Docstoc

2013 telecom outlook - EQUITY Feel_ Head of Market

Document Sample
2013 telecom outlook - EQUITY Feel_ Head of Market Powered By Docstoc
					Sector Report




2013 telecom outlook

     Nam-kon Choi
                                                          To reap profits from LTE
     namkon.choi@tongyang.co.kr
     +822-3770-3549                                       Combined telco market cap to rise 10~15% y-y in 2013
                                                           We expect the three major telcos to post higher growth in 2013 than in the
                                                            past three years. With LTE portions rising, SKT’s ARPU should grow 6.6% y-y,
     Soll Kim                                               KT’s 11.2%, and LG U+’s 12.5%. LTE subscriber additions will likely rise
     soll.kim@tongyang.co.kr                                sharply until 2013, then slow significantly from 2014.
     +822-3770-3496
                                                           We are very upbeat about the sector’s 2013 operating profit, as sales should
                                                            rise more than 6% y-y based on ARPU growth. Even if marketing expenses
                                                            increase about 5% y-y, we expect operating profit to grow more than 20% y-y.
                                                            Although competition will likely remain overheated until 1H13, we expect
     Nov 29, 2012
                                                            competition to cool from 2H13, when LG U+’s two-year contracts for LTE
     KOREA                                                  subscribers start to expire.
     Telecom
                                                           In 2013, we think the telco sector offers 10~15% upside. Given the market
                                                            preference for defensive plays, we applied a target P/E of 10x. With share
Company                   Rating          TP (won)
                                                            prices now reflecting about 80% of 2013 profit growth estimates, future share
SK Telecom                      BUY            180,000
                                                            price should depend on 1H13 results.
KT                              BUY             43,000
LG U+                           BUY             11,500
                                                          Telecom: turn profit from LTE business
KT Skylife                      BUY             43,000
SK Broadband                HOLD                 4,400     With focus likely to be on earnings improvement in 2013, telcos doing well in
CJ Hellovision              HOLD                17,000      LTE should get attention. At end-2013, we estimate LTE subscriber portions at
                                                            71.4% for LG U+, SKT 50.1%, and KT 48.2%.
ARPU forecast
                                                           With market interest moving from dividends to earnings, investors will likely
 (won)
                                                            focus on which telco will post the highest profit in 1Q13. In terms of ARPU and
 4 0 ,0 0 0            SK T
                       KT                                   marketing leverage, we recommend LG U+, SKT, and KT, in that order.
                       LG U +
 3 5 ,0 0 0

                                                          Media: expansion of new media (IPTV and satellite broadcasting)
 3 0 ,0 0 0
                                                           IPTV and satellite broadcasting business should continue to grow in 2013. They
 2 5 ,0 0 0
                                                            still have the upper hand over cable TV operators in price, content, and
 2 0 ,0 0 0                                                 bundling. The number of IPTV subscribers remains at 34% of the number of
              3Q 1 1    1Q12          3 Q 12    4Q 1 3E     broadband Internet subscribers.
Source: TONGYANG Securities
                                                           Cable TV operators will likely pursue M&As. If the current regulation that limits
2013 operating profit forecast                              an operator to a third of total subscribers is abolished, this should trigger
 (Wbn)
                                                            restructuring of the cable TV operator market. In other words, cable TV
2 ,5 0 0                                                    operators will likely focus on improving service quality and acquire subscribers
2 ,0 0 0
               1,927
                                                            through M&As going forward.
                                1,642

1 ,5 0 0

1 ,0 0 0
                                                           From the perspective of new media growth, we recommend buying KT Skylife,
  50 0
                                                 548
                                                            the three major telcos, and CJ Hellovision, in that order. We expect sales at KT
      0
                                                            Skylife to grow 17.6% y-y in 2013 and 18.9% y-y in 2014, and its ROE to
                SK T             KT             LG U +      climb from 16.5% in 2012 to 25.6% in 2013. We apply a P/E of 20x for KT
                                                            Skylife and 13x for CJ Hellovision.
Source: TONGYANG Securities


     www.tys.co.kr/english                                                                                         TONGYANG Research
2013 telecom outlook




                                2012 MOBILE
                                              TELECOM
                                                  REVIEW

                                Market share breakdown, by telco change

                                ARPU ranking change

                                Profit contribution from subsidiaries rise




2  TONGYANG Securities Inc.
                                                                              Sector Report




2012 mobile telecom market review

In 2012, the buzz words in the mobile telecom market were “ranking change.”

Since LTE service began in Sep 2011, LG U+ has taken the initiative, and SKT and KT
have followed. While SKT regained its presence (in terms of net subscriber additions)
in 2Q12 befitting its market power, KT has failed to regain second place in terms of
both quantity and quality.

In 2012, the industry saw the following changes:

ARPU rankings changed. For more than 10 years, SKT had the highest ARPU, followed
by KT and LG U+, but in 3Q, LG U+ overtook KT, and the ARPU gap between SKT and
LG U+ has shrunk to an historical low.

Chart 1. ARPU

  (won)
                                                           SKT           KT         LG U +
 4 1 ,0 0 0
 3 9 ,0 0 0
 3 7 ,0 0 0

 3 5 ,0 0 0
 3 3 ,0 0 0
 3 1 ,0 0 0
 2 9 ,0 0 0
 2 7 ,0 0 0
 2 5 ,0 0 0
              1Q 06   1Q 07   1Q 08     1Q 09      1Q 10         1Q 11          1Q 12

Source: TONGYANG Securities




The three telcos’ market shares have become similar, in line with changes in
consumer awareness of telco service quality. LG U+’s market share rose from 17.9%
(at end-2011) to 18.8% (at end-Sep 2012).

Marketing expenses surged y-y, and subsequently, margins nosedived. The telcos
jostled over brand image in LTE and fought over LTE subscribers. We expect their
combined operating profit to fall 23% y-y in 2012.

Meanwhile, share prices were strong. With low economic growth and interest rates,
telco shares received a valuation premium for their dividends. Moreover, expectations
for LTE effects in 2013 have been reflected.




                                                             TONGYANG Securities Inc.  3
2013 telecom outlook




                                      Service sales growth diverges among telcos

                                      In 2012, the narrowing gap in competitiveness among the three major telcos allowed
                                      number-three player LG U+ to grow more than rivals, resulting in narrowing gaps in
                                      market share and ARPU among the telcos. The telcos began to see divergence in
                                      growth rates, with LG U+’s 1Q12~3Q12 service sales climbing 8.9% y-y, while SKT’s
                                      and KT’s consolidated service sales growth came to 0.9% and -2.0% y-y, respectively.

 Chart 2. Sales growth (y-y)                                         Chart 3. Sales growth (q-q)

  (% y-y)                       SKT           KT            LG U+     (% q-q)                         SKT          KT          LG U+

  35%                                                                  30%
  30%                                                                  25%
  25%                                                                  20%
  20%                                                                  15%
  15%                                                                  10%
  10%
                                                                        5%
   5%
                                                                        0%
   0%
  -5%                                                                  -5%

 -10%                                                                 -10%
 -15%                                                                 -15%
            1Q11   2Q11    3Q11       4Q11   1Q12    2Q12     3Q12              1Q11   2Q11   3Q11   4Q11   1Q12        2Q12   3Q12

 Note: KT’s sales rose in 4Q11, as BC Card became consolidated sub   Source: TONGYANG Securities
 Source: TONGYANG Securities




                                      ARPU gaps narrow
                                      ARPU changes are significant in terms of the following:

                                      1) LTE subscriber growth should lead to ARPU growth. As of end-3Q12, LG U+’s LTE
                                      subscriber portion reached 35.5% and ARPU grew 17.8% y-y. Its 17.8% ARPU
                                      growth is unprecedented for a telco, and we believe it is wholly attributable to LTE
                                      subscriber growth.

                                      2) ARPU rankings have changed. For more than 10 years, SKT enjoyed the highest
                                      ARPU, followed by KT and LG U+. But in 3Q12, LG U+ overtook KT thanks to its
                                      earlier entry into LTE and the subsequent change in subscriber mix.

                                      3) The ARPU gap between SKT and LG U+ has also narrowed. While LTE ARPUs stand
                                      at similar levels (W52,000 for SKT, W50,000 for LG U+), SKT’s 3G smartphone ARPU
                                      fell, which led to slow growth of total ARPU. In other words, SKT has failed to
                                      maintain a wide lead in LTE, unlike it did in the 3G market before. In addition, its
                                      high-ARPU 3G smartphone subscribers have churned.

                                      With LG U+ likely to hold the highest LTE subscriber portion in 2013, we believe ARPU
                                      rankings will remain as SKT first, then LG U+, then KT, and that the ARPU gap
                                      between SKT and LG U+ will narrow further.




4  TONGYANG Securities Inc.
                                                                                                                             Sector Report




Chart 4-1. ARPU: gaps among three telcos narrow                               Chart 4-2. ARPU growth (y-y and q-q)

 (won)                             SKT             KT                 LG U+              SKT
                                                                              2 0%
 4 1 ,0 0 0                                                                   1 8%       KT
                                                                              1 6%       LG U +
 3 9 ,0 0 0
                                                                              1 4%
 3 7 ,0 0 0
                                                                              1 2%
 3 5 ,0 0 0                                                                   1 0%
 3 3 ,0 0 0                                                                     8%
 3 1 ,0 0 0                                                                     6%
                                                                                4%
 2 9 ,0 0 0
                                                                                2%
 2 7 ,0 0 0                                                                     0%
 2 5 ,0 0 0                                                                    -2%
          1Q 06    1Q 07   1Q 08    1Q 09      1Q 10    1Q 11   1Q 12                                q- q                    y- y

Note: Excludes subscription fees and access fees                              Note: As of 3Q12
Source: Company data, TONGYANG Securities                                     Source: TONGYANG Securities




Chart 5-1. LTE subscribers (Oct 2012)                                         Chart 5-2. LTE subscriber portion (3Q12)
매출 증가율 (YoY)
 (mn)
                                                                               40%
 7 .0                                                                                                                               36%
                  6.1                                                          35%
 6 .0
                                                                               30%
 5 .0
                                                                               25%
                                                                3.8                            21%
 4 .0
                                                                               20%
                                         2.8                                                                   15%
 3 .0
                                                                               15%
 2 .0                                                                          10%
 1 .0                                                                            5%
 0 .0                                                                            0%
               SKT                       KT                 LG U +                             SKT              KT              LG U +

Source: Korea Communications Commission, TONGYANG Securities                  Source: Korea Communications Commission, TONGYANG Securities




                                                                                                                 TONGYANG Securities Inc.  5
2013 telecom outlook




                                   SKT gets 40% of MNP migration, KT 30%, LG 30%

                                   In 2012, subscriber growth has visibly slowed. Since penetration hit 106% in 2011,
                                   net subscriber additions have declined. And 1Q~3Q12 net mobile subscriber adds fell
                                   40.7% y-y to 799,000. Thus, investors should lower their hopes about sales growth.

                                   Amid slowing subscriber growth, number-three player LG U+ enjoyed outstanding
                                   market share growth. It overtook a rival in net cumulative subscriber growth and its
                                   market share climbed from 17.9% at end-2011 to 18.8% at end-Sep 2012.

                                   LG U+’s market share grew thanks to its performance in the mobile number
                                   portability (MNP) market. In 2012, 28% of subscribers who switched carriers moved
                                   to LG U+. We note that its portion of the MNP market neared 30%, irrespective of
                                   whether competition was hot (2Q~3Q) or cool (1Q, August, October), meaning its
                                   impressive performance in 2012 was thanks to improvement in its fundamental
                                   competitiveness, not higher marketing spend.

                                   Chart 6 -1. Annual net subscriber additions

                                    ('0 0 0 )

                                    7 ,0 0 0                 6,609

                                    6 ,0 0 0

                                    5 ,0 0 0
                                    4 ,0 0 0                                                              3,299
                                                                               2,994                                               2,823
                                    3 ,0 0 0      2,471                                                                   2,337
                                                                                                                  2,109
                                                                                       1,756   1,856                                       1,740
                                    2 ,0 0 0
                                                                      1,249
                                                                                                                                                    800
                                    1 ,0 0 0
                                           0
                                                 2001        2002     2 0 03   2004    2005    2 00 6     2007    2008    2 0 09   2010    2011     Sep
                                                                                                                                                   2 01 2

                                   Source: Korea Communications Commission, TONGYANG Securities


 Chart 6-2. 1Q~3Q net subscriber add (2011 vs 2012)                              Chart 6-3. Portion of MNP market (Jan~Oct 2012)

  ('0 0 0 )                                     SKT       KT         LG U +
   800        716
   700                                                                                  LG U +
                                                               629
                                                                                        2 7 .6 %
   600
                                                                                                                                                     SKT
   500
                                                                                                                                                   4 2 .7 %
   400               351
                             284
   300                                          253
   200
   100
       0
  -10 0                                                                                              KT
                                                       -83                                         2 9 .6 %
  -20 0
                    3 Q 11                            3Q 12

 Source: Korea Communications Commission, TONGYANG Securities                    Source: KTOA, TONGYANG Securities




6  TONGYANG Securities Inc.
                                                                                                                            Sector Report




Chart 6-4. Mobile telecom market share (1Q12)                        Chart 6-5. Mobile telecom market share (3Q12)




               LG U +                                                              LG U +
               1 8 .1 %                                                            1 8 .8 %




                                                     SKT                                                                           SKT
                                                    5 0 .4 %                                                                      5 0 .3 %
      KT                                                                      KT
    3 1 .5 %                                                               3 0 .9 %




Source: TONGYANG Securities                                          Source: TONGYANG Securities




                              Chart 6-6. Monthly number portability market share

                                                                                                             SKT         KT       LG U +
                              45 %


                              40 %


                              35 %


                              30 %


                              25 %


                              20 %
                                     J an 2 0 1 2     M ar 2 0 1 2        M ay 2 0 1 2        J ul 2 0 1 2         Sep 2 0 1 2

                              Source: TONGYANG Securities




                                                                                                              TONGYANG Securities Inc.  7
2013 telecom outlook




                                  Marketing expenses and profitability

                                  Combined operating profit over 1Q12~3Q12 fell 28% y-y, and even if competition
                                  cools in 4Q, we believe 2012 full-year operating profit will drop about 30% y-y.

                                  Margins shrank in 2012, as: 1) marketing expenses surged on fierce competition to
                                  acquire LTE subscribers; and 2) investment grew; and 3) ARPU rose at a lag to
                                  investment.

                                  Interestingly, marketing expenses grew as subscriber acquisition cost (SAC) rose
                                  sharply, even though subscriber additions sagged.

                                  SAC grew as: 1) telcos battled to acquire LTE subscribers, who offer high ARPUs; 2)
                                  the competition was mainly about SAC because the competitiveness gaps among
                                  telcos were narrowing; and 3) handset makers now have greater power than telcos.
                                  Thus, customers tend to choose the handset first and then the telco. As they compare
                                  the discounted handset price (ex-factory price minus subsidies) in deciding a telco, it
                                  is tempting for telcos to give more subsidies.

                                  Higher SAC typically stimulates customers’ handset demand and, in turn, subscriber
                                  additions. However, in 2Q12~3Q12, despite surging SAC, subscriber addition growth
                                  was relatively low. We think low subscriber additions during this period are closely
                                  tied to falling churn rates in 2011. Churn rate fell as 1): the average length of
                                  subscription increased in line with the rising portion of high-priced handsets; and 2)
                                  new demand decreased as mobile phone penetration rate neared 107%. Thus, the
                                  drops in churn and overall subscriber additions are unlikely be short-lived. We believe
                                  churn rate, which started to fall in 2012, will remain low going forward.

                                  In sum, if SAC is controlled at the previous level of around W200,000 per subscriber,
                                  marketing expenses will likely drop y-y in 2013. Now, it is too early to talk about the
                                  possible decline in SAC, because telcos have the will to continue the exhausting fight
                                  to acquire LTE subscribers. However, when the LTE subscriber portion exceeds 50%
                                  (which we expect to happen in 2H13), telcos will likely lose their motivation and the
                                  power shift from handset makers to telcos, which should drag down SAC.

 Chart 7-1. Marketing expense-to-sales ratio (3Q12)                   Chart 7-2. Marketing expenses

  4 0%          SKT                                                    (Wbn)                                   1Q 12      2Q 12        3Q 12
  3 5%          KT                                                     1 ,2 0 0
                LG U +                                                                          1,035
                                                         33%                              960
  3 0%                               31%                               1 ,0 0 0
  2 5%            24%                                                    800        725                             733            695 675
  2 0%                             25%                24%                                                     589
                                                                         600                                                 484
  1 5%          19%                                                                                     423
                                                                         400
  1 0%                                                14%
                                   13%
   5%           9%
                                                                         200

   0%                                                                        0
               1 Q 12             2Q 12              3 Q 12                               SKT                 KT               LG U +

 Note: SKT and KT figures non-consolidated. For all three, handset    Note: Marketing costs consist of selling and advertising costs
 revenue excluded. Marketing costs = selling and advertising costs.   Source: TONGYANG Securities
 Source: TONGYANG Securities




8  TONGYANG Securities Inc.
                                                                                                   Sector Report




Chart 8. Subscriber additions: low growth vs fierce competition in 2Q12 and 3Q12

  ('0 0 0 )                                                                                      1Q 11      2Q 11
  3 ,0 0 0                                                                                       3Q 11      4Q 11
                                                                                                 1Q 12      2Q 12
  2 ,5 0 0
                                                                                                 3Q 12
  2 ,0 0 0

  1 ,5 0 0

  1 ,0 0 0

     5 00

          -
                              SKT                                KT                              LG U +


Source: Korea Communications Commission, TONGYANG Securities




Chart 9. Churn rate

 4 .5 %                                                                    SKT            KT               LG U +


 4 .0 %


 3 .5 %


 3 .0 %


 2 .5 %


 2 .0 %
              1Q 10   2Q 10    3Q 10        4Q 10     1Q 11    2Q 11    3Q 11    4Q 11   1Q 12     2Q 12   3 Q 12

Source: TONGYANG Securities




Chart 10. Marketing expense/subscriber additions

   (won)
 5 0 0 ,0 0 0


 4 6 0 ,0 0 0


 4 2 0 ,0 0 0


 3 8 0 ,0 0 0


 3 4 0 ,0 0 0


 3 0 0 ,0 0 0
                1Q 10   2Q 10       3Q 10     4Q 10    1Q 11    2Q 11    3Q 11   4Q 11   1Q 12     2Q 12    3Q 12

Note: Marketing costs = selling and advertising costs
Source: TONGYANG Securities




                                                                                     TONGYANG Securities Inc.  9
2013 telecom outlook




 Chart 11. Marketing expenses (2010~3Q12)                              Chart 12. Subscriber additions (2010~3Q12)


    (mn)
                                                                          40%
     7.0                                                                                                                   36%
                 6.1                                                      35%
     6.0
                                                                          30%
     5.0
                                                                          25%           21%
                                                        3.8
     4.0
                                                                          20%
                                       2.8                                                               15%
     3.0                                                                  15%
     2.0                                                                  10%
     1.0                                                                   5%

     0.0                                                                   0%
                SKT                    KT              LG U+                            SKT               KT              LG U+

 Source: TONGYANG Securities                                           Source: TONGYANG Securities




 Chart 13-1. Operating margin                                          Chart 13-2. ROE

 30%                     SKT                KT        LG U +            6%                      SKT        KT           LG U +
                                                                        5%
 25%
                                                                        4%
 20%
                                                                        3%
 15%
                                                                        2%
 10%
                                                                        1%
  5%
                                                                        0%

  0%                                                                   -1 %

 -5%                                                                   -2 %
       1Q 10     3Q 10         1Q 11         3Q 11   1Q 12     3Q 12            1Q 11   2Q 11   3Q 11   4Q 11   1Q 12   2Q 12    3Q 12

 Source: TONGYANG Securities                                           Source: TONGYANG Securities




10  TONGYANG Securities Inc.
                                                                                                          Sector Report




                                Subsidiaries: hopes high, but reality not there yet

                                The profit contributions of subsidiaries have increased. SKT’s and KT’s 1Q~3Q
                                subsidiary operating profit stood at W68bn and W247bn, respectively, accounting for
                                6% and 17% of total operating profit.

                                For SKT, SK Broadband contributed substantially to profit. As for another telecom
                                subsidiary SK Planet, 1Q~3Q net profit was W44.1bn, but most of the net profit was
                                due to SKT’s support, and thus, was a net loss in consolidated terms. However, we
                                believe SK Planet has potential. We are optimistic about its future, as it is showing
                                outstanding performance in subscriber additions in a number of service platforms,
                                such as “hoppin,” “T-map,” and “Smart Wallet.”

Table 1. SKT: key subsidiary earnings                                                                               (Wbn)

Subsidiary                   Stake (%)                   1Q11   2Q11      3Q11      4Q11      1Q12       2Q12        3Q12
SK Telink                          83.5 Sales             104    115        101        99        87         73         75
                                            Net profit     10     13         12         0         5       -102         10
SK Communications                  64.6 Sales              59     68         72        64        52         54         55
                                            Net profit      3      2          1       -11        -5          -6         -6
Paxnet                             59.7 Sales               7      8          9         9         9          9           9
                                            Net profit     -1      0          0        -1         0          0           0
Loen Ent                           67.6 Sales              35     43         43        47        44         46         48
                                            Net profit      5      7          4         5         7          6           7
SK Broadband                       50.6 Sales             520    557        583       652       559        606        627
                                            Net profit     -6      -1         1        -8         1          3         14
PSNM                              100.0 Sales             250    260        280       289       321        364        368
                                            Net profit     -7      -8        -8       -10        -6          -8         -9
SK Planet                         100.0 Sales               0      0          0       281       245        250        260
                                            Net profit      0      0          0        11         3         20         21
Consolidated sales                          Sales         777    843        843       937       969        939       1,028
Consolidated net profit                     Net profit    -23      -9        -5       -75       -45       -111         28
Source: Company data, TONGYANG Securities




                                KT saw healthy contributions from KT Capital, KT Rental, and KT Skylife. Most of KT
                                Capital’s profit came from BC Card, whose profit increased thanks to restructuring of
                                expenses, rather than top-line growth. KT Rental and KT Skylife are enjoying virtuous
                                cycles of improving business environment, increasing market leadership, growing
                                sales, and rising profits. Thus, KT Capital (BC Card) is now contributing substantially
                                to profit, while KT Rental and KT Skylife will likely boost KT’s profit going forward. KT
                                Rental should benefit from a growing rental market and a stabilizing competitive
                                landscape, and KT Skylife’s operating profit will likely surge from 2013 as home
                                shopping commissions rise on an expanding subscriber base.




                                                                                              TONGYANG Securities Inc.  11
2013 telecom outlook




                                      Table 2. KT: key subsidiary earnings                                                               (Wbn)

                                                                                1Q11                            2Q11                     3Q11

                                      BC Card

                                       Operating revenue                              783                         795                     770

                                       Operating profit                                   44                       47                        36

                                      KT Rental

                                       Operating revenue                              173                         174                     181

                                       Operating profit                                   22                       21                        23

                                      KT Skylife
                                       Operating revenue                              173                         174                     146

                                       Operating profit                                   22                       21                        18

                                      Source: Company data, TONGYANG Securities




                                      The charts below show the number of SKT and KT’s mobile platform subscribers.
                                      SKT’s market share in the mobile platform market is as strong or stronger than in the
                                      mobile telecom market. So far, such dominance in the mobile platform market has
                                      not led to profit. However, “Kakao Talk” has proved that subscriber base can act as
                                      leverage for advertising and other services. Thus, we believe mobile platforms have
                                      strong potential, although they are still unlikely to generate profits in the near term.
                                      We think investors should keep an eye on platforms going forward.

 Chart 14-1. SKT’s mobile platform subs (net installers)                 Chart 14-2. KT’s mobile platform subs (net installers)

  ('0 0 0 )                                                               ('0 0 0 )
 1 4 ,0 0 0                                                               1 2 ,0 0 0
               12,015
 1 2 ,0 0 0
                                                                          1 0 ,0 0 0
                            9,597
 1 0 ,0 0 0
                                                                            8 ,0 0 0
   8 ,0 0 0                            6,694                                                       6,233
   6 ,0 0 0                                          5,378                  6 ,0 0 0                                             5,118
                                                                4,507                                             4,905
   4 ,0 0 0                                                                 4 ,0 0 0
   2 ,0 0 0
                                                                            2 ,0 0 0
         0
              T - s tore   T - M ap   hoppin       G o! N F C   1 1 th                0
                                                                Street                         O lleh M arket   O lleh navi   Show T ouc h

 Note: As of end-October                                                 Note: As of end-October
 Source: Korean Click, TONGYANG Securities                               Source: Korean Click, TONGYANG Securities




12  TONGYANG Securities Inc.
                                                                                                                        Sector Report




Chart 15-1. SKT: subsidiary profit contribution (1Q~3Q)                Chart 15-2. KT: subsidiary profit contribution (1Q~3Q)




                                       Subsidiaries
                                                                                                                   Subsidiaries
                                          6%
                                                                                                                      17%


                                                                                                   KT
                                                                                                  83%



                               SKT
                               94%



Source: TONGYANG Securities                                            Source: TONGYANG Securities



Chart 16-1. SKT: non-telecom sales                                     Chart 16-2. SKT: non-telecom operating profit

 (Wbn)
 1 ,2 0 0                                                                60
                                                                                                                                   51
                                                              1,028
                                               969     939               50
 1 ,0 0 0                             937                                                42
                     843     843                                                                 36
             777                                                         40
   800
                                                                         30
                                                                                                                         22
   600
                                                                         20      16

   400
                                                                         10

   200                                                                     0

       0                                                                -10                              -7      -5

            1Q 11   2Q 11   3Q 11    4 Q 11   1Q 12   2Q 12   3Q 12             1Q 11   2Q 11   3Q 11   4Q 11   1Q 12   2Q 12     3Q 12

Source: TONGYANG Securities                                            Source: TONGYANG Securities




Chart 17-1. KT: non-telecom sales                                      Chart 17-2. KT: non-telecom operating profit

                                                                        (Wbn)
 1 ,6 0 0                                                                                                                         KT
                                                                        250
                                                              1,358              196
 1 ,4 0 0                                                               200
                                                                        150                                                        129
 1 ,2 0 0                            1,113    1,113   1,139
                                                                        100                                      59      59
 1 ,0 0 0                                                                 50                     10
   800                                                                      0
                                                                        -50
                                                                                                         -29
   600                                                                 -1 0 0
             412
   400                       287
                                                                       -1 5 0
                                                                       -2 0 0
   200                                                                 -2 5 0
                     10                                                                  -229
       0                                                               -3 0 0
            1Q 11   2Q 11   3Q 11    4 Q 11   1Q 12   2Q 12   3Q 12             1Q 11   2Q 11   3Q 11   4Q 11   1Q 12   2Q 12     3Q 12

Note: Includes proceeds from sale of Russian subsidiary NTC in 2Q11.   Source: TONGYANG Securities
BC Card became consolidated subsidiary in 4Q11.
Source: TONGYANG Securities




                                                                                                          TONGYANG Securities Inc.  13
2013 telecom outlook




                                Table 3. SKT’s key subsidiaries
                                                        Foundation         Aug 7, 2003

                                                        Industry           Telecom/broadcasting
                                       SK Telink
                                                        Business type      International call service (00700) / satellite DMB service

                                                        Stake              83%

                                                                             K-GAAP                                       K-IFRS
                                        (Wmn)
                                                                   2007               2008           2009              2010               2011

                                Operating revenue               235,127           271,059          302,977           345,987            420,603

                                Operating profit                 24,936              34,821         40,952            55,433             51,481

                                Net profit                       18,737              23,264         27,317            43,528             34,691



                                                       Foundation          Jul 5, 2007

                                                       Industry            B2B e-Commerce
                                     Happynarae                            Telemarketing, wholesale, retail, value-added network /
                                                       Business type
                                                                           procurement of MRO supplies, e-procurement system consulting
                                                       Stake               43%

