090130_Daiwa Securities

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					Company Report

                                                                                                                                   30 January 2009 (No. of pages: 10)

    Megastudy (072870 KS)                                                                                                                                                 6-mth rating:            2
                                                                                                                                           Target price: W211,000 (+20.0%)
    Software: Korea
                                                                                                                                             Share price: W175,800 (29 Jan)

                                                                                                                                                             Thomas Y. Kwon
                                                                                                                                                                     (82) 2 787 9181

    Positive trend in 2009, in spite of economic downturn
    Solid execution in tough times                                                                                                   Reuters code                                         072870.KS

        We maintain our 2 (Outperform) rating for Megastudy, but have                                                                     Market data
                                                                                                                                     KOSPI                                                   1,167
        raised our six-month target price to W211,000 from W205,000,                                                                 Market cap                              (US$m)         808.73
                                                                                                                                     EV                                   (US$m; 08E)        743.1
        based on our blended-valuation method, following our earnings-                                                               3-mth avg daily T/O                     (US$m)           5.27
                                                                                                                                     Shares outstanding                           (m)            6
        forecast revisions and after shifting our investment horizon.                                                                Free float                                   (%)         70.2
                                                                                                                                     Major shareholder                              JE Son (19.8%)
                                                                                                                                     Exchange rate                            W/US$          1,379
    Focus on market share, margins and visibility
                                                                                                                                     Performance (%)*                        1M         3M         6M
        Megastudy recorded revenue of W42.0bn for 4Q08 (up 17.3%                                                                     Absolute                                0.5       30.2     (26.1)
                                                                                                                                     Relative                              (3.7)        8.2      (0.8)
        YoY), due to weaker subscription fees for off-line courses                                                                   Source: Daiwa
                                                                                                                                     Note: *Relative to KOSPI
        related to essay tests. However, its operating-profit margin
        remained high at 24.8% for 4Q08 (25.1% for 4Q07).                                                                                 Investment indicators
                                                                                                                                                                       2008E 2009E 2010E
                                                                                                                                     PER                          (x)    22.0     16.1     13.4
                                                                                                                                     PCFR                         (x)    20.1     14.6     12.0
        With a focused strategy on vertical-market expansion and stable                                                              EV/EBITDA                    (x)    14.2     10.9      9.0
        margins, we believe Megastudy could demonstrate solid                                                                        PBR                          (x)     5.7      4.4      3.5
                                                                                                                                     Dividend yield              (%)      1.0      1.0      1.0
        earnings growth for 2009-10. To reflect management’s forecasts                                                               ROE                         (%)     28.0     30.3     28.4
                                                                                                                                     ROA                         (%)     22.7     25.7     24.9
        for on-line lecture sales, we have revised down our 2009                                                                     Net debt equity             (%) Net cash Net cash Net cash
                                                                                                                                     Source: Daiwa forecasts
        revenue and EPS forecasts by 1.1% and 4.2%, respectively.
                                                                                                                                          Price and relative performance
    Standing out in the storm
        Megastudy trades at a PER of 16.1x on our 2009 EPS forecast,
        substantially lower than its 2004-08 PER range (56.4-22x). We
        believe investors have overlooked its market leadership to
        demonstrate robust earnings growth for 2009-10.
                                                                                                                                     Source: Bloomberg, Daiwa

        We think the stock is attractive, given the company’s solid
        revenue model, which we think will hold up much better than
        those of other domestic companies in the economic downturn.
        We expect Megastudy to benefit strongly from the next upcycle.

      Income summary
                                                   Revenue                          EBITDA                           Net profit                           EPS                  CFPS              DPS
    Year to 31 Dec                               (Wbn)           (%)              (Wbn)           (%)              (Wbn)            (%)             (W)           (%)            (W)              (W)
    2006                                           101          42.6                 34          32.6                 26           26.1           4,346          25.5          4,696              900
    2007                                           163          61.3                 62          79.0                 46           74.6           7,290          67.7          7,816            1,800
    2008E                                          202          23.8                 72          17.3                 51            9.5           7,980           9.5          8,733            1,800
    2009E                                          246          21.6                 94          29.5                 69           37.0          10,935          37.0         12,049            1,800
    2010E                                          285          15.8                113          21.0                 83           20.4          13,164          20.4         14,622            1,800
    Source: Company, Daiwa forecasts
    Notes: The investment indicators and income summary on the front page of this report, as well as the back-page financial summary, are all based on the forex assumptions set out in the table at
           the back of this report, unless stated otherwise. 2008 numbers are preliminary and subject to change after auditing.

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH                                                                                                       Global Equity Research
                            Bucking the consumption trend
Investment opinion          We maintain our 2 rating for Megastudy, but have raised our six-month target price
                            to W211,000 from W205,000 previously, based on our blended valuation approach
                            (DCF and peer-group comparison). Unlike most other consumption-related
                            companies in Korea, we believe Megastudy has a concrete revenue model which
                            will allow it to record solid revenue growth going forward, and the potential to
                            expand through the current economic downturn, backed by a strong market
                            dominance and high-quality education services. We believe a strong performance
                            in on-line education services will drive strong revenue and earnings growth for
                            Megastudy and lead to valuation-multiple expansion.

                            Although the weak economic outlook continues to dampen the earnings prospects
                            of the consumption-related companies in Korea, we believe that stable education
                            spending and a well-balanced revenue mix would help Megastudy to cope with the
                            current difficult business environment. In 2009, Megastudy is eager to increase its
                            market share, which we believe would set the company up to outperform during the
                            next upturn in the domestic consumption cycle.

Target price raised due     We have raised our six-month target price to W211,000, from W205,000, based on
to improving outlook        our blended-valuation method (DCF and peer-group comparison), after moving
                            forward our investment horizon to 2009-10, from 2008-09 previously. For our peer
                            comparison, we have applied a new target PER of 15x (down from 18x) and a new
                            EV/EBITDA multiple of 13x (down from 15x) to our revised 2009 and 2010
                            earnings forecasts, to reflect the recent decline in the valuation multiples of its local
                            peers. We also performed a DCF analysis that supports a price range of W204,990-
                            224,767. Our 10-year DCF model assumes a WACC of 9.8% and a terminal-
                            growth rate of 3.0%. We use the average of our three valuations to set our new
                            target price.

