYH +                             MSC + CMA-
                                                                                              Grand                              22.8%
                Evergreen                                 CGM
                                                                                             Alliance
                   20.4%                                  27.4%
                                                                                              16.1%

Source: Alphaliner, Woori I&S Research Center                          Source: Alphaliner, Woori I&S Research Center




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Supply control leads     With forecasts for 2012 freight traffic growth being revised down from 2.8% to 1.5% due to
to freight rate hikes    the European fiscal crisis, container shipping companies have attempted to reduce supply in
                         order to prevent additional freight rate declines. On Feb 17, 2012, Maersk announced that it
                         would reduce its operating fleet on Asia~Europe routes by 9%, via a vessel sharing scheme
                         with rival carrier CMA-CGM. Maersk’s determination to bolster freight rates, even at the cost
                         of cutting its fleet, was reconfirmed when the company announced that it would not exercise
                         an option to purchase 10 18,000TEU-sized vessels. Following Maersk’s supply reduction
                         announcement, spot freight rates on westbound Asia~Europe routes rose 3% w-w,
                         highlighting Maersk’s strong price-setting power as the global number-one container carrier.


Profitability becomes    On May 2, amid the absence of container shipping market recovery signals, the G6 Alliance
more important than      decided not to reinstate loop two of its seven planned Asia~Europe services out of concern
market share             that additional capacity would undo its recent successful rate hikes (implemented over March
                         and May). The decision is reflective of the shifted strategy priority among container carriers
                         from market share expansion to freight rate restoration.



                        Flexible container capacity adjustments to continue

                            ('000 TEU)      Europe~North America routes
                          1,000             Far East~North America routes
                                            Far East-Europe routes
                            800

                            600


                            400

                            200


                               0
                                   '10.01     '10.04      '10.07        '10.10   '11.01   '11.04   '11.07   '11.10   '12.1


                        Source: Alphaliner, Woori I&S Research Center




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                                            2. Positives: Increased demolition, slow steaming, and order cancellation/delay
 Due to supply glut in                      Over Jan~Apr 2012, 67 new vessels were delivered (508,000 TEU or 3.2% of overall
 2012, fleet delivery                       capacity). Combining this number with the remaining number of vessels scheduled to be
 growth to slow in                          delivered in 2012, 2012 delivery will likely represent 9.4% of total capacity. However, fleet
 2013                                       delivery should grow only 8.9% y-y in 2013, 4.2% y-y in 2014, and 2.0% y-y in 2015. With
                                            capacity likely to slow over the next three years, the supply glut in the containership market
                                            should fade. Of the new containerships delivered in Apr 2012 (125,709 TEU), containerships
                                            larger than 10,000 TEU accounted for 102,200 TEU of the new capacity (80% of delivery).
                                            The high portion of large containerships highlights shipping companies’ efforts to boost their
                                            operating efficiency.


 Containership                              Meanwhile, 55 containerships (94,153 TEU) were demolished over Jan~Apr 2012, 5.5 times
 demolition touches                         higher than during the same period last year. In particular, demolition totaled a monthly
 record high                                record high of 32,912 TEU in April alone. As demolition reached 124,000 TEU over
                                            January~May, overall demolition should total a historical high of 200,000 TEU in 2012—
                                            equivalent to 15% of 2012 deliveries—helping to fade the supply glut.


 Greater demolition                         Moreover, as demolished vessels are being replaced by more efficient vessels, operational
 to help shipping                           efficiency should improve. Of note, the average age of scrapped vessels has dropped from 28
 market rebound                             years (over the past decade) to 26 years. Just as the demolition of 379,000 TEU worth of
                                            ships in 2009 helped the containership market to rebound in 2010, we believe that massive
                                            vessel demolition in 2012 will bolster the shipping market in 2013.


 Order backlog/                             The ratio between containership orders and global fleet capacity fell to 23.8% in May, the
 capacity ratio at                          lowest level in nine years (vs a historical high of 64.2% in Apr 2003). Order receipts also
 record low of 23.8%                        dipped to a record low of 13,580 TEU over Jan~Apr 2012, equivalent to only 1.9% of orders
                                            placed during the same period last year. Due to the subdued funding environment and
                                            container shipping companies’ operating losses, ship orders have been delayed, with no new
                                            order being placed in April. The impact of the shrinking orderbook will likely be felt from
                                            2014, when vessel deliveries start to fall, easing the supply glut.



Containership delivery to peak in 2013                                         Demotion to hit record high in 2012

  ('000 TEU)                                                    ('000 TEU)       (No.)               Monthly demolition volume (RHS)           ('000 TEU)
  20,000                   Capacity (LHS)                            2,000       20                  Number of demolished container vessels (LHS)     40

                           Delivery (RHS)
   16,000                                                           1,600
                                                                                 15                                                                   30

   12,000                                                           1,200
                                                                                 10                                                                   20
    8,000                                                           800

                                                                                   5                                                                  10
    4,000                                                           400

         0                                                          0              0                                                                  0
             '96   '98 '00 '02 '04 '06          '08 '10 '12E '14F                      '10.01     '10.07        '11.01       '11.07      '12.01


Source: Clarkson, Alphaliner, Woori I&S Research Center                        Source: Clarkson, Woori I&S Research Center




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 Slow steaming to                           Due to lofty oil prices, a supply glut, and efforts to reduce CO2 emission, shipping liners
 improve efficiency                         increased slow steaming (traveling at 20 knots) in 2011. With oil prices rising further and the
 and reduce capacity                        supply glut deepening in 2012, liners have started operating vessels at 17 knots on long-haul
                                            routes—ie, super slow steaming. In fact, slow steaming reduced Maersk’s fuel costs by 30%,
                                            and helped to offset 4.9% of oversupply in the containership market. However, we believe
                                            that benefits that can be felt from slow steaming have peaked.


 Positive factors for                       In the face of the sluggish shipping market environment, orders are being cancelled and
 shipping market:                           deliveries are being delayed, trends which should positively impact supply-demand
                                            conditions. Meanwhile, reduced orders in the global shipbuilding industry are also likely to
 Order cancellations
                                            benefit the shipping industry.
 and delays



Order backlog/capacity ratio at nine year low                                                                 Containership orders sluggish

  ('000 TEU)           Capacity (LHS)                                           (% y-y)                             (mn CGT)                             Order volume (LHS)                                               (P)
  16                   Order backlog (LHS)                                          80                              20                                   Container newbuilding price index (RHs)                         135
                       Order backlog/capacity ratio (RHS)
                                                                                                                    16                                                                                                   120
  12                                                                                60

                                                                                                                    12                                                                                                   105
    8                                                                               40
                                                                                                                     8                                                                                                   90

    4                                                                               20
                                                                                                                     4                                                                                                   75

    0                                                                               0                                0                                                                                                   60
        '00      '02        '04       '06         '08          '10         '12                                             '96      '98                 '00    '02     '04    '06            '08        '10       '12E


Source: Alphaliner, Woori I&S Research Center                                                                  Source: Clarkson, Woori I&S Research Center estimates



                                            Capacity and delivery volume

                                             ('000 TEU)
                                             3,500                                                                                                                     2014+ delivery volume
                                             3,000                                                                                                                     2013 delivery volume
                                             2,500                                                                                                                     2012 delivery volume
                                             2,000
                                                                                                                                                                       Active capacity of chartered vessels
                                             1,500
                                                                                                                                                                       Active capacity of owned vessels
                                             1,000
                                                500
                                                                      CMA-CGM
                                                                MSC




                                                                                                                                                                                                                  HMM
                                                                                                                     APL




                                                                                                                                                                               Hamburg Sud




                                                                                                                                                                                                      Yang Ming
                                                                                                                                                                        NYK
                                                                                  COSCO
                                                        Musk




                                                                                                                                                                                                                         Zim
                                                                                                        Evergreen




                                                                                                                             CSCL

                                                                                                                                      Hanjin Shipping

                                                                                                                                                         MOL




                                                                                                                                                                                             K-Line
                                                                                          Hapag-Lloyd




                                                                                                                                                                OOCL




                                         Source: Clarkson, Woori I&S Research Center




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                                            3. Future market barometer: Idle rate of containerships
 Idle vessels, key to                       Containership idling is seen as being the key to resolving excess supply problems within the
 adjusting capacity                         industry. Containership companies posted huge operating deficits in 2011, a trend which
                                            continued in 1Q12. In light of the European fiscal crisis and worsening excess supply
                                            problems, delivery schedules and orders for most vessels have either been delayed or
                                            cancelled. In addition, vessel idling can be used as a means to instantly reduce oversupply.
                                            Therefore, if shipping companies continue to focus on their current strategy of improving
                                            profitability, in addition to increasing idle vessel capacity, there should be a significant
                                            improvement in oversupply conditions.


 Idle rate to bottom                        While the volume of idle vessels stood at 913,000 TEU on Mar 12, surpassing 900,000 TEU
 and rally from 3Q12                        (idle rate of 5.85) for the first time in 23 months, the figure plunged 38.7% to 560,000 TEU
                                            (idle rate of 3.5%) on May 14 due to a hike in weekly operating capacity (up 8,000~9,000
                                            TEU) as jointly-operated routes were realigned to prepare for trade volume growth during the
                                            peak season of 3Q. Of note, fleet capacity increased 293,000 TEU during April, with idle
                                            capacity likely to decline to 350,000 TEU by July amid the peak season of 3Q.