                                                                             K-GAAP                                       K-IFRS
                                        (Wmn)
                                                                   2007               2008           2009              2010               2011

                                Operating revenue                58,586              70,071         91,276           102,388            124,884

                                Operating profit                   1,172               101             362                26              1,093

                                Net profit                          935                  39            273                51               863




                                                       Foundation          Dec 23, 1998

                                      F&U Credit       Industry            Finance
                                     Information       Business type       Collection service and credit research

                                                       Stake               50%

                                                                             K-GAAP                                       K-IFRS
                                        (Wmn)
                                                                   2007               2008           2009              2010               2011

                                Operating revenue                54,278              55,083         48,839            47,969             50,461

                                Operating profit                    120                654             365             1,011               658

                                Net profit                          377                717             556               720               555



                                                       Foundation          Sep 26, 1997

                                    SK Broadband       Industry            Fixed-line telecom
                                                                           Information telecom, broadcasting, net media / broadband
                                                       Business type
                                                                           Internet, local call, IPTV

                                                       Stake               51%

                                                                             K-GAAP                                       K-IFRS
                                        (Wmn)
                                                                   2007               2008           2009              2010               2011

                                Operating revenue             1,868,255          1,861,396        1,893,956         2,126,632       2,302,563

                                Operating profit                 80,944            -22,668        -109,212            13,724             77,862

                                Net profit                         7,236           -98,840        -191,215            -59,151            19,272

                                Source: TONGYANG Securities




14  TONGYANG Securities Inc.
                                                                                          Sector Report




SKT’s key subsidiaries (continuing)
                        Foundation        Apr 7, 2008
                        Industry          e-commerce and advertising agency
    SK marketing &
       company          Business type     e-commerce, including Ok Cash Bag biz, advertising agency

                        Stake             50%

                                               K-GAAP                                   K-IFRS
             (Wmn)
                                   2007             2008            2009              2010            2011

Operating revenue                                133,271         315,850            576,892        652,749

Operating profit                                   3,163           12,815            19,404         23,071

Net profit                                        14,823           26,125            16,819         21,266



                        Foundation        Oct 1, 1949

                        Industry          Semiconductor manufacturing
        SK Hynix
                        Business type     Manufacturing of memory chips and others

                        Stake             21%

                                               K-GAAP                                   K-IFRS
             (Wmn)
                                   2007             2008            2009              2010            2011

Operating revenue             8,433,755         6,495,367      7,521,458         10,188,162      11,973,426

Operating profit                257,454        -2,202,187       -115,847            511,517       3,128,367

Net profit                      328,595        -4,719,633       -347,785            129,142       2,785,945



                        Foundation        Jul 1, 1992

                        Industry          Credit card
     Hana SK Card
                        Business type     Card issue and granting of credit

                        Stake             49%

                                               K-GAAP                                   K-IFRS
             (Wmn)
                                   2007             2008            2009              2010            2011

Net interest income                                                                  72,817        197,632

Operating profit                                                                    -43,620         22,080

Net profit                                                                          -34,652         22,050



                        Foundation        Oct 1, 2011

                        Industry          IT
        SK Planet
                        Business type     IT and provision of new media content

                        Stake             100%

                                               K-GAAP                                   K-IFRS
             (Wmn)
                                   2007             2008            2009              2010            2011

Operating revenue                                                                                  280,721

Operating profit                                                                                     8,002

Net profit                                                                                          11,014

Source: TONGYANG Securities




                                                                              TONGYANG Securities Inc.  15
2013 telecom outlook




                                Table 4. KT’s key subsidiaries
                                                      Foundation         Dec 30, 1985
                                                      Industry           Public telecom service
                                     KT Powertel
                                                      Business type      Trunked radio system (TRS) service / TRS device supply

                                                      Stake              44%

                                                                           K-GAAP                                   K-IFRS
                                         (Wmn)
                                                                 2007             2008              2009          2010               2011

                                Operating revenue             106,903           113,232           126,000       127,548           126,759

                                Operating profit                 8,462            9,155            15,170        12,876            17,592

                                Net profit                       2,640            6,211            12,927        14,942            14,569



                                                      Foundation         May 21, 1986

                                                      Industry           Mobile virtual network operation
                                     KT Networks
                                                      Business type      System/ network integration, software development

                                                      Stake              100%

                                                                           K-GAAP                                   K-IFRS
                                         (Wmn)
                                                                 2007             2008              2009          2010               2011

                                Operating revenue             337,819           381,410           324,422       327,181           375,773

                                Operating profit                 1,538            6,992            -8,025         4,598              1,578

                                Net profit                       2,005            4,226            -8,139         2,909               389



                                                      Foundation         Sep 7, 1983
                                                      Industry           Credit card / installment loans
                                        BC Card
                                                      Business type      Issue and management of credit, debit, and pre-paid cards

                                                      Stake              KT Capital 69%

                                                                           K-GAAP                                   K-IFRS
                                         (Wmn)
                                                                 2007             2008              2009          2010               2011

                                Operating revenue         2,573,797          3,002,129         3,161,538      3,072,482       3,137,317

                                Operating profit               33,789           130,442           78,065        104,800           101,052

                                Net profit                     94,748           118,037           60,365         30,040            96,724



                                                      Foundation         Apr 16, 1998

                                                      Industry           Telecommunications
                                        Smartro                          IC card manufacture, service / credit card management and
                                                      Business type
                                                                         authorization service

                                                      Stake              Initech Smartro Holdings 61%

                                                                           K-GAAP                                   K-IFRS
                                         (Wmn)
                                                                 2007             2008              2009          2010               2011

                                Operating revenue              53,786            67,204           80,352         86,707           106,821

                                Operating profit                 9,807           15,692           15,712         15,751            18,186

                                Net profit                       7,123           10,772           11,530         10,560              8,703




16  TONGYANG Securities Inc.
                                                                                       Sector Report




                     Foundation         Jan 2, 2007

                     Industry           Wholesale of telecom equipment and parts
         KT M&S
                     Business type      Telecom equipment sale/ rental

                     Stake              100%

                                          K-GAAP                                    K-IFRS
          (Wmn)
                                2007               2008           2009             2010           2011

Operating revenue            103,720           458,735         427,269          616,070         917,410

Operating profit             -18,512           -44,603         -30,077          -14,031             214

Net profit                   -16,622           -49,123         -36,136          -17,261          -3,256



                     Foundation         Oct 12, 2001

                     Industry           Telecom equipment manufacturing
         KT Tech
                     Business type      R&D, manufacturing, and sale of telecom devices

                     Stake              94%

                                          K-GAAP                                    K-IFRS
          (Wmn)
                                2007               2008           2009             2010           2011

Operating revenue            455,996           360,963         320,014          189,137         247,443

Operating profit              18,179           -10,779         -21,818          -11,607           3,953

Net profit                    10,905           -28,504         -27,306          -13,641             641



                     Foundation         May 27, 2002
                     Industry           Telecom
         KT Hitel
                     Business type      Mobile Internet service, smart-device content platform operation

                     Stake              87%

                                          K-GAAP                                    K-IFRS
          (Wmn)
                                2007               2008           2009             2010           2011

Sales                        122,890           137,708         133,852          150,112         130,723

Operating profit                2,008              5,234           318          -10,075         -11,508

Net profit                      3,868              7,672          9,595          -9,079         -11,396



                     Foundation         Nov 14, 2006

                     Industry           Security system service
        KT Telecop
                     Business type      Security

                     Stake              87%

                                          K-GAAP                                    K-IFRS
          (Wmn)
                                2007               2008           2009             2010           2011

Operating revenue            128,297           145,990         152,238          217,047         261,172

Operating profit              -7,127               1,967          5,486          14,800          10,201

Net profit                   -14,922            -4,257            2,876          11,956           7,075




                                                                          TONGYANG Securities Inc.  17
2013 telecom outlook




                                                        Foundation        Jan 5, 2007

                                                        Industry          Credit finance
                                       KT Capital
                                                        Business type     Finance and insurance-related service

                                                        Stake             74%

                                                                            K-GAAP                                    K-IFRS
                                         (Wmn)
                                                                   2007            2008                2009         2010            2011

                                Operating revenue                31,153         111,375           140,971         190,203       222,308

                                Operating profit                    703            4,922           22,456          11,845        44,227

                                Net profit                          359            3,436           17,783           8,626        33,437



                                                        Foundation        Jul 23, 2008

                                                        Industry          Computer system advisory and implementation service
                                             KTds                         Data management system integration, software design and
                                                        Business type
                                                                          development, and rental of electronic resources, etc

                                                        Stake             95%

                                                                                                 K-GAAP               K-IFRS
                                         (Wmn)
                                                                                                       2009         2010            2011

                                Operating revenue                                                 256,221         355,631       498,157

                                Operating profit                                                       9,216       13,073        12,568

                                Net profit                                                             7,999       10,224        10,298

                                Source: TONGYANG Securities



                                                        Foundation        Jan 12, 2001
                                                        Industry          Satellite and broadcasting
                                       KT Skylife
                                                        Business type     Satellite broadcasting service

                                                        Stake             50%

                                                                            K-GAAP                                    K-IFRS
                                         (Wmn)
                                                                   2007            2008                2009         2010            2011

                                Operating revenue               387,393         386,957           397,457         426,684       464,376

                                Operating profit                 41,103          24,759            32,223          45,305        41,747

                                Net profit                       43,194          21,698            24,812          33,957        31,257

                                Source: TONGYANG Securities




18  TONGYANG Securities Inc.
                                                         Sector Report




             2013 MOBILE
TELECOM MARKET
       OUTLOOK


 Combined sales to grow 6% or more

 LTE subscriber portion to expand to 53%

 ARPUs estimated at around W35,000. ARPU ranking:
  SKT > LG U+ > KT

 To turn profit on LTE: competition to ease in 2H13




                                             TONGYANG Securities Inc.  19
2013 telecom outlook




                                       Subscribers

                                       The mobile telecom penetration rate has reached 107%. Since hitting 105%, growth
                                       slowed significantly. Net subscriber additions have slowed sharply since 2011,
                                       decelerating even further since the beginning of 2012. While penetration climbed
                                       from 90% to 107%, B2B smartphones led the market growth, but now, we believe
                                       the B2B smartphone market has also entered a mature stage, with their penetration
                                       already exceeding 58%. Overall, we think the mobile telecom market’s top-line
                                       growth has come to an end.

                                       If latecomers intend to grow, competition should be also be intense in 2013. When a
                                       market is growing, a company can grow without hurting other players, but in a
                                       maturing market, one player’s growth means another’s loss.

 Chart 15-1. Mobile phone penetration rate                            Chart 15-2. Annual net subscriber additions

  1 10 %                                                              ('0 0 0 )

                                                                       7 ,0 0 0           6,609
  1 00 %
                                                                       6 ,0 0 0
   90%
                                                                       5 ,0 0 0

   80%                                                                 4 ,0 0 0
                                                                                                                            3,299
                                                                                                      2,994
                                                                                                                                             2,823
                                                                       3 ,0 0 0   2,471
   70%                                                                                                                               2,337
                                                                                                                                2,109
                                                                       2 ,0 0 0                               1,756 1,856                            1,740
                                                                                              1,249
   60%                                                                                                                                                       800
                                                                       1 ,0 0 0

   50%                                                                       0
      Jan 0 1   J an 0 3   J an 0 5   Jan 0 7   J an 0 9   J an 1 1               2001        2003        2 00 5        2007        2 0 09       2011
 Source: KT, Korea Communications Commission, TONGYANG Securities     Source: Korea Communications Commission, TONGYANG Securities




20  TONGYANG Securities Inc.
                                                                                            Sector Report




ARPU

On LTE service expansion, we expect the three major telcos’ ARPU to reach
W35,000~36,000 in 2013, based on the following assumptions for end-2013: 1) the
portion of feature phones will be 15~20%, 3G smartphones 25~30%, and 4G
smartphones (LTE) 50~60%; and 2) ARPU for feature phone will be in the low-
W20,000s, 3G smartphones in the low-W30,000s, and 4G smartphones (LTE) in the
low-W40,000s.

LTE subscriber outlook
As of end-October, SKT’s LTE subscribers stood at 6.1mn, KT 2.8mn, and LG U+
3.8mn. LTE subscriber growth clearly differed between when competition was hot and
when it was cool. As prices of LTE handsets are so high, people tend to convert to LTE
when they are heavily subsidized. Competition will likely remain low through end-
2012, as the Korea Communications Commission continues its field investigation.
Thus, we expect net growth in LTE subscribers to slow q-q in 4Q. At end-2012, SKT’s
LTE subscribers should stand at 7mn, KT 3.5mn, and LG U+ 4.25mn. In particular, we
believe KT and LG U+ will fail to meet their full-year targets of 4mn and 4.5mn,
respectively.

Chart 16. Monthly net increase in LTE subscribers


  (mn)
  1 .8
               LG U +
  1 .6
               KT
  1 .4
               SKT
  1 .2
  1 .0
  0 .8
  0 .6
  0 .4
  0 .2
  0 .0
         N ov 2 0 1 1   Jan 2 0 1 2   M ar 2 0 1 2   M ay 2 0 1 2   Jul 2 0 1 2    Sep 2 0 1 2

Source: TONGYANG Securities




As competition repeatedly waxes and wanes in 2013, we expect LTE subscribers to
grow at a similar speed to 2H12 (in 1H12, LTE coverage area was narrow). As of end-
2013, LTE subscribers should reach 13.5mn for SKT, 8mn for KT, and 7.5mn for LG
U+, with KT likely to overtake LG U+ in LTE subscribers in 3Q13.

At end-2013, we forecast the number of subscribers for feature phones (2G, 3G) at
8.6mn (15.9%), 3G smartphones 16.44mn (30.4%), and 4G 29mn (53.7%). Total
LTE subscribers should climb through end-2013~1H14, then slow sharply.

We also expect SKT’s LTE subscriber portion at end-2013 to reach 50.3%, KT’s 47.9%,
LG U+’s 71.4%.




                                                                              TONGYANG Securities Inc.  21
 2013 telecom outlook




                                   Chart 17. Subscriber portion, by generation

                                                                 Fe ature phone        3 G s martphone
                                                                 4 G s martphone
                                     100%
                                        90%
                                        80%
                                        70%
                                        60%
                                        50%
                                        40%
                                        30%
                                        20%
                                        10%
                                          0%
                                                        2011                       2012E                      2013E

                                   Source: TONGYANG Securities




Chart 18-1. LTE subscriber portion (2012E)                       Chart 18-1.LTE subscriber portion (2013E)

  4 5 .0 %                                         42.1%           8 0 .0 %
                                                                                                                      71.4%
  4 0 .0 %                                                         7 0 .0 %
  3 5 .0 %
                                                                   6 0 .0 %
  3 0 .0 %                                                                         50.3%
                26.2%                                                                                47.9%
                                                                   5 0 .0 %
  2 5 .0 %
                                  21.1%                            4 0 .0 %
  2 0 .0 %
                                                                   3 0 .0 %
  1 5 .0 %
  1 0 .0 %                                                         2 0 .0 %

   5 .0 %                                                          1 0 .0 %

   0 .0 %                                                           0 .0 %
                 SKT               KT              LG U +                           SKT                  KT           LG U +

Source: TONGYANG Securities                                      Source: TONGYANG Securities




                                   ARPU forecast, by generation
                                   Our ARPU forecast is based on two factors. First, LTE ARPU is higher than 3G
                                   smartphone ARPU, given higher data use by LTE subscribers and lower discounts on
                                   LTE plans. As the tables below show, LTE plans offer lower discounts than 3G plans.
                                   For example, telcos take in more money from “LTE52” plans than “All-in-one 54” (3G)
                                   plans. Second, the decline in feature phone and 3G smartphone ARPUs will likely slow
                                   from 2013. Feature phone ARPU has already declined to the high-W10,000 range at
                                   both KT and LG U+.

                                   At end-2013, the ARPU of feature phones should be in the low-W20,000s, 3G
                                   smartphones low-W30,000s, and 4G smartphones low-W40,000s.




  22  TONGYANG Securities Inc.
                                                                                            Sector Report




Table 5-1. LTE plans                                                                                    (won)

                              LTE34     LTE42      LTE52        LTE62       LTE72         LTE85       LTE100
Nominal price                 34,000    42,000     52,000       62,000      72,000        85,000      100,000

Discount price                27,000    31,500     38,500       46,000      54,000        65,000       76,000

Note: Based on SKT’s LTE plans
Source: TONGYANG Securities




Table 5-2. 3G smartphone plans                                                                          (won)

                  All-in-one34 All-in-one 44 All-in-one 54 All-in-one 64 All-in-one 79 All-in-one 94
Nominal price             34,000        44,000        54,000         64,000          79,000            94,000

Discount price            21,900        28,050        34,750         42,550          54,250            63,750

Note: SKT 3G plans
Source: TONGYANG Securities



Three telcos’ ARPUs to reach W34,000~36,000
Given the two factors mentioned (LTE portion, ARPU), we estimate the three major
telcos’ ARPU at around W35,000 at end-2013. ARPU growth will likely be fastest in
2013 and then slow significantly from 2014. However, if call plans are cut by
regulators like in 2010~2011, growth will likely be slower than expected (by 1~3%p).

Chart 19. ARPU forecast

   (won)                                               SKT                  KT                     LG U +

  3 8 ,0 0 0
  3 6 ,0 0 0
  3 4 ,0 0 0
  3 2 ,0 0 0
  3 0 ,0 0 0
  2 8 ,0 0 0
  2 6 ,0 0 0
  2 4 ,0 0 0
  2 2 ,0 0 0
  2 0 ,0 0 0
                 3Q 11          4Q 11      1Q 12       2 Q 12       3Q 12        4Q 12E       4Q 13E

Source: TONGYANG Securities




We also need to pay attention to narrowing ARPU gaps.

The ARPU gaps among telcos stem from differences in service competitiveness. In the
telecom business, competitiveness comes from network (speed, handset, coverage
area) and frequency, and if these are good, the telco’s distribution competitiveness
and brand value are high. If telcos find they are behind in certain areas, they can try
to compensate by adopting different strategies in plans, subsidies, and memberships.
We believe the competitiveness gaps have faded for 4G service compared to 2G and
3G, meaning number-three LG U+ does not need to offer cheaper plans or higher
subsidies. In other words, the gaps in LTE ARPUs should become negligible compared
to feature phones and 3G smartphones, as shown by declining ARPU gaps in 3Q12.




                                                                            TONGYANG Securities Inc.  23
2013 telecom outlook




                                   In addition, it is important that LG U+ will likely have the highest LTE subscriber
                                   portion among the three major telcos. For SKT, we think its LTE portion will be
                                   weighed down by lingering 2G subscribers and 3G unlimited-data-plan subscribers;
                                   and for KT, by lingering 3G unlimited-data-plan subscribers.

Figure 1. Telecom business: competitiveness and strategies

                          Competitiveness



                                        Network                    Speed                 Frequency




                                                                  Handset




                                                                  Coverage




                                                                 Distribution
                                                                  network




                                                                   Brand


                          Strategy



                                      Service plan                 Subsidy              Membership



Source: TONGYANG Securities



Table 6. Comparison of competitiveness
      Network speed       Handset                             Frequency             Coverage area            Brand awareness
 2G   SKT > KT > LG U+ SKT > KT > LG U+                       SKT > KT > LG U+      SKT > KT > LG U+         SKT > KT > LG U+
                          SKT exclusively launches Motorola                       SKT recognized as having   SKT enjoys premium from
                                                            SKT alone used 800MHz
                          & Sky handsets                                          best call quality          “011” prefix
                          SKT first to get certain handsets                                                  LG U+ offers lower call
                          from Samsung Electronics                                                           plans
 3G   SKT = KT > LG U+ SKT > KT > LG U+                       SKT > KT > LG U+      SKT = KT > LG U+         SKT > KT > LG U+
      LG U+ is actually   SKT first launches iPhone &
                                                              SKT 60MHz. KT 40MHz
      2.5G, not 3G        Samsung phones
                          KT launches iPhone

 4G   SKT = KT = LG U+ SKT = KT > LG U+                       SKT = KT = LG U+      SKT = KT = LG U+         SKT > KT = LG U+

Source: TONGYANG Securities




24  TONGYANG Securities Inc.
                                                                                                    Sector Report




Chart 19. Naver online poll: “Which carrier do you use for LTE service?”



                1) LG U +                                                 23.7%



                       2 ) KT                           14.4%



                      3 ) SKT                                   18.8%



 4 ) LT E ? I am us ing 3 G                                                                             43.1%



                                0%        10%                 20%                 30%           40%             50%

Source: Naver




Chart 20. LTE market share

 60%
                                                        SKT                       KT                  LG U +
 50%

 40%

 30%

 20%

 10%

  0%
       N ov 2 0 1 1       J an 2 0 1 2   M ar 2 0 1 2      M ay 2 0 1 2       Jul 2 0 1 2      Sep 2 0 1 2


Source: Korea Communications Commission, TONGYANG Securities




                                                                                        TONGYANG Securities Inc.  25
2013 telecom outlook




                                Table 6. SKT: ARPU simulation                                          (’000 people, won)
                                No of subscribers      Feature phone   3G smartphone   4G smartphone               Total
                                3Q11                           1,695             947              0                2,642
                                Portion (%)                     81.0            19.0
                                4Q11                           1,523           1,063              63               2,649
                                Portion (%)                     57.5            40.1             2.4
                                1Q12                           1,373           1,106             177               2,656
                                Portion (%)                     51.7            41.6             6.7
                                2Q12                           1,259           1,073             334               2,666
                                Portion (%)                     47.2            40.2            12.5
                                3Q12                           1,173             941             566               2,680
                                Portion (%)                     43.8            35.1            21.1
                                4Q12                           1,007             976             700               2,683
                                Portion (%)                     37.5            36.4            26.1
                                4Q13                            500              843           1,350               2,693
                                Portion (%)                     18.6            31.3            50.1
                                ARPU                   Feature phone   3G smartphone   4G smartphone               Total
                                3Q11                          30,210          46,000                              33,210
                                4Q11                          26,948          42,600          62,000              32,588
                                1Q12                          24,500          39,100          62,000              32,151
                                2Q12                          23,000          38,100          60,000              32,743
                                3Q12                          23,000          36,945          52,000              33,135
                                4Q12                          22,000          36,000          52,000              34,086
                                1Q13                          21,000          33,000          43,000              35,785
                                Source: TONGYANG Securities



                                Table 7. KT: ARPU simulation                                           (’000 people, won)
                                No of subscribers      Feature phone   3G smartphone   4G smartphone               Total
                                3Q11                           1,007             632              0                1,639
                                Portion (%)                     61.4            38.6
                                4Q11                            891              765              0                1,656
                                Portion (%)                     53.8            46.2             0.0
                                1Q12                            775              850              35               1,660
                                Portion (%)                     46.7            51.2             2.1
                                2Q12                            700              831             117               1,649
                                Portion (%)                     42.5            50.4             7.1
                                3Q12                            670              730             248               1,648
                                Portion (%)                     40.7            44.3            15.0
                                4Q12                            510              775             350               1,650
                                Portion (%)                     30.9            47.0            21.2
                                4Q13                            240              620             800               1,660
                                Portion (%)                     14.5            37.3            48.2
                                ARPU                   Feature phone   3G smartphone   4G smartphone               Total
                                3Q11                          24,029          38,500                              29,609
                                4Q11                          22,667          36,000                              28,826
                                1Q12                          19,000          38,000          52,000              28,722
                                2Q12                          19,000          36,550          52,000              29,447
                                3Q12                          18,031          36,000          49,000              29,970
                                4Q12                          18,000          35,500          48,000              30,686
                                1Q13                          18,000          33,000          40,000              34,205
                                Source: TONGYANG Securities




26  TONGYANG Securities Inc.
                                                                            Sector Report




Table 8. LG U+: ARPU simulation                                           (’000 people, won)

 No of subscribers      Feature phone   3G smartphone    4G smartphone                Total

 3Q11                            629              301                0                  930
 Portion (%)                     81.0             19.0

 4Q11                            555              331               53                  939
 Portion (%)                     59.1             35.3             5.6

 1Q12                            494              313              148                  955

 Portion (%)                     51.7             32.8            15.5

 2Q12                            442              285              258                  985
 Portion (%)                     44.9             29.0            26.2

 3Q12                            401              245              356                1,002

 Portion (%)                     40.0             24.5            35.5

 4Q12                            303              282              425                1,010
 Portion (%)                     30.0             27.9            42.1

 4Q13                            120              180              750                1,050
 Portion (%)                     11.4             17.1            71.4

 ARPU                   Feature phone   3G smartphone    4G smartphone                Total

3Q11                           22,635          40,000                                25,934

4Q11                           21,658          38,000           52,500               26,196

1Q12                           17,000          33,000           54,000               26,645

2Q12                           17,000          32,000           53,000               29,282

3Q12                           17,081          29,550           50,000               30,565

4Q12                           17,000          29,000           47,000               31,784

1Q13                           17,000          29,000           40,000               35,486

Source: TONGYANG Securities




Chart 21. LTE data usage (GB)

        (G B)
        3 .0

        2 .5

        2 .0

        1 .5

        1 .0

        0 .5

        0 .0
                         SKT                 KT                  LG U +
Source: TONGYANG Securities




                                                              TONGYANG Securities Inc.  27
2013 telecom outlook




                                Combined sales to grow about 6% y-y

                                We expect the three major telcos to post higher growth in 2013 than in the past three
                                years. With LTE portions expanding, SKT’s ARPU should grow 6.6% y-y, KT’s 11.2%,
                                and LG U+’s 12.5%. Sales (excluding merchandise sales) will likely rise 8.5% y-y at
                                SKT and 3.8% y-y at KT, with KT’s sales growing slower than SKT’s as a decline in
                                fixed-line sales undermines KT’s mobile sales. At LG U+, service sales are expected to
                                grow 10.8% y-y. With ARPU growth likely to slow sharply from 2014, annual sales
                                growth in the telecom sector should fall back to 1~2% y-y.

                                LTE growth to wrap up in 2013
                                At end-2013, we forecast subscribers for feature phone subscribers (2G, 3G) at
                                8.6mn (15.9%), 3G smartphones at 16.44mn (30.4%), and 4G at 29mn (53.7%).
                                We expect some feature phone and 3G smartphone users to linger, resisting the call
                                to switch to LTE, given feature phone users’ loyalty to their phone numbers and 3G
                                smartphone users’ love of unlimited data plans. Thus, we expect LTE subscriber adds
                                to climb sharply through 1H14, and then growth to slow dramatically afterwards.

                                From a long-term perspective, we believe LTE subscriber portion will stay highest at
                                LG U+, followed by KT and SKT. We expect some 2G subscribers and 3G unlimited
                                data plan subscribers to stick around at SKT and some 3G unlimited data plan
                                subscribers to linger at KT. In contrast, LG U+ has few loyal 2G subscribers and 3G
                                (2.5G) subscribers due to its low network speed.

 Chart 22. Subscriber portion, by generation (end-3Q12)       Chart 23. LTE subscriber portion (2013E)
                         4G      3G       2G                   8 0 .0 %
 10 0 %                                                                                                   71.4%
                                                               7 0 .0 %
   90%
   80%                                                         6 0 .0 %
                                                                             50.3%
   70%                                                         5 0 .0 %                     47.9%

   60%
                                                               4 0 .0 %
   50%
   40%                                                         3 0 .0 %                     2
   30%
                                                               2 0 .0 %
   20%                                          36%
                                                               1 0 .0 %
   10%          21%
                                15%
    0%                                                          0 .0 %
                SKT              KT            LG U +                         SKT            KT           LG U +

 Source: TONGYANG Securities                                  Source: TONGYANG Securities




28  TONGYANG Securities Inc.
                                                                                                           Sector Report




                                After the growth of the LTE market ends, we expect the telecom sector’s growth to
                                slow dramatically. By then, it will likely be hard to see meaningful changes in
                                subscribers and ARPU.

