20140827 _ global ev boom - revving up for the next upturn (final)(1)

South Korea 27 August 2014

CHEMICAL/TECHNOLOGY

Global EV boom – revving up for the next upturn

Peter K. LEE T (82) 2 67306122 E [email protected]

Youngwoo CHUNG T (82) 2 6730 6124 E [email protected]

TJ OK T (82) 2 6730 6134 E [email protected]

KJ HWANG T (82) 2 6730 6123 E [email protected]

Jaekyung KIM T (82) 2 6730 6131 E [email protected]

Matt JIN T (82) 2 6730 6126 E [email protected]

John PK PARK T (82) 2 6730 6125 E [email protected]

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August 27, 2014

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

SOUTH KOREA CHEMICAL/TECHNOLOGY

Global EV boom – revving up for the next upturn We believe that electric vehicle (EV) sales will take off in the next 12-18 months with the launch of 2016 EV models by global OEMs from 4Q15 onwards. Thanks to advancements made in battery technology and costs, the new EV models should be much improved and better challenge conventional vehicles on the road.

Figure 1: Global xEV battery cell market – base case vs. bull case

0

10,000

20,000

30,000

40,000

50,000

60,000

2014E 2016E 2018E 2020E

(USD m)

Base case Bull case

SOURCES: CIMB

We believe that the next stage of growth will be led by: 1) reduction in battery costs by 30+%, 2) rise in the EVs' range by 30+%, and 3) ongoing rollout of charging stations. As leading global battery makers, our top picks, LG Chem and Samsung SDI, are poised to benefit. We have an Overweight stance on the sector.

xEV sales to grow 25% p.a. The initial take-up of EVs has been disappointing but the upside appears significant going forward as OEM makers toil to meet emission targets in major markets. We conservatively forecast xEV (all electric vehicle) sales to grow at a CAGR of 25% in 2013-20, raising the penetration rate from 2.2% in 2013 to 8.1% in 2020. If all major markets meet their emission targets, the penetration rate would rise to 16%.

Rising battery performance We think that ongoing developments to improve battery capacity (and hence EVs' driving range) are coming to fruition. This could become a key catalyst behind stronger xEV demand

from 2016 onwards, in our view. Ongoing cost reduction efforts (e.g. better cathode chemistries and more efficient production) should also lead to a gradual recovery of profitability for Korean xEV battery-related players from 2016 onwards.

LGC/SDI leading the way We believe that LG Chem is well positioned to reap the benefits of growing EV sales given its market leadership (13 battery contracts with global OEMs currently). For SDI, we think that its strong tie-up with BMW and its aggressive China strategy should lay the foundation for a strong xEV business going forward. Besides cell makers, material makers such as Soulbrain and Iljin Materials could look interesting in the longer term, though their near-term fundamentals should remain weak due to the lack of scale. Auto-parts makers such as Woory Industrial and S&T Motiv are also EV plays given the potential improvement in their product mix from rising sales of EV-related components.

Notes from the Field

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Peter K. LEE T (82) 2 67306122 E [email protected]



KJ HWANG T (82) 2 6730 6123 E [email protected]


Matt JIN T (82) 2 6730 6126 E [email protected]

John PK PARK T (82) 2 6730 6125 E [email protected]

Show Style "View Doc Map"

‘‘‘‘ Failure is simply to begin again, this time more intelligently.

– Henry Ford

Highlighted Companies LG Chem A global leader in EV batteries, LG Chem is poised to benefit from the expected take-off of EVs. LG Chem recently announced another battery contract with a global OEM (Audi) and is expected to announce more contracts within the year.

Samsung SDI A relative laggard to LG Chem in the xEV battery space but clearly showing strong momentum with its exclusive partnership with BMW on i3/i8 line-ups. After the merger with Cheil Industries, Samsung SDI will likely expand into more xEV related supply chains incl. CFRP productions, etc. to seek potential synergy.

http://www.efasoftware.com/

CHEMICAL/TECHNOLOGY August 27, 2014

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KEY CHARTS

Green cars forecast to grow 25% p.a. We forecast xEV sales to grow at a CAGR of 25% from 2013-20, supported by: 1) tight regulations on CO2 emissions; 2) falling battery costs; 3) improving EV driving range; and 4) expanding charging infrastructure. Our forecast is based on the assumption that xEV sales will rise as OEMs attempt to meet each major market’s specific CO2 emission targets. Based on our growth forecast, we estimate that xEV penetration rate will rise from 2.2% in 2013 to 8.1% in 2020.