 Earnings to improve                        Given the massive delivery volume slated for 2012, we expect the idle rate to remain above
 from increase in idle                      4%. Adjustments to idle rates will likely be the key to maintaining supply-demand balance
 volume and 3Q peak                         and determining freight rates. Despite the concerted effort between shipping companies to
 seasonality                                adjust supply volume (via increasing the number of idle vessels), the current shipping market
                                            recession has continued for more than a year; however, we expect to see a full-fledged market
                                            recovery amid the peak season of 3Q. Of note, in 2002, when the idle rate hit a peak at 3.2%,
                                            the shipping market recession lasted for only ten months.



Decline in containership idle rate to end                                         Increase in active capacity due to decline in short-term idle rate

  ('000 TEU)                                                                (%)     ('000 TEU)              Idle volume (LHS)                             (% y-y )
  1,500                                                                     15       16.5                   Active capacity (LHS)                            40
                                                        Idle volume (LHS)
                                                                                                            Capacity growth (RHS)
  1,200                                                 Idle rate (RHS)     12      15.0                                                                     30


    900                                                                     9       13.5                                                                     20

    600                                                                     6       12.0                                                                     10


    300                                                                     3       10.5                                                                     0

       0                                                                    0         9.0                                                                    -10
           '09.1   '09.7   '10.1    '10.7       '11.1    '11.7    '12.1                     '09.1   '09.7   '10.1    '10.7        '11.1   '11.7   '12.1


Source: Alphaliner, Woori I&S Research Center                                     Source: Alphaliner, Woori I&S Research Center




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                                        4. Increase in freight rate attributed to effective supply control
CCFI surpasses peak                     The China Containerized Freight Index (CCFI) has risen 47.5% since end-2011 (Dec 20:
level in Aug 2010                       881.2p), recording the fastest growth since the index was first established in 1998. As of Jun
                                        1, the CCFI stood at 1,324.7p, roughly 9.3% higher than in Aug 2010 (1,212p) when shipping
                                        companies posted record sales. Nevertheless, container shipping companies are still unable to
                                        surpass breakeven point or to generate substantial operating profits, mainly owing to the
                                        sharp rise in bunker C prices. Of note, the price of bunker C averaged US$745/ton in 1Q12,
                                        62% higher than in Aug 2010 (US$460/ton). In contrast, the price of bunker C, which
                                        exceeded US$760/ton in Jan 2012 (for the first time in 40 months), dropped to US$606/ton in
                                        Jun 6, and continues to gradually stabilize. We expect the shipping sector to witness a margin
                                        improvement if a general rate increase occurs in May and if peak season surcharges are
                                        successfully implemented in June.


Freight rate hike to                    Container capacity reached a historical high of 15.74mn TEU in May, up 9.0% y-y. As for Far
hinge on supply-                        East~Europe routes, despite efforts to reduce supply, capacity increased 430,000 TEU (up
demand conditions                       12% y-y) over Jan~Apr 2012. We attribute the increase to the delivery of large-sized vessels
                                        (10,000 TEU and over). Of note, newly delivered vessels are likely to be used on
                                        Asia~Europe routes, with existing small-sized vessels likely to be transferred to Trans-Pacific
                                        (US) or North~South routes. Given the increased capacity on Asia~EU routes and reduced
                                        operating efficiency on Trans-Pacific routes, there is a possibility that margins will deteriorate
                                        slightly. As shipping companies were able to raise freight rates from January due mainly to
                                        reduced supply, concern have increased due to the possibility of renewed competition (in line
                                        with the delivery of new vessels) and a drop in the number of idle vessels.


Supply, key to                          Despite lofty supply growth, the average load factor on Asia~Europe and America routes
profitability                           should remain high at 90~95% in 3Q12 thanks to seasonality. As such, we believe that freight
                                        rate hikes will be possible on East~West routes. Container freight rates should remain above
                                        breakeven point in 3Q12. However, we believe that load factor will fall to the lower-80%
                                        range in 4Q12 due to reduced traffic. As freight owners may resist additional rate hikes
                                        following the frequent hikes since the start of 2012, shipping companies may choose to adjust
                                        their supply in an effort to improve profitability after the high demand season.



CCFI and SCFI                                                               Bunker C price, shipping sector margin and index

    (P)                                                                       (P; US$10/MT)                 Quarterly OP margin (RHS)            (%)
  1,800                 SCFI              CCFI                                                              Sector index (LHS)
                                                                              200                                                                20
                                                                                                            Monthly average bunker C price (LHS)
  1,600
                                                                              150                                                                   10
  1,400
                                                                              100                                                                   0
  1,200

                                                                               50                                                                   -10
  1,000

    800                                                                          0                                                                  -20

          '09.10 '10.02 '10.06 '10.10 '11.02 '11.06 '11.10 '12.02 '12.06             '06      '07    '08     '09      '10      '11      '12


Source: Shanghai Shipping Exchange, Woori I&S Research Center              Source: Industry data, DataGuide Pro, Bloomberg, Woori I&S Research Center




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Shanghai~Europe and Shanghai~US WC rate                                                        Correlation between CCFI and traffic

  ($/TEU)                                                                                          (P)                      CCFI                                              (% y-y )
   2,500                              Shanghai~Europe freight rate                                1,300                     Traffic growth                                       20
                                      Shanghai~US WC freight rate                                 1,200                                                                          15
  2,000
                                                                                                  1,100                                                                          10
  1,500
                                                                                                  1,000                                                                          5
  1,000
                                                                                                   900                                                                           0
    500                                                                                            800                                                                           -5

       0                                                                                           700                                                                           -10
        '10.1       '10.7         '11.1          '11.7         '12.1                                      '00     '02        '04      '06          '08         '10     '12


Source: Shanghai Shipping Exchange, Woori I&S Research Center                                  Source: Clarkson, Woori I&S Research Center



                                          Container capacity growth slightly surpasses traffic growth; supply-demand conditions improve

                                            ('000TEU)                  Container capacity                               Container capacity growth                            (% y-y )
                                            20,000                                                                                                                               25
                                                                       Container traffic growth                         Global GDP growth


                                            15,000                                                                                                                               15


                                            10,000                                                                                                                               5


                                              5,000                                                                                                                              -5


                                                  0                                                                                                                              -15
                                                         '00    '01      '02     '03     '04       '05      '06    '07      '08     '09      '10         '11    '12E   '13F


                                          Source: Clarkson (Container Intelligence Monthly), Woori I&S Research Center estimates




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  Freight rate hike, key               The CCFI normally increases in line with trade volume growth, while changes in the freight
  to share performance                 rate index usually directly affect share performance. According, we expect the recent rally in
                                       the CCFI to benefit container shipping companies’ share prices. In addition, shipping shares
                                       should be further bolstered by the expected increase in trade volume over 2012~2013, similar
                                       to the trend witnessed during the ‘super cycle’ in 2010, when trade volume growth exceeded
                                       capacity growth by 3.2%.


                                      CCFI vs share performance of container shipping companies;
                                      high correlation between share price of container shipping companies and freight rates

                                            (P)                 CCFI                                                                                   (P)
                                         1,800                  Container shipping companies' share price index                                        150


                                         1,500                                                                                                         120

                                         1,200                                                                                                         90

                                          900                                                                                                          60

                                          600                                                                                                          30

                                          300                                                                                                          0
                                                  '05.01          '06.07               '08.01              '09.07             '11.01              '12.07


                                      Note: Index based on market cap of major container shipping companies
                                      Source: Shanghai Shipping Exchange, Bloomberg, Woori I&S Research Center estimates



Freight rate increase plans
Asia-Europe route
                                                                     Rate changes w-w
   Date                 Planned Rate Increases                                                                         Company / Alliance
                                                                   Spot            SCFI
                                                                                                    Maersk, MSC, Asian container shipping cos (peak season
   12/26                     US$200/TEU                        US$130/TEU         US$165/TEU
                                                                                                    surcharge)
                                                                                                    Most shipping companies such as Maersk, CMA-CGM,
    3/1              US$650~800/TEU(~$700/TEU)                 US$728/TEU         US$586/TEU
                                                                                                    Evergreen and Hapag-Lloyd
                                                                                                    Maersk, MSC, Hanjin Shipping, HMM, Evergreen, APL, Zim,
    4/1                   US$300~525/TEU                       US$377/TEU         US$110/TEU
                                                                                                    NYK, K-Line, OOCL, COSCO, UASC
                                                                                                    Maersk, MSC, CMA-CGM, OOCL, Hanjin Shipping, HMM,
    5/1             US$385~450/TEU (~US$400/TEU)               US$315/TEU         US$46/TEU
                                                                                                    COSCO, APL
                                                                                                    Most shipping cos such as MSC, OOCL, Zim and Hanjin
   6/15                   US$300~375/TEU                             -                  -
                                                                                                    Shipping (peak season surcharge)
                US$400/TEU – Asia ~ Northern Europe
   6/18                                                              -                  -           Hapag-Lloyd
                US$225/TEU – Northern Europe ~ Asia

Asia-US route
                                                                     SCFI changes w-w
   Date                      Planned hike                                                                              Company / Alliance
                                                                Western US      Eastern US
   1/1                    US$400/FEU                           US$389/FEU         US$413/FEU       TSA members
   3/15                   US$300/FEU                           US$268/FEU         US$290/FEU       TSA members
   4/15             US$320/TEU, US$400/FEU                     US$129/FEU         US$42/FEU        TSA members
            US$400/TEU, US$500/FEU – Asia~Western US
    5/1                                                        -US$21/FEU         -US$17/FEU       TSA members
            US$560/TEU, US$700/FEU ~ Asia~Eastern US
   6/10             US$480/TEU, US$600/FEU                           -                  -          TSA members (peak season surcharge)
Note: TSA members = Maersk, MSC, APL, CMA-CGM, Cosco, China Shipping, Hanjin Shipping, Evergreen, Hapag-Lloyd, HMM, K-Line, NYK, OOCL, Yangming, Zim
     SCF freight rate hike: two weeks from effective date
Source: Journal of Commerce, Transpacific Stabilization Agreement (TSA), Woori I&S Research Center