Chart 24-1. Sales growth forecasts, by telco                    Chart 24-2. Comparison of sales growth forecasts


20 %                             SKT         KT        LG U +
                                                                                              2 01 2 E   2013E    2 0 14 E
                                                                20 %
15 %                                                            18 %
                                                                16 %
10 %                                                            14 %
                                                                12 %
                                                                10 %
  5%
                                                                 8%
                                                                  6%
  0%                                                              4%
                                                                  2%
 -5 %                                                             0%
         2 0 1 2E   2 0 13 E   2 01 4 E   2 01 5 E   20 1 6 E                 SKT             KT             LG U +

Source: TONGYANG Securities                                     Source: TONGYANG Securities




                                                                                               TONGYANG Securities Inc.  29
2013 telecom outlook




                                Competition and profit

                                We are very upbeat about the combined 2013 operating profit of the three major
                                telcos, as combined sales should grow more than 6% y-y. If marketing expenses stay
                                flat y-y in 2013, operating profit is expected to grow more than 25% y-y. How much
                                operating profit increases will depend on competition (marketing expenses). Factors
                                to ease competition are: 1) the y-y decline in churn rate with higher portions of high-
                                priced handsets, such as LTE phones; 2) the introduction of penalties for breaking
                                contracts; and 3) the end of handset subsidies (lower churn rate cut 1Q~3Q
                                subscriber additions by 11.5% y-y). Meanwhile, competition may heat up if telcos are
                                intent on increasing their market shares and LTE subscribers. Thus, as long as market
                                shares fluctuate and LTE ARPUs are higher than 3G smartphone ARPUs, the war over
                                subscribers is likely to continue.

                                The change in the balance of power between the telcos and the handset makers has
                                also stoked competition. In the past, customers tended to decide on the telco first,
                                then the handset, but now, they tend to choose the handset first. Since consumers
                                compare discounted handset prices (ex-factory price minus subsidies) when choosing
                                a telco, the telcos are tempted to offer more subsidies.

                                Figure 2. Factors that affect competition environment



                                          Factors that ease                                   Factors that
                                            competition                                         intensify
                                                                                              competition


                                         Raise contract term                                 Market share
                                         (churn rate decline)                                 acquisition


                                          Introduce penalty
                                             for breaking
                                               contract
                                                                      VS                    Competition to
                                                                                             acquire LTE
                                                                                             subscribers

                                                                                           Handset makers’
                                           Remove handset
                                                                                              “power”
                                              subsidy



                                Source: TONGYANG Securities




                                We believe competition will stay fierce until 1H13, and then gradually ease from 2H13.

                                First, telcos’ rankings in LTE are not yet finalized. The number two and number three
                                players have changed places. Although the gaps are narrowing, SKT still has the most
                                LTE subscribers, followed by LG U+ and KT. Thus, the level of competition should
                                depend heavily on number-three player KT’s strategy (whether it will try to recover
                                its LTE market share in the short term or take a long-term approach).




30  TONGYANG Securities Inc.
                                                                                                         Sector Report




                              We expect KT to be aggressive in signing up subscribers in 1H13, as the portion of
                              LTE subscribers will likely exceed 53% at end-2013 and the LTE market’s growth is
                              forecast to slow sharply from 2014. If KT intends to boost its LTE market share, it will
                              raise its SAC, which seems reasonable given the high ARPUs of LTE.


Chart 25-1. Mobile telecom market share (Sep 2012)          Chart 25-2. LTE market share (Sep 2012)




                 LG U +
                 1 8 .8 %                                          LG U +
                                                                    30%
                                                                                                                   SKT
                                                                                                                  48 %

                                                   SKT
                                                 5 0 .3 %
            KT
        3 0 .9 %                                                            KT
                                                                            22%


Source: TONGYANG Securities                                 Source: TONGYANG Securities




                              Second, market shares are still likely to change. From 2011 to 2013, LG U+ should
                              see the strongest growth in mobile telecom service sales among the telcos. In 1H12,
                              its outstanding performance, based on higher marketing expenses, was possible
                              thanks to sales growth. It has become a tough rival. We expect LG U+’s 2013 sales to
                              grow by about W700bn, and with this sales growth, it will have the choice of
                              generating profits or acquiring subscribers. We believe it will choose to sign
                              subscribers in 1H13, as the first two-year contracts for LTE start to expire.

Chart 26-1. Mobile telecom sales growth (2011 vs 2013)      Chart 26-2. Portion of sales growth, by telco


 1 ,4 0 0        Sales                         1,317

 1 ,2 0 0
                                                                                                            SKT
 1 ,0 0 0
                      848                                                                                   3 0%
                                                                 LG U +
   800
                               662                               4 7%
   600

   400

   200                                                                                              KT
                                                                                                   2 3%
       0
               SKT             KT             LG U +
Source: TONGYANG Securities                                 Source: TONGYANG Securities




                                                                                           TONGYANG Securities Inc.  31
2013 telecom outlook




                                Competition to remain lax long term from 2014
                                We expect competition to ease from 2H13, when the strategic position of LG U+,
                                which has driven the changes in market share over the past two years, is set to
                                change. As mentioned earlier, LG U+’s LTE subscribers rose from 4Q11, and these
                                two-year contracts will start to expire in 4Q13. LG U+ will have to put significant
                                resources not only into acquiring new subscribers, but also retaining old ones.

                                LG Dacom is a case in point. Over 2005~2008, LG Dacom (precursor to LG
                                Powercom) aggressively expanded its broadband market share, resulting in a rapid
                                drop in market share for number-one player KT. However, LG’s marketing activities
                                weakened visibly from 2009, after its first three-year broadband contracts start to
                                expire in 2008, and its market share stayed almost flat. Meanwhile, rival KT has
                                slowly regained market share since 2009 on its high service quality, while LG Dacom
                                had to put money into not only acquiring new subscribers, but also retaining old ones.

                                Like in the broadband Internet market, competition in mobile telecom will not simply
                                be about higher subsidies, but also subscriber retention policies from 2014. Thus, the
                                telcos must ready such plans, such as call plan discounts and better membership,
                                service, and bundling plans.

                                Chart 27. LG Dacom (LG Powercom)’s broadband market share (2005~2012)

                                18.0%                                               14.4%
                                                                                                                         15.2%
                                16.0%
                                14.0%
                                12.0%
                                10.0%
                                 8.0%
                                 6.0%
                                 4.0%
                                 2.0%
                                         2.1%
                                 0.0%
                                    Jan 2005  Jan 2006        Jan 2007   Jan 2008   Jan 2009   Jan 2010   Jan 2011   Jan 2012

                                Source: TONGYANG Securities




32  TONGYANG Securities Inc.
                                                                                                             Sector Report




Chart 28. KT’s broadband market share (2005~2012)

6 0 .0 %                                                                 4 2 .3 %
                 5 8 .8 %
5 8 .0 %
5 6 .0 %
5 4 .0 %
5 2 .0 %
5 0 .0 %
4 8 .0 %

4 6 .0 %                                                                                                       4 4 .3 %
4 4 .0 %
4 2 .0 %
      J an 2 0 0 5   J an 2 0 0 6   J an 2 0 0 7   Jan 2 0 0 8   Jan 2 0 0 9 J an 2 0 1 0   J an 2 0 1 1   J an 2 0 1 2

Source: TONGYANG Securities




Penalty for contract breach to boost margins
SKT introduced penalties for breaking contracts in November, and KT is expected to
do so in December and LG U+ in December or January. The penalties will likely have
two impacts on telcos: 1) it should prevent subscribers from churning before their
two-year contracts expire, helping reduce churn; and 2) the penalties represent extra
profits. Assuming about 300,000 subscribers churn before their contracts expire,
extra profit should come to W30bn, or around 3% of SKT’s annual net profit.

Chart 29. Penalties depending on subscription period

   (won)

  1 6 0 ,0 0 0

  1 4 0 ,0 0 0

  1 2 0 ,0 0 0

  1 0 0 ,0 0 0

   8 0 ,0 0 0

   6 0 ,0 0 0

   4 0 ,0 0 0

   2 0 ,0 0 0

            0
                        6 mos                 1 2 mos               1 6 mos             2 0 mos                 2 4 mos

Note: As of SKT’s LTE 52 plan with two-year contract. Penalty is highest for users who stay for 13~16 months
Source: TONGYANG Securities




                                                                                            TONGYANG Securities Inc.  33
2013 telecom outlook




                                Table 6. Portion of maximum penalty, by length of subscription
                                                                     SKT                    KT                 LG U+

                                                      Discount W16,000/mo   Discount W17,600/mo   Discount W18,000/mo

                                 0~6 months                         100%                  100%                  100%

                                 7~12 months                         60%                   60%                   50%

                                 13~16 months                        35%                   30%                   30%

                                 17~20 months                       -15%                  -20%                  -20%

                                 21~24 months                       -40%                  -45%                  -40%

                                 Maximum penalty                 W176,000              W190,080              W183,600

                                Source: TONGYANG Securities




                                In a similar vein, Verizon is estimated to have seen EBITDA margin growth of 1.37%
                                y-y in 2Q12 simply from collecting US$35 upgrade fees. Moreover, as requests to
                                upgrade fell when it started charging fees, margins climbed further by 0.45%p y-y.

                                Chart 30. Verizon: impact of US$35 upgrade fee on margins




                                Source: TONGYANG Securities




34  TONGYANG Securities Inc.
                                                                          Sector Report




Combined operating profit to grow 20% y-y or more
We expect combined operating profit of the three major telcos to grow more than
20% y-y in 2013 on: 1) sales growth of more than 6% y-y; 2) easing competition
from 2H13; and 3) the introduction of penalties for breaking contracts. In addition,
churn rate has declined since the beginning of 2012. We believe operating profit will
rise, but the amount will likely depend on telcos’ market share strategies.

Chart 31. 2013 operating profit forecast

 (Wbn)
 2 ,5 0 0

                      1,927
 2 ,0 0 0
                                              1,642

 1 ,5 0 0


 1 ,0 0 0

                                                                    548
   500


       0
                      SKT                      KT                  LG U +

Note: Based on K-IFRS consolidated earnings
Source: TONGYANG Securities




                                                           TONGYANG Securities Inc.  35
2013 telecom outlook




                                                   PAY TV:
                   2012 REVIEW AND
                                2013 OUTLOOK

               IPTV to continue growing, digital conversion to accelerate

               ARPU growth and M&A to be keys for cable SOs
               Home shopping commissions to grow, but not all will benefit




36  TONGYANG Securities Inc.
                                                                                                                                       Sector Report




                                    2012 review

                                    Summary of pay TV operators


Table 7. Current status of IPTV and Skylife
                                                      KT Skylife                             KT            SK Broadband                          LG U+

 Brand                                            olleh TV Skylife                     olleh TV                          B tv                    U+ TV
 Subscribers (Sep 2012)                                3,617,045                    3,782,872                   1,306,693                       980,285

                                        Economy (3-yr lock-up):           Economy (3-yr lock):        Economy (3-yr lock):
 Monthly rate (IPTV alone)                                                                                                             HD Light: W9,000
                                                        W16,000                        W9,600                     W11,000

                                        Standard (3-yr lock-up):          Standard (3-yr lock):       Standard (3-yr lock):
                                                                                                                                 HD Economy: W11,000
                                                        W20,000                       W12,800                     W14,000

                                        Premium (3-yr lock-up):           Premium (3-yr lock):        Premium (3-yr lock):
                                                        W24,000                       W18,400                     W22,000

 Launch date                                                                     Nov 17, 2008                  Jan 1, 2009                  Jan 1, 2009

 Channels (minimum)                                           113                           108                          103                         86

 Perks                           * Korea’s first 3D broadcasting                                                                  * Real-time digital HD

                                  * Most HD channels in Korea                                                                     * VOD (50,000 titles)
                                    * Most VOD (90,000 titles)       * Most VOD (90,000 titles)

 (2011 consolidated earnings)

 Market cap (Wbn)                                            1,635                         9,909                     1,330                        3,200

 Sales (Wbn)                                                  464                       21,990                       2,312                        9,256

 Operating profit (Wbn)                                        41                          1,974                          65                        286

 EBITDA (Wbn)                                                  89                          4,933                         536                      1,475
Source: TONGYANG Securities, market cap is as of Nov 9, 2012




Table 8. Pay TV operators’ current status                                                                                                        (Wbn)

                          SO              Sales           Net profit       Commission              ‘000 subs              Digital Commission per
                                                                                             acquired/year     conversion (%)               sub (won)

               2010   2011      2010       2011       2010      2011      2010     2011       2010     2011      2010           2011     2010     2011

Tbroad           21       22    501.5     538.4      130.7      155.7    125.3    154.6      3,323     3,209        18           24    37,697    48,158

CJ Hello         17       19    453.4     503.1       70.0       97.7    108.0    141.3      2,818     3,272        32           35    38,330    43,186

C&M              16       18    418.7     474.1       41.8       30.3     80.2    109.3      2,215     2,491        42           51    36,215    43,885

CMB               9        9    101.5     114.2       12.1       25.0     25.4      34.0     1,288     1,317         3            4    19,726    25,800

HCN               8        8    166.3     183.5       37.4       49.2     40.0      48.2     1,345     1,328        29           34    29,732    37,035

MSO avg                         328.3     362.7       58.4       71.6     75.8      97.7     2,198     2,324                           34,480    42,035

Skylife                         426.7     464.4       34.0       31.3     19.1      30.1     2,642     3,044                            7,229     9,876

Source: TONGYANG Securities




                                                                                                                   TONGYANG Securities Inc.  37
2013 telecom outlook




 Chart 32-1. Market share: end-2011                            Chart 32-2. Market share: Aug 2012



                                          Tbroad                                                    Tbroad
        KT Group                                                         KT Group                    15%
                                           14%                                                                 CJ Hello
          25%                                       CJ Hello               23%
                                                     Vision                                                     Vision
                                                     15%                                                        16%

  LGU
  4%
                                                               LGU
                                                               4%


                                                   C&M             SKB                                       C&M
        SKB
                                                   11%             5%                                        12%
        5%     Other SOs        Hyundai    CMB                           Other SOs     Hyundai   CMB
                 14%             HCN       6%                              13%          HCN      6%
                                  6%                                                     6%

 Source: TONGYANG Securities                                   Source: TONGYANG Securities




38  TONGYANG Securities Inc.
                                                                                                                                              Sector Report




                                       IPTV strong, cable TV weak
                                       With analog broadcasting scheduled to stop at end-2012, the conversion from analog
                                       to digital has picked up the pace in 2012. The number of IPTV subscribers grew by
                                       1.15mn over 1Q~3Q12 and digital cable TV by 0.44mn over 1Q~2Q12. Analog cable
                                       TV subscribers shrank by 0.49mn over 1Q~3Q12.

                                       Comparing with 2011, it is clear that the conversion to digital TV has sped up in 2012.
                                       It seems both system operators (SO) and buyers (viewers) have become more active
                                       in adopting digital TV as the end of analog nears.

Table 9. Pay TV subscribers                                                                                                                       (subscribers)

                   1Q10       2Q10          3Q10         4Q10         1Q11         2Q11              3Q11            4Q11        1Q12         2Q12         3Q12

Skylife       2,487,192    2,614,393     2,672,179    2,825,962    3,010,328    3,067,413      3,156,517         3,261,662    3,338,859    3,456,093   3,617,045

 Satellite    2,338,239    2,291,022     2,255,025    2,182,785    2,162,019    2,096,472      2,066,753         2,057,860    2,034,012    2,031,506   2,022,590

 OTS            148,953      323,371      417,154      643,177      848,309      970,941       1,089,764         1,203,802    1,304,847    1,424,587   1,594,455

CATV         15,264,828   15,225,892   15,174,266    15,076,585   15,005,614   14,965,088     14,957,353        14,932,670   14,905,802   14,886,319         n/a

 Digital      2,856,703    3,097,431     3,265,215    3,425,505    3,608,638    3,818,626      4,013,337         4,225,594    4,439,073    4,669,126         n/a

 Analog      12,408,125   12,128,461   11,909,051    11,651,080   11,396,976   11,146,462     10,944,016        10,707,076   10,466,729   10,217,193         n/a

IPTV          2,576,521    2,909,521     3,205,042    3,645,866    3,983,348    4,280,790      4,574,874         4,919,685    5,275,218    5,694,880   6,069,850

 KT           1,311,858    1,569,385     1,789,670    2,085,153    2,393,392    2,621,677      2,841,974         3,076,254    3,315,975    3,570,654   3,782,872

 SKB            883,387      892,866      885,026      947,650      912,133      911,216         924,854          981,408     1,066,683    1,186,524   1,306,693

 LG             381,276      447,270      530,346      613,063      677,823      747,897         808,046          862,023      892,560      937,702     980,285

Source: TONGYANG Securities


                                       Despite end of analog, cable TV’s 2012 performance similar to 2011
                                       In terms of subscriber acquisition in 2012, IPTV and satellite TV did well, while cable
                                       TV did poorly. However, we note that cable TV’s performance was similar to 2011’s:
                                       cable TV subscribers fell by 40,000 over Jan~Aug 2012, but 2011 showed a similar
                                       pace of decline. The decrease in analog cable subscribers and increase in digital cable
                                       subscribers were also similar to 2011’s. It seems that the end of analog broadcasting
                                       has had a similar impact on cable TV operators in 2012 as in 2011.

Chart 33-1. IPTV & satellite TV net adds (2010~3Q12)                            Chart 33-2. Digital, analog cable net add (2010~1H12)
 ('0 0 0 )                                                                        ('0 0 0 )          D igital

  500        Satellite                                                            300                A nalog
             IPTV
  400                                                                             200

  300                                                                             100

  200                                                                                 0

  100                                                                            -1 0 0

       0                                                                         -2 0 0

 -10 0                                                                           -3 0 0

 -20 0                                                                           -4 0 0
           1Q 10     3Q 10       1Q 11       3Q 11       1Q 12      3Q 12                   1Q 1 0          3Q 1 0       1Q 11        3Q 11        1Q 12
Source: TONGYANG Securities                                                     Source: TONGYANG Securities




                                                                                                                               TONGYANG Securities Inc.  39
2013 telecom outlook




                                    KT Media Group did best, followed by SK BB, LG U+, CJ Hellovision


                                    By market share, the KT Media Group has had the best showing in 2012, followed by
                                    SK Broadband, LG U+, and CJ Hellovision. CJ Hellovision is the only cable TV operator
                                    that saw an increase in subscribers (mainly thanks to its IPO, in our view), which we
                                    see as further proof of the end of analog’s negative impact on cable TV.

                                    Chart 34. Comparison of subscriber net additions in 2012

                                      ('0 0 0 )

                                       70 0
                                       60 0
                                       50 0
                                       40 0
                                       30 0
                                       20 0
                                       10 0
                                          0
                                      -10 0
                                      -20 0
                                      -30 0
                                                   KT G roup        SKB              O ther           LGU       C J H ello      CMB       H yundai     T broad       C &M
                                                                                     SO s                        V is ion                   HC N

                                    Source: TONGYANG Securities



 Table 10. Digital cable TV subscribers                                                                                                                          (subscribers)

  MSO                    1Q10          2Q10              3Q10             4Q10                1Q11             2Q11             3Q11         4Q11           1Q12         2Q12

  Tbroad               500,003       534,028           559,346         589,876              618,252          663,486          716,458      757,626       809,362       866,452

  CJ Hellovision       820,077       903,320           956,771         995,139          1,047,509           1,098,882       1,143,376    1,197,947      1,268,588    1,318,920

  C&M                  792,818       865,908           906,703         952,523          1,220,926           1,300,310       1,344,662    1,394,777      1,427,805    1,483,394

  CMB                   37,611        43,809            42,296           43,105               44,712          45,704           48,143       51,098         56,266       65,039

  Hyundai HCN          314,778       342,038           363,874         386,298              400,264          420,021          433,756      448,916       469,104       497,722

  GS affiliates        172,581       184,294           194,729         205,152                        -                -            -              -             -            -

  OnMedia               29,640                 -                -                -                    -                -            -              -             -            -

  Other                189,195       224,034           241,496         253,412              276,975          290,223          326,942      375,230       407,948       437,599

  Total              2,856,703     3,097,431         3,265,215        3,425,505         3,608,638           3,818,626       4,013,337    4,225,594      4,439,073    4,669,126

 Source: TONGYANG Securities



 Table 11. Analog cable subscribers                                                                                                                              (subscribers)

  MSO                  1Q10          2Q10              3Q10             4Q10                  1Q11            2Q11             3Q11         4Q11           1Q12          2Q12

  Tbroad            2,896,230     2,818,998         2,737,383        2,643,772         2,555,300           2,579,907        2,509,595    2,427,576      2,338,247     2,270,919

  CJ Hellovision    1,711,035     2,181,712         2,146,405        2,101,636         2,421,382           2,372,515        2,326,463    2,249,035      2,205,313     2,157,262

  C&M               1,361,077     1,279,332         1,239,960        1,316,221         1,494,832           1,410,398        1,364,637    1,317,716      1,271,583     1,219,502

  CMB               1,258,861     1,259,584         1,263,390        1,247,300         1,243,539           1,258,901        1,268,794    1,293,391      1,289,118     1,281,523

  Hyundai HCN       1,033,235     1,001,476          979,820          951,939            931,307            911,314          893,365      869,765        842,636       806,880

  GS affiliates      283,773       278,474           255,091          243,533                     -                -                -            -               -            -

  OnMedia            534,929               -                -                -                    -                -                -            -               -            -

  Other             3,328,985     3,308,885         3,287,002        3,146,679         2,750,616           2,613,427        2,581,162    2,549,593      2,519,832     2,481,107

  Total            12,408,125    12,128,461        11,909,051       11,651,080        11,396,976          11,146,462       10,944,016   10,707,076     10,466,729    10,217,193

 Source: TONGYANG Securities




40  TONGYANG Securities Inc.
                                                                                                                                       Sector Report




Table 12. Analog and digital cable TV subscribers                                                                                         (subscribers)

MSO                  1Q10         2Q10         3Q10         4Q10          1Q11          2Q11           3Q11           4Q11            1Q12         2Q12

Tbroad            3,396,233    3,353,026    3,296,729    3,233,648     3,173,552     3,243,393      3,226,053      3,185,202       3,147,609    3,137,371

CJ Hellovision    2,531,112    3,085,032    3,103,176    3,096,775     3,468,891     3,471,397      3,469,839      3,446,982       3,473,901    3,476,182

C&M               2,153,895    2,145,240    2,146,663    2,268,744     2,715,758     2,710,708      2,709,299      2,712,493       2,699,388    2,702,896

CMB               1,296,472    1,303,393    1,305,686    1,290,405     1,288,251     1,304,605      1,316,937      1,344,489       1,345,384    1,346,562

Hyundai HCN       1,348,013    1,343,514    1,343,694    1,338,237     1,331,571     1,331,335      1,327,121      1,318,681       1,311,740    1,304,602

GS affiliates      456,354      462,768      449,820      448,685               -              -              -               -            -            -

OnMedia            564,569             -            -             -             -              -              -               -            -            -

Other             3,518,180    3,532,919    3,528,498    3,400,091     3,027,591     2,903,650      2,908,104      2,924,823       2,927,780    2,918,706

Total            15,264,828   15,225,892   15,174,266   15,076,585    15,005,614    14,965,088     14,957,353     14,932,670      14,905,802   14,886,319

Source: TONGYANG Securities



Table 13. Number of SOs
MSO                 1Q10      2Q10         3Q10          4Q10          1Q11           2Q11           3Q11           4Q11             1Q12         2Q12

Tbroad                 21        21            21           21             21            22             22              22              22            22

CJ Hellovision         14        18            18           17             19            19             19              19              19            19

C&M                    15        15            15           16             18            18             18              18              18            18

CMB                    10        10             9            9              9             9               9              9                9            9

Hyundai HCN              8        8             8            8              8             8               8              8                8            8

GS affiliates            2        2             2            2        Merged into C&M                     -               -               -            -

OnMedia                  4     Merged into CJ HV              -             -              -              -               -               -            -

Other                  22        22            22           21             19            18             18              18              18            18

Total                  96        96            95           94             94            94             94              94              94            94
Source: TONGYANG Securities




                                                                                                                     TONGYANG Securities Inc.  41
2013 telecom outlook




                                2013 outlook

                                IPTV and satellites to attract more subscribers
                                In 2012, IPTV managed to acquire over 1mn subscribers on attractive prices, bundles,
                                and content. We believe IPTV will keep growing in 2013 for the following reasons.

                                The end of analog broadcasting means that cable TV is no longer attractive in terms
                                of price. It is IPTV that is more price competitive than digital cable.

                                Table 14. Price comparison: OTS vs other IPTV vs Tbroad                                                  (won/month)

                                                  Company                 Product                           TV TV + Internet                        TPS

                                 OTS              KT                      Economy                        16,000            31,000              32,000

                                                                          Standard                       20,000            34,000              35,000

                                                                          Premium                        24,000            39,000              40,000

                                 IPTV             SK                      Light                          12,000            37,245              38,095

                                                  KT                      Standard                       12,800            34,000              35,000

                                                  LG U+                   Smart HD                       15,000            32,000              34,500

                                 CATV             CJ Hellovision          Hello TV HD Basic              15,000            28,650              29,000

                                                  Hyundai HCN             Seocho, HD Silver              17,600            31,160              30,680

                                                  Tbroad                  Choong-gu, HD Basic            18,000            31,100              33,100
                                Source: TONGYANG Securities, 3-yr lock-up, HD standard




                                It does not look like cable TV operators will cut prices to regain price competitiveness.

                                KT Skylife no longer needs to spend on capex as it has completed the conversion to
                                digital, but cable TV operators are still making the switch. Since they need cash for
                                capex, they cannot engage in a price war at this point.

                                Chart 35. Capex: cable TV vs satellite (for digital conversion and other)

                                 (Wbn)

                                 700              SO total
                                 600              Satellite                                                                                        611
                                                                                                    516

                                 500                                                     427
                                                                                                                     445

                                 400                                391
                                 300                                          325                                                  301
                                                  275
                                 200

                                 100        6.9                                        9.9       12.2         10.8          5.53            9.22
                                                              0.5          0.8
                                    0
                                          2004            20 0 5          20 0 6     2 00 7     2 0 08       2009          2010            2011



                                Source: Broadcasting Industry report




                                An increase in content fees is also a burden for cable TV SOs. In the past, they have
                                not had to pay for analog rebroadcasting of network TV content, but going forward,




42  TONGYANG Securities Inc.
                                                                                  Sector Report




they will have to pay about W280 per month per subscriber to the TV networks when
they begin digital rebroadcasting of network TV content. CJ Hellovision has formed a
strategic partnership with the TV networks and resolved this issue on favorable terms,
but other cable TV operators like Tbroad, Hyundai HCN, and CMB have yet to solve
this problem. If they pay W280/month/subscriber, they will have to incur an
additional cost of W47bn per year.

We believe cable TV SOs will refrain from a price war and instead seek M&As more
actively. If the current regulation stipulating that a single cable TV SO’s subscribers
cannot exceed one third of total cable TV subscribers is lifted, this should spark
consolidation in the cable TV industry. In other words, cable TV SOs will likely acquire
more subscribers through M&As, and then move to upgrade their service quality.

Going forward, cable TV’s growth will likely depend more on ARPU than subscriber
numbers. Analog cable subscribers continue to leave for other service operators, and
it is impossible for cable SOs to win them back. Thus, their strategy will likely be
ARPU growth, as the industry moves from analog to digital. This also supports our
view that they are unlikely to engage in a price war.

In terms of content, all SOs are pretty much equal. They offer the same network TV
HD channels and more or less the same number of channels. In VOD, IPTV is more
competitive than cable TV.

Chart 36. Number of HD channels

120                                                                        J an 2 0 1 0   J an 2 0 1 2
                    99
100

  80          72

                                                                                          57
  60                                                                            50
                                              46
                                       42
  40                                                           36
                                                        31

  20

   0
               Skylife            C J H ello V is ion   T - Broad                  C &M

Source: Skylife, TONGYANG Securities




                                                                    TONGYANG Securities Inc.  43
2013 telecom outlook




                                       Chart 37. Comparison of VOD libraries

                                        ('0 0 0 titles )
                                        140

                                        120

                                        100

                                          80

                                          60

                                          40

                                          20

                                            0
                                                            KT                    SKB                      LG                        CJ

                                       Source: TONGYANG Securities (2012)




                                       A recent survey of pay TV subscribers reveals that overall preference and satisfaction
                                       levels were higher for IPTV than for digital cable. The most popular VOD content is
                                       movies. This means IPTV, with its extensive library of VOD titles, has a competitive
                                       edge over digital cable.