1,561 1,875

3,94971

397

2,226

105

395

2,227

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2013 2016E 2020E

HEV PHEV EV

(k units)

xEV penetration assumption conservative We believe that our xEV penetration rate estimate of 8.1% in 2020 is conservative as we have assumed that only Japan will be able to meet its relatively easy 2020 emission target. For the US, we have assumed that it will miss the 2020 mark by 7.7%, while we have assumed that the EU and China will miss their targets by 8.5% and 13.7%, respectively. If all major markets meet their emission targets, the penetration rate would rise to 16% in 2020.

7.7%8.5%

13.7%

-3.6%-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

US Western Europe China Japan

xEV battery cell market to grow 43% p.a. Based on our xEV unit forecast, we expect the overall EV battery market to grow at a CAGR of 43% over 2013-2020, with a significant growth spurt kicking in from 2016 onwards, on the back of 1) growing demand for xEVs with a significant improvement in the driving range due to higher battery capacities, and 2) larger number of new xEV model rollouts from automakers’ strategic electrification programmes in light of the implementation of more stringent fuel consumption/carbon emission regulations.

0

10,000

20,000

30,000

40,000

50,000

60,000

2014E 2016E 2018E 2020E

(USD m)

Base case Bull case

Battery material makers’ margins to improve significantly in 2016 Based on our expectation that the battery cell market volume is likely to grow by 112% in 2016, we expect material makers’ margins to turn positive in 2016 despite the anticipated 33% yoy drop in battery cell prices. Our assumption is based on a significant decline in unit costs arising from: 1) increased economies of scale for both battery cell makers and material suppliers; 2) higher battery density which results in less materials being used; and 3) advancement in battery chemistries.

0

50

100

150

200

250

300

350

400

450

500

2015 price Scalability inraw materials

Fall indepreciation

Fall in labor Fall in SG&A Margin 2016 price

2015 price Raw materials Depreciation Labor Other SG&A Margin 2016 price

(US$/kwh)

-32%

-53%-53%

-53% Turnpositive

SOURCE: CIMB, COMPANY REPORTS


3

Figure 2: Global peer valuation comparison Company Ticker Recom. TP Upside Mkt cap