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Monthly and weekly shipping indices
                                                                                                                 HJS rate
                                             HRCI                     CCFI                    SCFI                           BDI           WS
                                                                                                               (US$/TEU)
           2011. 7                           831.6                   982.4                 1,020.1                 1,187    1,366         49.3
           2011. 8                           745.9                   987.1                 1,045.2                 1,215    1,394         46.9
           2011. 9                           676.6                   991.2                   940.6                 1,225    1,840         44.2
          2011. 10                           591.9                   961.5                   948.3                 1,139    2,072         46.9
          2011. 11                           539.3                   934.1                   895.5                 1,136    1,835         57.6
          2011. 12                           499.4                   902.6                   876.3                 1,097    1,869         58.3
           2012. 1                           466.1                   916.3                   979.6                 1,103    1,039         56.4
           2012. 2                           458.8                   943.5                   965.6                 1,099      703         51.3
           2012. 3                           469.1                 1,040.1                 1,227.1                 1,205      859         60.1
           2012. 4                           480.4                 1,213.1                 1,426.5                          1,021         61.9
           2012. 5                           504.1                 1,313.3                 1,450.3                          1,101         57.5
      4th week of April                      489.3                 1,263.1                 1,488.1                          1,156         62.5
      1st week of May                        491.5                 1264.0
                                                                   1,264.0                 1,501.5                          1,157         57.5
     2nd week of May                           499
                                             499.8                 1,322.0                 1,464.8                          1,138         57.5
      3rd week of May                        501.1                 1,335.9                 1,426.0                          1,141         60.0
      4th week of May                           50
                                             514.1                 1,331.4                 1,408.8                          1,034         55.0
     1st week of June                        509.4                 1,324.7                 1,386.9                            904         49.0
Note: Hanjin Shipping releases freight rate on a monthly basis; TEU and FEU based on 20ft and 40ft container
     Monthly average; Hanjin Shipping releases container freight rate on a quarterly basis
Source: Clarkson, KMII, Hanjin Shipping, Woori I&S Research Center




                                                                                                                                            25
Hanjin Shipping (117930.KS)
Company Analysis
Jun 14, 2012




                                                              Korea’s number-one container shipping company;
         Buy (Upgrade)
                                                              ranks fourth globally on US routes
 TP                    W20,000 (Raise)
 CP (’12/06/07)                       W13,100
                                                              Raise rating to Buy and target price to W20,000
                                                              – We revise up our investment rating on HJS to Buy, raising our target price to W20,000.
  Analyst
                                                                HJS is Korea’s number-one container shipping company. In addition, the firm ranks
  Martin Song                                                   fourth globally on US routes. Thanks to contracts with loyal shippers and its
  822)768-7473, martin.song@wooriwm.com                         operational efficiency, we expect the company to record stable earnings going forward.
                                                                Accordingly, we view HJS as being attractively valued following its recent share
                                                                correction.
                                                              – Our RIM-based target price (assumes a market risk premium of 6.0%, a risk free rate of
                                                                4.0%, and a beta of 1.0, with a COE of 10%) implies 58% upside from the current
                                                                share price and is equivalent to a P/B of 1.37x.


Sector                         Transportation                 To turn to profit in 2Q12; OP to rise sharply in 3Q12 on seasonality
Kospi                         1,847.95                        – Reflecting the likely upcycle in shipping industry over the mid- to long term, we revise
Kosdaq                          466.18                          up our 2012 sales and operating profit estimates by 7.5% and 14.0%, respectively. In
Market cap (common)     US$1,391.84mn                           detail, the container shipping unit is estimated to have reached breakeven point at end-
Outstanding shares (common)   125.0mn
                                                                April (week 17), while the company should turn to an operating profit in 2Q12, with
52W high (‘11/07/06)          W22,919
     low (‘11/11/24)           W8,070
                                                                operating profit likely to grow rapidly in 3Q12 thanks to peak seasonality.
Dividend yield (2011)            0.0%                         – While HJS’s operating margin is only expected to reach 1.3% in 2012, we view the
Foreign ownership               20.6%                           likely turnaround as being meaningful. Profitability should improve rapidly from 2013,
Major shareholders                                              with 2013 operating margin increasing to 4.0% and EPS standing at W1,208. Trading
Hanjin Shipping Holdings and others 36.3%                       at a 2013 P/E of 10.8x and an EV/EBITDA of 5.9x, we believe that the company’s
                                                                shares are undervalued,.
Stock perf (%)          3M         6M        12M
Absolute               -25.8      29.1      -41.2             Capital liquidity sound on continued restructuring; earnings to improve on
Relative               -20.4      34.1      -33.2             stabilizing oil prices
                                                              – The company is continuing its restructuring efforts, including disposing of terminals
 Price trend                                                    and old bulk carriers. In addition, its cash flow remains sound on both the sale and
                                  Hanjin Shipping               lease-back of container equipment and on its bond issuance.
  150
                                  KOSPI                       – As fuel costs account for around 23% of HJS’s operating costs, the company’s fuel cost
  100                                                           burden should ease in line with stabilizing bunker C prices. As HJS’s sales are fully
                                                                settled in dollars, the recent weakening of the won is also positive.
   50

    0
      '11.6    '11.9     '11.12    '12.3     '12.6




                  Sales             Chg           OP          NP NP at parent     EPS       Chg         P/E        P/B EV/EBITDA          ROE     Debt/equity Net debt
  YE-Dec
                  (Wbn)              (%)        (Wbn)       (Wbn)       (Wbn)    (won)       (%)         (x)        (x)       (x)          (%)           (%)    (Wbn)
   2010           9,625            540.8              668     290         286    3,302      TTP        10.8        1.2            6.7      12.4        290.4     3,255
   2011           9,523             -1.1             -514    -824        -835   -8,703      TTL         N/A        0.7            N/A     -35.6        452.9     3,862
  2012E          10,853             14.0              137    -169        -172   -1,375       RR        N/A         0.9            9.0      -9.0        539.5     3,827
  2013F          11,794              8.7              462     149         151    1,208      TTP        10.8        0.8            5.9       8.1        524.2     3,914
  2014F          12,742              8.0              561     243         246    1,970      63.1        6.7        0.8            5.4      12.2        487.4     3,997
Note: IFRS basis; operating profit based on K-GAAP (COGS – SG&A expenses); EPS, P/E and ROE based on net profit excluding minority interests
Source: Woori I&S Research Center estimates


www.wooriwm.com
 Hanjin Shipping                                                                                                                                  www.wooriwm.com




 Sales to grow 14.0%                       Sales should reach W10,852.8bn (up 14.0% y-y) and W11,794.1bn (up 8.7% y-y) in 2012 and
 y-y in 2012                               2013, respectively, with operating profit of W143.9bn (TTP y-y) and W469.3bn (up 226.1%
                                           y-y). In detail, rapid earnings growth is expected in line with the upcycle in the container
                                           shipping industry.


 Operating profit to                       Meanwhile, we forecast that operating profit will climb to W36.9bn (TTP y-y) in 2Q12 and
 increase sharply in                       W183.5bn (TTP y-y) in 3Q12. In particular, strong operating profit is expected in 3Q12
 3Q12                                      thanks to high seasonality in the container shipping industry.



                                           Sales forecast, by division                                                                                     (Units: Wbn, %)

                                                                                     2009               2010            2011        2012E            2013F          2014F
                                                               Sales              4,019.7            6,185.9         5,599.9       6,721.1          7,480.0        8,257.4
                                        Containership          Portion               56.1               64.3            58.8          61.9             63.4           64.8
                                                               Growth               -26.4               53.9             -9.5         20.0             11.3           10.4
                                                               Sales                399.6              431.9           598.8         634.4            670.4          703.6
                                        Liner                  Portion                5.6                4.5              6.3          5.8              5.7            5.5
                                                               Growth                17.8                8.1            38.7           5.9              5.7            5.0
                                                               Sales                454.0              605.0           524.9         553.0            580.6          605.1
                                        Tramper                Portion                6.3                6.3              5.5          5.1              4.9            4.7
                                                               Growth               -33.5               33.3           -13.2           5.3              5.0            4.2
                                                               Sales              2,292.4            2,402.4         2,799.6       2,944.3          3,063.2        3,176.3
                                        Others                 Portion               32.0               25.0            29.4          27.1             26.0           24.9
                                                               Growth               -22.8                4.8            16.5           5.2              4.0            3.7
                                                               Sales              7,165.7            9,625.2         9,523.3      10,852.8         11,794.1       12,742.4
                                        Total
                                                               Growth               -24.2               34.3             -1.1         14.0              8.7            8.0
                                       Source: Hanjin Shipping, Woori I&S Research Center estimates



                                           Quarterly earnings forecasts                                                                                    (Units: Wbn, %)