                             Megstudy: valuation summary (W)
                                                             Based on target       Based on target
                                                   DCF                  PER            EV/EBITDA            Average
                            2009E               204,990             164,021               212,417           193,809
                            2010E               224,767             197,457               262,114           228,112
                            Average             214,879              180,739               237,265           210,961
                            Source: Daiwa forecasts

Market dominance will       Megastudy is trading currently at a PER of 16.1x our 2009 EPS forecast,
provide more leverage       substantially lower than its past-five-year valuation range of 56.4-22x. Given the
                            current valuation, we believe that an expected slowdown in education spending for
                            younger students has already been reflected largely in the share price. To be sure,
                            Megastudy faces a tough challenge, but we believe the company could take
                            advantage of its market leadership with more competitive education services.
                            Given Megastudy is executing well in one of the most attractive target markets in
                            Korea, we recommend that investors accumulate the stock on any share-price

                            Solid performance in a slowing economy
4Q08 results review         Megastudy recorded weak revenue of W42.0bn for 4Q08, slightly lower than the
                            Bloomberg-consensus forecast of W43.4bn and our forecast of W45.1bn. Most of
                            the gap with our forecasts was due to the absence of off-line subscription fees for
                            written essay tests during the quarter. The company also attributed its weak top-
                            line growth to a decline in off-line institution sales (down 15.5% YoY) for 4Q08.
                            Despite seasonally weak demand for off-line education content, the strong
                            momentum was carried through during 4Q, with solid on-line sales for both high-
                            school students (up 24.8% YoY) and middle-school students (up 32.9% YoY).

Thomas Y. Kwon (82) 2 787 9181                                                                       Megastudy     2
                             Megastudy: quarterly-earnings trend (Wbn)
                                                             4Q07     1Q08    2Q08     3Q08    4Q08P     4Q08E 4Q08C*
                            Total revenue                      35.8    49.1     45.2    66.0      42.0      45.1   43.4
                               Growth (YoY %)                  66.1    34.3     26.8    19.3      17.3      25.8   21.1
                               Growth (QoQ %)                (35.3)    37.0    (8.0)    46.2    (36.3)    (31.7) (34.3)
                             Online lectures                   23.6    29.6     25.2    41.4      30.2      31.8
                             Books and materials                3.2     4.7      3.6     7.3       3.7       4.1
                             Offline institutions               7.5    13.4     14.5    15.9       6.3       7.5
                             Others                             1.5     1.4      1.8     1.4       1.7       1.7
                            Operating profit                    9.0    16.3     13.6    27.2      10.4      13.2   10.8
                               Change (YoY %)                146.9     34.1     11.5     8.9      15.9      46.7   20.1
                               Change (QoQ %)                (64.0)    81.4   (16.5)    99.6    (61.7)    (51.5) (60.3)
                               Margin (%)                      25.1    33.2     30.2    41.2      24.8      29.3   24.9
                            Source: Company, Bloomberg, Daiwa forecasts
                            *Bloomberg-consensus forecasts
                            Note: ‘P’ stands for ‘preliminary’

Not as bad as               The company’s key operating statistics remain robust. Total registered users and
anticipated                 paid subscribers increased by 25.6% YoY to 2.7m and 16.7% YoY to 0.5m as of
                            the end of 4Q08. Paying users for Megastudy’s service rose by 12.7% YoY and
                            ARPU also expanded by 5.7% YoY for FY08. In our view, this indicates that on-
                            line education services have become a key platform for education-content
                            distribution and publishing in Korea, due mainly to competitive pricing and better

High margins sustained      For 4Q, the company’s operating-profit margin remained high. Despite weak top-
                            line growth as a result of soft seasonal demand, the company sustained its high
                            operating-profit margin of 24.8% for the quarter. For the full year of FY08, the
                            company delivered lower revenue growth (of 23.8% YoY) and operating-profit
                            margin (of 33.4%) than management’s previous forecasts (28.5% YoY and
                            36.5%, respectively). The company expects its margins to improve in 2009, due
                            mainly to a decline in operating costs as a result of the absence of stock-option
                            costs (W2.6bn and 4.4% of total SG&A for 2008). To match the company’s
                            resources and capability with the current industry outlook, we believe Megastudy
                            will adopt a more disciplined cost strategy, which would help improve its
                            profitability for 2009-10.

Recognition of              During the teleconference call for the 4Q results announcement, management noted
competition issue           that the company would pursue a market-share expansion strategy to diversify its
                            service scope into the English-related education-service market and continuing
                            education courses for adult students. We think this is the right strategy to cope with
                            the current economic downturn, given the weak growth in the number of younger
                            students and average revenue per user. The solid 4Q performance for the on-line
                            segments should have a number of positive effects on the company’s market share
                            against its off-line competitors, in our view.

                            On track to expand
2009 outlook                We think 2009 will be a year when Megastudy streamlines its core education
                            services and enhances its market leadership with competitive pricing and a
                            diversified product mix. In 4Q08, the company started introducing its new on-line
                            lectures with high-quality study materials. Management noted the continuing
                            migration into on-line channels from off-line platforms, which could boost on-line
                            sales and effectively lift its ARPU in the long term. It also believes that most young
                            students will spend more time to take up distance-learning programmes.

Good moves to mirror        Megastudy appears to us to have the right growth strategy during the downturn, ie,
the outlook                 to focus on market-share gains as the competition intensifies, to enhance its lecture
                            base to position itself for the next upturn, and to diversify its product mix. While
                            we expect a modest rise in the blended ARPU for 2009, paid subscribers could
                            continue to increase, given that Megastudy’s net subscriber additions were running

Thomas Y. Kwon (82) 2 787 9181                                                                       Megastudy       3
                             at 32,000 throughout 2008. This indicates that the penetration of the on-line
                             platform is likely to continue in 2009 and onward, we believe.