(BBG) (Local) (%) (US$ m) FY14 FY15 FY14 FY15 FY14 FY15 FY14 FY15 FY14 FY15Battery cell makerLG Chem 051910 KS ADD 360,000 31% 17,967 16.3 11.2 1.5 1.3 9.3 12.5 7.4 5.9 1.5 1.5Samsung SDI 006400 KS ADD 202,000 37% 9,898 36.6 18.9 0.9 0.8 2.4 4.4 4.4 2.3 1.0 1.4SK Innovation 096770 KS ADD 130,000 36% 8,587 13.7 6.9 0.5 0.5 4.0 7.7 9.7 5.6 3.4 3.4Panasonic 6752 JT N/R na na 29,738 18.1 14.5 1.8 1.6 9.8 11.5 4.7 4.1 1.1 1.4BYD 1211 HK N/R na na 19,092 93.4 56.1 4.1 3.8 4.8 7.2 20.4 16.9 0.1 0.1GS Yuasa 6674 JT N/R na na 2,545 15.8 13.1 1.8 1.6 11.4 12.5 8.5 7.3 1.5 1.9Average 35.7 22.6 2.0 1.8 7.3 9.6 9.2 7.3 1.2 1.3CathodeSamsung Fine Chem 004000 KS N/R na na 1,039 16.3 22.1 0.9 0.9 3.2 4.3 10.3 11.4 0.7 1.2Ecopro 086520 KS N/R na na 107 na na na na na na na na na naL&F 066970 KS N/R na na 99 na na na na na na na na na naCosmoAM&T 005070 KS N/R na na 66 na na na na na na na na na naPhoenix Materials 050090 KS N/R na na 60 na na na na na na na na na naSumitomo Chemical 4005 JT N/R na na 5,952 12.6 8.9 0.9 0.8 7.2 9.8 8.2 7.4 2.4 2.6Umicore UMI EU N/R na na 5,846 21.6 18.7 2.4 2.3 10.9 12.2 10.8 9.9 2.7 2.9Toda Kogyo 4100 JT N/R na na 208 na na na na na na na na na naAnodePOSCO Chemtech 003670 KS N/R na na 936 12.6 11.3 1.9 1.6 15.8 15.3 7.5 7.1 0.9 0.9Phoenix Materials 050090 KS N/R na na 60 na na na na na na na na na naHitachi Chemical 4217 JT N/R na na 3,734 18.9 12.6 1.1 1.1 6.0 8.7 6.2 5.2 1.9 2.0Mitsubishi Chemical 4188 JT N/R na na 7,538 18.9 13.2 0.8 0.8 4.8 6.2 8.0 7.0 2.3 2.3Nippon Carbon 5302 JT N/R na na 210 42.0 26.6 0.7 0.7 na na 9.5 8.5 2.7 2.7SEC Carbon 5304 JT N/R na na 118 na na na na na na na na na naSeparatorLG Chem 051910 KS ADD 360,000 31% 17,967 16.3 11.2 1.5 1.3 9.3 12.5 7.4 5.9 1.5 1.5Toptec 108230 KS N/R na na 206 na na na na na na na na na naAsahi Kasei 3407 JT N/R na na 11,377 13.0 12.1 1.2 1.1 9.8 9.8 5.5 5.0 2.0 2.1Sumitomo Chemical 4005 JT N/R na na 5,952 12.6 8.9 0.9 0.8 7.2 9.8 8.2 7.4 2.4 2.6Polypore PPO US N/R na na 1,988 31.5 22.8 2.9 na na na 14.2 na na naElectrolyteSoulbrain 036830 KS N/R na na 476 7.6 6.3 1.1 0.9 15.1 15.6 4.1 3.3 1.4 1.4Foosung 093370 KS N/R na na 266 na na na na na na na na na naLeechem 131100 KS N/R na na 34 na na na na na na na na na naMitsubishi Chemical 4188 JT N/R na na 7,538 18.9 13.2 0.8 0.8 4.8 6.2 8.0 7.0 2.3 2.3Ube Industries 4208 JT N/R na na 1,787 13.4 10.0 0.7 0.7 5.6 7.5 6.2 5.3 2.9 2.9Stella Chemifa 4109 JT N/R na na 186 25.7 20.6 na na 3.8 na na na 2.4 2.4Kanto Denka 4047 JT N/R na na 218 10.9 8.7 na na na na na na na naOthersIljin Materials 020150 KS N/R na na 433 na na na na na na na na na naFurukaw a Electric 5801 JT N/R na na 1,522 17.8 10.3 0.9 0.8 5.0 8.5 9.2 8.0 1.5 2.0POSCO ICT 022100 KS N/R na na 1,067 18.3 16.5 3.8 3.1 15.0 14.6 9.2 8.5 0.7 0.7Auto partsHalla Visteon Climate Control 018880 KS N/R na na 5,683 17.5 15.4 3.4 3.0 20.6 20.2 9.5 8.4 1.9 2.0S&T Motiv 064960 KS N/R na na 501 9.6 9.5 0.9 0.8 9.6 9.1 6.1 5.1 1.7 1.7Woory Industrial 072470 KS N/R na na 235 na na na na na na na na na naLG Innotek 011070 KS ADD 168,000 26% 3,173 18.6 13.1 1.7 1.5 10.8 12.0 5.1 4.6 0.0 0.0

EV/EBITDA (x) Div yld (%)P/E (x) P/BV (x) ROE (%)

SOURCES: CIMB, COMPANY REPORTS

Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends


4

EV boom to resume 1. xEV MARKET OUTLOOK The global xEV (or all electric vehicles) market penetration has been disappointing in the past several years as early editions of EV and PHEV (plug-in hybrid electric vehicles) models have underachieved market expectations. Although global EV and PHEV sales surged by 71% yoy (to 105k units) and 30% yoy (to 71k units), respectively, in 2013, the combined figure only represents 0.2% of global passenger car sales. We believe that the slow adoption is attributed to such factors as high battery costs, limited EV range, nascent charging infrastructure and the lack of consumer awareness for EVs.

However, battery makers, OEMs and governments around the world are making strides to make EVs a commercially viable product that can compete with ICE (internal combustion engine) vehicles in terms of cost and performance. With next generation batteries (cheaper and higher density) expected to be introduced in 2016 models, we believe that the xEV battery market is at the cusp of taking off in earnest.

We forecast xEV sales to show robust CAGR of 25% from 2013 to 2020, supported by: 1) stringent regulations on fuel economy in major markets; 2) falling battery costs; 3) rising EV range; and 4) improving charging infrastructure. Our forecast is based on the assumption that green car demand in major markets will rise as automakers attempt to meet each market’s specific CO2 emission targets in 2015-20. We detail our assumptions on the four major markets (the US, EU, China and Japan) below.

1.1 xEV penetration expected to accelerate from 2016 We forecast xEV penetration rate to increase to 2.9% in 2016 and 8.1% in 2020, growing at 25% CAGR in 2013-20. We expect EVs/PHEVs to take off from 2016 onwards on the back of the introduction of new models that are equipped with next generation batteries. Notably, we estimate that EVs/PHEVs will comprise 53% of xEVs by 2020 (penetration rate of 2.1% for both PHEVs and EVs) from just 10% in 2013, representing a CAGR of 55-64%. As for HEVs, we forecast that its penetration will reach 3.8% in 2020, growing at 14% CAGR during the same period.