 Chart 38. User preference for digital TV                                     Chart 39. User preference for digital TV, by age group

  6 0 .0 %                                                                     60%
                                                                                                     20s          30 s           40s
                               50.3%
  5 0 .0 %                                                                     50%

  4 0 .0 %                                                                     40%
                 30.2%
  3 0 .0 %                                                                     30%

  2 0 .0 %                                                                     20%
                                                                 14.1%

  1 0 .0 %                                        5.4%                         10%

    0 .0 %                                                                      0%
             D igital c able   IPTV             Satellite   N o intention               D igital c able    IPTV          Satellite     N o intention
                                                            to s ubs c ribe                                                            to s ubs c ribe

 Source: Digieco, TONGYANG Securities                                         Source: Digieco, TONGYANG Securities




44  TONGYANG Securities Inc.
                                                                                              Sector Report




Chart 40. User satisfaction level for digital TV

70%                                                             D igital c able        IPTV         Satellite
                                          61%
60%                                 57%
                              55%

50%

40%

30%                                             25% 26%
                                                          23%
20%
                                                                     12%
                 8% 7%                                                      9%
10%         6%                                                                    7%
                                                                                                2% 1% 3%
 0%
                 V ery         I n general        A verage                N ot very             N ot at all

Source: Digieco, TONGYANG Securities



Chart 41. Most viewed VOD content


 8 0 .0 %                                               D igital c able           IPTV            Satellite

 7 0 .0 %
 6 0 .0 %

 5 0 .0 %
 4 0 .0 %

 3 0 .0 %
 2 0 .0 %

 1 0 .0 %
  0 .0 %
             D rama      M ovie E ntertainment Sports      M us ic    E duc ation        Kids        O thers

Source: Digieco, TONGYANG Securities




From 2013, we expect the exodus from analog cable TV to accelerate. We expect
some SOs whose analog broadcasting license will expire to ramp up their marketing
efforts. We may also see more M&As. IPTV operators are also likely to increase
marketing (think SK Broadband’s aggressive marketing in the past). In 2013, LTE and
IPTV should become the two biggest growth drivers for the telcos. LG U+, which has
had a not-so-spectacular year in 2012, has launched Google TV at a very attractive
price. We expect to see some change in LG U+’s marketing strategy in 2013; it is
expected to give aggressive guidance (eg, more than 300,000 net adds for its IPTV
service). In pay TV, the IPTV portion should increase to 32% in 2013 (vs 28%
currently), while cable TV decreases from 64% to 60%.




                                                                             TONGYANG Securities Inc.  45
2013 telecom outlook




 Table 15. Subscriber outlook: Skylife vs cable vs IPTV                                                         (subscribers)

                                      2010                   2011                    2012E           2013E              2014E

  Skylife                        2,825,962              3,261,662               3,767,045        4,327,000          4,847,000
  Satellite                      2,182,785              2,057,860               2,002,590        1,922,590          1,842,590

  OTS                              643,177              1,203,802               1,764,455        2,404,410          3,004,410

  CATV                          15,076,585             14,932,670             14,786,319        14,586,319         14,356,319

  Digital                        3,425,505              4,225,594               5,069,126        6,069,126          7,219,126

  Analog                        11,651,080             10,707,076               9,717,193        8,517,193          7,137,193

  IPTV                           3,645,866              4,919,685               6,449,862        7,929,800          9,329,800

  KT                             2,085,153              3,076,254               3,993,000        4,873,000          5,753,000

  SKB                              947,650                 981,408              1,426,862        1,826,800          2,146,800

  LG                               613,063                 862,023              1,030,000        1,230,000          1,430,000
 Source: TONGYANG Securities




                                Cable TV: ARPU and M&A to be keys
                                More than 9mn analog cable TV subscribers remain, and we expect most of them to
                                move to digital. They will have to choose from digital cable, IPTV, and satellite TV,
                                and as they do, cable SOs are expected to lose further ground. In 2012, cable SOs
                                have been able to minimize subscriber losses as the market grew, but when the
                                market hits maturity, somebody (either cable or IPTV) will have to feel the pain.

                                In our view, cable SOs’ growth models can be summarized as follows.

                                First: ARPU growth. Digital cable ARPU is about 2.5~3x analog ARPU, meaning a drop
                                in subscribers can be offset by a rise in ARPU. The chart below is CJ Hellovision’s
                                ARPU trend and forecast. ARPU growth is a key growth strategy for MSOs (multiple
                                system operators).

                                Chart 42. CJ Hellovision’s ARPU trend and forecast

                                   (won)                                        A nalog         D igital         Blended
                                  1 6 ,0 0 0
                                  1 4 ,0 0 0

                                  1 2 ,0 0 0
                                  1 0 ,0 0 0
                                   8 ,0 0 0

                                   6 ,0 0 0

                                   4 ,0 0 0
                                   2 ,0 0 0
                                          0
                                                    2011                  20 1 2 E           2013E           2 01 4 E

                                Source: CJ Hellovision, TONGYANG Securities




46  TONGYANG Securities Inc.
                                                                                    Sector Report




Second: growth through M&As. Cable SOs normally have weak margins in
subscription fees, but strong margins in advertising and home shopping service.
Indeed, for cable SOs, the commissions they receive from home shopping are larger
than from their own operations.

Advertising and home shopping commissions depend largely on subscriber base.
Cable SOs with large subscriber bases naturally have stronger bargaining power over
home shopping firms, meaning higher commissions.

M&As are not very active at the moment due to cost and regulations, but the end of
analog and ongoing drop in analog subscribers should reduce M&A costs.

As for regulations, we think they will change in ways that will stimulate M&As among
cable SOs. The current broadcast law states: 1) a single cable SO’s subscribers
cannot exceed one third of total cable subscribers nationwide; and 2) a single IPTV
operator cannot have more than one third of pay TV subscribers in 77 regions.

The Korea Communications Commission is working to revise the law concerning IPTV
and cable TV. The gist of the revision will be to increase the number of subscribers
that an IPTV operator is allowed to have to one third of total pay TV subscribers
nationwide (not those in 77 specified regions); for cable TV, the threshold is to be
loosened to one third of total pay TV subscribers (not total cable TV subscribers).
However, discussions over IPTV deregulation are on hold for now due to worries about
KT’s “skimming the cream” in some of the most lucrative regions. But in the end, we
think market share restrictions will be relaxed over time, and single SOs (not MSOs)
will be merged into bigger SOs.

We think there will likely be two big MSOs after consolidations. The keys are: 1) how
many subscribers they will have; and 2) at what cost.

Table 16. Pay TV deregulations
               Current subscriber number restrictions       After expected revision

 IPTV          Less than 1/3 of pay TV subs in 77 regions   Less than 1/3 of pay TV subs nationwide

 Cable TV      Less than 1/3 of cable TV subs nationwide

Source: sources various, TONGYANG Securities




We believe the most likely case for C&M, whose largest shareholder is a PEF, is that it
will merge into a bigger MSO, such as Tbroad or CJ Hellovision. Under current
regulations, these scenarios are impossible, but deregulation should allow these two
companies to have about 7.65mn subscribers (about one third of current pay TV
subscribers (22.97mn)), meaning no regulatory problems. (We also think there will
be M&As for small SOs with a combined subscriber base of 2.9mn.) C&M’s sales as of
2011 were W474.1bn. If it is merged into Tbroad (W538.4bn in sales in 2011) or CJ
Hellovision (W503.1bn in sales in 2011), we could see the birth of a massive pay TV
operator with annual sales of W1tn.




                                                                      TONGYANG Securities Inc.  47
2013 telecom outlook




                                Table 17. Likely M&A scenarios: C&M with Tbroad or CJ Hellovision                                             (Wbn)

                                                                                        Current      Tbroad buys C&M              CJ HV buys C&M

                                 Tbroad                                                3,137,371               5,840,267                   3,137,371
                                 CJ Hellovision                                        3,476,182               3,476,182                   6,179,078

                                 C&M                                                   2,702,896                        -                            -

                                 CMB                                                   1,346,562               1,346,562                   1,346,562

                                 Hyundai HCN                                           1,304,602               1,304,602                   1,304,602

                                 Other (single SOs)                                    2,918,706               2,918,706                   2,918,706

                                 Total                                             14,886,319                 14,886,319                  14,886,319
                                Source: TONGYANG Securities




                                Home shopping commissions to grow, but not all will benefit
                                Home shopping commissions make up the largest slice of income for pay TV
                                operators. The most important determinants of home shopping commissions are
                                subscriber base and actual purchase amount per subscriber. The larger the subscriber
                                base, the higher the home shopping commission.

                                Chart 43. Net profit and home shopping commissions, by operators (2011)

                                                                                                             N et profit
                                                                                                             C ommis s ion from home s hopping
                                   180
                                   160
                                   140
                                   120
                                   100
                                    80
                                    60
                                    40
                                    20
                                     -
                                                  T broad          C J H ello             C &M        HC N             CMB         KT S kylife
                                                                    V is ion


                                Source: TONGYANG Securities




                                Home shopping commissions have grown significantly over the past several years. In
                                particular, commissions grew more than 20% y-y in 2011 and 2012 (2012’s growth is
                                largely thanks to the entry of new home shopping company, Home & Shopping).

                                Table 18. SO commissions by home shopping companies                                                           (Wbn)

                                                    GS Shop          CJ O Shop              Hyundai Home     Lotte Home      NS Home             Total

                                2008                        88.3                86.7                80.5             62.2          39.8          357.5
                                2009                        96.4                94.5                96.5             77.1          44.9          409.4

                                2010                    106.9              109.4                   115.4            102.7          51.3          485.7

                                2011                    144.2              148.6                   149.3            139.4          57.6          639.1
                                Source: TONGYANG Securities




48  TONGYANG Securities Inc.
                                                                                      Sector Report




Home shopping companies have no choice but to pay commissions to SOs, even if it
squeezes margins, in order to secure good channel numbers. Since its January launch,
new home shopping company Home & Shopping has achieved W622bn in sales as of
August, even though over 80% of its product portfolio is made by SMEs. The chart
below shows that sales differ wildly depending on channel number, stressing the
importance of securing low-number channels for home shopping firms.

Chart 44. Relation between channel number and home shopping sales

 (Wbn)

  0.9
                                           0.79
  0.8                                                                                   0.71
  0.7
  0.6
  0.5
  0.4           0.31
                                                               0.28
  0.3
  0.2
  0.1
     0
             Channel 15                Channel 10          Channel 14                Channel 8

Source: TONGYANG Securities




We expect home shopping commissions to continue to increase in 2013. Although the
home shopping market continues to grow, there is only a limited number of channels
that home shopping companies want to be on. This means tougher competition and
higher commissions.

That said, the pace of growth in home shopping commission will likely be slower than
in 2012. We estimate 2012’s growth at about 36% y-y, but expect 18% y-y for 2013.
One reason is that competition overheated in 2012 due to the entry of Home &
Shopping. With no new player expected to enter in 2013, commission hikes should
slow somewhat. Also, home shopping firms will likely try to protect margins.

Chart 45. Home shopping commission outlook
  (Wbn)

  1 ,2 0 0                                                                                     4 5 .0 %
                       C ommis s ion (L H S)                                                   4 0 .0 %
  1 ,0 0 0             C hg (% y-y)                                                            3 5 .0 %
    80 0                                                                                       3 0 .0 %
                                                                                               2 5 .0 %
    60 0
                                                                                               2 0 .0 %
    40 0                                                                                       1 5 .0 %
                                                                                               1 0 .0 %
    20 0
                                                                                               5 .0 %
         0                                                                                     0 .0 %
             2 00 8          2009              2010   2 0 11          2 0 12 E     2013E

Source: TONGYANG Securities




                                                                          TONGYANG Securities Inc.  49
2013 telecom outlook




                                Table 19. Earnings outlook of major home shopping companies                             (Wbn)

                                                                             2010            2011       2012E           2013E

                                CJ O Shop         Sales                       711             895        1,074          1,218

                                                  Operating profit            122             132         133             145

                                                  SO commission               103             149         180             207

                                                  Net profit                   76              88         125             100

                                GS Home Shop      Sales                       792             906        1,028          1,129

                                                  Operating profit            117             106         111             128

                                                  SO commission               108             144         179             206

                                                  Net profit                   97             192         100             113

                                Hyundai Home      Sales                       581             711         769             846

                                                  Operating profit            132             152         152             165

                                                  SO commission               116             149             -             -

                                                  Net profit                  113             143         158             169
                                Source: TONGYANG Securities




                                The level of increase in home shopping commissions will likely differ by SO, as the
                                SOs differ in subscriber growth. In 2011, CJ Hellovision, C&M, and KT Skylife enjoyed
                                big increases in home shopping commissions vs 2010. KT Skylife in particular is
                                known to have received W63.3bn in home shopping commissions in 2011.

                                Table 20. Home shopping commissions sales portion (%)                                   (Wbn)

                                                           Home shopping commission                 Sales portion (%)

                                                                     2010           2011              2010              2011

                                 Tbroad                              125.3          154.6              31.5              29.8

                                 CJ Hellovision                      108.0          141.3              27.1              27.3

                                 C&M                                  80.2          109.3              20.2              21.1

                                 HCN                                  40.0            49.2             10.1               9.5

                                 CMB                                  25.4            34.0              6.4               6.6

                                 KT Skylife                           19.1            30.1              4.8               5.8
                                Source: TONGYANG Securities




                                In 2013, we expect KT Skylife to again enjoy the biggest growth in commissions, as:
                                1) its commission per subscriber is significantly higher than those of cable SOs; and
                                2) OTS (“olleh TV Skylife”) subscribers are growing rapidly. Unlike Skylife satellite
                                subscribers, OTS subscribers are heavily concentrated in metropolitan areas
                                (especially apartment complexes), as it was mostly sold bundled with KT’s broadband
                                service. With growth in OTS subscribers, we believe KT Skylife’s purchase amount per
                                subscriber from home shopping will also grow rapidly.




50  TONGYANG Securities Inc.
                                                                                                  Sector Report




Chart 46. Home shopping commission per subscriber

 (won)

 6 0 ,0 0 0

 5 0 ,0 0 0

 4 0 ,0 0 0

 3 0 ,0 0 0

 2 0 ,0 0 0

 1 0 ,0 0 0

         0
                        C ompany "A "                     C ompany " B"                    KT Skylife



Note: Companies “A” and “B” are cable SOs; based on 2012 contracts
Source: TONGYANG Securities.



Chart 47. Percentage of OTS subscribers for KT Skylife

   50%

   40%

   30%

   20%

   10%

    0%
              1Q10      2Q10     3Q10     4Q10     1Q11    2Q11    3Q11    4Q11     1Q12     2Q12       3Q12

Source: TONGYANG Securities




In 2013, the companies attracting the most subscribers will likely enjoy bigger home
shopping commissions. We believe KT Skylife, KT, and SK Broadband will fit this
description. Among cable SOs, CJ Hellovision and C&M should do well, as their digital
cable subscribers are growing faster than others’.

Chart 48. Home shopping commission outlook, by company
 (Wbn)                                                                                      2010
  25 0                                                                                      2011
  20 0                                                                                      2 0 1 2E
                                                                                            2 0 1 3E
  15 0
  10 0
                        (

    50
     0
              T broad       C J H ello      C &M            HC N          CMB       KT S kylife        O ther
                               V is ion
Source: TONGYANG Securities

In the long term, some companies, be they IPTV or satellite operators, may suffer
negative growth in home shopping commissions, depending on how many subscribers
they acquire. This is precisely why it is important for cable SOs to seek M&As.




                                                                                  TONGYANG Securities Inc.  51
2013 telecom outlook




                                      INVESTMENT
                                                  OPINION

                  10x P/E justified given strong appetite for defensive plays
                   and favorable 2013 earnings outlook (10~15% upside)

                  10x P/E reflects 80% of our 2013 earnings expectations;
                   1H13 results to determine share price directions

                  LTE monetization: LG U+ > SKT > KT > SK Broadband

                  Growth of new media: KT Skylife > 3 major telcos > CJ HV

                  Risks: regulation, fiercer-than-expected competition in 1H13




52  TONGYANG Securities Inc.
                                                                                                                                                                                                                                                                                             Sector Report




Macro conditions


In 2012, defensive plays in Korea and the US outperformed economically sensitive
stocks amid worries over economic uncertainties and sovereign debt problems. Some
asserted that growth would be driven not by capex but by consumption, and that the
supercycle of traditional stock market drivers—infrastructure-related sectors such as
steel, chemical, and construction—is over. Indeed, while this discussion was taking
place, consumer discretionary shares yielded the highest returns, and typical
defensive plays like telecom and utilities outperformed macro-sensitive plays.

Chart 50. Price performance by sector in Korea (Jan 2012~present)
 40%

 30%

 20%

 10%

  0%

-10%

-20%

-30%
                                                                                 Chemical




                                                                                                                                                                                                                    Telco




                                                                                                                                                                                                                                                                                                                Pharma
                                                                                                                                                                                                                                                                Paper




                                                                                                                                                                                                                                                                                                                             Precision
                                                                                                                                                                                                                                                                                                      Tech
                                                                                                                                                                                               Non-life




                                                                                                                                                                                                                                                     Service
        Construx

                    Machinery




                                                                                                        Bank




                                                                                                                                                                                                                                                                                            Utility
                                              TransEquip




                                                                                                                                            Securities

                                                                                                                                                                          Non-ferrous
                                                                                                                             Retail




                                                                                                                                                                                                                                   TransStorg
                                  Steel




                                                                Apparel




                                                                                                                                                                                                                                                                                F&B
Source: TONGYANG Securities



Chart 51. Price performance by sector in US (Jan 2012~present)
 30%
 25%
 20%
 15%
 10%
  5%
  0%
 -5%
-10%
-15%
-20%
                                                                                                               Non-ferrous




                                                                                                                                                                                                      Advertising

                                                                                                                                                                                                                        Chemical
                                                                                                                                      F&B




                                                                                                                                                                                                                                                                                                               Financial
                                                                                                                                                                                        Auto




                                                                                                                                                                                                                                                        Telco
                   Liquor




                                                           Transport




                                                                                                                                                                                                                                          Internet
                                                                          Furniture




                                                                                                                                                         Home appliance




                                                                                                                                                                                                                                                                  Health care
                                                                                            Hvy machinery




                                                                                                                                                                                                                                                                                                                           Construx
                                Utility

                                          Auto parts




                                                                                                                                                                                                                                                                                Tech comp
        Steel




                                                                                                                                                                                                                                                                                            Apparel

                                                                                                                                                                                                                                                                                                      Retail




Source: TONGYANG Securities




                                                                                                                                                                                                                                                         TONGYANG Securities Inc.  53
2013 telecom outlook




 Chart 52-1. Price performance: SKT (Jan 2012~present)    Chart 52-2. Price performance: KT (Jan 2012~present)


  20%           Absolute return                            15%            Absolute return
                Relative return                                           Relative return
  15%                                                      10%

  10%                                                       5%
                                                            0%
   5%
                                                           -5%
   0%
                                                          -10%
  -5%
                                                          -15%
 -10%                                                     -20%
 -15%                                                     -25%
 -20%                                                     -30%
    Jan 2012        Apr 2012        Jul 2012   Oct 2012      Jan 2012        Apr 2012        Jul 2012   Oct 2012

 Source: TONGYANG Securities                              Source: TONGYANG Securities




 Chart 53-1. Price perf: LG U+ (Jan 2012~present)         Chart 53-2. Price perf: SK Broadband (Jan 2012~pres)


  15%             Absolute return                          40%             Absolute return
  10%             Relative return                                          Relative return
                                                           30%
   5%
   0%                                                      20%
  -5%                                                      10%
 -10%
 -15%                                                       0%

 -20%                                                     -10%
 -25%
                                                          -20%
 -30%
 -35%                                                     -30%
    Jan 2012        Apr 2012        Jul 2012   Oct 2012      Jan 2012        Apr 2012        Jul 2012   Oct 2012

 Source: TONGYANG Securities                              Source: TONGYANG Securities




 Chart 54-1. Price perf: KT Skylife (Jan 2012~present)    Chart 54-2. Price perf: Hyundai HCN (Jan 2012~pres)


  30%            Absolute return                          120%             Absolute return
                 Relative return                                           Relative return
  20%                                                     100%
  10%
                                                           80%
   0%
                                                           60%
 -10%
                                                           40%
 -20%
                                                           20%
 -30%

 -40%                                                       0%

 -50%                                                     -20%
    Jan 2012        Apr 2012        Jul 2012   Oct 2012      Jan 2012        Apr 2012        Jul 2012   Oct 2012

 Source: TONGYANG Securities                              Source: TONGYANG Securities




54  TONGYANG Securities Inc.
                                                                                                        Sector Report




Chart 55-1. Price perf: AT&T (Jan 2012~present)          Chart 55-2. Price perf: Verizon (Jan 2012~present)


 30%             Absolute return                          25%             Absolute return
                 Relative return                                          Relative return
 25%                                                      20%

 20%                                                      15%

 15%                                                      10%

 10%                                                       5%

  5%                                                       0%

  0%                                                      -5%

 -5%                                                     -10%

-10%                                                     -15%
   Jan 2012        Apr 2012        Jul 2012   Oct 2012      Jan 2012        Apr 2012        Jul 2012        Oct 2012

Source: TONGYANG Securities                              Source: TONGYANG Securities




Chart 56-1. Price perf: Sprint (Jan 2012~present)        Chart 56-2. Price perf: Comcast (Jan 2012~present)


160%            Absolute return                          60%            Absolute return

                Relative return                                         Relative return
140%
                                                         50%
120%
100%                                                     40%
 80%
                                                         30%
 60%
 40%                                                     20%
 20%
                                                         10%
  0%
-20%                                                      0%
   Jan 2012        Apr 2012        Jul 2012   Oct 2012     Jan 2012        Apr 2012         Jul 2012       Oct 2012

Source: TONGYANG Securities                              Source: TONGYANG Securities




                                                                                            TONGYANG Securities Inc.  55
2013 telecom outlook




                                      Conditions different from US, but ...
                                      The strong performance of US telcos was driven by an increasing appetite for
                                      defensive plays coupled with positive sentiment about their stable earnings trends.
                                      US and Korean telcos have experienced differences in ARPU movements, competitive
                                      environment, regulations, and earnings. For US mobile carriers, a grand migration
                                      from feature phones to smartphones meant higher ARPU and stabilizing sales and
                                      operating profit. For Korean carriers, smartphones led to toughened regulations and
                                      fiercer competition, which led to lower ARPU. Competition heated up and marketing
                                      costs spiked. As a result, the combined operating profit of Korean telcos fell more
                                      than 20% y-y in 2012.

                                      Competition is milder in the US because the top-two telcos’ (AT&T, Verizon) strategy
                                      is to maintain subscribers, not acquire more. In the US, 70% of subscribers buying a
                                      new handset do not change their carrier. Thus, the top carriers are able to focus on
                                      maintaining subscribers; their SAC is kept steady at around US$200 and their
                                      generous offering of free calls among subscribers (on-net calls) helped reduce churn
                                      ratio. Free on-net calls especially made it almost impossible for second tiers (Sprint,
                                      T-mobile) to take subscribers away from the top two. Also, given the vast size of the
                                      country, there is a gap in network quality between the top tiers and the second tiers.
                                      Most post-paid customers who typically offer higher ARPU are subscribers to AT&T
                                      and Verizon. Thanks to high ARPU and mild competition, AT&T and Verizon’s EBITDA
                                      margins were strong at 33.5% and 33.2%, respectively, in 3Q12.

 Table 22. US mobile carriers: subscribers and market share                                                             (‘000, %)

 (‘000)         1Q10       2Q10           3Q10      4Q10     1Q11      2Q11      3Q11      4Q11      1Q12      2Q12        3Q12
 AT&T          86,987     90,130         92,761    95,536    97,519    98,615   100,738   103,247   103,940   105,206    105,871
 Verizon       98,019     99,736        101,095   102,246   104,022   106,292   107,695   108,667    92,988    94,154     95,899
 Sprint        48,058     48,169         48,813    49,910    51,031    52,123    53,399    55,021    56,103    56,386     55,963
 Total        312,607    318,657        325,046   332,637   340,157   346,335   353,509   359,460   346,585   348,678          -
 M/S (%)
 AT&T              28           28           29       29        29        28        28        29        30        30           -
 Verizon           31           31           31       31        31        31        30        30        27        27           -
 Sprint            15           15           15       15        15        15        15        15        16        16           -
 Source: TONGYANG Securities


 Table 23. US smartphone subscribers                                                                                       (‘000)
 (‘000)         1Q10       2Q10           3Q10      4Q10     1Q11      2Q11      3Q11      4Q11      1Q12      2Q12        3Q12
 AT&T          22,592     23,975         26,466    29,054    31,445    34,108    36,091    39,368    41,156    43,123     44,499
 Verizon       15,050     17,375         20,071    23,358    27,058    30,619    33,781    38,011    41,167    44,152     48,068
 Sprint           n/a     19,749         21,966       n/a    27,557    30,231    33,107    36,314    38,711    40,598        n/a
 Source: TONGYANG Securities


 Table 24. Post-paid ARPU                                                                                                  (US$)

 (US$)          1Q10       2Q10           3Q10      4Q10     1Q11      2Q11      3Q11      4Q11      1Q12      2Q12        3Q12
 AT&T            61.9          62.6        62.8      62.9      63.4      63.9      63.7      63.8      64.5      64.9       65.2
 Verizon         52.4          53.1        53.6      53.5      53.5      54.1      54.9      54.8      55.4      56.1          -
 Sprint          55.0          55.0        55.0      55.0      56.0      57.0      58.0      58.6      59.9      60.9       61.2
 Source: TONGYANG Securities




56  TONGYANG Securities Inc.
                                                                                                                 Sector Report




Table 25. Churn ratio                                                                                                           (%)

(%)            1Q10       2Q10             3Q10     4Q10          1Q11        2Q11   3Q11    4Q11    1Q12       2Q12           3Q12
AT&T              1.1         1.0           1.1          1.2       1.2         1.2    1.2     1.2        1.1      1.0           1.1
Verizon           1.1         0.9           1.1          1.0       1.0         0.9    0.9     0.9        1.0      0.8           0.9
Sprint            2.2         1.9           1.9          1.9       1.8         1.8    1.9     2.0        2.0      1.8           2.1
Source: TONGYANG Securities




                                    Chart 57. 2012 EBITDA margin comparison: US vs Korean telco majors



                                    40%            SKT
                                    35%            KT
                                    30%            LG U+

                                    25%            ATT

                                    20%            VZ

                                    15%
                                    10%
                                     5%
                                     0%
                                                         1Q 12                       2Q 12                     3Q 12

                                    Source: TONGYANG Securities



                                    Despite Korean telcos’ weak 2012 earnings, share prices have been relatively stable.
                                    As a result, their valuations do not look cheap.

                                    However, if their operating profit rises more than 20% y-y in 2013, as we expect, and
                                    consensus moves in line with our estimate, Korean telco shares could rise another
                                    10~15% from the current level. The market already believes the sector deserves a
                                    P/E of at least 10x. When visibility on 2013 earnings improves around Mar~Apr 2013,
                                    investor (foreign or domestic institutions) appetite for telcos should revive.