At a slower pace, but        Management provided its 2009 forecasts for the company’s on-line education
still robust, given          services, including revenue of W245bn (up 21.1% YoY), and an operating-profit
current macro variables      margin of about 34.5%. Despite the tough economic climate and slowdown in
                             consumption, management believes these numbers are achievable, due to the
                             expansion in its market share on all fronts. For 1Q09, management expects solid
                             revenue growth on the back of robust seasonal demand for off-line institutions and
                             an increasing interest in education content for Korean SATs, coupled with an
                             increase in the number of high-school students. It hinted that the company’s
                             January sales have been robust, especially on-line lecture sales for middle-school
                             students. Megastudy also added that its new off-line institutions are doing well and
                             are likely to contribute to its revenue growth from 1Q09.

                              Megastudy: monthly sales of on-line lectures (Wbn)


















                                                                                Total                      Megastudy                      Mbest

                             Source: Megastudy

Likely to score all fronts   By services, the company guides for its on-line education sales for high-school
                             students to increase by 15.2% YoY to W125bn for FY09, and those for middle-
                             school students to rise by 24.4% YoY to W47bn. Meanwhile, it guides for revenue
                             from off-line services for high-school students to surge by 34.9% YoY to W68bn,
                             driven mainly by the addition of new off-line academies. Management stressed that
                             the company could probably achieve a 34.5% operating-profit margin for 2009,
                             due to a decline in operating costs.

Leveraging a strong          Although the battle with new competitors would be tough in the middle-school
market position              student market, and even high-school student market, management remains
                             confident about the long-term growth, citing that newcomers would face difficulty
                             in hitting critical mass in terms of paid subscribers, despite aggressive marketing
                             activities. In our view, small companies and newcomers would be affected severely
                             by the deteriorating economy and education-budget constraints faced by
                             households. Meanwhile, this would provide an industry leader, such as Megastudy,
                             with a good opportunity to solidify its market dominance, while positioning itself
                             to benefit from the next upturn.

Key issues for 2009          In our opinion, three key issues for the Korea education sector in 2009 will include
                             the potential impact of the economic slowdown, on-line penetration in education
                             services, and government regulations. We think competition would be a minor
                             issue, as the market leaders would maintain their big lead over the small companies
                             in the medium term. In our view, the on-line education platform would be less
                             sensitive than off-line channels, due to lower pricing and a wider selection.

                             We believe the 4Q results are a good indicator of how recession-proof on-line
                             education services are, even in the younger student market. Despite seasonally

Thomas Y. Kwon (82) 2 787 9181                                                                                                                        Megastudy                   4
                            weak demand in 4Q, the company achieved an online-lecture sales growth rate of
                            28.5% YoY, from 19.1% YoY for 3Q08. As for migration into e-learning services,
                            the company guides for 15-20% YoY organic growth of paid subscribers for high-
                            school students, and 20-30% YoY for middle-school students for FY09. Given the
                            relatively modest rise in average selling prices, due to the slowdown in
                            consumption, this strong growth in the number of paying students would help
                            Megastudy to record robust growth in revenue as well as earnings going forward,
                            in our view. There have been some positive signs that the education-content
                            demand related to college-entrance exams would remain strong in 2009, as the
                            local government plans to secure a consistent policy for its scoring system and
                            offer a similar portion of difficult-to-answer questions. We believe that the overall
                            operational environment would become more favourable for Megastudy, given its
                            dominant market share and competitive product mix.

Minor revisions to our      We have reflected the company’s growth strategy and cost allocation into our
earnings forecasts          earnings forecasts for 2009-10. As a result, we have revised down our 2009 sales
                            forecast for Megastudy’s on-line education service division and its Mbest service
                            by 0.8% and 2.3%, respectively. We forecast total sales from Megastudy’s service
                            for high-school students to increase by 20.7% YoY to W198.7bn, and sales from its
                            Mbest service for younger students to expand by 24.9% YoY to W47.2bn for 2009.
                            We have revised down our revenue and EPS forecasts for FY09 by 1.1% and 4.2%,
                            respectively, in order to reflect our expectation of weak growth of average selling
                            prices and a higher corporate tax rate and equity losses from VeritasM (Not listed)
                            in Korea.

                             Megastudy: Daiwa earnings-forecast revisions (Wbn)
                                                            Previous            New               Change (%)
                                                          2009E 2010E      2009E    2010E        2009E     2010E
                            Revenue                        248.7   289.4    246.0    284.7         (1.1)     (1.6)
                            Operating profit                88.2   106.8     86.7    104.2         (1.7)     (2.4)
                            EPS (W)                       11,409 13,991    10,935   13,164         (4.2)     (5.9)
                            Operating-profit margin (%)     35.5    36.9     35.2     36.6     (0.2p.p.) (0.3p.p.)
                            Source: Company, Daiwa forecasts

What are the risks?         Our main concerns include a potential slowdown in paid subscriber growth for the
                            Mbest service, a drastic change in the scoring system and curriculum for college-
                            entrance exams, an increase in competition from new companies, a substantial
                            increase in commissions and incentives to lecturers, potential investment losses
                            from new business expansion in Korea and overseas, and the possibility of the new
                            government reducing household spending on private-education services.

Thomas Y. Kwon (82) 2 787 9181                                                                 Megastudy        5
                                                                Company background
 Megastudy offers Internet-based learning services for middle- and high-school students. It is the undisputed market leader in the paid
 distance-learning market for college-entrance exams, with a more than a 70% market share as of December 2008. Megastudy has
 cumulative registered users of 2.1m, and 0.6m users for its Mbest service for middle-school students. The company is vertically
 expanding its e-learning services into continuing education courses and younger education programmes.