Our basic assumption in coming up with our forecast is that green car demand will grow in accordance with each major market’s CO2 emission targets but will fall 8-14% short of the 2020 targets in most major markets (save Japan where 2020 targets are relatively easier to attain). Should all major markets achieve the CO2 emission targets by 2020, the global xEV penetration rate would need to rise to 16% (vs. our base case assumption of 8.1%), with EV and PHEV penetration rates reaching 4.9% (vs. 2.1%) and 5% (vs. 2.1%), respectively.

Our forecast also entails the following assumptions: 1) CO2 emission of ICE and green cars will fall 1-2.5% p.a. across major auto markets by 2020, as automakers continue to strive to improve fuel efficiency of ICE vehicles through the use of fuel-saving technologies such as turbo-chargers and dual-clutch transmission (e.g. the average CO2 emission at major auto markets has fallen by 2% p.a. since 2002), and 2) average CO2 emissions of HEVs and PHEVs are assumed to be 80g/km and 38g/km, respectively, in 2013 (e.g. Prius's 77g/km, Peugeot 308's 82g/km, GM Volt's 27g/km and Prius PHEV's 49g/km).

Table of Contents 1. xEV MARKET OUTLOOK p.4

2. MAJOR OEMs’ STRATEGY p.8

3. TYPES OF xEVs p.11

4. THE EV/PHEV LINE-UP p.12

5. REGULATORY STANDARDS p.15

6. INCENTIVISING EV PURCHASES p.19

7. EV ECONOMICS p.23

8. CHARGING INFRASTRUCTURE p.26

9. EV BATTERY MARKET OUTLOOK p.29

10. OEM AND BATTERY MAKERS p.35

11. TYPES OF BATTERIES p.38

12. BATTERY MATERIALS p.41

13. BATTERY COST ANALYSIS p.45

14. BATTERY-RELATED PLAYS p.51

Company pages

LG CHEM p.58

SAMSUNG SDI p.63

LG INNOTEK p.69

WOORY INDUSTRIAL p.76

S&T MOTIV p.79

SOULBRAIN p.82

ILJIN MATERIALS p.85

POSCO ICT p.88

‘‘‘‘ Failure is simply to begin again, this time more intelligently.

– Henry Ford


5

Figure 3: Green car penetration forecast by type Figure 4: Green car demand forecast by type

1.9% 2.1%

3.8%

0.1%

0.4%

2.1%

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0.0%

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2013 2016E 2020E

HEV PHEV EV

1,561 1,875

3,94971

397

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SOURCE: LMC, IHS, MARKLINES, ICCT, CIMB RESEARCH SOURCE: LMC, IHS, MARKLINES,, ICCT, CIMB RESEARCH

1.2 Conservative assumptions used to come up with market growth forecasts We foresee 2015 CO2 emission targets being met at all major auto markets given the current CO2 emission levels and automakers’ plans to launch green cars heading into 2H14-2015. However, with the rate of reduction in emission targets between 2015 and 2020 being different in major markets (a reduction of 21% in the US, 27% in the EU and China, and 3% in Japan), we believe that the degree of achievement will also be different in different markets.

We believe that our assumptions are conservative as we have assumed that only Japan will be able to meet its relatively easy 2020 emission target despite the inherent penalties for not achieving CO2 emission standards (details of penalties discussed in the ‘Regulatory Standard’ section). For the US, we have assumed that it will miss the 2020 mark by 7.7%, whereas we have assumed that the EU and China will miss their targets by 8.5% and 13.7%, respectively.

Figure 5: CO2 emission reduction targets – from 2015 to 2020 Figure 6: Pct over/under 2020 CO2 emission targets assumed in CIMB xEV sales forecasts

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(g/km)

2015E 2020E

21%

27%

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3%

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13.7%

-3.6%-6%

-4%

-2%

0%

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16%


SOURCE: ICCT, CIMB RESEARCH SOURCE: ICCT, CIMB RESEARCH


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Figure 7: Green car demand forecast by major market 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