                                    Chart 58. Absolute returns in 2012: Korean vs US telcos

                                    12%
                                                  10%

                                    10%

                                      8%                                 7%                         7%
                                                                                      7%

                                      6%

                                      4%
                                                                                                                        3%

                                      2%

                                      0%
                                                  AT&T              Verizon           SKT           KT                 LG U+

                                    Source: TONGYANG Securities




                                                                                                    TONGYANG Securities Inc.  57
2013 telecom outlook




                                Chart 59. Relative returns in 2012: Korean vs US telcos

                                  8%
                                                  7%
                                  7%
                                  6%
                                  5%
                                                                4%
                                  4%
                                                                                                  3%
                                  3%                                               2%

                                  2%
                                  1%
                                  0%
                                 -1%
                                 -2%
                                                                                                                -2%
                                 -3%
                                                AT&T          Verizon              SKT            KT        LG U+

                                Source: TONGYANG Securities




                                Table 26. Valuation comparison of global telco majors                                   (x)
                                                                  P/E                       P/B          EV/EBITDA
                                                              2012          2013         2012     2013   2012         2013
                                 SK Telecom                    10.9          9.3          0.8      0.8    4.6          4.1
                                 KT                             8.3          8.3          0.7      0.7    4.0          3.9
                                 LG U+                          N/A         10.0          0.8      0.8    5.7          5.1
                                 SK Broadband                  81.7         16.5          1.2      1.1    4.9          4.3
                                 NTT Docomo                     9.0          8.8          2.9      2.9    0.9          0.9
                                 KDDI                           9.3          7.8          3.9      3.7    1.1          1.0
                                 NTT                            8.1          7.7          3.2      3.2    0.6          0.5
                                 China Unicom                  32.6         19.9          4.5      3.8    1.1          1.0
                                 China Mobile                  11.1         11.0          4.1      4.0    1.9          1.8
                                 China Telecom                 18.4         14.2          3.8      3.0    1.0          1.0
                                 AT&T                          14.0         13.1          6.0      5.8    1.9          1.9
                                 Verizon                       17.4         14.9          5.7      5.3    3.0          2.8
                                 Chunghwa Telecom              17.6         17.1          8.4      8.1    2.0          1.9
                                 Taiwan Mobile                 18.1         16.1          N/A      N/A    5.8          5.5
                                 Vodafone                      10.6         10.2          8.0      8.0    1.0          1.0
                                 France Tel.                    8.2          8.3          4.5      4.6    1.2          1.2
                                 Deutsche Tel.                 13.2         13.0          4.5      4.6    1.1          1.1
                                 Telefonica                     9.1          8.8          5.7      5.5    3.0          3.0
                                 Telecom Italia                 5.5          5.4          4.2      4.2    0.5          0.5
                                 Singtel                       13.3         12.5          9.9      9.5    2.0          1.9
                                 Telstra                       14.0         13.7          6.0      5.9    4.4          4.3
                                 Average                       16.5         11.7          4.4      4.3    2.5          2.3
                                Source: TONGYANG Securities (Nov 9, 2011)




58  TONGYANG Securities Inc.
                                                                          Sector Report




Table 27. Operating profit growth by sector, 2012~2013, Korea
                              OP growth % y-y              NP growth % y-y
Sector                        2012E             2013E       2012E                2013E

Chemical                       -41.3             22.4           -38.5              23.2
Steel                          -31.3              4.5           -16.2              -8.3

Shipbuilding                   -38.5              2.5           -25.5              -3.1

Construction                     3.8             20.9            9.7               23.3

Auto                             8.3              2.2           11.0               -0.2

Consumer durable                 9.1             19.0           19.0               15.0

Media/Entertainment             16.9             30.4           19.5               33.9

Retail                           0.4              7.8           -60.7               8.5

F&B                             35.8             18.1           69.6               24.7

Pharmas/Bio                    -19.3             29.2           -17.8              35.5

Semiconductor                   75.7             30.7           73.5               30.5

Internet                         8.9             40.8           16.7               43.0

Wireless telecom               -22.0             23.6           -28.2              21.6

Gas                              4.6              6.9           -14.0              48.4

Source: TONGYANG Securities



Table 28. Valuation comparison by sector, 2012~2013
                                       P/E                          P/B
Sector
                               2012E            2013E        2012E               2013E

Chemical                         13.8             11.2            1.3               1.2

Steel                            11.0             12.0            0.7               0.7

Shipbuilding                     10.1             10.4            0.9               0.8

Construction                     10.7              8.7            1.0               0.9

Auto                              5.7              5.7            1.1               0.9
Consumer durable                 16.2             14.1            2.0               1.8

Media/entertainment              24.9             18.6            3.2               2.7

Retail                           11.1             10.2            0.8               0.7

F&B                              36.7             29.4            5.2               4.4

Pharm/bio                        26.6             19.6            1.8               1.7

Semiconductor                     9.3              7.1            1.6               1.3

Internet                         24.3             17.0            5.2               4.0

Wireless telecom                 11.1              9.2            0.8               0.8

Gas                              42.6             28.7            0.8               0.8

Source: TONGYANG Securities




                                                          TONGYANG Securities Inc.  59
2013 telecom outlook




                                 Chart 60. MSCI US telcos’ 12-month-forward P/E

                                     21           USA
                                                  Telcos
                                     19

                                     17

                                     15

                                     13

                                     11

                                      9

                                      7

                                      5
                                     Dec 2004    Aug 2005     Apr 2006   Dec 2006   Aug 2007    Apr 2008   Nov 2008    Jul 2009

                                 Source: TONGYANG Securities, Data Stream



  Table 29. 12-month-forward P/E by sector, US
                                                           Consumer    Consumer     Health
               US      Energy    Materials   Industrials                                     Financials     IT    Telecom    Utility
                                                                disc      staple      care
  1Q05        16.5        13.9       15.1          18.4        19.5         18.0      17.2        12.4     22.4       17.6        14.2
  2Q05        15.8        14.2       14.9          17.5        19.0         17.6      17.2        11.8     19.7       15.8        14.7
  3Q05        15.6        13.1       13.4          16.5        19.0         17.6      18.0        11.7     19.9       16.0        15.2
  4Q05        15.2        11.8       13.6          15.7        17.8         17.3      17.6        11.6     19.9       15.4        15.8
  1Q06        15.3        10.9       14.5          16.3        17.9         17.6      17.4        12.4     20.2       15.4        14.7
  2Q06        15.3        11.0       14.9          16.6        17.7         17.4      17.7        12.3     20.3       15.7        14.0
  3Q06        14.2        10.4       12.3          15.5        17.0         16.9      16.0        11.6     17.6       14.2        14.0
  4Q06        14.7        10.0       12.3          15.3        17.7         17.6      17.3        12.3     18.8       15.4        14.6
  1Q07        15.4        11.1       13.7          15.9        19.8         17.6      16.9        13.0     19.2       16.2        15.5
  2Q07        15.2        11.9       14.9          15.4        19.6         17.3      16.4        12.1     18.7       16.9        16.4
  3Q07        15.4        12.4       15.7          16.2        19.7         17.3      16.4        12.0     19.8       17.0        15.8
  4Q07        15.2        12.9       15.5          16.3        18.2         17.4      15.9        11.3     19.7       17.1        16.1
  1Q08        15.0        12.5       15.6          15.8        16.7         17.8      15.8        11.2     19.0       15.8        16.9
  2Q08        13.7        10.9       14.5          14.4        16.1         16.4      13.7        11.5     15.8       13.6        14.6
  3Q08        13.4        10.7       13.9          13.5        15.9         15.5      13.1        11.8     16.2       13.4        15.4
  4Q08        12.1         8.2       10.6          11.6        15.5         14.9      12.9        13.1     13.7       11.1        12.2
  1Q09        11.5         9.7       12.2          11.0        15.9         12.9      11.1        10.4     12.1       11.5        11.1
  2Q09        12.6        12.9       17.5          10.7        21.0         12.4      10.6        11.5     14.3       14.1        10.3
  3Q09        13.5        13.0       19.3          13.1        15.9         12.8      10.9        14.0     15.5       13.6        11.1
  4Q09        14.5        13.1       18.8          15.9        16.7         13.6      11.8        15.6     16.3       14.7        11.8
  1Q10        14.6        13.0       17.4          16.2        16.5         14.0      12.2        14.2     16.4       16.2        12.7
  2Q10        14.0        11.9       15.3          16.2        16.0         14.2      12.0        14.2     14.5       15.6        12.0
  3Q10        11.5         9.6       11.8          12.8        13.3         12.7      10.5        10.7     11.7       14.4        11.4
  4Q10        12.5        11.0       13.7          14.1        14.5         13.9      11.2        11.0     12.7       16.8        12.5
  1Q11        13.3        13.0       14.4          14.8        15.1         14.1      11.4        12.0     13.4       16.7        12.7
  2Q11        13.3        13.0       13.5          15.1        15.0         14.1      11.9        12.1     12.8       17.6        13.1
  3Q11        12.4        10.7       11.9          13.5        14.4         14.2      12.1        11.0     11.9       16.7        13.6
  4Q11        10.7         8.5         9.3         10.7        12.7         13.4      10.7          8.6    11.1       15.6        13.6
  1Q12        11.8        10.1       10.9          12.1        13.6         14.5      11.4          9.7    11.5       17.7        14.8
  2Q12        13.0        10.6       12.6          13.1        15.4         15.1      12.3        12.1     13.0       18.4        14.4
  3Q12        12.1         9.8       11.4          11.9        14.1         15.1      12.2        10.7     11.3       19.5        15.2
  4Q12        13.0        11.5       12.4          12.5        15.1         15.7      12.9        11.3     12.3       20.1        14.9
  Source: TONGYANG Securities, Datastream




60  TONGYANG Securities Inc.
                                                                        Sector Report




Investment opinion

The keywords for 2013 are “LTE monetization” and “growth in new media.” Korean
carriers have already shifted their attention to LTE and IPTV since 2012 to ensure
growth. We believe their efforts in the LTE space will bear fruit in 2013 as their
portions of LTE subscribers break above 30%. Growth in new media, mainly IPTV, is
also expected to accelerate in 2013.

Korea’s three telco majors will likely see robust growth in 2013 compared to in 2011
or 2012. Thanks to higher LTE portions, we forecast 2013 ARPU growth for SKT at
6.6% y-y, KT at 11.2% y-y, and LG U+ at 12.5% y-y.

By end-2013, we estimate that feature phone (2G and 3G) users will amount to
8.6mn (15.9% of total), 3G smartphone users 16.44mn (30.4%), and 4G
smartphone users 29mn (53.7%). We think 2G feature phones users will continue to
make up some portion of the market given their strong loyalty to their phone
numbers; similarly, 3G smartphone users should sustain some market share given
their loyalty to flat data plans. As such, we believe LTE subscribers will continue to
surge until 2013, and then from 2014 onwards, slow significantly.

In the long term, the LTE portion of subscriber base should be the highest at LG U+,
followed by KT and SKT. For SKT, its loyal 2G and 3G subscriber base should remain
firm long term; KT is also likely to maintain some portion of 3G users subscribing to
flat data plans. On the other hand, at LG U+, 2G subscribers are scarce and 3G
subscribers are much lower than rivals’, and thus, LTE subscribers represent the
largest share.

As for ARPU growth, we expect LG U+ to enjoy the strongest growth, followed by SKT
and KT. With the highest LTE portion of the big three (71.4% by end-2013), LG U+
should be able to sustain strong ARPU growth in 2013 as well. We believe SKT will
have stronger ARPU growth than KT as its LTE subscriber portion should be higher
than KT’s (we estimate SKT will have 7mn at end-2012 and 13.5mn at end-2013). KT
will likely acquire more LTE subscribers in 2013 than in 2012, but its ARPU growth
should be slower than rivals’, as the ARPU of its LTE subscribers acquired in 2013 will
likely be lower than its rivals’.

We are very bullish on the telecom sector in 2013, as sales should grow more than
6% y-y, driven by higher ARPUs. Even assuming marketing costs rise 5% y-y, Korean
telcos’ operating profit should grow more than 20% y-y. Competition could remain
heated until 1H13, but from 2H13, it should cool as two-year LTE contracts at LG U+
start to expire. Thanks to earnings growth, we expect the sector’s P/E to fall from
11.5x in 2012 to 9.3x in 2013. Also, if 2013 marketing costs stay flat y-y, combined
operating profit should rise even higher (about 5%) than our current forecast.




                                                            TONGYANG Securities Inc.  61
 2013 telecom outlook




                                     We see about 10~15% upside in the sector’s market cap in 2013. Our target P/E is
                                     about 10x, which, given increasing investor appetite for defensive plays, looks
                                     justified. Our P/E of 10x reflects about 80% of our earnings expectations for 2013,
                                     and 1H13 results should be a key determinant of share price directions. Unlike other
                                     years, we do not think shares will fall sharply in the beginning of 2013; investors will
                                     likely remain passive until they see 1Q13 results.

                                     In terms of LTE monetization (eg, how well a telco capitalizes on LTE), we like LG U+
                                     most, followed by SKT, KT, and SK Broadband. In 2013, the focus will likely be on
                                     earnings improvement, and LG U+ should receive the most attention in this regard.

                                     In 2013, we expect to see LTE-driven ARPU growth, which should boost telcos’
                                     earnings. As of end-3Q12, the LTE portion of total subscribers was 35% at LG U+,
                                     SKT 21%, and KT 15%. By end-2013, we expect these figures to grow to LG U+
                                     71.4%, SKT 50.1%, and KT 48.2%. Meanwhile, we expect the ARPU of LTE
                                     subscribers acquired in 2013 to be lower than those acquired in 2012, meaning
                                     slower ARPU growth for KT, which entered relatively late into the LTE space.

Chart 61-1. ARPU outlook (won)                                    Chart 61-2. LTE market share forecast (end–2013)


  38,000                 SKT         KT       LGU+

  36,000
  34,000
                                                                                         LGU+          SKT
  32,000                                                                                 26%           46%
  30,000                                                                                     KT
  28,000                                                                                    28%

  26,000
  24,000
  22,000
  20,000
            3Q11    4Q11      1Q12   2Q12   3Q12   4Q12E 4Q13E

Source: TONGYANG Securities                                       Source: TONGYANG Securities




                                     In new media, we like KT Skylife best, followed by the three telco majors (KT, LGU+,
                                     SKB) and Hellovision. As the transition from analog to digital continues, the number
                                     of IPTV subscribers should continue to grow in 2013. We estimate IPTV’s market
                                     share in pay TV at 32% in 2013. Pay TV operators get most of their earnings from
                                     home shopping commissions (aka SO commissions), which move in line with
                                     subscriber base. Thus, companies with the strongest subscriber outlook should enjoy
                                     the best earnings growth. In this regard, we prefer satellite and IPTV to cable TV SOs.




  62  TONGYANG Securities Inc.
                                                                          Sector Report




Investment opinion, by company

Despite canceling 15% of its shares, LG U+ is trading lower than in early 2012. As
seen in the chart below, LG U+ has suffered the biggest loss in market cap among
peers in 2012. We attribute this to weak sentiment stemming from its number-three
position and its unfavorable dividend policy (no dividend for 2012). However, given
continued earnings growth, investor attention should shift to LG U+’s earnings and
growth after dividend season is over. We think investors will focus more on the
outlook for earnings growth than on dividends, and that LG U+ will report stronger
growth in ARPU, sales, and operating profit than rivals.

In particular, we expect LG U+ to see strong earnings from 1Q13 on the end of
depreciation (W216bn), and its P/E to fall below 10x and ROE to rise to 8%. We
maintain our target price for LG U+ of W11,500.

Chart 62. Change in market cap since Jan 2012

 10.0%
                                             6.5%
                     5.3%
  5.0%

  0.0%

 -5.0%

-10.0%

-15.0%
                                                                       -16.0%
-20.0%
                     SKT                      KT                       LG U+

Source: TONGYANG Securities




Meanwhile, we like SKT on LTE effect and profit growth expected in 2013. Although
ARPU growth was low in 3Q12, we see this as growing pains that SKT must endure as
the long-standing number-one telco in Korea. It has a strong presence in LTE and its
ARPU should grow when its LTE subscriber portion breaks 25%. We forecast its 2013
ARPU at W36,000. Earnings growth should pick up further when competition cools.
Meanwhile, we do not expect much from affiliates in 2013, but SK Broadband looks
the most promising, with operating profit expected to rise from W71.2bn in 2012 to
W135.1bn in 2013. SK Planet’s business model is not strong enough yet to generate
meaningful operating profit, but it is attracting far more subscribers than rivals in the
application platform business, offering strong potential long term.

We revise up our target price on SKT to W180,000, based on 10x 2013 consolidated
EPS (excluding treasury shares).




                                                              TONGYANG Securities Inc.  63
2013 telecom outlook




Chart 63-1. Subscribers to SKT’s mobile platform                              Chart 63-2. Subscribers to KT’s mobile platform

                                                                                 ('000)
     ('000)
    14,000                                                                     12,000
               12,015
    12,000                                                                     10,000
                          9,597
    10,000
                                                                                8,000
     8,000                                                                                       6,233
                                    6,694
                                                 5,378
                                                                                6,000                                 4,905                5,118
     6,000
                                                               4,507

     4,000                                                                      4,000

     2,000                                                                      2,000

         0
                                                                                     0
               T-store   T-Map     hoppin      Go! NFC           11st
                                                                                            Olleh Market            Olleh Navi         Show Touch

Source: TONGYANG Securities, Koreanclick (Oct 2010)                           Source: TONGYANG Securities, Koreanclick (Oct 2010)




                                   Figure 3. SKT’s ownership structure

                                                                                                                                           Earnings as of 2011
                                                                                                  Mkt cap: 12.2tn                Market cap as of Nov 12, 2012
                                                                                                  Sales: W15.9 tn
                                                                                                  OP: W2.1tn




                                                          100%                                 21.1%                                  50.6%

                                                         Mkt cap: -                            Mkt cap: W17.6tn                             Mkt cap: W1.4tn
                                                         Sales: W279.5bn                       Sales: W10.4tn                               Sales: W2.3 tn
                                                         OP: W8bn                              OP: W3,255tn                                 OP: W64.6bn




                                                          SK Comms                   Siliconfile                              Broadband Media
                                    Loen Entertainment
                                                          Ownership: 64.6%           Ownership: 28.8                          Ownership:100%
                                    Ownership: 67.6%
                                                          Mkt cap: W337.4bn          Mkt cap: W53.8bn                         Mkt cap: -
                                    Mkt cap: W373bn
                                                          Sales: W260.6bn            Sales: W77.8bn                           Sales: W64.9bn
                                    Sales: W167.2bn
                                                          OP: W5.4bn                 OP: W1.4bn                               OP: -W9.6bn
                                    OP: W26.6bn

                                                          Television Media
                                    Paxnet                Korea
                                    Ownership: 59.7%      Ownership: 51%
                                    Mkt cap:-             Mkt cap: -
                                    Sales: W33bn          Sales: W4.9bn
                                    OP: -W3.7bn           OP: W1bn


                                    Commerce Planet
                                    Ownership: 100%
                                    Mkt cap: -
                                    Sales: W75bn
                                    OP: -W0.3bn




                                   Source: TONGYANG Securities




64  TONGYANG Securities Inc.
                                                                                                            Sector Report




For KT, we think its real estate holdings are quite attractive, but its huge asset value
(including real estate, copper cable, and affiliates) tends to be overshadowed by its
net debt of W7.2tn. For its asset value to be recognized more fairly, key affiliates like
KT Capital (eg, BC Card), KT Rental, and KT Skylife need to step up their game and
show stronger growth models. As for KT Skylife, we expect to see over 50% y-y
growth in operating profit from 2013 thanks to higher home shopping commissions.
KT Rental is also expected to report stable earnings growth based on increasing
demand for rentals and favorable brand image. However, KT Capital’s earnings will
likely remain slow in 2013, as its mobile business is not showing visible progress.

Figure 4. KT financials and media affiliates


                                                           KT


                                  Financials                                                        Media


              58%                                                  65.9%              50.2%                       48.7%


          KT Rental                                          KTH                KT-Skylife                  KT Music
      Sales: W661.5bn                                  Sales: W130.7bn      Sales: W464.4bn            Sales: W31.4bn
      NP: W27bn                 83.6%                  Op loss: W12bn       OP: W41.7bn                Op loss: W2.3bn

                                                       16.4%




                                 KT Capital
                              Op rev: W222.3bn
                              OP: W44.2bn


                                        38.86%

                                  BC Card
                               Op rev: W3.14tn
                              OP: W101.1bn

                                                                           ♣Sales and OP based on 2011 K-IFRS parent earnings

Source: TONGYANG Securities



Table 30. Earnings prospects for key KT affiliates                                                                          (Wbn)

 Subsidiary                                    2010             2011           2012E                 2013E                 2014E
 KT Capital      Sales                         176.0        1,011.5           3,242.3               3,274.7               3,307.4
                 Operating profit               33.6             36.0            171.5                173.2                 174.9
                 Net profit                     25.4             25.2            145.5                146.9                 148.4
 KT Rental       Sales                         409.0            661.5            709.4                752.0                 797.1
                 Operating profit               47.7             81.9             79.1                  81.5                    83.9
                 Net profit                     11.8             27.0             35.0                  36.1                    37.1
 KT Skylife      Sales                         426.7            464.4            533.1                626.8                 745.3
                 Operating profit               45.3             41.7             66.5                126.7                 201.6
                 Net profit                     34.0             31.3             52.3                101.1                 164.1
Source: TONGYANG Securities




                                                                                        TONGYANG Securities Inc.  65
2013 telecom outlook




                                Table 31. KT’s asset value                                                                              (Wbn)
                                 Asset                      Value    Note
                                 Land                      5,573.0   Book value
                                   Subsidiary              1,968.8   Investment in kind in KT Estate
                                   Parent company          1,305.8   Assuming 30% of land (idle) available for sale
                                 Copper cable              3,825.0
                                   Available for sale      1,147.5   Assuming 30% of cable available for sale given cost, existing PSTN lines
                                 KT Capital + KT Rental     795.9    Weighted avg after applying 10x P/E and 1x P/B, 30% discount
                                 Value of listed firms      778.6    30% discount to market cap
                                 KT SAT                     404.2    Capital
                                  Reflected                 323.4    20% discount
                                 Net debt                  7,235.0   Non-consolidated
                                                          10,142.3   Consolidated
                                 Business value           11,545.9   *10x P/E on reported parent NP (NP - interest x (1 - tax ratio))
                                 Shareholders’ value      10,630.8   Business value + asset value - net debt (parent)
                                 Per share value (won)     4,071.4
                                Source: TONGYANG Securities




                                In terms of core business, KT looks the least attractive of the big three. Its ARPU is
                                the lowest, and although it is catching up in terms of LTE subscribers, it is still third.
                                Reduced marketing in 4Q resulted in a considerable decrease in net subscriber
                                additions, making it unlikely to achieve its 2012 LTE subscriber target of 4mn. It may
                                be able to catch up to rivals in terms of LTE subscribers, but its LTE ARPU will
                                probably still be lower. From 4Q12, income from asset disposal, which has been the
                                key driver of its operating profit, will be booked as non-operating income. Thus, its
                                4Q operating profit will likely fall short of rivals’. On the upside, we revise up our
                                target price to W43,000, reflecting its asset value and 2013 earnings. Our new target
                                price is based on a 2013 P/E of 10x (consolidated EPS).

                                For SK Broadband, IPTV is the key growth driver. Its IPTV subscribers rose from
                                980,000 at end-2011 to 1.3mn at end-Sep 2012. With nearly 40,000 in monthly net
                                additions, its pace of acquisition is topped only by KT’s. SKBB should be able to reach
                                breakeven when it gains 2mn subscribers, which we believe will happen in 2014. In
                                addition, we are especially upbeat about a likely turnaround at Broadband Media.
                                Broadband Media’s operating loss has narrowed from W32.2bn in 2012 to W8bn in
                                2012, and we expect it to turn to profit in 2013 at W22bn. We estimate SKBB’s 2012
                                consolidated operating profit at W135.1bn and net profit at W80.9bn.

                                Although we maintain HOLD on SKBB, we revise up our target price to W4,400,
                                based on a 2013 P/E of 15x, the highest multiple among the telcos, given renewed
                                interest in “new media” and its robust growth outlook until 2014.




66  TONGYANG Securities Inc.
                                                                                                           Sector Report




Table 32. Telcos’ earnings outlook                                                                                  (Wbn)
SKT                1Q02    2Q02     3Q02    4Q02E     1Q03E    2Q03E    3Q03E       4Q03E       2,011     2012E      2013E
Sales (cons)       3,986   4,015    4,126    4,319     4,358    4,419    4,474       4,527     15,945     16,445     17,779
Sales (parent)     3,016   3,070    3,098    3,280     3,313    3,366    3,414       3,459     12,705     12,464     13,552
 Subscribers       2,656   2,666    2,678    2,687     2,687    2,689    2,691       2,693          -          -          -
 ARPU              3,215   3,292    3,314    3,379     3,300    3,411    3,474       3,530          -          -          -
Operating profit    452       385    301       407      562      502      476            388    2,088      1,545      1,927
Marketing cost      689       899    987       820      795      926      905            865    2,821      3,394      3,490
Net profit          306       143    179       474      378      332      312            244    1,613      1,103      1,266
KT                 1Q02    2Q02     3Q02    4Q02E     1Q03E    2Q03E    3Q03E       4Q03E       2,011     2012E      2013E
Sales              5,758   5,773    6,519    6,123     6,107    6,093    6,292       6,257     21,989     24,173     24,748
 Mobile            1,716   1,740    1,754    1,835     1,817    1,867    1,953       1,994      6,970      7,045      7,631
     ARPU          2,872   2,945    2,997    3,087     3,081    3,189    3,300       3,399          -          -          -
     Subscribers   1,660   1,649    1,648    1,649     1,651    1,653    1,655       1,657          -          -          -
 Wireline          1,664   1,611    1,568    1,541     1,514    1,489    1,464       1,439      6,951      6,384      5,906
 Media              231       248    266       277      288      301      314            327      801      1,022      1,231
 Financial          836       844    939       944      949      953      958            963      996      3,563      3,823
Operating profit    575       372    539       170      540      426      449            226    1,975      1,655      1,642
Net profit          387       220    359       238      412      322      340            164    1,447      1,204      1,237
LG U+              1Q02    2Q02     3Q02    4Q02E     1Q03E    2Q03E    3Q03E       4Q03E       2,011     2012E      2013E
Sales              2,552   2,799    2,836    2,733     2,780    2,863    2,936       3,030      9,256     10,921     11,609
 Subscribers        955       985   1,002    1,009     1,024    1,039    1,054       1,069          -          -          -
 ARPU              2,665   2,928    3,057    3,170     3,118    3,250    3,393       3,487          -          -          -
Operating profit     68        3       -6       65       93      128      157            170      286        131       548
Marketing cost      351       487    500       477      508      515      533            560    1,530      1,814      2,116
Net profit           22       -32     -38        7       32       60       79            92        85        -42       263
SKB                1Q02    2Q02     3Q02    4Q02E     1Q03E    2Q03E    3Q03E       4Q03E       2,011     2012E      2013E
Sales               559       606    652       669      593      628      697            707    2,313      2,485      2,625
 Broadband          242       239    234       236      233      230      227            224      982        951       915
 IPTV                41       52      59        65       75       80       86            91       148        217       332
 B2B                119       144    154       192      129      147      169            204      543        609       648
 Telephone          150       152    147       148      149      152      155            159      583        597       615
Operating profit     16       17      20        19       26       34       43            32        47         71       135
Net profit            1        3       6         6       12       21       30            30       -14         16        81
Source: TONGYANG Securities




Table 33. 2013 operating profit: TY estimate vs consensus                                                            (Wbn)

                                        TY estimate                      Consensus                                 Diff (%)

SKT                                           1,927                              2,028                                   -5

KT                                            1,642                              1,917                                  -14

LGU+                                           548                                598                                    -8

KT Skylife                                     127                                123                                     3

CJ Hellovision                                 158                                 n/a                                  n/a

Source: TONGYANG Securities




                                                                                               TONGYANG Securities Inc.  67
2013 telecom outlook




                                Pay TV operators: BUY on KT Skylife, HOLD on Hellovision
                                For KT Skylife, we used a P/E of 20x because we expect it to report the strongest
                                growth among Korean telecom/media platform service providers. We estimate that its
                                sales will grow 17.6% y-y in 2013 and 18.9% y-y in 2014, and with home shopping
                                commission surging from W63.3bn in 2012 to W100bn in 2013, operating margin is
                                also expected to surge. KT Skylife should post the highest ROE (16.5% in 2012 and
                                25.6% in 2013) among telecom/media platform service providers. We believe it
                                deserves a valuation premium given high growth potential, home shopping
                                commissions (expected to rise), and the highest margins of peers. We recommend
                                BUY with a target price of W43,000.