                                                                 1Q10 2Q10       3Q10       4Q10      1Q11 2Q11          3Q11     4Q11       1Q12 2Q12E 3Q12E 4Q12E
                                           Sales                 1,989 2,430     2,825      2,382     2,275 2,392        2,469    2,387      2,264 2,618 3,150 2,821
                                           Operating profit          -3  180       417         92        -18 -170         -135     -169       -218    37   183   142
                                           Operating margin        -0.1   7.4     14.8         3.9      -0.8  -7.1         -5.5     -7.1       -9.6   1.4   5.8   5.0
                                           Net profit             -164   206       252          -5     -141 -274            -86    -323       -338   -35   115    89
                                       Note: Operating profit figures before 2011 based on K-GAAP
                                       Source: Hanjin Shipping, Woori I&S Research Center estimates



Sales breakdown                                                                       Sales, by division

   (Wbn)          Others
  14,000          Tramper (bulk carrier)
  12,000          Liner (LNG+special purpose vessel)
                  Cointainership                                                                                        Others
  10,000
                                                                                                                        29.4%
    8,000                                                                                                                                  Containership
    6,000                                                                                            Tramper                                  58.8%

    4,000                                                                                       (bulk carrier)
                                                                                                      5.5%
    2,000
                                                                                                             Liner
        0                                                                                   (LNG+special purpose vessel)
            '02       '04       '06         '08      '10      '12E    '14F                                   6.3%                                             (as of 2011)


Source: Hanjin Shipping, Woori I&S Research Center                                    Source: Hanjin Shipping, Woori I&S Research Center


                                                                                                                                                                         27
 Hanjin Shipping                                                                                                                                            www.wooriwm.com




                                       Ownership structure

                                                                                                                    Korean Air
                                                                                                                    Korean Air
                                                                   16.6%                        16.7%
                                           Choi Eun-yeong
                                           Choi Eun-yeong                                                                                                  Gwangyang International
                                                                                                                                                           Gwangyang International
                                             & 2 others
                                              & 2 others                                                        Korea Airport Service               50.0% Container Terminal Co., Ltd.
                                                                                                                                                          Container Terminal Co., Ltd.
                                                                                                                Korea Airport Service
                                                                                                10.7%
                                                                   10.9%
                                               Prime Value                                                                                                      Pyeongtaek Container
                                                                                                                                                                Pyeongtaek Container
                                               Prime Value                                                        Hanjin Co., Ltd.
                                                                                                                  Hanjin Co., Ltd.
                                                                                                0.04%                                               59.0%         Terminal Co., Ltd.
                                                                                                                                                                  Terminal Co., Ltd.

                                                                    9.9%          Hanjin Shipping
                                          Yanghyun Foundation                     Hanjin Shipping                        Hanjin Shipping                            Hanjin Pacific
                                          Yanghyun Foundation                                                            Hanjin Shipping                            Hanjin Pacific
                                                                                     Holdings
                                                                                     Holdings               36.02%                                  60.0%

                                                                    9.2%
                                               Hillstar Assets
                                               Hillstar Assets                               40.0%                                                                   Hanjin SM
                                                                                                                                                                     Hanjin SM
                                                                                                                                                    51.0%

                                        Hanjin Shipping Holdings 4.0%                 Cyber Logitec
                                                                                      Cyber Logitec                                                                KT Submarine
                                                                                                                                                                   KT Submarine
                                        Hanjin Shipping Holdings
                                             (treasury stock)
                                             (treasury stock)                                                                                       30.2%             Co., Ltd.
                                                                                                                                                                      Co., Ltd.


                                       Source: Woori I&S Research Center



Fleet (as of Mar 31, 2012)
              Category                                           Owned                                      Chartered                                           Total
                  13,000 TEU                           1                     13,102                                                                  1                            13,102
                  10,000 TEU                           5                     49,770               3                               30,342             8                            80,112
                   8,000 TEU                           5                     42,930                                                                  5                            42,930
                   7,000 TEU                                                                      5                               37,275             5                            37,275
 Container
                   6,500 TEU                          8                      53,240                                                                  8                            53,240
   (TEU)
                   5,000 TEU                          7                      37,126              15                              84,389              22                          121,515
                   4,000 TEU                          16                     66,392              16                              68,311              32                          134,703
                   3,000 TEU                                                                      9                              29,058              8                            29,058
                   3,000 TEU                                                                     19                              39,712             20                            39,712
           Container total                            42                     262,560             67                             289,087             109                          551,647
               Cape size - COA                        26                   4,531,638             4                              676,261                                        5,207,899
    Bulk           Cape size                          5                      832,228             10                           1,804,103                                        2,636,331
  (DWT)            Panamax                            2                      140,686             5                              412,115                                          552,801
                     Handy                            8                      297,603             16                             797,453                                        1,095,056
  Tanker          LNG - COA                           4                      296,743                                                                                             296,743
  (DWT)              Tanker                           2                      320,291            18                            1,296,197                                        1,616,488
             Bulk total                               47                   6,419,189            53                            4,986,129             100                       11,405,318
               Total                                  89                                        120                                                 209
Source: Hanjin Shipping, Woori I&S Research Center



Monthly average container freight                                                           Freight rate, by route

  (US$/TEU)                                                                                   (US$/TEU)                     North American route             European route
  1,700               Monthly average container freight                                        2,000                        Atlantic Ocean route             Asian region

  1,500
                                                                                               1,500

  1,300
                                                                                               1,000
  1,100

                                                                                                 500
    900

    700                                                                                               0
          '00       '02       '04        '06           '08         '10      '12                           '06         '07            '08      '09         '10           '11          '12


Source: Hanjin Shipping, Woori I&S Research Center                                          Source: Hanjin Shipping, Woori I&S Research Center




                                                                                                                                                                                           28
 Hanjin Shipping                                                                                                                                             www.wooriwm.com


Operating cost breakdown                                                                      Operating cost

                               Others                  Labor cost                                (Wbn)                      Operating cost (LHS)                                          (%)
                                9.3%                     0.8%                                                               Operating cost-to-sales ratio (RHS)
                                                                                                12,000                                                                                    110

           Charterage                                                                           10,000                                                                                    105
             28.6%
                                                                                                  8,000                                                                                   100

                                                                                                  6,000                                                                                   95
       Maintenance
                                                                                                  4,000                                                                                   90
             cost                                                   Operating
             4.8%                                                       cost                      2,000                                                                                   85
                                                                       56.4%
                   Crew cost                                                                           0                                                                                  80
                     0.2%                                                   (as of 2011)                    '01       '03        '05     '07         '09         '11     '13F


Source: Hanjin Shipping, Woori I&S Research Center                                            Source: Hanjin Shipping, Woori I&S Research Center estimates



 Operating cost breakdown                                                                     Container trade volume

                         Others                                                                ('000 TEU)

                            1.4%                                                                400
                                                                                                                  Container volume

                                                                      Fuel cost                 350
       Delivery cost
            30.6%                                                      35.1%
                                                                                                300

                                                                                                250

                                                                           Operating            200
                                                                                cost
           Handling cost                                                       2.8%             150
              23.1%                                      Entrance&clerance fee 3.3%
                              Canal transit                                                     100
                                 charge                                        (as of 2011)           '00           '02          '04           '06          '08              '10           '12
                                 3.6%
Source: Hanjin Shipping, Woori I&S Research Center                                            Source: Hanjin Shipping, Woori I&S Research Center



Operating profit & margin                                                                     Per share indicators

   (Wbn)                                                                               (%)       (won)                                                       Net profit per share
                              Operating profit (LHS)
   1,200                                                                               28       16,000                                                       Cash flow per share
                              Operating margin (RHS)
                                                                                                                                                             EBITDA per share
    900                                                                                21       12,000

    600                                                                                14         8,000

    300                                                                                7          4,000

       0                                                                               0               0

    -300                                                                               -7        -4,000

    -600                                                                               -14       -8,000
             '01        '03        '05        '07      '09      '11       '13F                              '01           '03      '05         '07         '09         '11         '13F


Source: Hanjin Shipping, Woori I&S Research Center estimates                                  Source: Hanjin Shipping, Woori I&S Research Center estimates




                                                                                                                                                                                                29
 Hanjin Shipping                                                                                                                               www.wooriwm.com




Key drivers & share price trend

Container freight index vs share price                                                     Container volume vs share price

    (won)               HJS share price (LHS)                    (P; '90.1=100)                (won)                                                           ('000 TEU)
                                                                                                                  Monthly container volume (RHS)
   75,000               HJS's container freight index (RHS)                   160             70,000                                                                  420
                                                                                                                  HJS share price (LHS)
                                                                                              60,000                                                                  360
   60,000                                                                     140
                                                                                              50,000                                                                  300
   45,000                                                                     120             40,000                                                                  240

   30,000                                                                     100             30,000                                                                  180

                                                                                              20,000                                                                  120
   15,000                                                                     80
                                                                                              10,000                                                                  60

         0                                                                    60                    0                                                                 0
             '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12                                              '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12


Source: Hanjin Shipping, DataGuide Pro, Woori I&S Research Center                          Source: Hanjin Shipping, DataGuide Pro, Woori I&S Research Center


Bunker C oil price vs share price                                                          Quarterly operating profit vs share price

   (won)              HJS share price(LHS)                           (US$/TEU)                 (won)                                                                  (%)
                                                                                                                   Quarterly OP margin (RHS)
   60,000             Bunker C oil price(RHS)                                900              75,000                                                                   30
                                                                                                                   HJS share price (LHS)
   50,000                                                                    750
                                                                                              60,000                                                                   20
   40,000                                                                    600
                                                                                              45,000                                                                   10
   30,000                                                                    450
                                                                                              30,000                                                                   0
   20,000                                                                    300

   10,000                                                                    150              15,000                                                                   -10