GlobalSales (k units) 80,306 83,360 87,320 91,210 94,800 97,900 100,960 103,570> ICE 78,569 81,459 85,213 88,544 90,955 92,818 94,554 95,169> Green car 1,737 1,901 2,107 2,666 3,845 5,082 6,406 8,401 >> HEV 1,561 1,616 1,703 1,875 2,288 2,724 3,205 3,949 >> PHEV 71 125 184 397 783 1,188 1,613 2,226 >> EV 105 161 220 395 774 1,170 1,587 2,227Penetration (%)> ICE 97.8% 97.7% 97.6% 97.1% 95.9% 94.8% 93.7% 91.9%> Green car 2.2% 2.3% 2.4% 2.9% 4.1% 5.2% 6.3% 8.1% >> HEV 1.9% 1.9% 1.9% 2.1% 2.4% 2.8% 3.2% 3.8% >> PHEV 0.1% 0.1% 0.2% 0.4% 0.8% 1.2% 1.6% 2.1% >> EV 0.1% 0.2% 0.3% 0.4% 0.8% 1.2% 1.6% 2.1%USSales (k units) 15,588 16,010 16,410 16,730 16,750 16,530 16,490 16,420> ICE 14,994 15,345 15,672 15,793 15,601 15,188 14,943 14,647> Green car 594 665 738 937 1,149 1,342 1,547 1,773 >> HEV 497 535 574 619 637 645 660 657 >> PHEV 49 65 82 167 271 370 472 591 >> EV 48 65 82 151 241 327 416 525Penetration (%)> ICE 96.2% 95.8% 95.5% 94.4% 93.1% 91.9% 90.6% 89.2%> Green car 3.8% 4.2% 4.5% 5.6% 6.9% 8.1% 9.4% 10.8% >> HEV 3.2% 3.3% 3.5% 3.7% 3.8% 3.9% 4.0% 4.0% >> PHEV 0.3% 0.4% 0.5% 1.0% 1.6% 2.2% 2.9% 3.6% >> EV 0.3% 0.4% 0.5% 0.9% 1.4% 2.0% 2.5% 3.2%CO2 emission target (g/km) 178 174 167 160 150 144 138 133Weighted avg. CO2 emmision (g/km) 175 171 167 162 157 152 148 143Western EuropeSales (k units) 12,476 14,170 14,690 15,170 15,730 16,140 16,410 16,560> ICE 12,291 13,930 14,411 14,806 15,098 15,230 15,219 14,904> Green car 185 240 279 364 632 910 1,191 1,656 >> HEV 154 193 220 258 315 371 427 497 >> PHEV 6 10 15 46 148 255 364 546 >> EV 26 36 44 61 170 284 400 613Penetration (%)> ICE 98.5% 98.3% 98.1% 97.6% 96.0% 94.4% 92.7% 90.0%> Green car 1.5% 1.7% 1.9% 2.4% 4.0% 5.6% 7.3% 10.0% >> HEV 1.2% 1.4% 1.5% 1.7% 2.0% 2.3% 2.6% 3.0% >> PHEV 0.0% 0.1% 0.1% 0.3% 0.9% 1.6% 2.2% 3.3% >> EV 0.2% 0.3% 0.3% 0.4% 1.1% 1.8% 2.4% 3.7%CO2 emission target (g/km) n.a. n.a. 130 n.a. n.a. n.a. n.a. 95Weighted avg. CO2 emmision (g/km) 127 124 122 119 115 111 108 103ChinaSales (k units) 19,908 21,820 23,610 25,250 26,940 28,630 30,200 31,630> ICE 19,866 21,713 23,428 24,871 26,109 27,292 28,310 28,878> Green car 42 107 182 379 831 1,338 1,890 2,752 >> HEV 34 62 94 177 409 670 954 1,423 >> PHEV 1 19 40 101 212 336 471 664 >> EV 6 25 47 101 210 332 465 664Penetration (%)> ICE 99.8% 99.5% 99.2% 98.5% 96.9% 95.3% 93.7% 91.3%> Green car 0.2% 0.8% 0.8% 1.5% 3.1% 4.7% 6.3% 8.7% >> HEV 0.2% 0.3% 0.4% 0.7% 1.5% 2.3% 3.2% 4.5% >> PHEV 0.0% 0.1% 0.2% 0.4% 0.8% 1.2% 1.6% 2.1% >> EV 0.0% 0.1% 0.2% 0.4% 0.8% 1.2% 1.5% 2.1%CO2 emission target (g/km) n.a. n.a. 161 n.a. n.a. n.a. n.a. 117Weighted avg. CO2 emmision (g/km) 169 164 160 155 150 144 139 133JapanSales (k units) 5,141 4,830 4,740 4,560 4,530 4,470 4,460 4,390> ICE 4,316 4,051 3,972 3,809 3,773 3,711 3,691 3,622> Green car 825 779 768 751 757 759 769 768 >> HEV 796 746 730 703 699 691 690 680 >> PHEV 14 16 19 24 29 34 39 44 >> EV 15 16 19 24 29 34 39 44Penetration (%)> ICE 84.0% 83.9% 83.8% 83.5% 83.3% 83.0% 82.8% 82.5%> Green car 16.0% 16.1% 16.2% 16.5% 16.7% 17.0% 17.2% 17.5% >> HEV 15.5% 15.4% 15.4% 15.4% 15.4% 15.5% 15.5% 15.5% >> PHEV 0.3% 0.3% 0.4% 0.5% 0.6% 0.8% 0.9% 1.0% >> EV 0.3% 0.3% 0.4% 0.5% 0.6% 0.8% 0.9% 1.0%CO2 emission target (g/km) n.a. n.a. 109 n.a. n.a. n.a. n.a. 105Weighted avg. CO2 emmision (g/km) 110 109 108 106 105 104 102 101