                                Meanwhile, we recommend HOLD on CJ Hellovision with a target price of W17,000,
                                based on a P/E of 13x. We applied a lower P/E than for KT Skylife or SK Broadband,
                                as we expect subscriber growth to slow, and its MVNO and TVING to remain low-
                                margin businesses over the next couple of years. We expect CJHV’s operating profit
                                to post a CAGR of 4% over the next two years. However, we applied a higher P/E for
                                CJHV than for telcos, as sales should grow 13.2% y-y in 2013 and 9.2% in 2013 on
                                higher ARPU. Also, cable TV deregulation will likely provide more M&A opportunities.

                                Chart 64. ROE (2013)


                                       (%)
                                       30

                                       25

                                       20

                                       15

                                       10

                                        5

                                        0
                                               SKT             KT    LG U+     SKB        Skylife    Hello Vision

                                Source: TONGYANG Securities


                                Chart 65. Service revenue growth by company (2012~2014)

                                 (%)
                                 20
                                 18
                                 16
                                 14
                                 12
                                 10
                                  8
                                  6
                                  4
                                  2
                                  0
                                             SKT              KT    LG U+      SKB         Skylife    Hello Vision
                                Source: TONGYANG Securities




68  TONGYANG Securities Inc.
                                                                                                                                             Sector Report




                                   Chart 66. Net profit growth by company (2012~2014)



                                      200
                                      180
                                      160
                                      140
                                      120
                                      100
                                       80
                                       60
                                       40
                                       20
                                        0
                                      -20
                                                   SKT                 KT               LG U+                SKB               Skylife         Hello Vision

                                   Source: TONGYANG Securities



Table 34. Investment opinion summary
                 TP (won)   Targ P/E Opinion

SKT               180,000       10x   Pure mobile telco; LTE effect and operating profit growth likely in 2013

                                      Affiliate income unlikely to surge in 2013, but SKBB should do well

KT                 43,000       10x   Asset value (real estate, affiliates and copper cable) overshadowed by W7.2tn in net debt

                                      For asset value to be reflected more fairly, key affiliates like KT Capital (eg, BC Card), KT Rental, and KT Skylife need
                                      to step up their game and show stronger growth models

                                      KT Capital’s earnings to remain slow in 2013, as its mobile business is not showing visible progress

                                      Mobile telecom business outlook weakest among 2 telco majors

                                      IPTV business outlook good

LG U+              11,500       12x   Cashing in on LTE in 2013; income from disposal of intangible assets (W216bn)

                                      Robust growth over 15%

SKBB                4,400       15x   IPTV subscribers to reach 1.9mn in 2013; to hit BEP in 2014

                                      Broadband Media’s loss shrinking from W32.2bn in 2011 to W8bn in 2012; should turn around to W22bn profit in 2013

KT Skylife         43,000       20x   Strongest growth among telco/media platform service providers

                                      Highest ROE among peers

CJ Hellovision     17,000       13x   Slowing subscriber growth; TVING and MVNO are cost sinks

                                      ARPU growth outlook positive; M&A to be key to shares

Source: TONGYANG Securities




                                                                                                                           TONGYANG Securities Inc.  69
2013 telecom outlook




                                Risks

                                Two major risks
                                We see two major risks. The first is regulatory risk related to rate cuts, which would
                                likely come soon after the new administration takes office (presidential election
                                scheduled for December). After the previous presidential election, the new
                                administration’s committee proposed a plan that would cut cell plans by 20% (the
                                end result was a reduction in telcos’ monthly fees of W1,000). This time, the
                                candidates have already rolled out specific plans regarding cell plan cuts: Geun-hye
                                Park mentioned getting rid of sign-up fees; Jae-in Moon would likely try to cut basic
                                fees. We should also pay attention to regulatory moves to stave off inflation,
                                triggered by a recent surge in grain prices. That telecom fees account for a greater
                                weighting among the components of the Consumer Price Index is not good news for
                                telcos.

                                In our view, cell plan regulations thus far have been unrealistic and were largely
                                driven by politics. A logical plan cut would never have resulted in an ARPU decrease,
                                especially after smartphones were introduced.

                                Table 35. Regulation history
                                Measure                                                                    Proposed   Confirmed     Executed

                                Ban on handset subsidy                                                                2000-05-23   2000-06-01

                                LM rate cut and interconnection rate adjustments                         2002-02-01   2002-04-02   2002-04-02

                                Introduction of MNP (wireline)                                           2000-06-05   2002-09-30   2003-06-30

                                Introduction of MNP (wireless)                                           2001-08-22   2003-01-12   2004-01-01

                                Asymmetrical regulations on cellular and PCS                                          2004-01-15   2004-07-24

                                Make caller ID display free of charge                                                 2005-10-18   2006-01-01

                                Restrictions on subsidy lifted                                           2006-02-14   2006-03-02   2006-03-27

                                30% cut on mobile data plan                                                           2006-09-27   2007-01-01

                                Introduction of bundled services                                                      2006-11-24   2007-01-01

                                Introduction of MVNO                                                     2007-07-05   2007-07-26

                                Cell plan discount for low-income households                                          2007-09-05

                                SMS rate cut (W30/SMS to W20)                                                         2007-09-19   2008-01-01

                                On-net call discount                                                                  2007-09-19   2007-10-01

                                New administration proposes 20% cut on cell plans                        2007-12-31

                                Bigger discount on major telco bundle (from 10% to 20%, from May 2008)   2008-03-27   2008-05-27   2008-05-27

                                Bigger discount on major telco bundle (from 20% to 30%, from Mar 2009)                2008-12-26   2009-05-18

                                Mobile data plan cut                                                     2009-08-11   2009-09-27   2009-10-01

                                Pre-paid plan cut (15.5~23%)                                             2009-08-11   2009-09-27   2009-10-01

                                Introduction of per-second billing                                       2009-08-11   2009-09-27   2010-03-01

                                Passage of law permitting MVNO (Feb 26)

                                W1,000 cut on all cell plans                                             2011-01-13   2011-06-02   2011-09-16

                                Source: TONGYANG Securities




70  TONGYANG Securities Inc.
                                                                                                 Sector Report




Table 36. Components of Consumer Price Index: 2005 vs 2010
Components                      2005       2010      Diff Components                    2005       2010        Diff
Accessories                          -        1.3   new Electricity                         19     20.8        1.8
In-patient cost                    8.1       12.4    4.3 Package travel (overseas)           4      5.5        1.5

Mobile phone plans               38.9        43.1    4.2 Medical check-up                  0.6      1.9        1.3

Outpatient cost                  12.6        16.5    3.9 Intercity bus                     3.1      1.4        -1.7

Household helper cost              1.4        5.1    3.7 School lunch                      9.8      7.9        -1.9

City gas                         16.1        19.6    3.5 Tobacco (domestic)                7.4        5        -2.4

Private ed (middle school)       15.7        19.2    3.5 Kerosene                          5.4      2.9        -2.5

Company cafeteria                  5.7        8.9    3.2 Learning materials               11.4      8.4         -3

Large sedan                        1.9        5.1    3.2 Sedan                               9      4.8        -4.2

Diesel                           10.9        13.5    2.6 Soju (dining out)                 9.4        5        -4.4

Health food                        3.6        6.1    2.5 Telephone                          11      3.4        -7.6

Broadband                          6.3        8.5    2.2 Rice                               14      6.2        -7.8

APT maintenance                  12.4        14.4      2 Gold ring                         4.8         - deleted

Source: TONGYANG Securities, National Statistical Office




Table 37. Presidential candidates’ policy on telecom service fees
                        Geun-hye Park                                              Jae-in Moon

                        - End sign-up fees
                                                                                   - End or slash basic fees
Telecom                 - Handset ASP reduction
                                                                                   - Wider use of m-VoIP
                        - Free WiFi set-up (10,000 units)

                        - Considering building ICT dept separate from Future
                        Science Ministry
ICT
                        - Integrated supervision of each policy; more focus on
                        development rather than regulation
Source: TONGYANG Securities




The second risk is tougher-than-expected competition. Investors will likely be greatly
disappointed if competition remains fierce in 2013 like in 3Q12, hurting earnings. We
think 1H13 results will be very important for investor sentiment. Investors know
there will be some competition, but still expect earnings to improve every quarter.




                                                                                 TONGYANG Securities Inc.  71
2013 telecom outlook




 Chart 67-1. SKT: quarterly operating profit consensus           Chart 67-2. KT: quarterly operating profit consensus

   (Wbn)                                                            (Wbn)
                                                                   700
   600                                       549    540
                                                           497                575
                                                                   600                       539                     538
   500     452
                                      434                                                                508
                                                                                                               481
                   385          399                                500                                                     441
   400
                          301                                                         372
                                                                   400                             341
   300
                                                                   300
   200
                                                                   200
   100
                                                                   100
     0
                                                                        0
           1Q12   2Q12   3Q12 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E
                                                                             1Q12    2Q12    3Q12 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E

 Source: TONGYANG Securities                                     Source: TONGYANG Securities



 Chart 68-1. LG U+: quarterly operating profit consensus         Chart 68-2. SKB: quarterly operating profit consensus

   (Wbn)                                                          (Wbn)

  200                                                             50
                                                                                                                           45
                                                   171
  180                                                     158     45
                                            152                                                                      38
  160                                                             40
                                      132
  140                                                             35                                           32
  120                                                             30                               28    27
  100
           68                                                     25                         20
   80                           58                                20         16      17
   60
   40                                                             15
   20              3                                              10
    0                                                               5
  -20                     (6)                                       0
         1Q12     2Q12   3Q12 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E                 1Q12    2Q12    3Q12 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E

 Source: TONGYANG Securities                                     Source: TONGYANG Securities




72  TONGYANG Securities Inc.
Company Report




SK Telecom                                               (017670 KS)

BUY (M) / TP: W180,000 (U)


  Nam-kon Choi
                                                         Growth by leveraging market power
  namkon.choi@tongyang.co.kr
  +822-3770-3549                                         Pure mobile telco play
                                                          Investors should focus on LTE effect and profit growth in 2013. Although ARPU
                                                           growth was low in 3Q12, it is not worrisome given SKT’s strength in LTE.
  Soll Kim
  soll.kim@tongyang.co.kr                                 APRU will likely rise further from 4Q12, when the LTE subscriber portion should
  +822-3770-3496
                                                           hit 25% of total subscribers. We forecast 2013 ARPU at W36,000.

                                                         2013 consolidated sales to grow 8% y-y, OP est at W1.92tn
                                                          We expect 2013 consolidated sales to grow 8% y-y on ARPU growth and better
                                                           earnings at consolidated subsidiaries. Operating profit should rise to W1.92tn
                                                           on operating leverage and market expenses growing only W100bn y-y.
  KOREA
  Telecom                                                Subsidiary gains from SK Broadband
                                                          The most promising consolidated subsidiary is SK Broadband. Its operating
 Share price (won, Nov 13)                   150,500
                                                           profit will likely climb from W71.2bn in 2012 to W135.1bn in 2013.
 Paid-in capital (Wbn)                              45
 Market cap (Wbn)                             12,152
                                                          SK Planet’s business model is not strong enough yet to generate meaningful
 BPS (won)                                   173,000
                                                           operating profit. However, it is attracting far more subscribers than rivals in the
 Net debt to equity (%)                          49.4
                                                           application platform business, which offers strong long-term potential.
 Shares outstanding                       80,745,711
 Avg daily T/O (2M, Wbn)                            26
 Avg daily vol (2M, shrs)                    173,340
                                                         Revise up target price to W180,000
 52-week high (won)                          159,500      We applied P/E of 10x to 2013 consolidated adjusted EPS (excluding treasury
 52-week low (won)                           120,500       shares). Risk factors are: 1) government regulation of call and data plans; and
 Foreign ownership (%)                           46.1      2) competition being fiercer than our expectations.
 Major shareholders (%)
                     SK Corp & others 25.2                Maintain BUY, revise up target price to W180,000


 Stock performance (%)
                    1M                 3M        12M
                                                         Forecasts and valuations (K-IFRS)                                                                 (Wbn)
 Absolute           1.7                1.0         0.7
 Relative          (2.3)          (2.2)            1.4    FY ends Dec                  2010A           2011A             2012F            2013F            2014F
 Abs (US$)          3.7                4.8         4.1    Sales                        15,599           15,988           16,445           17,779           18,277
                                                          Chg (% y-y)                     7.2              2.5              2.9              8.1                 2.8
     (won)                                         (%)
                                                          Reported OP                   2,205            2,082            1,545            1,927               1,941
   200,000                                         120

   180,000                                                Adjusted OP*                  2,652            2,300            1,545            1,927               1,941
                                                   100
   160,000

   140,000
                                                          Net profit, CI                1,842            1,613            1,103            1,288               1,315
                                                   80
   120,000
                                                          EPS, CI (won)                22,808           19,975           13,657           15,955           16,280
   100,000                                         60

    80,000                                                Chg (% y-y)                    47.7            -12.4            -31.6             16.8                 2.0
                                                   40
    60,000

    40,000
                                                          P/E (x)                         7.5              7.8             11.0              9.4                 9.2
                                                   20
    20,000
                                                          P/B (x)                         1.0              0.9              0.8              0.8                 0.8
         0                                          0
        Nov 2010      Nov 2011                Nov 2012
                                                          EV/EBITDA (x)                   4.3              3.6              4.7              4.1                 4.0
                     SK Telecom(LHS)

                     Rel. to KOSPI(RHS)                   ROA (%)                         7.9              6.8              4.4              4.8                 4.8
                                                          ROE (%)                        16.4             14.0              9.3             10.4                10.1
 Source: Datastream                                      Note: * Adjusted OP = reported OP (K-IFRS) – other operating profit/loss. CI = controlling interest
                                                         Source: TONGYANG Securities



   www.tys.co.kr/english                                                                                                          TONGYANG Research
SK Telecom (017670 KS)


  SK Telecom (017670 KS) pro forma financial statements (K-IFRS, consolidated)
 Statement of comprehensive income                                                       Statement of financial position
 FY ends Dec (Wbn)                2010A     2011A      2012F        2013F    2014F       FY ends Dec (Wbn)             2010A    2011A      2012F     2013F     2014F
 Sales                           15,599     15,988    16,445        17,779   18,277      Current assets                6,654     6,117     5,082     5,767     6,468
 Cost of sales                          0         0            0         0         0       Cash & cash equiv             659      1,651     1,177     1,733     2,347
 Gross profit                     15,519     15,939    16,445       17,779   18,277        Accts rec & other            4,511     2,754     2,778     2,879     2,942
 SG&A                             12,947     13,688    14,901       15,851   16,336        Inventory                     149       220       223       232       238
 Adj operating profit*             2,652      2,300        1,545     1,927    1,941      Non-current assets           16,478    18,249    21,239    21,345    21,439
 Other op prof/loss                 -366      -168             0        0          0       Tangible assets              8,153     9,031     8,991     9,037     9,068
   Forex gain/loss                      0         0            0         0         0       Investment in affiliate      1,205     1,385     4,686     4,686     4,686
   Net interest income                  0         0            0         0         0       Other non-current           1,968     1,747     1,668     1,701     1,735
   Other                            -366       -168            0         0         0     Total assets                  23,132    24,366    26,322    27,112    27,906
 Operating profit                  2,205      2,082        1,545     1,927    1,941      Current liabilities            6,202     6,674     5,221     5,336     5,426
 EBITDA                            4,508      4,564        4,125     4,532    4,559        Accts payable & other        2,716     2,945     2,940     3,033     3,099
 Non-op profit/loss                   32         51          -64     -325      -306        ST financial liabilities      524       701       784       784       784
   Forex gain/loss                    11         -4           -1        -3        -3       Liquid LT liabilities        1,601     1,663      367       367       367
   Net interest inc                 -142       -129         -303      -307     -288      Non-current liabilities        4,522     4,960     7,940     7,920     7,901
   Equity-meth gain/loss               -3       -47          -46         0         0      LT financial liabilities       236       324      2,386     2,397     2,407
   Other                             167       231           285       -15      -15       Debentures                   3,659     3,229     4,274     4,219     4,164
 Net prof before income tax        2,318      2,183        1,493     1,602    1,635      Total liabilities             10,724    11,633    13,161    13,257    13,326
   Income tax                        545        599          307       336      343      Equity, controlling int      11,330    11,662    12,057    12,695    13,359
 Net profit from cont op           1,774      1,584        1,186     1,266    1,291        Paid-in capital                45        45        45        45        45
 Net profit from discont op            -7        -2         -124        0          0       Capital surplus              2,916     2,916     2,916     2,916     2,916
 Net profit                        1,767     1,582         1,062     1,266    1,291        Retained earnings           10,721    11,643    12,084    12,717    13,377
 NP for controlling int            1,842      1,613        1,103     1,288    1,315      Equity, non-control int        1,078     1,071     1,103     1,161     1,221
 Total comprehensive inc           1,480      1,191        1,011     1,266    1,291      Total equity                  12,408    12,733    13,161    13,855    14,580
 TCI for controlling int           1,561      1,207        1,054     1,288    1,315      Net debt                       4,372     2,985     5,953     5,338     4,664
  Note: 1. Adjusted op profit = gross profit - SG&A                                      Total debt                     6,094     5,958     7,867     7,822     7,777
         2. EBITDA is based on adjusted operating profit


 Cash flow statement                                                                     Valuation
 FY ends Dec (Wbn)                2010A     2011A      2012F        2013F    2014F       FY ends Dec                  2010A     2011A      2012F     2013F     2014F
 Operating cash flow               4,343     6,306         3,792     4,457    4,499      EPS (won)                     22,808    19,975    13,657    15,955    16,280
   Net profit                      1,767      1,582        1,062     1,266    1,291      BPS (won)                    167,593   174,280   179,176   187,072   195,294
   Depreciation & amort            2,302      2,483        2,580     2,604    2,618      EBITDA/shr (won)              55,825    56,528    51,083    56,122    56,463
   Forex gain/loss                   -15          4            1         3         3     SPS (won)                    193,189   198,008   203,666   220,181   226,357
   Affiliate invest gain/loss           3        47            0         0         0     DPS (won)                      8,400     8,400     8,400     8,400     8,400
   Inc(dec) net working cap          277      2,180         -205       127      129      P/E (x)                          7.5       7.8      11.0       9.4       9.2
   Other                                9        10          353       457      458      P/B (x)                          1.0       0.9       0.8       0.8       0.8
 Investing cash flow              -2,339    -4,239     -5,415       -2,821   -2,839      EV/EBITDA (x)                    4.3       3.6       4.7       4.1       4.0
   Investment                        -47         23        -3,071        0         0     PSR (x)                          0.9       0.8       0.7       0.7       0.7
   Inc in tangible assets         -2,142     -2,961        -2,763   -2,650   -2,650
   Dec in tangible assets             94         35            6         0         0     Key financial data
   Other                            -244     -1,337          414      -171     -189      FY ends Dec                  2010A     2011A      2012F     2013F     2014F
 Financing cash flow              -2,246     -1,079        1,134      -730     -730      Sales (% y-y)                    7.2       2.5       2.9       8.1       2.8
   Inc(dec) in ST fin liab           -31       174            84        0          0     Operating profit (% y-y)        17.4      -5.6     -25.8      24.8       0.7
   Inc(dec) in LT fin liab        -1,287       -357        1,735       -45       -45     Adjusted OP (% y-y)             41.2     -13.3     -32.8      24.8       0.7
   Inc(dec) in equity                   0         0            0         0         0     NP, CI (% y-y)                  47.7     -12.4     -31.6      16.8       2.0
   Cash dividend                    -682       -668         -657      -657     -657      Gross margin (%)                99.5      99.7     100.0     100.0     100.0
   Other                            -246       -228          -28       -28       -28     Operating margin (%)            14.1      13.0       9.4      10.8      10.6
 Other cash flow                       -4         3           16      -350     -317      Adj OP margin (%)               17.0      14.4       9.4      10.8      10.6
 Inc (dec) in cash & eq             -246        991         -473       556      613      NP, CI margin (%)               11.8      10.1       6.7       7.2       7.2
  Beginning cash & equiv             906        659        1,651     1,177    1,733      EBITDA margin (%)               28.9      28.5      25.1      25.5      24.9
  Ending cash & equiv                659      1,651        1,177     1,733    2,347      ROIC (%)                        13.0      12.0       9.7      12.0      12.1
 NOPLAT                              221        208          154       193      194      ROA (%)                          7.9       6.8       4.4       4.8       4.8
 FCF                               2,125      3,213          838     1,604    1,630      ROE (%)                         16.4      14.0       9.3      10.4      10.1

                                                                                         Debt-to-equity (%)              86.4      91.4     100.0      95.7      91.4
                                                                                         Net debt-to-equity (%)          38.6      25.6      49.4      42.0      34.9
                                                                                         OP/financing cost (x)            5.8       7.0       3.8       4.8       5.0
  Note: EPS, BPS, P/E and P/B are based on controlling interest
  For valuation metrics such as P/E, historical figures are based on annual averages, estimates on current price
  For ROA or ROE, assets and equity are averages of end-of-year figures for given year and year prior
  Data to 2010 based on K-GAAP and from 2011, K-IFRS
  Source: TONGYANG Securities




     TONGYANG Securities Inc.
                                                                                                                Company Report




P/E band                                                               P/B band

(W'000)               Price (adj)                6.2 x                  (W'000)
400                   8.5 x                      10.8 x                                       Price (adj)               0.8 x
                                                                        350
                      13.0 x                     15.3 x                                       1.0 x                     1.2 x
350                                                                     300                   1.3 x                     1.5 x
300
                                                                        250
250
                                                                        200
200
                                                                        150
150
100                                                                     100

 50                                                                       50
   0                                                                       0
  Jan 2005         Jan 2008         Jan 2011        Jan 2014              Jan 2005          Jan 2008         Jan 2011         Jan 2014


SK Telecom (017670 KS) ratings and target price history

                                                                                          Date             Rating          TP (won)
    (won)
                                                          Current Price
  250,000                                                                             2012-11-14             BUY            180,000
                                                          Target Price
                                                                                      2012-11-07             BUY            160,000
  200,000
                                                                                      2012-10-02             BUY            160,000
  150,000                                                                             2012-08-27             BUY            160,000
                                                                                      2012-08-03             BUY            160,000
  100,000
                                                                                      2012-07-18             BUY            160,000
   50,000                                                                             2012-06-18             BUY            160,000
                                                                                      2012-06-04             BUY            170,000
          0
         Nov 2010 May 2011 Nov 2011 May 2012 Nov 2012                                 2012-05-03             BUY            170,000
                                                                                      2012-04-03             BUY            185,000
Source: TONGYANG Securities



  Disclosures & disclaimers
  This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an
  offer to buy or sell any securities or other financial instruments. The information and data contained in this report have
  been obtained from sources we consider reliable; however, we make no representation that the information provided in this
  report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her
  independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We
  disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This
  report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in
  any manner without the prior written consent of TONGYANG Securities Inc.

  As of the publication date of this report, TONGYANG Securities Inc. does not own a stake in excess of 1%, nor does it have
  any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by TONGYANG
  Securities Inc. to any institutional investors or third parties prior to its publication. As of the date of publication of this report
  TONGYANG Securities Inc. is an issuer and liquidity provider for equity linked warrants backed by the shares of the subject
  company. The analyst (s) of this report or the analyst (s)’ spouse does not have any financial interest in the securities of the
  subject company (ies) mentioned herein, nor financial interest of any nature related to the subject company (ies) (including
  without limitation, whether it consists of any option, right, warrant, future, long or short position), as of the publication date
  of this report.

  Analyst certification
  I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this
  report accurately reflect my/our personal views about the subject securities discussed in this report.

  Stock and sector ratings
    Stock ratings include an Investment Rating (Buy, Hold, Sell) as well as a Volatility Risk Rating (High, Low)
     that are based on the expected absolute return of a stock over the next 6 -12 months.
     - Buy: Low Risk if a stock is expected to return 10% or more; High Risk if a stock is expected to return 20% or more
     - Hold: Low Risk if a stock is expected to return between -10 and +10%; High Risk if a stock is expected to return
     between -20 and +20%
     - Sell: Low Risk if a stock is expected to decline by 10% or more; High Risk if a stock is expected to fall by 20% or more
   Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market
     capitalization weighting.
     - Overweight: Investment weighting is higher than the market capitalization weighting
     - Neutral: Investment weighting is equal to the market capitalization weighting
     - Underweight: Investment weighting is lower than the market capitalization weighting




                                                                                                   TONGYANG Securities Inc. 
Company Report




KT                (030200 KS)

BUY (M) / TP: W43,000 (U)


  Nam-kon Choi
                                                         Market power in LTE is the key
  namkon.choi@tongyang.co.kr
  +822-3770-3549                                         Value of real estate holdings attractive
                                                          KT’s real estate holdings are valued at W3.2tn, copper cable W1.1tn, affiliate
                                                           holdings (KT Capital and KT Rental) W0.8tn, other investment holdings
  Soll Kim                                                 W0.8tn, and KT satellites W0.3tn. However, its huge asset value tends to be
  soll.kim@tongyang.co.kr
                                                           overshadowed by its net debt of W7.2tn.
  +822-3770-3496

                                                          For its asset value to be recognized more fairly, key affiliates like KT Capital
                                                           (eg, BC Card), KT Rental, and KT Skylife need to step up their game and show
                                                           stronger growth models. Of the three, we believe KT Capital holds the key.

                                                         Staying behind in LTE game
  KOREA                                                   Currently, KT’s ARPU is the lowest among the three major telcos. Although it is
  Wireline telecom                                         catching up to the leaders, it is still third in terms of LTE subscribers.

 Share price (won, Nov 13)                   38,200       In 2013, KT should have more LTE subscribers than LG U+, but its ARPU will
 Paid-in capital (Wbn)                         1,565       likely decrease y-y.
 Market cap (Wbn)                              9,975
 BPS (won)                                   51,625      2013 sales to rise 2.4% y-y, operating profit to come to W1.64tn
 Net debt to equity (%)                          75.0
                                                          From 4Q12, income from asset disposal will be booked as non-operating
 Shares outstanding                   261,111,808
 Avg daily T/O (2M, Wbn)                            36
                                                           income. In 2013, operating profit should rise W300bn y-y on sales growth. (Of
 Avg daily vol (2M, shrs)                  1,006,188       note, 2012 saw a one-off gain of W300bn from asset disposal.)
 52-week high (won)                          38,450
 52-week low (won)                           27,700      Revise up target price to W43,000, based on 10x 2013E EPS
 Foreign ownership (%)                           47.3     We revise up our target price to W43,000 based on 10x 2013E EPS
 Major shareholders (%)                                    (consolidated). Risks include: 1) regulatory pressure on cell plans; and 2)
                                   NPS Fund 6.8
                                                           tougher-than-expected competition.