Megastudy – financial summary
 Income statement (Wbn)                                                               Cash-flow statement (Wbn)
Year to 31 Dec                       2006     2007    2008E     2009E      2010E     Year to 31 Dec                     2006       2007    2008E     2009E    2010E
Revenue                             101.3    163.4     202.3     246.0      284.7    Net profit                         26.5       46.2      50.6      69.3     83.5
 Online lectures                      59.2     72.3    126.4     150.4      168.3    Depreciation and amortisation        1.9        2.6      4.4       6.7       8.9
Offline institutions                  30.0     33.8     50.8      66.2        78.3   Other net non-cash                   4.7        7.9    (0.1)     (2.9)     (2.3)
Books and study material             10.2     11.5      19.4      23.1        27.5   Changes in working capital         (1.7)      (1.8)      0.6       0.3       0.5
Cost of goods sold                    38.2     61.2     75.3      97.9      114.8
Gross profit                         63.1    102.1     127.0     148.1      169.9    Cash flow from operating           31.4        55.0    55.5       73.5      90.5
Gross-profit margin (%)               62.3     62.5     62.8      60.2        59.7   Changes in short-term investment (12.1)         0.0    (2.0)     (2.5)     (2.5)
SG&A expenses                        30.8     43.8      59.4      61.4        65.7   Investment                       (12.3)      (25.6)    (3.0)    (12.0)     (8.0)
Operating profit                     32.3     58.4      67.6      86.7      104.2    Capex                             (8.4)      (19.4)    (7.5)    (10.5)    (10.5)
Operating-profit margin (%)          31.9     35.7      33.4      35.2        36.6   Other cash flow                    10.9       (6.6)    (1.4)     (1.7)     (1.9)
Net non-operating expense            (4.3)    (5.1)     (3.1)   (10.2)      (12.4)
 Net financial cost                  (1.0)    (1.8)     (2.9)     (4.6)      (7.0)   Cash flow from investing          (21.9)     (51.7)   (13.9)    (26.7)    (23.0)
 Net forex losses                      0.0      0.0       0.0       0.0        0.0   Dividends                          (4.5)      (5.7)   (11.4)    (11.4)    (11.4)
Recurring profit                     36.6     63.4      70.7      96.8      116.6    Net change in debt                   0.0        0.0    (4.9)       0.0       0.0
Recurring-profit margin (%)           36.1     38.8     34.9      39.4        40.9   Increase in paid-in capital          0.0        0.0      0.0       0.0       0.0
Pre-tax profit                       36.6     63.4      70.7      96.8      116.6    Others                               0.0        0.0      0.0       0.0       0.0
Income taxes                         10.1     17.2      20.1      27.5        33.1   Cash flow from others                4.7        0.0      0.0       0.0       0.0
Net profit                           26.5     46.2      50.6      69.3        83.5
Net-profit margin (%)                26.1     28.3      25.0      28.2        29.3   Cash flow from financing           (4.5)      (5.7)   (16.3)    (11.4)    (11.4)
                                                                                     Net change in cash                   9.7      (2.4)     25.3      35.4      56.2
 Balance sheet (Wbn)
As at 31 Dec                         2006     2007    2008E     2009E      2010E      Valuation/per-share data
Cash and equivalents                 24.6     22.3      47.6      83.0      139.1    Year to 31 Dec                      2006       2007   2008E     2009E    2010E
Accounts receivable                    4.2      7.6      6.8       7.6        7.7    EPS (W)                            4,346      7,290    7,980    10,935   13,164
Inventory                              0.1      0.2      0.1       0.1        0.2    CFPS (W)                           4,696      7,816    8,733    12,049   14,622
Other current assets                 44.2     51.8      53.8      56.3       58.8    Net tangible assets per share (W) 18,088     24,837   30,856    39,783   50,897
Current assets                       73.1     81.8     108.2     146.9      205.8
Investment assets                    39.0     73.3      76.8      92.0      102.7    PER (x)                            40.5        24.1     22.0      16.1     13.4
Tangible assets                      30.7     47.4      50.4      54.1       55.7    PCFR (x)                           37.4        22.5     20.1      14.6     12.0
Other assets                           0.7      3.5      4.5       5.8        7.4    PBR (x)                             9.7         7.1      5.7       4.4      3.5
Fixed assets                         70.3    124.2     131.6     152.0      165.8    EV/EBITDA (x)                      30.6        17.1     14.2      10.9      9.0
Total assets                        143.4    206.0     239.9     298.9      371.6
Accounts payable                       1.7      3.4      3.2       4.3        5.1    ROA (%)                            21.3        26.5     22.7      25.7     24.9
Short-term borrowing                   0.0      0.0      0.0       0.0        0.0    ROE (%)                            25.7        33.5     28.0      30.3     28.4
Current portion of long-term debt      0.0      4.9      0.0       0.0        0.0
Other current liabilities             20.7     33.8     33.8      33.8       33.8    Net debt/equity (%)             Net cash Net cash Net cash Net cash Net cash
Current liabilities                  22.4     42.2      37.0      38.2       38.9
Bonds                                  0.0      0.0      0.0       0.0        0.0    Dividend yield (%)                  0.5         1.0      1.0       1.0      1.0
Long-term debt                         0.0      0.0      0.0       0.0        0.0    EBITDA margin (%)                  34.0        37.8     35.8      38.1     39.9
Other long-term liabilities            5.7      2.8      2.8       2.7        2.6
Long-term liabilities                  5.7      2.8      2.8       2.7        2.6    Sales growth (%)                   42.6        61.3     23.8      21.6     15.8
Total liabilities                    28.1     45.0      39.8      40.8       41.5    Recurring-profit growth (%)        26.8        73.3     11.4      37.0     20.4
Paid-in capital                        3.2      3.2      3.2       3.2        3.2
Capital surplus                       24.1     28.3     28.3      28.3       28.3
Retained earnings                     80.5   121.1     160.2     218.2      290.2
Capital adjustments                    7.6      8.4      8.4       8.4        8.4
Shareholders’ equity                115.4    161.0     200.1     258.1      330.1
Total liabilities and equity        143.4    206.0     239.9     298.9      371.6
Source: Company, Daiwa forecasts
Note: 2008 numbers are preliminary and subject to change after auditing

Daiwa forex assumptions (vs. US$)
Year end                        Rmb               HK$                 W                 S$               NT$                 A$                 Bt                Rp
2006                           7.810             7.780             929.6             1.534             32.596             1.294             36.100             8,994
2007                           7.300             7.800             935.8             1.440             32.428             1.125             29.500             9,400
2008                           6.828             7.750           1,259.6             1.430             32.792             1.423             34.740            11,120
2009E                          6.700             7.800           1,300.0             1.460             32.600             1.481             34.800            10,600
2010E                          6.450             7.800           1,240.0             1.430             32.400             1.333             34.400             9,850
Source: Daiwa