SOURCE: LMC, IHS, MARKLINES, ICCT, CIMB RESEARCH


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1.3 2013 green car market recap Global EV sales ballooned to 105k units (+71% yoy) in 2013, thanks to major EV makers’ price cut and new model launches. For instance, Nissan’s LEAF sales surged 130% yoy as it reduced the car's price by US$6,000 (down 17%) in the US, while BMW’s i3 was able to secure pre-orders of 11k units in Europe alone. In contrast, the sales growth of PHEVs (+30% yoy) was relatively weak due to the lack of new model launches and still high prices.

Overall, the total green car demand (including HEVs) expanded only 7% yoy as sales of HEVs (90% of xEV sales) rose a pedestrian 3.6%, partially due to a decline in the Japanese market (-7.1% yoy) – the biggest market in terms of volume and penetration rate. The decline was mainly attributable to the discontinuation of government subsidies for hybrids. However, other markets such as the US (+23% yoy), Europe (+43% yoy) and China (+75% yoy) all enjoyed robust growth.

Figure 8: Global EV sales Figure 9: EV sales by region (2013)

0

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2009 2010 2011 2012 2013

Global EV sales (units)

Mitsubishii-MEV

+71% yoy with release of new models (e.g. Tesla model S,Renault Zoe,BMW i3 and etc)

Nissan Leaf

(Units)

U.S.46%

Europe24%

China6%

Japan14%

ROW10%

SOURCE: MARKLINES, KARI, CIMB RESEARCH, COMPANY SOURCE: MARKLINES, KARI, CIMB RESEARCH, COMPANY

Figure 10: Green car sales by region (2012 vs. 2013) Figure 11: Green car sales by type (2012 vs. 2013)

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55

7161

105

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SOURCE: MARKLINES, KARI, CIMB RESEARCH, COMPANY SOURCE: MARKLINES, KARI, CIMB RESEARCH, COMPANY


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2. MAJOR OEMs’ STRATEGY While all major OEMs are rolling out xEVs, the focus appears to be slightly different. For example, Toyota, Honda and Ford seem to be focusing on HEVs by releasing new models with better specifications and fuel economy to expand their market share in the HEV segment. In contrast, Nissan, GM, BMW and VW appear to be concentrating more on PHEVs and EVs. Nissan, GM and BMW are only launching new PHEV/EV models or improving existing ones in the near term, while VW is applying EV technology to its popular mass-volume cars. As for HMC/KIA, it looks like the group is not only planning to penetrate into the green car market by expanding its green car line-up but also putting efforts into maintaining its pole position in the FCEV (fuel cell electric vehicle) market.

2.1 Japanese OEMs Toyota is focusing on expanding its hybrid sales in Europe and China by releasing new models. It launched small wagon-type hybrid models called Auris and Yaris in Europe, and plans to roll out a hybrid model which will be sold exclusively in China in 2015. In addition, it is increasing its large and luxury hybrid models (e.g. Avalon hybrid and Lexus IS hybrid) to boost profitability. Leveraging its competitive advantages in the hybrid market in terms of technology and cost, Toyota is trying to expand its presence in the PHEV and FCEV markets by trimming the price of the 2014 Prius PHEV by US$2,000 (~6%) in the US and aiming to unveil a passenger car FCEV in 2015. Honda has also geared up to spur HEV sales by releasing new models with better fuel efficiency and specifications such as the Accord hybrid and Fit hybrid in 2013. However, Nissan continues to focus on EVs as it recently launched its new EV, the e-NV 200, and has started to offer free fast charging credits (80% power in 30 minutes) to new LEAF buyers at 21 cities in the US from this year onwards.