         0                                                                   0                      0                                                                  -20
             '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12                                            '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12


Source: Bloomberg, DataGuide Pro, Woori I&S Research Center                                Source: Bloomberg, DataGuide Pro, Woori I&S Research Center


Kospi vs share price                                                                       Sector index vs share price

   (won)                HJS share price (LHS)                                (P)               (won)               HJS share price (LHS)                              (P)
   60,000               Kospi (RHS)                                      3,000                60,000               Sector index (RHS)                             6,000

   50,000                                                                2,500                50,000                                                              5,000

   40,000                                                                2,000                40,000                                                              4,000

   30,000                                                                1,500                30,000                                                              3,000

   20,000                                                                1,000                20,000                                                              2,000

   10,000                                                                500                  10,000                                                              1,000

         0                                                               0                          0                                                             0
             '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12                                            '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12


Source: DataGuide Pro, Woori I&S Research Center                                           Source: DataGuide Pro, Woori I&S Research Center

*Note: HJS’s share price before 2009 is pre-split-off basis; trading suspended from Nov 30~Dec 28, 2009

                                                                                                                                                                             30
 Hanjin Shipping                                                                                                                                  www.wooriwm.com


[Hanjin Shipping]
      STATEMENT OF COMPREHENSIVE INCOME                                                                                VALUATION INDEX
(Wbn)                                               2011/12A 2012/12E 2013/12F 2014/12F                                             2011/12A 2012/12E 2013/12F 2014/12F
Sales                                                  9,523   10,853   11,794   12,742    Price/Earning (X)                              N/A      N/A    10.8       6.7
Growth (%)                                               -1.1    14.0       8.7      8.0      PER (High,X)                                N/A      N/A    15.7       9.6
COGS                                                   9,560   10,187   10,765   11,576       PER (Low,X)                                 N/A      N/A      9.1      5.6
Gross Profit                                              -37     666    1,029    1,166    Price/ Book Value (X)                           0.7      0.9     0.8      0.8
Gross margin (%)                                         -0.4      6.1      8.7      9.2      PBR (High,X)                                 2.4      1.3     1.2      1.1
SG&A                                                     477      529      567      605       PBR (Low,X)                                  0.5      0.8     0.7      0.7
GAAP Operating Income                                   -514      137      462      561    Price/ Gross Cash Flow (X)                     -9.0      3.1     1.7      1.6
GAAP Operating margin (%)                                -5.4      1.3      3.9      4.4   Price/ Sales (X)                                0.1      0.2     0.1      0.1
Other Operating Income(Exp.)                               21        7        7        7   PER/ EPS growth (X)                            N/A      N/A      0.3      0.3
EBITDA                                                  -122      614      948    1,054    PER/ EBITPS growth (X)                          0.0     -0.1     0.7      0.6
Operating Income                                        -493      144      469      568    PER/ EBITDAPS growth (X)                        0.0     -0.4     1.3      1.1
Operating margin (%)                                     -5.2      1.3      4.0      4.5   EV/ EBITDA (X)                               -43.4       9.0     5.9      5.4
Financial Income(Costs)                                 -272     -256     -304     -307    EV/ EBIT (X)                                 -10.3     40.3    12.1     10.1
Other Non-Operating Profits                                 2      -45        0        0   Enterprise Value (Wbn)                       5,318    5,504   5,589    5,668
Gains(Losses) in Associates, Subsidiaries and JVs         -53        0        0        0   EPS CAGR (3-Yr) (%)                         -160.9   -220.1    36.8     21.8
Pre-tax Profit from Cont. Op.                           -815     -157      165      261    EBITPS CAGR (3-Yr) (%)                      -194.3     65.0    14.9     10.4
Income Taxes                                                9       13      17       18    EBITDAPS CAGR (3-Yr) (%)                    -287.6     21.9      8.2      6.0
Profit from Continuing Op.                              -824     -169      149      243    EBITPS (W)                                  -5,355    1,093   3,698    4,487
Net Profit                                              -824     -169      149      243    EBITDAPS (W)                                -1,276    4,911   7,588    8,429
Net margin (%)                                             -9       -2        1        2   Fully diluted EPS (W)                       -8,703   -1,375   1,208    1,970
Net Profit of Parent                                    -835     -172      151      246    BVPS (W)                                   15,903   14,528   15,436   16,906
Net Profit to Non-Controlling                              12        2       -2       -3   CFPS (W)                                    -1,261    4,274   7,545    8,388
Other Comprehensive Income                              -146         0        0        0   Sales PS (W)                               99,207   86,822   94,353 101,939
Total Comprehensive Income                              -970     -169      149      243    DPS (W)                                           0        0    300      500

                         CASH FLOW STATEMENT                                                                                    RIM & EVA
(Wbn)                                               2011/12A 2012/12E 2013/12F 2014/12F                                             2011/12A 2012/12E 2013/12F 2014/12F
Operating Cash Flow                                      -130     975    1,055      997    RIM
Net Profit                                               -824    -169      149      243    Spread (FROE-COE) (%)                        -45.5     -19.0      -1.9      2.2
Depreciation&Amortization                                 392     477      486      493    Residual Income                           -1,067.4    -362.0     -36.3     44.1
+ Loss(Gains) from Subs                                    52        0        0        0   12M RIM Target Price (W)                   20,703
+ FC translation loss(profit)                             -49      -98        0        0   EVA
+ Losses(Gains) on Disposal of Assets                     -16        0        0        0   Invested Capital                           8,309.9   8,468.9   8,648.2   8,820.1
Gross Cash Flow                                          -121     534      943    1,048    NOPAT                                       -565.6     149.2     417.2     522.8
- Incr. (Decr.) in WC                                       2     454      129       -33   ROIC (%)                                      -7.6       1.8       4.9       6.0
Investing Cash Flow                                      -992    -840     -842     -741    ROIC - WACC (%)                              -15.1      -6.1      -1.9      -1.0
+ Decr. In Tangible Assets                                309        0        0        0   EVA                                       -1,254.7    -513.0    -163.2     -84.8
- Incr. In Tangible Assets(CAPEX)                      -1,387    -973     -828     -725    DCF
+ Disp.(Acq.) of Inv. Assets                              140      -34      -24      -24   EBIT                                        -514.0     136.7     462.3     560.9
Free Cash Flow                                         -1,517        2     227      272    + Depreciation/Amortization                   392       477       486       493
Net Cash Flow                                          -1,122     135      214      256    - CAPEX                                   -1,386.9    -973.0    -828.4    -724.5
Financing Cash Flow                                       743    -119     -320     -358    - Incr. (Decr.) in Working Capital           -27.8     -63.8     -45.2     -75.3
Equity Financing                                          307        0        0        0   Free Cash Flow for Firm                   -1,486.9    -284.5     119.0     365.1
Debt Financing                                            436    -119     -320     -358    WACC
Incr.(Decr.) in Cash                                     -360       16    -100       -96   Cost of Debt (Tax Adj.)                       7.0       7.4       6.2       6.4
Ending Cash and Cash Equivalents                          684     700      600      505    Cost of Equity (COE)                          9.9      10.0      10.0      10.0
Net Debt (Cash)                                         3,862   3,827    3,914    3,997    WACC (%)                                      7.5       7.8       6.8       6.9

           STATEMENT OF FINANCIAL POSITION                                                                   PROFITABILITY & STABILITY
(Wbn)                                               2011/12A 2012/12E 2013/12F 2014/12F                                             2011/12A 2012/12E 2013/12F 2014/12F
Cash and Cash Equivalents                                684      700      600      505    ROE (%)                                      -35.6     -9.0      8.1    12.2
Accounts Receivables                                     598      682      741      830    ROA (%)                                       -7.5     -1.5      1.2      2.0
Total Current Assets                                   2,144    2,364    2,408    2,488    ROIC (%)                                      -7.6      1.8      4.9      6.0
Tangible Assets                                        7,920    8,418    8,761    8,994    EBITDA/ equity (%)                            -6.0    33.1     48.2     49.1
Investment Assets                                        242      276      300      324    EBITDA/ asset (%)                             -1.1      5.2      7.7      8.4
Non-Current Assets                                     9,053    9,503    9,869   10,125    Dividend Yield (%)                             0.0      0.0      2.3      3.8
Assets                                                11,197   11,867   12,278   12,613    Payout Ratio (%)                               0.0      0.0    24.8     25.4
Short-Term Debt                                        1,564    1,571    1,576    1,580    Total Cash Dividend (Wbn)                        0        0      37       62
Account Payables                                         696      793      861      931    Cash DPS (W)                                     0        0     300      500
Current Liabilities                                    2,401    2,524    2,612    2,700    Net debt(cash)/ equity (%)                  190.7    206.2    199.0    186.1
Long-Term Debt                                         3,672    3,871    3,871    3,871    Debt/ equity (%)                            452.9    539.5    524.2    487.4
Long-Term Allowance                                       57       65       71       77    Net interest exp/ sales (%)                    3.3      3.0      2.8      2.6
Non-Current Liabilities                                6,771    7,487    7,699    7,766    Interest coverage (X)                         -1.6      0.4      1.4      1.7
Liabilities                                            9,172   10,012   10,311   10,466    Current Ratio (%)                             89.3    93.7     92.2     92.1
Capital Stock                                            625      625      625      625    Quick Ratio (%)                               74.0    77.0     74.7     73.9
Capital Surplus                                        1,480    1,480    1,480    1,480    Total shares (mn)                             125      125      125      125
Retained Earnings                                       -629     -801     -688     -504    Par value (W)                               5,000    5,000    5,000    5,000
Non-Controlling Interests Equity                          37       40       37       34    Share price (W)                            11,350   13,100   13,100   13,100
Shareholders' Equity                                   2,025    1,856    1,967    2,147    Market Cap (Wbn)                            1,419    1,638    1,638    1,638