 Stock performance (%)
                     1M               3M         12M
                                                         Forecasts and valuations (K-IFRS)                                                                 (Wbn)
 Absolute           10.6            14.5           5.1
 Relative           (2.3)          (2.2)           1.4   FY ends Dec                   2010A           2011A             2012F            2013F            2014F
 Abs (US$)          12.7            18.9           8.6   Sales                         20,326           21,990           24,173           24,748           25,029
                                                         Chg (% y-y)                      3.4              8.2              9.9              2.4                 1.1
    (won)                                          (%)
                                                         Reported OP                    2,008            1,974            1,655            1,642               1,600
   60,000                                          120

                                                         Adjusted OP*                   2,008            1,974            1,655            1,642               1,600
   50,000                                          100

                                                         Net profit, CI                 1,296            1,447            1,196            1,194               1,161
   40,000                                          80

                                                         EPS, CI (won)                  4,963            5,540            4,580            4,573               4,447
   30,000                                          60

                                                         Chg (% y-y)                    165.5             11.6            -17.3              -0.2               -2.8
   20,000                                          40

                                                         P/E (x)                          9.2              6.9              8.3              8.4                 8.6
   10,000                                          20

                                                         P/B (x)                          1.0              0.8              0.7              0.7                 0.7
        0                                           0
       Nov 2010        Nov 2011               Nov 2012
                                                         EV/EBITDA (x)                    3.8              4.1              4.0              4.0                 3.9
                      KT(LHS)

                      Rel. to KOSPI(RHS)                 ROA (%)                          4.8              4.9              3.7              3.6                 3.4
                                                         ROE (%)                         12.0             12.7              9.8              9.2                 8.5
 Source: Datastream                                      Note: * Adjusted OP = reported OP (K-IFRS) – other operating profit/loss. CI = controlling interest
                                                         Source: TONGYANG Securities


   www.tys.co.kr/english                                                                                                          TONGYANG Research
KT (030200 KS)


  KT (030200 KS) pro forma financial statements (K-IFRS, consolidated)
 Statement of comprehensive income                                                       Statement of financial position
 FY ends Dec (Wbn)                2010A     2011A      2012F        2013F    2014F       FY ends Dec (Wbn)            2010A    2011A    2012F    2013F    2014F
 Sales                           20,326     21,990    24,173        24,748   25,029      Current assets                7,519    9,791   10,410   10,894   11,348
 Cost of sales                          0         0            0         0         0       Cash & cash equiv           1,162    1,445    1,165    1,233    1,381
 Gross profit                     20,326     21,990    24,173       24,748   25,029        Accts rec & other           4,919    6,857    7,493    7,883    8,181
 SG&A                             18,318     20,016    22,518       23,107   23,430        Inventory                     711      675      875      894      894
 Adj operating profit*             2,008      1,974        1,655     1,642    1,600      Non-current assets           19,422   22,295   22,533   22,698   22,834
 Other op prof/loss                    0          0            0        0          0       Tangible assets            13,398   14,023   14,680   14,839   14,963
   Forex gain/loss                      0         0            0         0         0       Investment in affiliate       638      529      561      561      561
   Net interest income                  0         0            0         0         0       Other non-current            269      622      665      665      665
   Other                                0         0            0         0         0     Total assets                 26,942   32,085   32,943   33,592   34,182
 Operating profit                  2,008      1,974        1,655     1,642    1,600      Current liabilities           7,885    8,745    9,695    9,801    9,863
 EBITDA                            5,247      4,965        5,004     5,043    5,032        Accts payable & other       4,424    5,890    5,998    6,061    6,079
 Non-op profit/loss                 -327      -376           -59       -76      -77        ST financial liabilities      476      392      995      995      995
   Forex gain/loss                    30        -70           11        -4        -4       Liquid LT liabilities       2,246    1,721    1,858    1,898    1,938
   Net interest inc                 -392       -330         -264      -284     -285      Non-current liabilities       7,703   10,802    9,899    9,717    9,536
   Equity-meth gain/loss              33         -3           28        31       31       LT financial liabilities       192      442      456      456      456
   Other                               3         27          167      180       180       Debentures                   6,467    8,444    7,711    7,511    7,311
 Net prof before income tax        1,681      1,598        1,597     1,565    1,522      Total liabilities            15,588   19,548   19,594   19,519   19,399
   Income tax                        396        317          341       329      320      Equity, controlling int      11,133   11,704   12,582   13,289   13,963
 Net profit from cont op           1,285      1,281        1,255     1,237    1,203        Paid-in capital             1,564    1,564    1,564    1,564    1,564
 Net profit from discont op           30       171             1        1          1       Capital surplus             1,440    1,440    1,440    1,440    1,440
 Net profit                        1,315     1,452         1,256     1,237    1,203        Retained earnings           9,466   10,220   10,927   11,633   12,307
 NP for controlling int            1,296      1,447        1,196     1,194    1,161      Equity, non-control int         221      834      767      785      820
 Total comprehensive inc           1,126      1,460        1,276     1,237    1,203      Total equity                 11,354   12,538   13,349   14,074   14,783
 TCI for controlling int           1,111      1,396        1,211     1,194    1,161      Net debt                      7,855    9,430    9,436    9,205    8,894
  Note: 1. Adjusted op profit = gross profit - SG&A                                      Total debt                    9,481   11,377   11,127   10,967   10,807
         2. EBITDA is based on adjusted operating profit


 Cash flow statement                                                                     Valuation
 FY ends Dec (Wbn)                2010A     2011A      2012F        2013F    2014F       FY ends Dec                  2010A    2011A    2012F    2013F    2014F
 Operating cash flow               2,973     2,150         4,424     4,216    4,275      EPS (won)                     4,963    5,540    4,580    4,573    4,447
   Net profit                      1,315      1,452        1,256     1,237    1,203      BPS (won)                    46,296   48,477   51,753   54,459   57,039
   Depreciation & amort            2,973      2,672        2,988     3,051    3,086      EBITDA/shr (won)             20,094   19,017   19,163   19,315   19,270
   Forex gain/loss                   -33         79            -5        4         4     SPS (won)                    77,845   84,217   92,578   94,780   95,857
   Affiliate invest gain/loss           0         0            0         0         0     DPS (won)                     2,410    2,000    2,000    2,000    2,000
   Inc(dec) net working cap       -2,316     -1,968         -392      -710     -652      P/E (x)                         9.2      6.9      8.3      8.4      8.6
   Other                           1,035        -85          576       633      634      P/B (x)                         1.0      0.8      0.7      0.7      0.7
 Investing cash flow              -2,949    -2,648     -3,966       -3,422   -3,405      EV/EBITDA (x)                   3.8      4.1      4.0      4.0      3.9
   Investment                       -240        -85           25         0         0     PSR (x)                         0.6      0.5      0.4      0.4      0.4
   Inc in tangible assets         -2,713     -3,208        -3,723   -3,210   -3,210

   Dec in tangible assets            181        594           41         0         0     Key financial data
   Other                            -178         52         -309      -212     -195      FY ends Dec                  2010A    2011A    2012F    2013F    2014F
 Financing cash flow                -398        768         -947    -1,045   -1,033      Sales (% y-y)                   3.4      8.2      9.9      2.4      1.1
   Inc(dec) in ST fin liab             0          0            0        0          0     Operating profit (% y-y)      107.8     -1.7    -16.1     -0.8     -2.6
   Inc(dec) in LT fin liab           123      1,200           21      -160     -160      Adjusted OP (% y-y)           107.8     -1.7    -16.1     -0.8     -2.6
   Inc(dec) in equity                   0         0            0         0         0     NP, CI (% y-y)                161.9     11.6    -17.3     -0.2     -2.7
   Cash dividend                    -493       -595         -506      -507     -507      Gross margin (%)              100.0    100.0    100.0    100.0    100.0
   Other                             -28        164         -463      -378     -367      Operating margin (%)            9.9      9.0      6.8      6.6      6.4
 Other cash flow                       -7        13          210       319      311      Adj OP margin (%)               9.9      9.0      6.8      6.6      6.4
 Inc (dec) in cash & eq             -381        284         -280        68      148      NP, CI margin (%)               6.4      6.6      4.9      4.8      4.6
  Beginning cash & equiv           1,543      1,162        1,445     1,165    1,233      EBITDA margin (%)              25.8     22.6     20.7     20.4     20.1
  Ending cash & equiv              1,162      1,445        1,165     1,233    1,381      ROIC (%)                        9.4      9.4      7.0      6.6      6.3
 NOPLAT                              201        197          166       164      160      ROA (%)                         4.8      4.9      3.7      3.6      3.4
 FCF                                -256       -602          534       779      833      ROE (%)                        12.0     12.7      9.8      9.2      8.5

                                                                                         Debt-to-equity (%)            137.3    155.9    146.8    138.7    131.2
                                                                                         Net debt-to-equity (%)         70.6     80.6     75.0     69.3     63.7
                                                                                         OP/financing cost (x)           4.1      4.1      3.4      3.3      3.2
  Note: EPS, BPS, P/E and P/B are based on controlling interest
  For valuation metrics such as P/E, historical figures are based on annual averages, estimates on current price
  For ROA or ROE, assets and equity are averages of end-of-year figures for given year and year prior
  Data to 2010 based on K-GAAP and from 2011, K-IFRS
  Source: TONGYANG Securities




77  TONGYANG Securities Inc.
                                                                                                                 Company Report




P/E band                                                               P/B band

(W'000)                                                                 (W'000)
 70                                                                       70

 60                                                                       60
 50                                                                       50
 40                                                                       40
 30                                                                       30
 20                     Price (adj)              7.0 x                    20                  Price (adj)                0.7 x
 10                     8.3 x                    9.5 x                                        0.8 x                      0.9 x
                                                                          10
                        10.8 x                   12.0 x                                       1.0 x                      1.1 x
   0                                                                       0
  Jan 2010                                                                Jan 2005          Jan 2008         Jan 2011         Jan 2014


KT (030200 KS) ratings and target price history

                                                                                          Date             Rating          TP (won)
    (won)
                                                          Current Price
   70,000                                                                             2012-11-14             BUY             43,000
                                                          Target Price
   60,000                                                                             2012-11-06             BUY             38,000
   50,000                                                                             2012-10-15             BUY             38,000

   40,000                                                                             2012-10-02             BUY             38,000

   30,000                                                                             2012-08-27             BUY             38,000

   20,000                                                                             2012-08-14             BUY             38,000
                                                                                      2012-08-06             BUY             38,000
   10,000
                                                                                      2012-07-18             BUY             38,000
          0
         Nov 2010 May 2011 Nov 2011 May 2012 Nov 2012                                 2012-06-18             BUY             38,000
                                                                                      2012-06-04             BUY             40,000
Source: TONGYANG Securities



  Disclosures & disclaimers
  This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an
  offer to buy or sell any securities or other financial instruments. The information and data contained in this report have
  been obtained from sources we consider reliable; however, we make no representation that the information provided in this
  report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her
  independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We
  disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This
  report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in
  any manner without the prior written consent of TONGYANG Securities Inc.

  As of the publication date of this report, TONGYANG Securities Inc. does not own a stake in excess of 1%, nor does it have
  any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by TONGYANG
  Securities Inc. to any institutional investors or third parties prior to its publication. As of the date of publication of this report
  TONGYANG Securities Inc. is an issuer and liquidity provider for equity linked warrants backed by the shares of the subject
  company. The analyst (s) of this report or the analyst (s)’ spouse does not have any financial interest in the securities of the
  subject company (ies) mentioned herein, nor financial interest of any nature related to the subject company (ies) (including
  without limitation, whether it consists of any option, right, warrant, future, long or short position), as of the publication date
  of this report.

  Analyst certification
  I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this
  report accurately reflect my/our personal views about the subject securities discussed in this report.

  Stock and sector ratings
    Stock ratings include an Investment Rating (Buy, Hold, Sell) as well as a Volatility Risk Rating (High, Low)
     that are based on the expected absolute return of a stock over the next 6 -12 months.
     - Buy: Low Risk if a stock is expected to return 10% or more; High Risk if a stock is expected to return 20% or more
     - Hold: Low Risk if a stock is expected to return between -10 and +10%; High Risk if a stock is expected to return
     between -20 and +20%
     - Sell: Low Risk if a stock is expected to decline by 10% or more; High Risk if a stock is expected to fall by 20% or more
   Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market
     capitalization weighting.
     - Overweight: Investment weighting is higher than the market capitalization weighting
     - Neutral: Investment weighting is equal to the market capitalization weighting
     - Underweight: Investment weighting is lower than the market capitalization weighting




                                                                                                   TONGYANG Securities Inc.  78
Company Report




LG U+                           (032640 KS)

BUY (M) / TP: W11,500 (M)


  Nam-kon Choi
                                                       2013 to be a memorable year
  namkon.choi@tongyang.co.kr
  +822-3770-3549                                       To show strongest operating leverage in 2013
                                                        In 2013, we expect telcos’ earnings to rise as LTE subscriber growth pushes up
                                                         ARPU. As of end-2012, LG U+’s LTE subscriber portion stood at 42.1% of total
  Soll Kim                                               subscribers, and we expect this to increase to 71.4% by end-2013.
  soll.kim@tongyang.co.kr
  +822-3770-3496
                                                        We expect ARPU to grow to W34,867 by end-2013, close to SKT’s.

                                                        Thanks to high operating leverage, revenue growth should contribute directly
                                                         to operating profit, which we estimate at W548bn for 2013, assuming
                                                         marketing costs rise by W300bn (the lowest among the three telcos). If
                                                         competition remains mild long term, operating profit could break W600bn.
  KOREA
  Wireless telecom                                     Treasury share disposal not priced in
                                                        Despite disposal of treasury shares (15% of total shares outstanding), LG U+’s
 Share price (won, Nov 13)                   7,500       market cap has decreased vs the beginning of 2012. We believe this is
 Paid-in capital (Wbn)                       1,792       because of weak sentiment stemming from its number-three position and its
 Market cap (Wbn)                            3,275       unfavorable dividend policy (no dividend for 2012).
 BPS (won)                                   7,264
 Net debt to equity (%)                      163.2
                                                        However, given continued earnings growth, investor attention should shift to
 Shares outstanding                   436,611,361
                                                         LG U+’s earnings and growth after dividend season is over.
 Avg daily T/O (2M, Wbn)                          18
 Avg daily vol (2M, shrs)                2,487,325
                                                       Maintain as top pick with target price of W11,500
 52-week high (won)                          7,800
 52-week low (won)                           5,130      LG U+ should see strong earnings from 1Q13 on the end of depreciation
 Foreign ownership (%)                         25.1      (W216bn). Its P/E will likely fall below 10x and ROE should rise to 8%.
 Major shareholders (%)
                   LG Corp & others 30.6                Howeverr, we maintain our price target of W11,500, given: 1) regulatory
                                                         pressure; 2) stronger-than-expected competition; and 3) potential stock
                                                         overhang (eg, KEPCO holdings).
 Stock performance (%)
                   1M                3M        12M                                                                                                       (Wbn)
                                                       Forecasts and valuations (K-IFRS)
 Absolute         15.4               5.6        18.7
                                                       FY ends Dec                   2010A           2011A             2012F            2013F            2014F
 Relative         (2.3)             (2.2)        1.4
 Abs (US$)        17.6               9.6        22.7   Sales                          8,501            9,256           10,921           11,609           12,398
                                                       Chg (% y-y)                     71.4              8.9             18.0              6.3                 6.8
    (won)                                        (%)
                                                       Reported OP                      129              215              130              548                683
    9,000                                        140

    8,000
                                                       Adjusted OP*                     655              286              130              548                683
                                                 120
    7,000                                              Net profit, CI                   570               85              -42              262                367
                                                 100
    6,000

    5,000                                        80
                                                       EPS, CI (won)                  1,113              164             -117              732               1,023
    4,000                                        60    Chg (% y-y)                      5.3            -85.3           -171.3           -725.6                39.8
    3,000
                                                 40
                                                       P/E (x)                          7.0             36.9            -64.2             10.2                 7.3
    2,000
                                                 20
    1,000                                              P/B (x)                          0.9              0.7              0.9              0.8                 0.7
        0                                         0
       Nov 2010      Nov 2011               Nov 2012   EV/EBITDA (x)                    4.4              4.9              5.7              5.1                 4.7
                    LG Uplus(LHS)
                                                       ROA (%)                          9.1              0.9              -0.4             2.2                 2.9
                    Rel. to KOSPI(RHS)

                                                       ROE (%)                         19.2              2.2              -1.2             8.0                10.3
 Source: Datastream                                    Note: * Adjusted OP = reported OP (K-IFRS) – other operating profit/loss. CI = controlling interest
                                                       Source: TONGYANG Securities



   www.tys.co.kr/english                                                                                                         TONGYANG Research
LG U+ (032640 KS)


  LG U+ (032640 KS) pro forma financial statements (K-IFRS, consolidated)
 Statement of comprehensive income                                                       Statement of financial position
 FY ends Dec (Wbn)                2010A     2011A      2012F        2013F    2014F       FY ends Dec (Wbn)             2010A    2011A    2012F    2013F    2014F
 Sales                             8,501     9,256    10,921        11,609   12,398      Current assets                2,160    2,623    3,203    3,488    3,813
 Cost of sales                          0         0            0         0         0        Cash & cash equiv            538      119      198      112      338
 Gross profit                      7,975      9,185    10,921       11,609   12,398         Accts rec & other           1,314    1,979    2,357    2,664    2,734
 SG&A                              7,845      8,971    10,790       11,061   11,716         Inventory                    190      372      493      555      583
 Adj operating profit*               655        286          130       548      683      Non-current assets            6,365    8,425    8,624    8,957    9,089
 Other op prof/loss                    0          0            0        0          0        Tangible assets             4,870    5,631    5,972    6,254    6,336
   Forex gain/loss                      0         0            0         0         0        Investment in affiliate       11       12       12       12       12
   Net interest income                  0         0            0         0         0        Other non-current             83       84       76       76       76
   Other                                0         0            0         0         0     Total assets                   8,525   11,049   11,827   12,445   12,902
 Operating profit                    129        215          130       548      683      Current liabilities            2,612    3,960    3,860    4,092    4,123
 EBITDA                            1,383      1,404        1,474     1,708    1,844         Accts payable & other       1,541    2,519    2,623    2,688    2,741
 Non-op profit/loss                  -87      -117          -236     -212      -213         ST financial liabilities     225      270      370      507      455
   Forex gain/loss                     2          0            0        0          0        Liquid LT liabilities        654      994      676      703      732
   Net interest inc                  -84        -95         -139      -153     -154      Non-current liabilities        1,965    3,229    4,824    4,948    5,072
   Equity-meth gain/loss                2         1            1         0         0       LT financial liabilities      302     1,360    2,680    2,760    2,840
   Other                               -8       -23          -98       -59      -59        Debentures                  1,530    1,236    1,596    1,636    1,676
 Net prof before income tax          568        168         -105       336      470      Total liabilities              4,577    7,189    8,684    9,039    9,194
   Income tax                          -2        84          -64        74      103      Equity, controlling int       3,947    3,858    3,142    3,404    3,706
 Net profit from cont op             570         85          -42       263      367         Paid-in capital             2,574    2,574    1,792    1,792    1,792
 Net profit from discont op            0          0            0        0          0        Capital surplus              837      837      837      837      837
 Net profit                          570         85          -42      263       367         Retained earnings           1,240    1,161    1,055    1,317    1,619
 NP for controlling int              570         85          -42       262      367      Equity, non-control int           2        2        1        1        2
 Total comprehensive inc             567         62          -46       263      367      Total equity                   3,948    3,859    3,143    3,406    3,707
 TCI for controlling int             567         62          -46       262      367      Net debt                       2,159    3,733    5,128    5,498    5,368
  Note: 1. Adjusted op profit = gross profit - SG&A                                      Total debt                     2,748    3,886    5,362    5,647    5,744
         2. EBITDA is based on adjusted operating profit


 Cash flow statement                                                                     Valuation
 FY ends Dec (Wbn)                2010A     2011A      2012F        2013F    2014F       FY ends Dec                   2010A    2011A    2012F    2013F    2014F
 Operating cash flow               1,284       298         1,130     1,353    1,700      EPS (won)                      1,113     164      -117     732     1,023
   Net profit                        570         85          -42       263      367      BPS (won)                      9,034    8,861    8,765    9,497   10,339
   Depreciation & amort            1,008        935        1,085     1,118    1,118      EBITDA/shr (won)               2,700    2,728    4,113    4,764    5,144
   Forex gain/loss                      0         1            0         0         0     SPS (won)                     16,597   17,981   30,469   32,389   34,591
   Affiliate invest gain/loss          -2        -1            -1        0         0     DPS (won)                       350      150        0      150      150
   Inc(dec) net working cap          -82     -1,073         -321      -289       -46     P/E (x)                          7.0     36.9    -64.2     10.2      7.3
   Other                            -211        352          409       261      261      P/B (x)                          0.9      0.7      0.9      0.8      0.7
 Investing cash flow              -1,093    -1,694     -1,771       -1,478   -1,278      EV/EBITDA (x)                    4.4      4.9      5.7      5.1      4.7
   Investment                        -20        -11            0         0         0     PSR (x)                          0.5      0.3      0.2      0.2      0.2
   Inc in tangible assets         -1,183     -1,357        -1,688   -1,400   -1,200
   Dec in tangible assets             21         29            8         0         0     Key financial data
   Other                              89       -356          -91       -78       -78     FY ends Dec                   2010A    2011A    2012F    2013F    2014F
 Financing cash flow                 199        977          817       337       85      Sales (% y-y)                   71.4      8.9     18.0      6.3      6.8
   Inc(dec) in ST fin liab          -351         45          100      137       -52      Operating profit (% y-y)       -62.5     65.9    -39.2    320.0     24.6
   Inc(dec) in LT fin liab           643      1,063        1,338       147      149      Adjusted OP (% y-y)             84.0    -56.4    -54.3    320.0     24.6
   Inc(dec) in equity                   0         0         -782         0         0     NP, CI (% y-y)                  94.5    -85.1   -149.5   -726.8     39.7
   Cash dividend                    -120       -151          -65         0       -65     Gross margin (%)                93.8     99.2    100.0    100.0    100.0
   Other                              26         21          225        53       53      Operating margin (%)             1.5      2.3      1.2      4.7      5.5
 Other cash flow                        0         0          -97      -298     -281      Adj OP margin (%)                7.7      3.1      1.2      4.7      5.5
 Inc (dec) in cash & eq              389       -419           79       -86      226      NP, CI margin (%)                6.7      0.9     -0.4      2.3      3.0
  Beginning cash & equiv             148        538          119       198      112      EBITDA margin (%)               16.3     15.2     13.5     14.7     14.9
  Ending cash & equiv                538        119          198       112      338      ROIC (%)                         3.4      1.8      0.8      5.8      6.8
 NOPLAT                               13         21           13        55       68      ROA (%)                          9.1      0.9     -0.4      2.2      2.9
 FCF                                 118     -1,132         -614      -101      448      ROE (%)                         19.2      2.2     -1.2      8.0     10.3

                                                                                         Debt-to-equity (%)             115.9    186.3    276.3    265.4    248.0
                                                                                         Net debt-to-equity (%)          54.7     96.8    163.2    161.5    144.9
                                                                                         OP/financing cost (x)            1.0      1.3      0.6      2.4      3.0
  Note: EPS, BPS, P/E and P/B are based on controlling interest
  For valuation metrics such as P/E, historical figures are based on annual averages, estimates on current price
  For ROA or ROE, assets and equity are averages of end-of-year figures for given year and year prior
  Data to 2010 based on K-GAAP and from 2011, K-IFRS
  Source: TONGYANG Securities




80  TONGYANG Securities Inc.
                                                                                                            Company Report




P/E band                                                            P/B band

(W'0 0 0 )                                     P ric e (adj)         (W'0 0 0 )             P ric e (adj)            0 .3 x
                                               6 .4 x                                       0 .5 x                   0 .7 x
 80                                            1 9 .8 x
                                                                      10                    0 .8 x                   1 .0 x
 70                                            3 3 .2 x
 60                                            4 6 .6 x                 9
                                               6 0 .0 x                 8
 50
                                                                        7
 40
                                                                        6
 30
                                                                        5
 20
                                                                        4
 10                                                                     3
   0                                                                    2
-10                                                                     1
-20                                                                     0
 J an 2 0 1 0                        Jan 2 0 1 2                      Jan 2 0 1 0        J an 2 0 1 1       J an 2 0 1 2



LG U+ (032640 KS) ratings and target price history

                                                                                      Date              Rating        TP (won)
   (won)
                                                       Current Price
   14,000                                                                         2012-11-14             BUY               11,500
                                                       Target Price
   12,000                                                                         2012-11-02             BUY               11,500
   10,000                                                                         2012-10-02             BUY               11,500

       8,000                                                                      2012-09-03             BUY               11,500

       6,000                                                                      2012-08-27             BUY               10,000

       4,000                                                                      2012-08-01             BUY               10,000
                                                                                  2012-07-18             BUY               10,000
       2,000
                                                                                  2012-06-18             BUY               10,000
           0
          Nov 2010 May 2011 Nov 2011 May 2012 Nov 2012                            2012-06-04             BUY               10,000
                                                                                  2012-05-10             BUY               10,000
Source: TONGYANG Securities



  Disclosures & disclaimers
  This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an
  offer to buy or sell any securities or other financial instruments. The information and data contained in this report have
  been obtained from sources we consider reliable; however, we make no representation that the information provided in this
  report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her
  independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We
  disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This
  report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in
  any manner without the prior written consent of TONGYANG Securities Inc.

  As of the publication date of this report, TONGYANG Securities Inc. does not own a stake in excess of 1%, nor does it have
  any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by TONGYANG
  Securities Inc. to any institutional investors or third parties prior to its publication. The analyst (s) of this report or the
  analyst (s)’ spouse does not have any financial interest in the securities of the subject company (ies) mentioned herein, nor
  financial interest of any nature related to the subject company (ies) (including without limitation, whether it consists of any
  option, right, warrant, future, long or short position), as of the publication date of this report.


  Analyst certification
  I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this
  report accurately reflect my/our personal views about the subject securities discussed in this report.


  Stock and sector ratings
    Stock ratings include an Investment Rating (Buy, Hold, Sell) as well as a Volatility Risk Rating (High, Low)
     that are based on the expected absolute return of a stock over the next 6 -12 months.
     - Buy: Low Risk if a stock is expected to return 10% or more; High Risk if a stock is expected to return 20% or more
     - Hold: Low Risk if a stock is expected to return between -10 and +10%; High Risk if a stock is expected to return
     between -20 and +20%
     - Sell: Low Risk if a stock is expected to decline by 10% or more; High Risk if a stock is expected to fall by 20% or more
   Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market
     capitalization weighting.
     - Overweight: Investment weighting is higher than the market capitalization weighting
     - Neutral: Investment weighting is equal to the market capitalization weighting
     - Underweight: Investment weighting is lower than the market capitalization weighting




                                                                                               TONGYANG Securities Inc.  81
Company Report




KT Skylife                                               (053210 KS)

BUY (M) / TP: W43,000 (U)


  Nam-kon Choi
                                                            Growth in P and Q to drive 2013
  namkon.choi@tongyang.co.kr
  +822-3770-3549                                            To post highest growth among domestic telco/media plays
                                                             We expect 2013 sales to rise 17.6% y-y and 2014 18.9% y-y, based on
                                                              subscription revenue and home shopping commission growth, both of which
  Soll Kim                                                    are attributable to strong subscriber additions. Home shopping commissions
  soll.kim@tongyang.co.kr
                                                              should rise from W63.3bn in 2012 to W100bn in 2013 and W140bn in 2014.
  +822-3770-3496

                                                             Monthly subscriber additions recovered to 50,000 in 3Q12 and will likely stay
                                                              at this level in 2013 as digital switchover should wrap up by end-2013 and a
                                                              solution is expected to emerge to the “dish convergence solution” (DCS) issue.
                                                              Moreover, it is investing W10bn per year to build satellite master antenna TV
                                                              (SMATV). It plans to establish SMATV for about 800,000 households in 2012
  KOREA                                                       alone, and has already reached a total of 1.38mn as of 1H12.
  Media/entertainment
                                                            Highest margins among telecom/media platform service plays
 Share price (won, Nov 13)                   32,700          KT Skylife posted the highest ROE among telecom/media platform service
 Paid-in capital (Wbn)                         119            providers. We forecast ROE at 16.5% for 2012 and 25.6% for 2013.
 Market cap (Wbn)                            1,559
 BPS (won)                                   7,207
                                                             Home shopping commissions are expected to surge. Also, set-top box
 Net debt to equity (%)                       -14.1
                                                              purchase costs fell from W122,000 (with KT Skylife paying for W62,000, KT
 Shares outstanding                      47,666,614
                                                              paying the rest) to W86,000 in Aug 2012 (KT Skylife paying W43,000).
 Avg daily T/O (2M, Wbn)                             9
                                                              Moreover, subscriber acquisition cost has declined to W43,000~45,000.
 Avg daily vol (2M, shrs)                  300,237
 52-week high (won)                         34,300
 52-week low (won)                          17,400
                                                            Applied P/E of 20x, reflecting valuation premium
 Foreign ownership (%)                          8.9          We believe KT Skylife deserves a valuation premium, given high growth
 Major shareholders (%)                                       potential, home shopping commissions (expected to rise), and the highest
                   KT Corp & others 50.3                      margins among peers.