Thomas Y. Kwon (82) 2 787 9181                                                                                                              Megastudy             6
 Megastudy: share-price and Daiwa recommendation trend
Date                                  2009-01-30              2008-10-20                 2008-09-10                2008-07-15                  2008-04-15                2008-03-10                 2008-01-24                 2007-10-08
Target price (W)                         211,000                 205,000                    290,000                   380,000                     403,000                   408,000                    350,000                    340,000
Rating                                         2                       2                          1                         1                           2                         2                          2                          2

Date                                  2007-07-25              2007-04-30                 2007-01-24
Target price (W)                         242,000                 194,000                    164,000
Rating                                         2                       2                          2

 450,000                                                                                                                           408,000
 400,000                                                                                                                                                403,000
                                                                                     340,000                     350,000                                                           380,000
 300,000                                                                                                                                                                                            290,000
 250,000                                                                                                                                                                                                                           211,000
 200,000                                                                                                                                                                                                        205,000























                                                                                               Target price (W)                             Closing price (W)

Source: Daiwa

Thomas Y. Kwon (82) 2 787 9181                                                                                                                                                                               Megastudy                        7
 Compliance Notice
 The developing analyst of this research and analysis material hereby states and confirms that the contents of this material correctly reflect
 the analyst’s views and opinions and that the analyst has not been placed under inappropriate pressure or interruption by an external
                                                                                                       Name of Analyst : Thomas Y. Kwon
 Disclosure of Research and Analysis Officer’s Property Interest
 Research and analysis officer does not own the securities falling under any of the following items and the right in other person’s name or his/her or his/her spouse’s
 (including those having de facto matrimonial relations with him/her) calculation:
        1.     Stocks, warrants (including subscription warrants), convertible bonds and debentures warrants issued by the corporation subject to the trading solicitation;
        2.     Stocks, convertible bonds and debentures warrants issued by the corporation subject to the trading solicitation;
        3.     Stock option, pursuant to Article 189-4 of the Securities and Exchange Act (“the Act”, hereinafter) by the corporation subject to the trading solicitation;
        4.     Stock certificates or warrants specifying the right to execute trading of stocks or to the transaction of collecting money in a predetermined manner by linking
               to the fluctuating price of stocks issued, pursuant to Article 2 of the Enforcement Decree of the Act, by the corporation of which industry the research and
               analysis officer is in charge.
        5.     Individual stock option whose underlying asset is the stock mentioned in the Item 1.
 Restrictions to Corporations Subject to Research and Analysis
 Daiwa Securities SMBC Co.Ltd. Seoul Branch (“Daiwa Seoul”, hereinafter) has no conflicting interest with the companies covered in this report in that they do not fall
 under the categories as follows:
        1.     Corporation for which Daiwa Seoul guarantees the performance of obligation directly or indirectly through security, endorsement, collateral, acquisition of
        2.     Corporation of which Daiwa Seoul has owned one percent or more of the total issuing stocks. In such a case, the provision of the latter part of Para.(1) 6 of
               the Enforcement Rule of the Act shall apply to the calculation of the total issuing stocks and number of stocks owned;
        3.     Affiliate of the corporate that has relationship with Daiwa Seoul, as defined in the Article 2(3) of the Monopoly Regulation and Fair Trade Act; and
        4.     Corporation for which Daiwa Seoul becomes an agent for acquisition or disposal of treasury stocks in accordance with the Articles 189 and 189-2 of the
               Act, provided that the period of acquisition or disposal of treasury stocks has not lapsed.
        5.     Corporation that is deemed to have substantial stakes in Daiwa Seoul
 Disclosure of Prior Distribution to Third Party
               This report has been distributed to Daiwa’s overseas clients at 10:12 pm, 30th Jan. 09 in advance prior to public release.

The following explains the rating system in the report as compared to KOSPI, based on the beliefs of the author(s) of this report.

"1": the security could outperform the KOSPI by more than 15% over the next six months.
"2": the security is expected to outperform the KOSPI by 5-15% over the next six months.
"3": the security is expected to perform within 5% of the KOSPI (better or worse) over the next six months.
"4": the security is expected to underperform the KOSPI by 5-15% over the next six months.
"5": the security could underperform the KOSPI by more than 15% over the next six months.

“Positive” means that the analyst expects the sector to outperform the KOSPI over the next six months.
“Neutral” means that the analyst expects the sector to be in-line with the KOSPI over the next six months
“Negative” means that the analyst expects the sector to underperform the KOSPI over the next six months

Additional information may be available upon request.

Thomas Y. Kwon (82) 2 787 9181                                                                                                                      Megastudy               8
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and employees may have positions in or may be materially interested in the securities in any of the markets mentioned or may have also performed
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business in Hong Kong has, within the preceding 12 months, had an investment banking relationship with or received compensation for investment
banking services from, the following corporations the securities of which are listed on The Stock Exchange of Hong Kong Limited; BYD Electronic
International Company Limited; China Automation Group Limited; China Kangda Food Co. Ltd.; GOME Electrical Appliances Holdings Ltd.;
International Elite Ltd.; Shandong Molong Petroleum Machinery Co. Ltd.; Solargiga Energy Holdings Ltd.

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Singapore may contact Daiwa Institute of Research (Singapore) Pte Ltd in respect of any matter arising from or in connection with this research.

United Kingdom
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or effect transactions in the Securities or options therefore and/or may have acted as an underwriter during the past three years for the issuer of such
Securities. In addition, employees of Daiwa Securities SMBC Europe Limited and its affiliate may have positions and effect transactions in such
Securities or options and may serve as directors of such issuers. Daiwa Securities SMBC Europe Limited may, to the extent permitted by applicable
UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.
This document is intended for investors who are not Private Customers within the meaning of the Rules of The Financial Services Authority and
should not, therefore, be distributed to Private Customers in the United Kingdom. This document is not to be used or considered as an offer to sell or
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representation as to their accuracy or completeness. Any information to which no source has been attributed should be taken as an estimate by
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This document has been approved by Daiwa Securities SMBC Europe Ltd and is distributed in Germany by Daiwa Securities SMBC Europe Ltd,
Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.