                                                                                                                                                                        31
STX Pan Ocean (028670.KS)
Company Analysis
Jun 14, 2012




        Buy (Maintain)                                     Cargo shipping-focused business structure stable;
                                                           STX Group-related risks fading
TP                    W7,200 (Lower)
CP (’12/06/07)                        W4,305
                                                           Maintain Buy, but lower target price to W7,200
   Analyst                                                 – We maintain a Buy recommendation on STX Pan Ocean, but revise down our target
   Martin Song                                               price to W7,200 from W9,800 as we lower our earnings forecasts to reflect the sluggish
   822)768-7473, martin.song@wooriwm.com                     BDI trend and the company’s disappointing 1Q12 earnings. However, in light of the
                                                             firm’s strong asset value, we believe that its shares are extremely undervalued, trading
                                                             at a 2012 P/B of 0.4x and a 2013 P/B of 0.4x.
                                                           – Our RIM-based target price of W7,200 (assumes a market risk premium of 6.0%, a risk
                                                             free rate of 4.0%, and a beta of 1.0, with a COE of 10%) is equivalent to a 2012 P/B of
                                                             0.65x.

                                                           Cargo shipping-focused business structure stable; turnaround likely in 2013
Sector                        Transportation
                                                           – STX Pan Ocean, the number-one player in the domestic bulk carrier market and the
Kospi                          1,847.95                      number-five player in the global market, boasts strong competitiveness. Despite the
Kosdaq                           466.18
                                                             sluggish bulk carrier market conditions, STX has maintained solid earnings, backed by
Market cap (common)         US$754.6mn
Outstanding shares (common)    205.9mn                       its stable cargo shipping-focused business structure. While the company posted a large-
52W high (‘11/09/07)            W8,980                       scale operating loss of W133.1bn in 1Q12, it should record operating profit of
     low (‘12/05/21)            W4,080                       W40.7bn in 3Q12 thanks to the weak won trend and stabilizing bunker C prices.
Dividend yield (2011)            1.32%                     – Although the global dry bulk carrier market has shown signs of recovery recently, STX
Foreign ownership                 6.0%                       is unlikely to turn to profit (on a yearly basis) until 2013 (operating margin of 2.3%). In
Major shareholders                                           detail, 2013 EPS should reach W251. Considering the company’s high asset value, a
STX and others                            35.2%              mid- to long-term investment approach is recommended.
KDB                                       15.0%

Share perf (%)         3M          6M       12M            Group-related risks to fade upon restructuring
Absolute              -45.5      -29.0     -44.7
                                                           – STX Pan Ocean’s shares have experienced a relatively sharp price correction amid
Relative              -41.5      -26.2     -37.1
                                                             group-related risk. However, upon the expected bulk carrier market recovery and likely
Price trend                                                  continued restructuring efforts at the STX Group, we believe that the company’s shares
                                                             will rebound.
                                 STX Pan Ocean
  150                                                      – Thanks to its flexible dry bulk carrier operations (chartered and owned vessels) and
                                 KOSPI
                                                             abundant funding (following BW issuance worth W250bn in 1Q12), the company’s
  100                                                        overall capital liquidity looks stable.
   50

    0
     '11.6    '11.9     '11.12    '12.3   '12.6




                 Sales             Chg         OP          NP NP at parent         EPS         Chg         P/E        P/B EV/EBITDA         ROE    Debt/equity Net debt
 YE-Dec
                 (Wbn)              (%)      (Wbn)       (Wbn)       (Wbn)        (won)         (%)         (x)        (x)       (x)         (%)          (%)    (Wbn)
   2010          6,469             40.1             94      79            78        381       TTP         30.1         1.0           13.2    3.2        146.6       527
   2011          5,742            -11.2           -123     -22           -23       -111       TTL         N/A          0.5          101.0   -0.9        188.9     1,283
  2012E          5,613             -2.3            -86    -125          -129       -627        RR         N/A          0.4           29.5   -5.5        217.3     1,624
  2013F          6,472             15.3            143      50            52        251       TTP         17.2         0.4            8.8    2.3        228.6     1,887
  2014F          7,107              9.8            258     150           156        756      201.0         5.7         0.4            6.8    6.5        229.2     2,057
Note: IFRS basis; operating profit based on K-GAAP (gross profit - SG&A expenses). EPS, P/E, and ROE based on net profit on parent basis
Source: Woori I&S Research Center estimates


www.wooriwm.com
 STX Pan Ocean                                                                                                                                           www.wooriwm.com




 Full-fledged sales                           We expect STX Pan Ocean to post 2012 sales of W5,612.7bn (down 2.3% y-y) and an
 growth expected                              operating loss of W75.9bn (RR, y-y), and 2013 sales of W6,471.9bn (up 15.3% y-y) and
 from 2013                                    operating profit of W151.9bn (TTP y-y). While the company is likely to remain in the red in
                                              2012 due to the stalled bulk carrier market, its operating profit should begin to rise strongly
                                              from 2013.


 Operating profit                             The BDI, which is a key determinant for the company’s earnings, is expected to rebound after
 turnaround likely in                         3Q12, which should help the firm turn to profit (albeit to a limited extent).
 3Q12



                                              Sales forecasts                                                                                                         (Units: Wbn, %)

                                                                                           2009           2010             2011           2012E              2013F            2014F
                                                                  Sales                 3,915.9        5,639.2          4,994.2          4,771.6            5,481.5          5,961.1
                                            Bulk carrier          % change                 84.8           87.2              87.0            85.0               84.7             83.9
                                                                  Growth                  -47.5           44.0             -11.4            -4.5               14.9              8.8
                                                                  Sales                   580.3          791.1            766.3            755.3              816.9            896.1
                                            Containership         % change                 12.6           12.2              13.3            13.5               12.6             12.6
                                                                  Growth                   44.2           36.3              -3.1            -1.4                8.1              9.7
                                                                  Sales                   361.3          442.5            409.5            469.3              516.2            553.1
                                            Wet bulk              % change                  7.8            6.8               7.1             8.4                8.0              7.8
                                                                  Growth                   13.2           22.5              -7.4            14.6               10.0              7.1
                                                                  Sales                    69.1           87.6            116.2            129.6              140.2            151.1
                                            Others                % change                  1.5            1.4               2.0             2.3                2.2              2.1
                                                                  Growth                1,491.4           26.7              32.7            11.5                8.2              7.8
                                                                  Sales                 4,618.2        6,469.3          5,742.2          5,612.7            6,471.6          7,107.0
                                            Total
                                                                  Growth                  -44.1           40.1            -11.2             -2.3               15.3              9.8
                                            Source: STX Pan Ocean, Woori I&S Research Center estimates



                                              Quarterly results                                                                                                       (Units: Wbn, %)

                                                                      1Q10     2Q10     3Q10      4Q10    1Q11     2Q11        3Q11     4Q11      1Q12 2Q12E 3Q12E 4Q12E
                                              Sales                   1,331    1,785    1,659     1,695   1,363    1,520       1,347    1,512     1,232 1,383 1,456 1,541
                                              Operating profit             7      44       38        15      -42      52          -51      18      -133    -63   41    80
                                              Operating margin           0.5      2.5     2.3       0.9     -3.1     3.4         -3.8      1.2    -10.8   -4.6   2.8   5.2
                                              Net profit                 18         1      53         7      -55      24          -39      48      -118    -67   17    44
                                            Note: Figures before 2011 based on K-GAAP
                                            Source: STX Pan Ocean, Woori I&S Research Center estimates



Sales breakdown                                                                                 Sales, by division

   (Wbn)          Bulk carrier                   Containership                                                         Wet bulk                    Others
  10,000          Wet bulk                       Others (auto, LNG)                                                     7.1%                       2.0%
                  Others (financial, lease)
   8,000                                                                                               Containership
                                                                                                          13.3%
   6,000
                                                                                                                                            bulk carrier
   4,000                                                                                                                                         87.0%

   2,000

       0
            '04          '06          '08            '10         '12E          '14F                                                                                          (2011)


Source: STX Pan Ocean, Woori I&S Research Center                                                Source: STX Pan Ocean, Woori I&S Research Center

                                                                                                                                                                                   33
STX Pan Ocean                                                                                                                                    www.wooriwm.com




                                     Ownership structure


                                           Listed
                                           Listed

                                                                                                           Duksoo Kang
                                                                                                           Duksoo Kang
                                           Unlisted
                                           Unlisted                                           16.7%
                                                                                                                                                     STX Savings Bank
                                                                                                                                                     STX Savings Bank
                                                                     STX E&C
                                                                     STX E&C                                POSTECH
                                                                                                            POSTECH           0.1%         100.0%
                                                                                    25.0%     23.2%
                                                                                                           Global Ocean
                                                                                                           Global Ocean                                STX Pan Ocean
                                                                                                                                                       STX Pan Ocean
                                                                                              6.0%            Invest
                                                                                                               Invest                      100.0%       LNG Pte.LTD.
                                                                                                                                                        LNG Pte.LTD.

