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DeutscheBankMarketsResearchAsiaSouthKoreaHealthCareHealthCareIndustryKoreaHealthcare/Utilities/SteelDate25September2017IndustryUpdateAsiamarketingfeedbackHealthcare,POSCOandKepcowerekeyareasdiscussed________________________________________________________________________________________________________________DeutscheBankAG/HongKongDeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.DISCLOSURESANDANALYSTCERTIFICATIONSARELOCATEDINAPPENDIX1.MCI(P)083/04/2017.SanghiHan,CFAResearchAnalyst(+82)23168900sanghi.han@db.comToppicksKepco(015760.KS),KRW38,400.00BuySamsungC&T(028260.KS),KRW134,000.00BuySamsungBiologics(207940.KS),KRW326,000.00SellSource:DeutscheBankCompaniesFeaturedCelltrion(068270.KQ),KRW146,900.00HoldCelltrionHealthcare(091990.KQ),KRW54,100.00HoldSamsungBiologics(207940.KS),KRW326,000.00SellMedytox(086900.KQ),KRW549,000.00BuyHanmiPharm(128940.KS),KRW441,000.00HoldPOSCO(005490.KS),KRW307,500.00HoldHyundaiSteel(004020.KS),KRW50,900.00HoldKepco(015760.KS),KRW38,400.00BuyKOGAS(036460.KS),KRW41,950.00BuySamsungC&T(028260.KS),KRW134,000.00BuySource:DeutscheBankDuringourconversationwith34investorsinAsialastweek,investorsdisplayedthemostinterestinthefollowingorder:KoreaHealthcareexcludingHanmiPharm,POSCO,andKepco.SomeclientswantedtoknowwhethertheNAVdiscountofSamsungC&Tcouldnarrowonthebackofearningsrecoveryandexpandinginvestmentassetvalues.DespitemanyKoreansteelsector-relatedtopicsbeingcoveredduringthemeetings,HyundaiSteelwasnotamajorpartofdiscussions,giveninvestors'concernoncaptiveclients,relatedtoplungingproductioninChina.Kogasdidnotattractmuchinterestfromassetmanagers,duetolimitedupsideinoilpriceswithregardtoE&Pearnings.Healthcare:limitedfundamentalreasonsforKoreanbiosimilarsector’supsurgeMostinvestorsheldthefollowingviewonKoreabiosimilars:a)recenthikesinSamsungBiologicsandCelltrionhavethinsupportfromafundamentalpointofview,b)competitioninbothCMOandbiosimilarbusinesseswillbegettingtougher,andc)valuationsarestretcheddespitegenerousassumptions.WereiterateourbearishviewonKoreanbiosimilars,aswenotecatalystswillbeexhaustedandtheprintrelatedtosell-throughrevenuewillnotgrowenoughtogiveinvestorsreliefinH1-18.WesenseddividedfeedbackonMedytox.Thoughsomeremainbullish,withtheincreasedcapacitytargetingtheUSandChinamarkets,othersareworriedaboutlackofprogressinInnotox'sclinicaltrialintheUS,competitioninKoreafromMedytox’scapacityadditioninJuly,andtensionswithChina,ifany,whichcouldleadtorevenuedownside.Steel:balancedviewfrominvestorsIncontrasttothepositivebiasofthefeedbackreceivedduringmarketinginAsia,USandEuropeinQ1,itappearsthatinvestorsinHongKongandSingaporeremainneutral,given(abullcase)thecontinuingexpectationforaseasonalsupplycutinthewinterseasonand(abearcase)downsiderisksonsteel-makingmaterialsandregionalsteelprices.Wehighlightare-ratingwithoutupwardearningsrevisionsisunlikelyatthecurrentvaluationof0.6xPBRand6%ROE,whichisbasedonhistoricalcontext.Therefore,wewouldsuggestinvestorsfocusonearningsupsidewithhigherOP/tfromexpandingspreads,ifany,intheeventofstrongerdemand.Utilities:downsidelargelyprotected,butlimitedcatalystsWepitchedourBuyrecommendationonKepco.AfteruncertaintyinrelationtopolicymeasuresdisappearswiththefirstresultsoftheShin-Gori#5,6publiccommitteeon20Octoberandthe8thpowerdevelopmentplanattheendofthisyear,webelievetheStreetwillrecognizethatthe(ROE)profilewillbedifferentfrompolicydirectionthanksto:a)stablecommoditypricesin2018,andb)bettergenerationmixwiththreenewnuclearpowerplantsin2018-20andninethermalpowerplantsin2016-17,aswellasnoriskoftariffcutsforthetimebeing.MostfundmanagersseemedtoacceptourviewthatKepcohaslimiteddownside,butdidnotidentifyanycatalystinthenearterm.SamsungC&T:interestlevelisrisingInthemidstofearningsrecovery,investorsthoughtthedivergencebetweenSamsungC&TandSamsungBiologics/SamsungElectronicstoowidetobejustifiedinvaluationterms.Wehighlightedthatearningsshouldbestablethankstoahigheraffiliateportioninconstructionandcompletedrestructuring.Distributedon:25/09/201712:48:26GMT0bed7b6cf11cModelupdated:07August2017RunningthenumbersAsiaSouthKoreaUtilitiesKepcoReuters:015760.KSBloomberg:015760KSBuyPrice(22Sep17)KRW39,150TargetPriceKRW61,00052WeekrangeKRW39,150-60,000MarketCap(bn)KRWm25,133USDm22,114CompanyProfileKoreaElectricPowerCorporation(Kepco)isaworld-classelectriccompany,whichwasestablishedastheHansungElectricCompany,Kepco'spredecessor,inJanuary1898.Thecurrententerprisewasfoundedin1961andbeganunlimitedtransmissionofelectricityin1964.Kepcogenerates,transmitsanddistributeselectricitytoSouthKoreaforavarietyofuses.Thecompanyalsobuildsandoperateshydropower,thermalpowerandnuclearpowerunitsinSouthKorea.PricePerformance3600040000440004800052000560006000064000Sep15Dec15Mar16Jun16Sep16Dec16Mar17Jun17KepcoKOSPI(Rebased)MarginTrends812162024283236151617E18E19EEBITDAMarginEBITMarginGrowth&Profita