North America
This report is distributed by Daiwa Securities America Inc. (DSA). It was prepared by Daiwa Institute of Research (DIR), a Japanese company and an
affiliate of DSA, or, if indicated on the report, by a non-Japanese subsidiary of DIR, such as Daiwa Institute of Research America Inc. (DIRA). It may
not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views at the time of its preparation, but it is provided with
a time delay and does not reflect events occurring after its preparation. The preparer has no obligation to update this report or to continue to prepare
research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any
recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult
their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation, and
This report does not recommend to U.S. recipients the use of DSA’s non-U.S. affiliates to affect trades in any security and is not supplied with any
understanding that U.S. recipients will direct commission business to such entities. Unless applicable law permits otherwise, non-U.S. customers
wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. U.S. customers
wishing to obtain further information or effect transactions in any securities mentioned in this report should contact Daiwa Securities America Inc.,
Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000). In the U.S. this report is approved by DSA and DSA accepts
responsibility for its content.
Ownership of Securities. DSA and its affiliates beneficially own one percent or more of a class of common equity securities of the following issuers:
Alpha Corporation; Belx Co., Ltd.; Cabin Co. Ltd.; Daiko Denshi Tsushin Ltd.; Daiwa Seiko, Inc.; Daiwa SMBC Capital Co. Ltd.; Ehime Bank Ltd.; Fuji
Television Network, Inc.; GDH KK; Imperial Hotel, Ltd.; Japan Securities Agents, Ltd.; Japan Securities Finance Co. Ltd.; Kokusai Densetu Co., Ltd.;
Maruzen Company, Limited; Meisei Electric Co., Ltd.; Mitsui Mining Co. Ltd.; Nomura Co., Ltd.; Shinkin Central Bank; Sumitomo Mitsui Construction
Co. Ltd.; Taito Corporation; The Blackstone Group LP..
Investment Banking Relationships. DSA or an affiliate has managed or co-managed a public offering of securities in the past 12 months, or has
received compensation for investment banking services in the past 12 months, or expects to receive or intends to seek compensation for investment
banking services in the next three months, for or from the following issuers: ABN Amro; Abu Dhabi Commercial Bank; ACCA NETWORKS CO. LTD.;
Advance Create Co. Ltd.; Aeon Mall Co. Ltd; Air Liquide Finance; Airgas Inc.; Aisin Seiki Co. Ltd.; Ajinomoto Co. Inc.; Albany International Corp.;
Albemarle Corporation; Alcoa Inc.; Alliance & Leicester Plc.; Alpha Credit Group, Inc.; Alpha Natural Resources; American Honda Finance Company;
American International Group; Amgen Inc.; Anglo American Capital; Anglo Irish Bank Corp. Plc; ANX National International; ANZ National
International London; Apamanshop Co. Ltd.; Aramark Services; Archer-Daniels-Midland Co.; Art Corporation; ASB Bank Ltd.; Ascot Corp.; ASIF;
Asset Investors Co. Ltd.; Australia and New Zealand Banking Group Ltd.; AutoNation; AviChina Industry and Technology Company Limited; Avis
Budget Car Rental, LLC.; Azko Nobel; Balls Corp.; Banco BPI S.A.; Banco BPI SA Cayman; Banco Guipuzcoano; Bank Nederlandse Gemeeten;
Bank of Austria Creditanstalt; Bank of Nova Scotia Ltd.; Bank of Western Australia; BAT International Finance; Bayer Holdings Japan LLC;
Bayerische Landesbank; BBVA Senior Finance SA; BCP Finance Bank; Belo Corp.; Bemis Corp.; BHP Finance USA Ltd.; BHW Bausparkasse AG;
BMW Finance BV; BMW US CAPITAL LLC; BNP Paribas; Boeing Co.; Boise Cascade Corporation; BOS International Australia Ltd.; Boston
Scientific Corp; BP Capital Markets; Bradford & Bingley; Brunswick Corp.; BSK; Bunadarbanki Islands; Caisse Nationale des Caisses D'epargne et