                                                                                                                                                      STX Pan Ocean
                                                                                                                                                      STX Pan Ocean
                                                                                            STX
                                                                                            STX                    STX Pan Ocean
                                                                                                                   STX Pan Ocean
                                                                                                         36.02%                            100.0% Overseas subsidiaries
                                                                                                                                                  Overseas subsidiaries

                                                                    66.4%                     40.0%                                                 Mirae Asset Agri=energy
                                                                                                                                                    Mirae Asset Agri=energy
                                                                                    STX Offshore &                   35.1%                  25.0%   Investment Cooperative
                                                                                                                                                     Investment Cooperative
                                                              STX Energy            STX Offshore &
                                                              STX Energy             Shipbuilding
                                                                              24.6%   Shipbuilding
                                                                                                                                                    Taeyoung Grain Termina
                                                                                                                                                    Taeyoung Grain Termina
                                                      86.7%                 51.0%             100.0%                 57.5%                  7.0%     Pyeongtak-Dangjin Port
                                                                                                                                                     Pyeongtak-Dangjin Port

                                              STX Solar
                                              STX Solar             STX Power
                                                                    STX Power         Hyuksin Corp
                                                                                      Hyuksin Corp            STX Heavy Ind
                                                                                                              STX Heavy Ind


                                     Source: Woori I&S Research Center


                                     Fleet (as of Mar 31, 2012)
                                                                                                           Owned                     Chartered                        Total
                                                                   Handy                                      18                            53                          71
                                                                 Handymax                                      9                           112                         121
                                           Dry bulk               Panamax                                      7                            66                          73
                                            (vessel)                Cape                                      14                            23                          37
                                                                   VLOC                                        1                             -                           1
                                                               Heavy lift carrier                              1                             7                           8
                                                       Dry bulk                                               50                           261                         311
                                                                  Container                                    8                            20                          28
                                                                  Car carrier                                  4                             2                           6
                                          Non-dry bulk            PC tanker                                   10                             2                          12
                                            (vessel)              MR tanker                                   10                             6                          16
                                                                 LNG - COA                                     -                             4                           4
                                                                   Tanker                                      1                             1                           2
                                                     Non-dry bulk                                             33                            35                          68
                                                        Total                                                 83                           296                         379
                                     Source: STX Pan Ocean, Woori I&S Research Center



 Operating fleet                                                                        Operating profit and margin

               Other bulk   Tanker         VLOC                                             (Wbn)                                    Bulk OP (LHS)                    (%)
                                            1.7%                                             800                                     Containership OP (LHS)           30
                  0.7%      9.6%
     Heavy Lift                                                                                                                      Bulk OPM (RHS)
                                                                                             600                                     Containership OPM (RHS)          20
        0.3%
                                          Capesize
           Handy                                                                             400                                                                      10
                                            53.2%
            8.2%
                                                                                             200                                                                      0

                                                                                                  0                                                                   -10
                                     Panamax
          Handymax
                                      19.6%
            22.6%                                                                            -200                                                                     -20
                                                                                                       '04 '05 '06 '07 '08 '09 '10 '11 '12E '13F '14F


Source: STX Pan Ocean, Woori I&S Research Center                                        Source: STX Pan Ocean, Woori I&S Research Center estimates




                                                                                                                                                                              34
 STX Pan Ocean                                                                                                                                   www.wooriwm.com




Operating cost breakdown                                                              Operating cost

                              Others                                                                                                 Cost (LHS)
         Depreciation                                                                   (Wbn)                                                                             (%)
                              10.0%
            2.4%                                                                        8,000                                        Cost-to-sales ratio (RHS)            110
                                                           Charter
           Voyage
                                                            34.0%                       6,000                                                                             100
            charter
            10.8%
                                                                                        4,000                                                                             90


                                                                                        2,000                                                                             80

                                                        Port charge
                      Fuel
                                                           7.2%                             0                                                                             70
                   28.8%                   Cargo
                                           6.9%                          (2011)                     '04     '06          '08         '10          '12E           '14F


Source: STX Pan Ocean, Woori I&S Research Center                                      Source: STX Pan Ocean, Woori I&S Research Center estimates



 Sales breakdown, by region                                                           Operating margin, by sector

                      South                    Africa                                    30%                                                              Bulk
                   America                     2.5%                                                                                                       Containership
                    11.1%                                                                20%                                                              Wet bulk


      North America                                                                      10%
          17.7%                             ASIA
                                                                                          0%
                                           53.2%
             Europe
                                                                                        -10%
                 2.8%

                   Oceania                                                              -20%
                      12.7%                                                                         '04      '06           '08             '10           '12E            '14F
                                                                             (2011)


Source: STX Pan Ocean, Woori I&S Research Center                                      Source: STX Pan Ocean, Woori I&S Research Center estimates



Operating profit and margin                                                           Per-share indicators

  (Wbn)                                                                       (%)         (won)                                                          EPS
   800                                          OP (LHS)                       28        4,000                                                           Cashflow/share
                                                OP margin (RHS)                                                                                          EBITDA/share
                                                                               21
   600                                                                                   3,000
                                                                               14
   400                                                                                   2,000
                                                                               7
   200                                                                                   1,000
                                                                               0
     0                                                                         -7               0

  -200                                                                         -14      -1,000
           '04          '06        '08    10            '12E          '14F                            '07   '08    '09         '10     '11        '12E     '13F         '14F


Source: STX Pan Ocean, Woori I&S Research Center estimates                            Source: STX Pan Ocean, Woori I&S Research Center estimates




                                                                                                                                                                                35
 STX Pan Ocean                                                                                                                       www.wooriwm.com




 Key drivers & share price trend

BDI vs share price                                                                HRCI vs share price

  (Won)                             STX Pan Ocean shares (LHS)          (P)         (Won)                             STX Pan Ocean shares (LHS)           (P)
                                    BDI (RHS)                                                                         HRCI (RHS)
  50,000                                                            12,000          50,000                                                             1,500

  40,000                                                            9,600           40,000                                                             1,200

  30,000                                                            7,200           30,000                                                             900

  20,000                                                            4,800           20,000                                                             600

  10,000                                                            2,400           10,000                                                             300

        0                                                           0                     0                                                            0
            '07     '08       '09        '10       '11        '12                             '07     '08       '09       '10        '11        '12


Source: Bloomberg, DataGuide Pro, Woori I&S Research Center                       Source: Bloomberg, DataGuide Pro, Woori I&S Research Center



Bunker C price vs share price                                                     Won/dollar rate vs share price

   (won)                            STX Pan Ocean shares (LHS)      ($/ton)         (Won)                        STX Pan Ocean shares (LHS)           (Won/$)

  50,000                            Bunker C price (RHS)                1,000       50,000                       Won/dollar rate (RHS)                 1,800

  40,000                                                                800         40,000                                                             1,600

  30,000                                                                600         30,000                                                             1,400

  20,000                                                                400         20,000                                                             1,200

  10,000                                                                200         10,000                                                             1,000

        0                                                               0                 0                                                            800
            '07     '08       '09         '10       '11       '12                             '07     '08       '09       '10        '11        '12


Source: Bloomberg, DataGuide Pro, Woori I&S Research Center                       Source: Bloomberg, DataGuide Pro, Woori I&S Research Center



Kospi vs share price                                                              Shipping sector index vs share price

  (Won)                             STX Pan Ocean shares (LHS)              (P)     (Won)                          STX Pan Ocean shares (LHS)              (P)

  50,000                            Kospi (RHS)                         2,500       50,000                         Sector index (RHS)                  5,000

  40,000                                                                2,000       40,000                                                             4,000

  30,000                                                                1,500       30,000                                                             3,000

  20,000                                                                1,000       20,000                                                             2,000

  10,000                                                                500         10,000                                                             1,000

        0                                                               0                 0                                                            0
            '07     '08       '09         '10       '11       '12                             '07     '08       '09       '10        '11        '12


Source: DataGuide Pro, Woori I&S Research Center                                  Source: DataGuide Pro, Woori I&S Research Center


                                                                                                                                                                 36
 STX Pan Ocean                                                                                                                                   www.wooriwm.com