                                                             We reinstate coverage on KT Skylife at BUY with a target price of W43,000,
 Stock performance (%)
                                                              based on a P/E of 20x and 2013 EPS.
                   1M                 3M       12M
 Absolute          9.4            30.8         24.6
                                                            Forecasts and valuations (K-IFRS, separate)                                                       (Wbn)
 Relative         (2.3)           (2.2)         1.4
 Abs (US$)        11.5            35.7         28.8          FY ends Dec                  2010A           2011A             2012F            2013F            2014F
                                                             Sales                           427              464              533              627                745
    (won)                                       (%)
                                                             Chg (% y-y)                     7.6              8.7             14.9             17.6                18.8
   40,000                                       250

   35,000
                                                             Reported OP                      45               42               67              127                202
                                                200
   30,000                                                    Adjusted OP*                     45               42               67              127                202
   25,000
                                                150
                                                             Net profit, CI                   34               31               52              101                164
   20,000

   15,000
                                                100          EPS, CI (won)                   983              703            1,097            2,121               3,442
   10,000                                                    Chg (% y-y)                    34.7            -28.5             56.0             93.3                62.3
                                                50
    5,000
                                                             P/E (x)                         0.0             38.1             29.8             15.4                 9.5
        0                                       0
       Jun 2011                 Jun 2012
                                                             P/B (x)                         0.0              4.4              4.5              3.5                 2.5
                    KT Skylife(LHS)

                    Rel. to KOSPI(RHS)                       EV/EBITDA (x)                   1.6             14.2             12.5              7.7                 4.9
                                                             ROA (%)                         7.0              6.0              9.5             16.0                21.4
 Source: Datastream                                          ROE (%)                        34.8             16.4             16.5             25.6                31.0
                                                            Note: * Adjusted OP = reported OP (K-IFRS) – other operating profit/loss. CI = controlling interest
                                                            Source: TONGYANG Securities

   www.tys.co.kr/english                                                                                                             TONGYANG Research
KT Skylife (053210 KS)


  KT Skylife (053210 KS) pro forma financial statements (K-IFRS, separate)
 Statement of comprehensive income                                                       Statement of financial position
 FY ends Dec (Wbn)                2010A     2011A      2012F      2013F      2014F       FY ends Dec (Wbn)            2010A    2011A    2012F    2013F    2014F
 Sales                               427       464         533       627        745      Current assets                 266      220      240      336      483
 Cost of sales                          0         0          0          0          0       Cash & cash equiv             77       41       79      153      273
 Gross profit                        427        464        533       627        745        Accts rec & other            103      106      107      124      144
 SG&A                                381        423        467       500        544        Inventory                      6        2        2        3        3
 Adj operating profit*                45         42         67       127        202      Non-current assets             258      303      337      348      364
 Other op prof/loss                    0          0          0          0          0       Tangible assets              145      200      219      221      222
   Forex gain/loss                      0         0          0          0          0       Investment in affiliate       14       20       20       20       20
   Net interest income                  0         0          0          0          0       Other non-current              7        8        8        9        9
   Other                                0         0          0          0          0     Total assets                   524      523      577      684      847
 Operating profit                     45         42         67       127        202      Current liabilities            193      224      148      172      184
 EBITDA                               83         89        120       182        258        Accts payable & other        130      116      132      153      162
 Non-op profit/loss                  -17         -3          2          6        13        ST financial liabilities       0        0        0        0        0
   Forex gain/loss                     0          0          0          0          0       Liquid LT liabilities         60      100        1        1        1
   Net interest inc                  -11         -2          2          6        13      Non-current liabilities        239        8       85       66       52
   Equity-meth gain/loss                0         0          0          0          0      LT financial liabilities        2        1        1        1        1
   Other                               -6        -1          0          0          0      Debentures                    160        0       80       60       45
 Net prof before income tax           28         39         69       133        215      Total liabilities              433      233      234      238      235
   Income tax                          -6         7         16         31        51      Equity, controlling int         91      290      344      446      612
 Net profit from cont op              34         31         52       101        164        Paid-in capital               85      119      119      119      119
 Net profit from discont op            0          0          0          0          0       Capital surplus               26      158      158      158      158
 Net profit                           34         31        52        101        164        Retained earnings             -20      10       63      164      328
 NP for controlling int               34         31         52       101        164      Equity, non-control int          0        0        0        0        0
 Total comprehensive inc              34         33         53       103        166      Total equity                    91      290      344      446      612
 TCI for controlling int              34         33         53       103        166      Net debt                       130       -10      -48     -147     -287
  Note: 1. Adjusted op profit = gross profit - SG&A                                      Total debt                     285      102       81       61       46
         2. EBITDA is based on adjusted operating profit


 Cash flow statement                                                                     Valuation
 FY ends Dec (Wbn)                2010A     2011A      2012F      2013F      2014F       FY ends Dec                  2010A    2011A    2012F    2013F    2014F
 Operating cash flow                 100         90        116       157        203      EPS (won)                      983      703     1,097    2,121    3,442
   Net profit                         34         31         52       101        164      BPS (won)                     2,304    6,086    7,207    9,360   12,834
   Depreciation & amort               24         38         45         46        46      EBITDA/shr (won)              2,095    1,964    2,525    3,823    5,405
   Forex gain/loss                      0         0          0          0          0     SPS (won)                    10,784   10,197   11,184   13,150   15,637
   Affiliate invest gain/loss           0         0          0          0          0     DPS (won)                        0        0        0        0        0
   Inc(dec) net working cap           16         -2          3         -1        -19     P/E (x)                         0.0     38.1     29.8     15.4      9.5
   Other                              26         22         16         11        12      P/B (x)                         0.0      4.4      4.5      3.5      2.5
 Investing cash flow                 -90      -107         -44       -65        -65      EV/EBITDA (x)                   1.6     14.2     12.5      7.7      4.9
   Investment                         48          7          0          0          0     PSR (x)                         0.0      2.6      2.9      2.5      2.1
   Inc in tangible assets            -91        -98        -66        -48        -48

   Dec in tangible assets               0         1          0          0          0     Key financial data
   Other                             -47        -17         22        -17        -17     FY ends Dec                  2010A    2011A    2012F    2013F    2014F
 Financing cash flow                    2       -19        -20        -19        -14     Sales (% y-y)                   7.4      8.8     14.8     17.6     18.9
   Inc(dec) in ST fin liab             0          0          0          0          0     Operating profit (% y-y)       40.6     -7.9     59.3     90.5     59.1
   Inc(dec) in LT fin liab              2       -60        -21        -20        -15     Adjusted OP (% y-y)            40.6     -7.9     59.3     90.5     59.1
   Inc(dec) in equity                   0        41          0          0          0     NP, CI (% y-y)                 36.9     -8.0     67.4     93.2     62.3
   Cash dividend                        0         0          1          1          1     Gross margin (%)              100.0    100.0    100.0    100.0    100.0
   Other                                0         0          0          0          0     Operating margin (%)           10.6      9.0     12.5     20.2     27.0
 Other cash flow                        0         0        -14          0         -4     Adj OP margin (%)              10.6      9.0     12.5     20.2     27.0
 Inc (dec) in cash & eq               12        -36         38         74       120      NP, CI margin (%)               8.0      6.7      9.8     16.1     22.0
  Beginning cash & equiv              65         77         41         79       153      EBITDA margin (%)              19.4     19.3     22.6     29.1     34.6
  Ending cash & equiv                 77         41         79       153        273      ROIC (%)                       39.4     16.9     22.3     43.0     66.7
 NOPLAT                                 5         4          7         13        20      ROA (%)                         7.0      6.0      9.5     16.0     21.4
 FCF                                  17        -19         41       103        143      ROE (%)                        34.8     16.4     16.5     25.6     31.0

                                                                                         Debt-to-equity (%)            474.8     80.2     68.0     53.4     38.5
                                                                                         Net debt-to-equity (%)        142.2     -3.4    -14.1    -32.9    -47.0
                                                                                         OP/financing cost (x)           2.3      4.1     14.8     43.3     68.9
  Note: EPS, BPS, P/E and P/B are based on controlling interest
  For valuation metrics such as P/E, historical figures are based on annual averages, estimates on current price
  For ROA or ROE, assets and equity are averages of end-of-year figures for given year and year prior
  Data to 2010 based on K-GAAP and from 2011, K-IFRS
  Source: TONGYANG Securities




83  TONGYANG Securities Inc.
                                                                                                                 Company Report




P/E band                                                               P/B band

(W'0 0 0 )                                                              (W'0 0 0 )

 60                Price (a dj)             30.0 x
                                                                         50               P rice (adj)               2.0 x
                   35.0 x                   40.0 x
                   45.0 x                   50.0 x                       45               3.0 x                      4.0 x
 50                                                                                       5.0 x                      6.0 x
                                                                         40
 40                                                                      35
                                                                         30
 30                                                                      25
                                                                         20
 20
                                                                         15
 10                                                                      10
                                                                          5
  0                                                                        0
 Jan 2010                                                                 Jan 2010


KT Skylife (053210 KS) ratings and target price history

                                                                                          Date             Rating          TP (won)
    (won)
                                                          Current Price
   50,000                                                                             2012-11-14             BUY             43,000
                                                          Target Price
   45,000
                                                                                                     Analyst changed
   40,000
   35,000                                                                             2012-08-06             BUY             33,000
   30,000                                                                             2012-07-16             BUY             33,000
   25,000
                                                                                      2012-07-03             BUY             33,000
   20,000
   15,000                                                                             2012-05-07             BUY             33,000
   10,000                                                                             2012-02-06             BUY             33,000
    5,000
                                                                                      2011-11-21             BUY             33,000
        0
       Jun 2011             Dec 2011           Jun 2012          Dec 2012             2011-11-07             BUY             33,000


Source: TONGYANG Securities



  Disclosures & disclaimers
  This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an
  offer to buy or sell any securities or other financial instruments. The information and data contained in this report have
  been obtained from sources we consider reliable; however, we make no representation that the information provided in this
  report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her
  independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We
  disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This
  report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in
  any manner without the prior written consent of TONGYANG Securities Inc.

  As of the publication date of this report, TONGYANG Securities Inc. does not own a stake in excess of 1%, nor does it have
  any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by TONGYANG
  Securities Inc. to any institutional investors or third parties prior to its publication. As of the date of publication of this report
  TONGYANG Securities Inc. is an issuer and liquidity provider for equity linked warrants backed by the shares of the subject
  company. The analyst (s) of this report or the analyst (s)’ spouse does not have any financial interest in the securities of the
  subject company (ies) mentioned herein, nor financial interest of any nature related to the subject company (ies) (including
  without limitation, whether it consists of any option, right, warrant, future, long or short position), as of the publication date
  of this report.

  Analyst certification
  I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this
  report accurately reflect my/our personal views about the subject securities discussed in this report.

  Stock and sector ratings
    Stock ratings include an Investment Rating (Buy, Hold, Sell) as well as a Volatility Risk Rating (High, Low)
     that are based on the expected absolute return of a stock over the next 6 -12 months.
     - Buy: Low Risk if a stock is expected to return 10% or more; High Risk if a stock is expected to return 20% or more
     - Hold: Low Risk if a stock is expected to return between -10 and +10%; High Risk if a stock is expected to return
     between -20 and +20%
     - Sell: Low Risk if a stock is expected to decline by 10% or more; High Risk if a stock is expected to fall by 20% or more
   Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market
     capitalization weighting.
     - Overweight: Investment weighting is higher than the market capitalization weighting
     - Neutral: Investment weighting is equal to the market capitalization weighting
     - Underweight: Investment weighting is lower than the market capitalization weighting




                                                                                                   TONGYANG Securities Inc.  84
Company Report




SK Broadband                                                          (033630 KS)

HOLD (M) / TP: W4,400 (U)


  Nam-kon Choi
                                                            IPTV business key to growth
  namkon.choi@tongyang.co.kr
  +822-3770-3549                                            IPTV becomes key growth driver
                                                             IPTV subscribers rose from 980,000 at end-2011 to 1.3mn at end-Sep 2012.
                                                              We believe SKBB is well on its way to its 2012 subscriber goal of 1.4mn.
  Soll Kim
  soll.kim@tongyang.co.kr                                    The growth in IPTV subscribers was driven by: 1) a broad migration from
  +822-3770-3496
                                                              analog to digital; 2) enhanced competitiveness vs cable TV and strong sales of
                                                              bundled products; and 3) strategic support from the SK Group.

                                                             Home shopping commission continues to grow (from W12bn in 2011 to W30bn
                                                              in 2012E). We expect it to keep growing to over W40bn in 2013.

  KOREA                                                      Going forward, IPTV subscribers should exceed 2.1mn, with about 70~80%
  Wireline telecom                                            being broadband subscribers.


 Share price (won, Nov 13)                    4,710         Earnings improving at Broadband Media
 Paid-in capital (Wbn)                        1,480          Thanks to a decrease in depreciation cost, Broadband Media is likely to turn
 Market cap (Wbn)                             1,394           around from an operating loss of W9.6bn in 2011 to a profit of W10bn in 2012.
 BPS (won)                                    3,744           We expect its 2013 operating profit to come in at W40bn, which should boost
 Net debt to equity (%)                       122.3
                                                              SK Broadband’s consolidated earnings.
 Shares outstanding                 295,959,087
 Avg daily T/O (2M, Wbn)                                5
                                                             We expect SKBB’s revenue to grow 5.8% y-y in 2013. Operating profit should
 Avg daily vol (2M, shrs)                 1,394,992
                                                              also rise from W71.2bn in 2012 to W135.1bn in 2013. Net profit is estimated
 52-week high (won)                           4,710
                                                              at W80.9bn.
 52-week low (won)                            2,805
 Foreign ownership (%)                            3.4
 Major shareholders (%)
                                                            Maintain HOLD, but revise up target price to W4,400
                           SKT & others 50.7                 IPTV subscribers will likely continue to grow into 2014. While we maintain
                                                              HOLD, we revise up our target price to W4,400, based on a 2013 P/E of 15x,
                                                              the highest multiple among telcos, given renewed interest in “new media.”
 Stock performance (%)
                   1M               3M          12M                                                                                                           (Wbn)
                                                            Forecasts and valuations (K-IFRS)
 Absolute         17.8            57.5           25.6
                                                            FY ends Dec                   2010A           2011A             2012F            2013F            2014F
 Relative         (4.8)             7.4           2.7
 Abs (US$)        20.1            63.5           29.8       Sales                          2,137            2,313            2,485            2,625               2,731
                                                            Chg (% y-y)                     12.2              8.2              7.3              5.8                 4.0
    (won)                                         (%)
                                                            Reported OP                      -37               47               71              135                180
    6,000                                         120
                                                            Adjusted OP*                       -3              82              150              135                180
    5,000                                         100
                                                            Net profit, CI                  -120              -14               16               81                125
    4,000                                         80
                                                            EPS, CI (won)                   -405              -48               55              273                423
    3,000                                         60
                                                            Chg (% y-y)                    -59.0            -88.1           -214.6            396.4                54.9
    2,000                                         40
                                                            P/E (x)                        -13.4            -86.7             86.3             17.2                11.1
    1,000                                         20
                                                            P/B (x)                          1.4              1.1              1.3              1.2                 1.1
        0                                          0
       Nov 2010       Nov 2011               Nov 2012       EV/EBITDA (x)                    6.9              4.8              5.0              4.4                 3.9
                    SK Broadband(LHS)
                                                            ROA (%)                          -3.7             -0.4             0.5              2.5                 3.8
                    Rel. to KOSDAQ(RHS)

                                                            ROE (%)                        -10.2              -1.3             1.5              7.0                10.0
 Source: Datastream                                         Note: * Adjusted OP = reported OP (K-IFRS) – other operating profit/loss. CI = controlling interest
                                                            Source: TONGYANG Securities



   www.tys.co.kr/english                                                                                                             TONGYANG Research
SK Broadband (033630 KS)


  SK Broadband (033630 KS) pro forma financial statements (K-IFRS, consolidated)
 Statement of comprehensive income                                                       Statement of financial position
 FY ends Dec (Wbn)                2010A     2011A      2012F       2013F     2014F       FY ends Dec (Wbn)            2010A     2011A     2012F    2013F    2014F
 Sales                             2,137     2,313         2,485   2,625      2,731      Current assets                 573        899      655      761     905
 Cost of sales                          0         0           0         0          0       Cash & cash equiv              5        224       43      121      246
 Gross profit                      2,123      2,295        2,485   2,625      2,731        Accts rec & other            356        394      397      421      437
 SG&A                              2,141      2,231        2,330   2,490      2,551        Inventory                     31         27       29       31       33
 Adj operating profit*                 -3        82          150     135        180      Non-current assets           2,669      2,497    2,480    2,455    2,436
 Other op prof/loss                  -19        -17          -79        0          0       Tangible assets             2,199     2,096    2,097    2,066    2,042
   Forex gain/loss                      0         0           0         0          0       Investment in affiliate       23         22       22       24       26
   Net interest income                  0         0           0         0          0       Other non-current            104         41       40       40      40
   Other                             -19        -17          -79        0          0     Total assets                  3,241     3,396    3,135    3,216    3,341
 Operating profit                    -37         47          71      135        180      Current liabilities           1,270     1,636      958      956      953
 EBITDA                              438        519          548     606        644        Accts payable & other        475        490      394      397      401
 Non-op profit/loss                  -97        -79          -55     -54        -54        ST financial liabilities     414        511      509      503      498
   Forex gain/loss                    14         -8          15         1          1       Liquid LT liabilities        368        618       36       36       36
   Net interest inc                  -94        -78          -58      -55        -56     Non-current liabilities        856        666    1,069    1,071    1,073
   Equity-meth gain/loss                0        -1           1         0          0      LT financial liabilities       26         25       27       28       30
   Other                             -17          8          -13        0          0      Debentures                    717        538      957      957     957
 Net prof before income tax         -120        -14          16        81       125      Total liabilities             2,126     2,302    2,027    2,027    2,026
   Income tax                           0         0           0         0          0     Equity, controlling int      1,115      1,093    1,108    1,189    1,314
 Net profit from cont op            -120        -14          16        81       125        Paid-in capital             1,480     1,480    1,480    1,480    1,480
 Net profit from discont op            0          0           0         0          0       Capital surplus              301        306      306      306      306
 Net profit                         -120        -14          16       81        125        Retained earnings           -689       -705     -687     -606     -481
 NP for controlling int             -120        -14          16        81       125      Equity, non-control int          0          0        0        0        0
 Total comprehensive inc            -135        -22          15        81       125      Total equity                  1,115     1,093    1,108    1,189    1,314
 TCI for controlling int            -135        -22          15        81       125      Net debt                      1,413     1,284    1,355    1,271    1,140
  Note: 1. Adjusted op profit = gross profit - SG&A                                      Total debt                    1,584     1,735    1,561    1,556    1,552
         2. EBITDA is based on adjusted operating profit


 Cash flow statement                                                                     Valuation
 FY ends Dec (Wbn)                2010A     2011A      2012F       2013F     2014F       FY ends Dec                  2010A     2011A     2012F    2013F    2014F
 Operating cash flow                 276       391          376      591        638      EPS (won)                     -405        -48       55      273      423
   Net profit                       -120        -14          16        81       125      BPS (won)                    3,767      3,694    3,744    4,017    4,440
   Depreciation & amort              475        472          477     471        464      EBITDA/shr (won)             1,481      1,754    1,853    2,048    2,175
   Forex gain/loss                   -14          7          -15       -1         -1     SPS (won)                    7,222      7,814    8,382    8,871    9,227
   Affiliate invest gain/loss           0         1           -1        0          0     DPS (won)                        0          0        0        0        0
   Inc(dec) net working cap         -154        -90         -138        6        15      P/E (x)                       -13.4     -86.7     86.3     17.2     11.1
   Other                              88         16          36        35        34      P/B (x)                         1.4       1.1       1.3     1.2      1.1
 Investing cash flow                -295      -299         -421     -445       -445      EV/EBITDA (x)                   6.9       4.8       5.0     4.4      3.9
   Investment                           7         0           2        -2         -2     PSR (x)                         0.8       0.5       0.6     0.5      0.5
   Inc in tangible assets           -234       -304         -419    -440       -440
   Dec in tangible assets             76         25           5         0          0     Key financial data
   Other                            -144        -20           -8       -3         -3     FY ends Dec                  2010A     2011A     2012F    2013F    2014F
 Financing cash flow                -110        127         -114       -4         -4     Sales (% y-y)                  12.2       8.2       7.3     5.8      4.0
   Inc(dec) in ST fin liab           -70         98           -2       -6         -6     Operating profit (% y-y)      -76.5    -229.2     50.2     89.7     32.9
   Inc(dec) in LT fin liab           -40         30         -112        2          2     Adjusted OP (% y-y)           -97.8   -2,536.6    83.3     -10.2    32.9
   Inc(dec) in equity                   0         0           0         0          0     NP, CI (% y-y)                -54.5     -88.2    -214.0   400.7     54.7
   Cash dividend                        0         0           0         0          0     Gross margin (%)               99.3      99.3    100.0    100.0    100.0
   Other                                0         0           0         0          0     Operating margin (%)           -1.7       2.1       2.9     5.1      6.6
 Other cash flow                        0         0          -22      -64        -63     Adj OP margin (%)              -0.2       3.5       6.1     5.1      6.6
 Inc (dec) in cash & eq             -129        219         -181       78       125      NP, CI margin (%)              -5.6       -0.6      0.7     3.1      4.6
  Beginning cash & equiv             133          5          224       43       121      EBITDA margin (%)              20.5      22.5     22.1     23.1     23.6
  Ending cash & equiv                   5       224          43      121        246      ROIC (%)                       -1.6       2.1       3.1     5.9      7.8
 NOPLAT                                -4         5           7        14        18      ROA (%)                        -3.7       -0.4      0.5     2.5      3.8
 FCF                                  51        125           -9     172        219      ROE (%)                       -10.2       -1.3      1.5     7.0     10.0

                                                                                         Debt-to-equity (%)           190.7      210.6    182.9    170.5    154.2
                                                                                         Net debt-to-equity (%)       126.8      117.5    122.3    106.9     86.8
                                                                                         OP/financing cost (x)          -0.3       0.5       1.0     2.0      2.7
  Note: EPS, BPS, P/E and P/B are based on controlling interest
  For valuation metrics such as P/E, historical figures are based on annual averages, estimates on current price
  For ROA or ROE, assets and equity are averages of end-of-year figures for given year and year prior
  Data to 2010 based on K-GAAP and from 2011, K-IFRS
  Source: TONGYANG Securities




86  TONGYANG Securities Inc.
                                                                                                                 Company Report




P/E band                                                               P/B band

(W'000)                                                                 (W'000)                   Price (adj)              0.9 x
 10                                                                                               1.1 x                    1.3 x
                                                                           8
   0                                                                                              1.5 x                    1.7 x
                                                                           7
 -10                                                                       6
 -20                                                                       5
 -30                                                                       4
                                                 Price (adj)
 -40                                                                       3
                                                 22.0 x
 -50                                             34.0 x                    2
                                                 46.0 x
 -60                                                                       1
                                                 58.0 x
                                                 70.0 x                    0
 -70
  Jan 2010           Jan 2011           Jan 2012                          Jan 2010            Jan 2011           Jan 2012


SK Broadband (033630 KS) ratings and target price history

                                                                                          Date             Rating          TP (won)
    (won)
                                                          Current Price
     7,000                                                                            2012-11-14            HOLD              4,400
                                                          Target Price
     6,000                                                                            2012-10-02            HOLD              4,000
     5,000                                                                            2012-08-02            HOLD              4,000

     4,000                                                                            2012-05-09            HOLD              5,200

     3,000                                                                            2012-04-03            HOLD              5,200

     2,000                                                                            2012-03-05            HOLD              5,200
                                                                                      2012-01-09            HOLD              5,200
     1,000
                                                                                      2011-11-21            HOLD              5,200
          0
         Nov 2010 May 2011 Nov 2011 May 2012 Nov 2012                                 2011-11-04            HOLD              5,200
                                                                                      2011-08-04            HOLD              5,200
Source: TONGYANG Securities



  Disclosures & disclaimers
  This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an
  offer to buy or sell any securities or other financial instruments. The information and data contained in this report have
  been obtained from sources we consider reliable; however, we make no representation that the information provided in this
  report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her
  independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We
  disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This
  report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in
  any manner without the prior written consent of TONGYANG Securities Inc.

  As of the publication date of this report, TONGYANG Securities Inc. does not own a stake in excess of 1%, nor does it have
  any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by TONGYANG
  Securities Inc. to any institutional investors or third parties prior to its publication. As of the date of publication of this report
  TONGYANG Securities Inc. is an issuer and liquidity provider for equity linked warrants backed by the shares of the subject
  company. The analyst (s) of this report or the analyst (s)’ spouse does not have any financial interest in the securities of the
  subject company (ies) mentioned herein, nor financial interest of any nature related to the subject company (ies) (including
  without limitation, whether it consists of any option, right, warrant, future, long or short position), as of the publication date
  of this report.

  Analyst certification
  I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this
  report accurately reflect my/our personal views about the subject securities discussed in this report.

  Stock and sector ratings
    Stock ratings include an Investment Rating (Buy, Hold, Sell) as well as a Volatility Risk Rating (High, Low)
     that are based on the expected absolute return of a stock over the next 6 -12 months.
     - Buy: Low Risk if a stock is expected to return 10% or more; High Risk if a stock is expected to return 20% or more
     - Hold: Low Risk if a stock is expected to return between -10 and +10%; High Risk if a stock is expected to return
     between -20 and +20%
     - Sell: Low Risk if a stock is expected to decline by 10% or more; High Risk if a stock is expected to fall by 20% or more
   Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market
     capitalization weighting.
     - Overweight: Investment weighting is higher than the market capitalization weighting
     - Neutral: Investment weighting is equal to the market capitalization weighting
     - Underweight: Investment weighting is lower than the market capitalization weighting




                                                                                                   TONGYANG Securities Inc.  87
SK Broadband (033630 KS)

  TONGYANG Securities International Network


  Seoul
  Head Office                                Research Center
  TONGYANG Securities Building               TONGYANG Securities Building
  Euljiro 76 Jung-gu                         #32 Gookjegeumyoongro 2-gil
  Seoul, Korea 100-845                       Youngdeungpo-gu, Seoul, Korea
  Tel: +822-3770-3454                        Tel: +822-3770-3436
  Corporate website: www.tys.co.kr/english

  Hong Kong
  TONGYANG Securities Hong Kong Limited
  #2107, 21F, Hutchison House,
  10 Harcourt Road, Central, Hong Kong
  Tel: +852-3980-6000

  New York
  150 East 52nd Street
  25th Floor New York
  NY 10022, U.S.A.
  Tel: +1-212-415-1008

  Tokyo
  803-3-4-1, Shin-Kokusai Building
  Maronouchi, Chiyoda-ku
  Tokyo, Japan 100-0005
  Tel: +81-3-6269-9720

  Ho Chi Minh
  Suite 2905, Saigon Trade Center
  37 Ton Dou Thang Street
  District 1, Ho Chi Minh City, Vietnam
  Tel: +84-8-910-6711

  Manila
  TONGYANG Savings Bank
  Ground Floor, Chantham House
  116 Valero Corner, Herrera Street
  Salcedo Village, Makati City
  Metro Manila, Philippines
  Tel: +63-2-845-3838

  Phnom Penh
  #138, Norodom Boulevard
  Sangkat Tonle Bassac
  Khan Chamkarmorn
  Phnom Penh, Cambodia
  Tel: +855-23-224-125




4  TONGYANG Securities Inc.

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:5
posted:12/20/2012
language:Unknown
pages:88