Thomas Y. Kwon (82) 2 787 9181                                                                                                      Megastudy            9
de Prevoyance; Caixa D’estalvis Catunun; Caja Duero; CAM Global Finance; Canadian Imperial Bank; Canadian Natural Resources; Capmark
Financial Group Inc.; Cargill Inc.; Carna Biosciences Inc.; Casio Computer Co., Ltd.; CCS Inc.; Cedant Timeshare; Central Japan Railway Co.; CFF;
China Automation Group Limited; China Kangda Food Co. Ltd.; China Minsheng Banking; China Resources Power Holdings Co.; China Taisan
Technology Group Holdings Ltd.; Choushinmaru Co. Ltd.; Chubu Electric Power Co. Inc.; Chuo Mitsui Trust Holdings Inc.; CIGNA Corp.; CIT Group
Inc.; Citigroup Global Markets; Clear Channel Communications; CMS Energy; Coca-Cola Amatil Limited; Comcast Corp.; Commonwealth Bank of
Australia; Computer Sciences Corp.; ConocoPhillips; Consumers Energy Company; Cooperative Centrale Raiffeisen-Boerenleenbank; Cox
Communications Inc.; CS Group Finance; CVS Corporation; DA Office Investment Corp.; Dah Sing Bank; Daido Steel Co., Ltd.; Daimler Chrysler;
Daiseki Eco. Solution Co. Ltd.; Daiwa House REIT Investment Corp.; Daiwa Securities Group Inc.; Daiwa Seiko, Inc.; Dekabank; Densan System Co.
Ltd.; Depfa ACS Bank; Depfa Bank plc.; Depfa Deutsche Pfandbriefbank AG; Deutsche Apotheke Aerztebank; Deutsche Bahn Finance BV; Deutsche
Bank AG; Deutsche Bank Aktiengesellshaft; Deutsche Bank Capital Finance Trust; Deutsche Bank Finance; Deutsche Telecom AG; Dexia Credit
Local; Dow Chemical Company; Dydo Drinco, Inc.; East Japan Railway Co.; Edion Corp.; EFG Hellas plc.; Egnatia Finance; Eksportfinans A/S;
Electric Power Development Co., Ltd.; Eneserve Corp.; Eurofima; Eurohypo AG.; Expedia Inc.; Export Development Canada; Finconsumo SPA; Ford
Credit Australia Limited; Ford Motor Company; Ford Motor Credit Company; Foreland Fabrictech Holdings Ltd.; Freddie Mac; Frontier Oil Corp.;
Frontier Real Estate Investment Corp.; Fuji Electric Co. Ltd.; Fuji Food System Co. Ltd.; Fujikura Kasei Co., Ltd.; Fujikura Ltd.; Fukuoka REIT
Investment Fund; Gannett Co. Inc.; General Electric Capital Corporation; General Electric Corporation; General Mills; Georgia Pacific Corp.; GM;
GMAC; Goldman Sachs Group Inc.; GOME Electrical Appliances Holdings Ltd.; Gree Inc.; Hakuten Co. Ltd.; Hana Financial Group; Hankyu Hanshin
Holdings Inc.; Harrah’s Entertainment Inc.; Harrah’s Inc.; Harrah’s Operating Company; Hartford Financial Services Group; HBOS Treasury Service;
HCA Inc.; Hellenic Bank; Hershey Company; Hertz Corp.; Hokkaido Electric Power Co. Inc.; Hokuriku Electric Power Co.; Home Shopping Network;
Hoshizaki Electric Co. Ltd.; HSH N Finance; HSH Nordbank AG; Humana Inc.; Hypo Real Estate International; IDEA International Co., Ltd.; IKB
Finance BV; Ina Research Inc.; Infomart Corp.; Instituto de Credito Official; International Business Machine Corp; International Elite Ltd.; International
Finance Corp.; International Hotel Group; International Paper; Intesa Bank Ireland plc.; Ishikawajima-Harima Heavy Industries Co., Ltd.; Islandsbanki
FBA; Islandsbanki FBA HF; Jabil Circuit Inc.; Japan Real Estate Investment Corp.; JFE Holdings Inc.; Jowa Holdings Co. Ltd.; J-Product Corp.;
Kajima Corp.; Kansai Electric Power Co.; Kaupthing Bunadarbanki HF; KBC IFIMA NV; KDDI Corp.; Keio Electric Railway Co. Ltd.; Kennedy-Wilson
Japan; KFW Bankengruppe; KFW International Finance; KGaA; Kinder Morgan Energy Partners LP; Kinki Nippon Railway Co. Ltd.; Kintetsu Corp.;
Kirin Holdings Co. Ltd.; Kobe Steel Ltd.; Kohnan Shoji Co. Ltd.; Komatsu Ltd.; Kommunalbanken Norway; Korea Gas Corporation ; Korea National
Housing Corporation; KT Corp.; Kubota Corp.; Kuraudia Co. Ltd.; Kuroda Electric Co. Ltd.; Kyushu Electric Power Co. Ltd.; Landeskreditbank BW
Foerdebank; Landsbanki Islands HF; Landwirtschaftliche Rentenbank; LBHI MTNG; LG Card Co. Ltd.; LG Electronics Inc.; Li Ning Company Ltd.;
Linical Co. Ltd.; Link And Motivation Inc.; Lloyds TSB Bank Plc; Lotte Shopping; Louis Vuitton Moet-Hennessy; Macquarie Bank Ltd.; Makino Milling
Machine Co. Ltd.; Marathon Oil Corp.; Maruzen Co. Ltd.; MasterCard Incorporated; Meadwestvaco Corp.; MediciNova Inc.; Meiji Seika Kaisha Ltd.;
Meisei Electric Co. Ltd.; Message Co. Ltd.; MGM Mirage Inc; Millennium America; Mimaki Engineering Co. Ltd.; Mitsubishi Corp.; Mitsubishi Estate
Co. Ltd.; Mitsubishi UFJ Financial Group Inc.; Mitsui & Associates Telepark Corp.; Mitsui Mining & Smelting Co. Ltd.; Mitsui Mining Co. Ltd.; Mitsui
OSK Lines Ltd.; Mitsui-Soko Co. Ltd.; Miyachi Technos Corp.; Mizuho Bank Ltd.; Mizuho Corporate Bank Ltd.; Morgan Stanley; Morimoto Co. Ltd.;
NACF; Nankai Electric Railway Co. Ltd.; NanoCarrier Co. Ltd.; Natexis; National Agricultural Co.; National Bank of Canada; National Grid Co. Plc.;
National Rural Utilities Cooperation Finance Corp.; Nationwide Building Society; NEC Corp.; Nederlandse Waterschapsbank NV; Nestle Australia
Limited; Nestle Holdings; Netyear Group Corp.; NIB Capital Bank; Nichirei Corp.; Nihon Flush Co. Ltd.; Nihon Unisys Ltd.; Nikko Citigroup; Nippon
Broadcasting System, Inc.; Nippon Building Fund Inc.; Nippon Electric Glass Co. Ltd.; Nippon Express Co. Ltd.; Nippon Life; Nippon Life Insurance;
Nippon Mining Holdings Inc.; Nippon Restaurant Corp.; Nippon Sanso Corp.; Nippon Sheet Glass Co. Ltd.; Nippon Steel Corp.; Nippon Telegraph &