Figure 12: Toyota’s Avalon hybrid Figure 13: Toyota’s FCEV concept car

SOURCE: GOOGLE, CIMB RESEARCH, COMPANY SOURCE: GOOGLE, CIMB RESEARCH, COMPANY

Figure 14: Honda’s Fit hybrid Figure 15: Nissan’s free fast charging system



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2.2 European OEMs VW currently focuses on the PHEV segment while aiming to become the top EV manufacturer by 2018. VW is applying its EV technology to existing volume models such as the e-UP and e-Golf by enabling mixed production at its production lines. In contrast, BMW is focusing on both EVs and PHEVs. It launched its first EV, the i3, in late-2013, and the car has secured more than 11,000 pre-orders in Europe alone. It also launched its first PHEV model recently, the i8, and will roll out the i5 family sedan in 2016.

Figure 16: VW’s e-Golf Figure 17: BMW’s i5 concept car image


2.3 US OEMs GM reduced the price of its PHEV, Volt, by US$5,000 (~12%) last year and is considering replacing its current 1.4L engine with a 1.0L or 1.2L engine to improve its fuel efficiency. In addition, it launched the Spark EV in Jun 13 with a very affordable monthly lease payment of US$199 in the US. Ford saw outstanding growth in the HEV segment in 2013 (+146% yoy) with the introduction of new models (e.g. the C-max hybrid) that are armed with better fuel efficiency and lower cost compared to those of its competitors such as Toyota’s Prius. However, it is not yet active in the EV segment.

Figure 18: GM’s Spark EV Figure 19: Ford’s C-MAX hybrid



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2.4 HMC/KIA HMC/KIA expanded its HEV line-up to its large sedans (Grandeur and K7) from mid-sized sedans (Sonata and K5) in late 2013 and will further augment its HEV models using existing models in 2015-16. Hyundai Motor Group's (HMG) HEV sales increased 7% yoy in 1H14. For PHEV, the HMG plans to launch the LF Sonata and K5 PHEVs in 2015-16. HMG is currently selling only two EVs (Ray and Soul EVs) but will add new EV models such as the Avante and K3 in 2016. In the meantime, HMG is a leading player in the FCEV market with the commercial launch of the Tucson FCEV in California in Jun 14. We believe that HMG will continue to raise the number of green car models going forward on the basis of existing volume cars to save development costs and reduce risks, while reinforcing its leading position in the FCEV market. The FCEV market could start to materialise from next year onwards with the launch of Toyota and Honda’s new FCEV models.

Figure 20: HMC/KIA’s green car line-up Year HMC KIA2009 Forte HEV2011 YF Sonata HEV K5 HEV 2012 Avante HEV Ray EV2013 Grandeur HEV, Tucson FCEV K7 HEV2014E LF Sonata HEV Soul EV2015E Sonata PHEV new K5 HEV 2016E Avante HEV, Avante EV K5 PHEV, K3 HEV, K3 EV

SOURCE: CIMB RESEARCH, COMPANY

Figure 21: HMC/KIA’s monthly hybrid sales Figure 22: Hyundai’s Grandeur hybrid

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14

HMC/KIA's HEV sales (LHS, units) % of total sales (RHS)

SOURCE: CIMB RESEARCH, COMPANY SOURCE: GOOGLE, CIMB RESEARCH, COMPANY

Figure 23: KIA’s Soul EV Figure 24: Hyundai’s Tucson FCEV



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3. TYPES OF xEVs The fuel savings potential of xEVs is largely dependent on the extent to which it can operate on electric power, which in turn is limited by the battery capacity. xEVs produced and manufactured today generally fall into one of five categories listed below in the order of increasing usage of electric power:

Micro hybrid: The “stop-start” feature within micro hybrid systems allows modest carbon emissions as the petrol/diesel engine shuts down when the vehicle halts and then restarts once the driver accelerates. These types of vehicles offer minimal if any electric power to propel the vehicle as well as the lowest level of regenerative braking. The engine is able to restart by using an alternator, which in turn is powered by the battery. All energy generated from breaking is sent to the alternator for a 5-15% gain in efficiency.

Mild hybrid: Similar to micro hybrids, mild hybrids also use the “stop-start” system to provide additional power during vehicle acceleration. However, they also include small electric motors and slightly upgraded batteries that are sufficient to provide some electric boost to the propulsion system. Although autonomous driving is not possible on the small electric motors built into mild hybrids, the boost potential does allow for some engine downsizing. The battery is charged by capturing energy lost via braking or by engine over-performing at cruising speed. Efficiency gains range from 10-20%.