[STX Pan Ocean]
      STATEMENT OF COMPREHENSIVE INCOME                                                                                VALUATION INDEX
(Wbn)                                               2011/12A 2012/12E 2013/12F 2014/12F                                             2011/12A 2012/12E 2013/12F 2014/12F
Sales                                                  5,742    5,613    6,472    7,107    Price/Earning (X)                              N/A      N/A    17.2       5.7
Growth (%)                                              -11.2     -2.3    15.3       9.8      PER (High, X)                               N/A      N/A    33.9     11.3
COGS                                                   5,745    5,578    6,191    6,700       PER (Low, X)                                N/A      N/A    15.9       5.3
Gross Profit                                                -2      34     280      407    Price/ Book Value (X)                           0.5      0.4     0.4      0.4
Gross margin (%)                                           0.0     0.6      4.3      5.7      PBR (High, X)                                1.0      0.8     0.8      0.7
SG&A                                                      121     120      137      149       PBR (Low, X)                                 0.4      0.4     0.4      0.3
GAAP Operating Income                                    -123      -86     143      258    Price/ Gross Cash Flow (X)                    14.9       9.2     2.7      2.0
GAAP Operating margin (%)                                 -2.1    -1.5      2.2      3.6   Price/ Sales (X)                                0.2      0.2     0.1      0.1
Other Operating Income(Exp.)                              100       10        9        7   PER/ EPS growth (X)                            N/A      N/A      0.3      0.4
EBITDA                                                      25      86     316      431    PER/ EBITPS growth (X)                          0.2      0.0     0.5      0.5
Operating Income                                           -23     -76     152      265    PER/ EBITDAPS growth (X)                       -0.3     -0.1     1.0      0.7
Operating margin (%)                                      -0.4    -1.4      2.3      3.7   EV/ EBITDA (X)                               101.0     29.5      8.8      6.8
Financial Income(Costs)                                    -37     -80      -93    -104    EV/ EBIT (X)                                 -20.6    -29.4    19.4     11.4
Other Non-Operating Profits                                  0       0        0        0   Enterprise Value (Wbn)                       2,543    2,523   2,784    2,949
Gains(Losses) in Associates, Subsidiaries and JVs           -4       0        0        0   EPS CAGR (3-Yr) (%)                         -289.7   -211.4    58.4     15.6
Pre-tax Profit from Cont. Op.                              -64   -156        59     161    EBITPS CAGR (3-Yr) (%)                      -228.0   -250.2    31.4     12.2
Income Taxes                                               -42     -31        9       11   EBITDAPS CAGR (3-Yr) (%)                     157.8     75.7    16.5       7.8
Profit from Continuing Op.                                 -22   -125        50     150    EBITPS (W)                                    -599     -417     697    1,255
Net Profit                                                 -22   -125        50     150    EBITDAPS (W)                                   122      416   1,534    2,095
Net margin (%)                                            -0.4    -2.2      0.8      2.1   Fully diluted EPS (W)                         -111     -627     251      756
Net Profit of Parent                                       -23   -129        52     156    BVPS (W)                                   11,759   11,052   11,224   11,900
Net Profit to Non-Controlling                                1       5       -2       -5   CFPS (W)                                       408      470   1,580    2,135
Other Comprehensive Income                                  36       0        0        0   Sales PS (W)                               27,894   27,265   31,437   34,524
Total Comprehensive Income                                  14   -125        50     150    DPS (W)                                         80       80      80       80

                         CASH FLOW STATEMENT                                                                                    RIM & EVA
(Wbn)                                               2011/12A 2012/12E 2013/12F 2014/12F                                             2011/12A 2012/12E 2013/12F 2014/12F
Operating Cash Flow                                     -179        48     155      209    RIM
Net Profit                                                -22    -125        50     150    Spread (FROE-COE) (%)                       -10.8     -15.5      -7.7      -3.5
Depreciation&Amortization                                148      172      172      173    Residual Income                            -262.6    -363.9    -177.6     -82.5
+ Loss(Gains) from Subs                                     4        0        0        0   12M RIM Target Price (W)                    7,205
+ FC translation loss(profit)                             -17        0        0        0   EVA
+ Losses(Gains) on Disposal of Assets                     -91        0        0        0   Invested Capital                          3,865.6   3,927.3   4,020.0   4,151.4
Gross Cash Flow                                            84       97     325      439    NOPAT                                       -90.2    -107.7     121.9     240.3
- Incr. (Decr.) in WC                                   -101        20      -50      -96   ROIC (%)                                     -2.6      -2.8       3.1       5.9
Investing Cash Flow                                        -6    -521     -426     -381    ROIC - WACC (%)                              -7.1      -8.6      -2.7      -0.2
+ Decr. In Tangible Assets                               200         0        0        0   EVA                                        -274.8    -336.2    -110.4      -6.7
- Incr. In Tangible Assets(CAPEX)                       -557     -470     -401     -367    DCF
+ Disp.(Acq.) of Inv. Assets                               -5        3      -19      -14   EBIT                                       -123.3     -85.9     143.4     258.4
Free Cash Flow                                          -736     -422     -246     -158    + Depreciation/Amortization                  148       172       172       173
Net Cash Flow                                           -184     -473     -271     -172    - CAPEX                                    -557.4    -470.0    -400.8    -367.4
Financing Cash Flow                                        49     388      216      227    - Incr. (Decr.) in Working Capital          -77.3      21.5     -59.1    -102.7
Equity Financing                                            0        0        0        0   Free Cash Flow for Firm                    -373.9    -388.7     -47.5     148.5
Debt Financing                                             49     388      216      227    WACC
Incr.(Decr.) in Cash                                    -130       -85      -56       55   Cost of Debt (Tax Adj.)                       1.7      3.9       4.1       4.5
Ending Cash and Cash Equivalents                         501      416      360      415    Cost of Equity (COE)                          9.9     10.0      10.0      10.0
Net Debt (Cash)                                        1,283    1,624    1,887    2,057    WACC (%)                                      4.5      5.8       5.8       6.0

           STATEMENT OF FINANCIAL POSITION                                                                   PROFITABILITY & STABILITY
(Wbn)                                               2011/12A 2012/12E 2013/12F 2014/12F                                             2011/12A 2012/12E 2013/12F 2014/12F
Cash and Cash Equivalents                                501      416      360      415    ROE (%)                                       -0.9     -5.5      2.3      6.5
Accounts Receivables                                     419      409      472      518    ROA (%)                                       -0.3     -1.7      0.7      1.9
Total Current Assets                                   1,702    1,578    1,700    1,945    ROIC (%)                                      -2.6     -2.8      3.1      5.9
Tangible Assets                                        4,904    5,208    5,441    5,639    EBITDA/ equity (%)                             1.0      3.7    13.6     17.6
Investment Assets                                        125      122      140      154    EBITDA/ asset (%)                              0.4      1.2      4.1      5.3
Non-Current Assets                                     5,138    5,518    5,765    5,973    Dividend Yield (%)                             1.3      1.9      1.9      1.9
Assets                                                 7,016    7,260    7,629    8,082    Payout Ratio (%)                             -71.9    -12.7    31.7     10.5
Short-Term Debt                                          674      736      821      903    Total Cash Dividend (Wbn)                      16       16       16       16
Account Payables                                         263      257      296      325    Cash DPS (W)                                   80       80       80       80
Current Liabilities                                    1,329    1,376    1,559    1,713    Net debt(cash)/ equity (%)                    52.8     71.0    81.3     83.8
Long-Term Debt                                         2,999    3,342    3,489    3,650    Debt/ equity (%)                            188.9    217.3    228.6    229.2
Long-Term Allowance                                       35       34       39       43    Net interest exp/ sales (%)                    1.5      1.8      1.7      1.7
Non-Current Liabilities                                3,038    3,380    3,532    3,698    Interest coverage (X)                         -1.4     -0.9      1.3      2.1
Liabilities                                            4,588    4,972    5,308    5,627    Current Ratio (%)                           128.1    114.7    109.0    113.5
Capital Stock                                            206      206      206      206    Quick Ratio (%)                             122.6    109.5    103.7    108.2
Capital Surplus                                          689      689      689      689    Total shares (mn)                             206      206      206      206
Retained Earnings                                      1,256    1,110    1,146    1,285    Par value (W)                               1,000    1,000    1,000    1,000
Non-Controlling Interests Equity                           8       13       11        5    Share price (W)                             6,080    4,305    4,305    4,305
Shareholders' Equity                                   2,429    2,288    2,321    2,455    Market Cap (Wbn)                            1,252      886      886      886




                                                                                                                                                                       37
 Shipping                                                                                                                                                                www.wooriwm.com




Rating and target price update
   Company               Code                Date             Rating             Target price
Hanjin Shipping       117930.KS           2012.06.08            Buy             W20,000(12M)
                                                                                                                    (won)                                                      Closing Price
                                          2011.09.26            Hold            W14,000(12M)
                                                                                                                  60,000                                                       Target price(12M)
                                          2011.08.18            Buy             W29,000(12M)                      45,000
                                          2011.06.30            Buy             W37,000(12M)
                                                                                                                  30,000
                                          2010.07.22            Buy             W48,000(12M)
                                          2010.06.03            Buy             W41,000(12M)                      15,000

                                                                                                                          0
                                                                                                                            '10.6   '10.9 '10.12 '11.3   '11.6    '11.9 '11.12 '12.3         '12.6




   Company               Code                Date             Rating             Target price
STX Pan Ocean         028670.KS           2012.06.08            Buy              W7,200(12M)                        (won)                                                   Closing Price
                                          2011.06.30            Buy              W9,800(12M)
                                                                                                                  20,000                                                    Target price(12M)
                                          2010.12.29            Buy             W14,500(12M)                      15,000
                                          2009.08.19            Buy             W15,500(12M)
                                                                                                                  10,000

                                                                                                                    5,000

                                                                                                                          0
                                                                                                                            '10.6   '10.9 '10.12 '11.3   '11.6    '11.9 '11.12 '12.3         '12.6




Woori Investment & Securities stock ratings

1. Period: Uniform 12-month
2. Rating System: Based on a stock’s absolute return from the date of publication
        Strong Buy: high conviction Buy rated stocks
        Buy: greater than +15%
        Hold: 0% and +15%
        Reduce: less than 0%



Compliance notice
     Woori I&S does not have a stake greater than or equal to 1% in Hanjin Shipping, STX Pan Ocean as of the preparation date.
     Woori I&S has not provided this material to any institutional investor or other third party in advance.
     The analyst and his/her spouse do not own any securities of Asiana Airlines as of the preparation date.
     This report correctly reflects the analyst’s opinion and was written without any external influence or intervention.



Disclosures
The research is based on current public information that Woori I&S considers reliable, but Woori I&S does not represent it as accurate or complete and it should not be relied on as such.
Furthermore, the research does not take into account particular investment objectives, financial situations or individual client needs, and Woori I&S is in no way legally responsible for future
returns or loss of original capital. All materials in this report are the intellectual property of Woori I&S. Copying, distributing, transmitting, transforming or lending of this material without Woori
I&S' consent is prohibited.




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