Telephone Corp.; Nippon Unipac Holding; Nishi-Nippon Railroad Co. Ltd.; Nomura Real Estate Office Fund Inc.; Nomura Real Estate Residential
Fund Inc.; Noritz Corp; Northern Rock Plc.; NRW Bank; NTT Data Corp.; NTT Finance Corp.; NTT Leasing; NTT Urban Development Corp.; NuStar
Logistics L.P.; NYSE Group Inc.; Ocean System Corp.; Oceanus Group; Odakyu Electric Railway Co. Ltd.; OHNISHI DENKI Co. Ltd.; OKO Bank plc.;
Okuma Holdings Inc.; Oracle Corp.; Oresundsbro Konsortiet AS; Oriental Land Co. Ltd.; ORIX Corp.; Osaka Gas Co. Ltd.; Overnight Corporation;
Peoples Insurance Company of China; PHH Corp.; Polar Tankers INC.; Post Properties, Inc.; Primeworks Corp.; Rabo Australia Ltd.; Rabobank
Nederland; Radishbo-ya Co. Ltd.; RAKIAS SUKUK CO. Ltd.; Rann International; Ras Al Khaimah Investment Authority Sukuk Inc.; Reins
International Inc.; Resona Holdings Inc.; Right On Co. Ltd.; Rinnai Corp.; Rio Tinto Finance; Rix Corp.; Royal Bank of Canada; Royal Bank of
Scotland; Sabre Holdings; Sanden Corp.; Sanken Electric Co. Ltd.; Santander International; Sanyo Shinpan Finance Co. Ltd.; Sapporo Breweries
Ltd.; Scientific Games Corp.; SEIGAKUSYA Co. Ltd.; Seven & I Holdings Co., Ltd.; Severn Trent Water; Shandong Molong Petroleum Machinery Co.
Ltd.; Shikoku Electric Power Co. Inc.; Shimadzu Corp.; Shinhan Financial Group Ltd.; Shinsegae Co. Ltd.; Sihuan Pharmaceutical Holdings Group
Ltd.; Simon Property Group LP; Singapore Telecommunications Ltd.; SK Corporation; SMS Co. Ltd.; SNS Bank Nederland; Sobal Corp.; Societe
Nationale des Chemins de Francais; Sojitz Corp; Solargiga Energy Holdings Ltd.; Sparebanken Rogaland; Spectra Energy; St George Bank Ltd.; St
Georges Bank Ltd.; State of North Rhine-Westphalia; Sumito Mitsui Financial Group Inc.; Sumitomo Chemical Co. Ltd.; Sumitomo Electric Industries
Ltd.; Sumitomo Metal Industries Ltd.; Sumitomo Mitsui Banking Corp.; Sumitomo Osaka Cement Co. Ltd.; Sumitomo Rubber Industries Inc.; Sun
Frontier Fudousan Co. Ltd.; Suncor Energy Inc.; Super Value Co. Ltd.; Svensk Exportkredit AB; Tac Co. Ltd.; Talisman Energy; Teijin Ltd.; Telecom
Corp of New Zealand Ltd.; Telstra Corp. Ltd.; Terna spa; The Bank of Tokyo-Mitsubishi Ltd.; The Chiba Bank Ltd.; The Chugoku Electric Power Co.,
Inc.; The Eighteenth Bank Ltd.; The Hyakugo Bank Ltd.; The Kansai Electric Power Co. Inc.; The Monogatari Corp.; The Nisshin Oillio Group Ltd.;
The Norinchukin Bank; The Okinawa Electric Power Co. Inc.; The Yokohama Rubber Co. Ltd.; Ticketmaster; Time Warner Cable; Tobu Railway Co.
Ltd.; Toho Gas Co Ltd.; Tohoku Electric Power Co. Inc.; Tokai Rubber Industries Inc.; Tokyo Electric Power Co.; Tokyo Gas Co. Ltd.; Tokyo Metro Co.
Ltd.; Tokyu Corp.; Tokyu Store Chain; Toll Brothers; Top Engineering Co. Ltd.; Toridoll Corp.; Total Capital SA; Toyo Tire & Rubber Co. Ltd.; Toyobo
Co. Ltd.; Toyoda Gosei Co. Ltd.; Toyota Credit Canada, Inc.; Toyota Finance Australia Ltd.; Toyota Finance Corp.; Toyota Motor Credit Corporation;
Tri-Stage Inc.; Tri-Wall KK; Tyson Foods; UBS AG; UBS Jersey; UBS Preferred Funding Trust; Unicredito Italiano; Uni-Presient Enterprises Corp.;
United Technologies; United Urban Investment Corp.; US Cellular Corp.; Venture Republic Inc.; Verite Co. Ltd.; Verizon Global Funding Corp.;
Viacom Inc.; Visa Inc.; Volkswagen International Finance NV; Wellpoint Inc.; Wesfarmers Limited; West Japan Railway Co.; Westfield Holdings Ltd.;
Westpac Banking Corporation; Whirlpool Corp.; William Street Funding; Woodside Petroleum Ltd.; Woolworths Ltd.; Woori Finance Holdings Co. Ltd.;
Wpp Group PLC; Wuerttembergische Versicherung; Xcel Energy, Inc..
The statements in the two preceding paragraphs are made as of January 1, 2009.
DSA Market Making. DSA made a market in securities or ADRs of the following issuers at the time this report was published: Daiei Inc.; FUJIFILM
Holdings Corp.; Internet Initiative Japan Inc.; Makita Corp.; MediciNova Inc.; Millea Holdings Inc.; Mitsui & Co. Ltd.; NEC Corp.; Nissan Motor Co.
Ltd.; Trend Micro Inc.; Wacoal Holdings Corp.
Research Analyst Conflicts. DSA made a market in securities or ADRs of the following issuers at the time this report was published: Daiei Inc.;
FUJIFILM Holdings Corp.; Internet Initiative Japan Inc.; Makita Corp.; MediciNova Inc.; Millea Holdings Inc.; Mitsui & Co. Ltd.; NEC Corp.; Nissan
Motor Co. Ltd.; Trend Micro Inc.; Wacoal Holdings Corp.
Research Certification. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the
personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s]
is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is
named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.
The following explains the rating system in the report as compared to relevant local indices, based on the beliefs of the author of the report.
"1": the security could outperform the local index by more than 15% over the next six months.
"2": the security is expected to outperform the local index by 5-15% over the next six months.
"3": the security is expected to perform within 5% of the local index (better or worse) over the next six months.
"4": the security is expected to underperform the local index by 5-15% over the next six months.
"5": the security could underperform the local index by more than 15% over the next six months.
Additional information may be available upon request.

Thomas Y. Kwon (82) 2 787 9181                                                                                                     Megastudy           10

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