Full hybrid: Powered solely by an electric motor and combustion engine, full hybrids are able transition intelligently from either engine depending on the vehicle’s speed. Energy is collected and generated in both driving and braking modes accordingly. The range for efficiency gains is 25-40%.

Plug-in hybrid: PHEVs contain a large high-capacity battery that can be recharged by plugging into a normal household current. The PHEV enables the first tens of miles to be driven entirely on electric power. Since most of the consumers drive less than 40 miles per day, a significant portion of the energy consumed could come from electric power. Beyond the EV battery range, the PHEV will effectively operate like a full hybrid with primary propulsion provided by the ICE (internal combustion engine). Efficiency gains range from 40-65%.

Electric vehicle: EVs are different from PHEV in that they do not have dual mechanical and electrical powertrains – they run on electricity only. Powered by rechargeable battery packs, electric vehicles are propelled by electricity generated from electric motors, all while emitting zero carbon emissions. EVs contain a fuel efficiency range of 100%.

Figure 25: Fuel efficiency gain by vehicle type

TypeMicro hybrid Mild hybrid Full hybridPHEVElectric vehicle

Fuel efficiency gain

25%-40%40%-65%

100%

5%-15%10%-20%



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4. THE EV/PHEV LINE-UP Based on Marklines data, 102 new EV models and 49 PHEV new models will be launched globally by 2017. As for EVs, new models from Chinese, Japanese and German OEMs will account for 74% of total new models. Among them, Nissan is the most aggressive maker with 12 new models (including new models from its JV in China) – notably by expanding its EV line-up to its luxury brand, Infiniti. Chinese OEMs such as BAIC and FAW are also actively seeking to release new EVs in line with the Chinese government’s efforts to reduce fine dust pollution. Meanwhile, European OEMs are focusing on expanding PHEV line-ups, followed by Chinese and US auto makers. Of note, VW plans to extend PHEV models from its luxury brands like Audi and Bentley to its low-cost brand, Seat.

Figure 26: EV model launch outlook by 2017 Country No. of new EV models Portion Company No. of new EV models PortionChina 36 35% Nissan 12 12%Japan 24 24% VW 10 10%Germany 15 15% FAW Car 7 7%France 5 5% BAIC 5 5%India 5 5% Guangzhou/GAC 4 4%UK 5 5% Tata Motors 3 3%USA 4 4% SIM-Drive 3 3%Korea 3 3% Dongfeng/DFM 3 3%Italy 2 2% HMG 2 2%Czech Republic 1 1% Honda 2 2%Spain 1 1% Changan Motors 2 2%Sweden 1 1% Others 49 48%Total 102 100% Total 102 100%

SOURCE: MARKLINES, CIMB RESEARCH, COMPANY

Figure 27: PHEV model launch outlook by 2017 Country No. of new PHEV models Portion Company No. of new PHEV models PortionGermany 19 39% VW 15 31%China 8 16% BMW 3 6%USA 7 14% BYD Auto 3 6%Japan 5 10% Daimler 3 6%France 3 6% GM 4 8%Sweden 3 6% Geely 4 8%Spain 2 4% Chrysler 2 4%UK 2 4% Others 15 31%Total 49 100% 49 100%

SOURCE: MARKLINES, CIMB RESEARCH, COMPANY


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Figure 28: EV/PHEV specification comparisons

Name BMW i3 BMW i8 Chevrolet Spark EV Chevy Volt Fiat 500e Ford C-Max Energi

Availability Now 2014 Now Now 2014 Now Base MSRP US$42,300 US$135,925 US$28,570 US$34,184 US$31,800 US$32,950Est. tax credit US$7,500 US$3,793 US$7,500 US$7,500 US$7,500 US$4,001Technology EV PHEV EV PHEV EV PHEVBody type Sedan Coupe Coupe Sedan Sedan Wagon/Van Seats 4 4 4 4 4 5EV Range 70 miles 25 miles 82 miles 38 miles 87 miles 21 milesBattery size 22 kWh 7.1 kWh 21 kWh 16 kWh 24 kWh 7.6 kWh

Name Ford Focus Electric Ford Fusion Energi Honda Accord Kia Soul EV Mercedes B-Class Mitsubishi i-MIEVPlug-in Hybrid Electric Drive

Availability Now Now Now 2014 Now Now Base MSRP US$35,170 US$34,700 US$39,780 N/A US$42,400 US$23,845Est. tax credit US$7,500 US$4,001 US$3,626 N/A US$7,500 US$7,500Technology EV PHEV PHEV EV EV EVBody type Sedan Sedan Sedan Sedan Sedan Sedan Seats 5 5 5 5 5 4EV Range 76 miles 21 miles 13 miles 90 miles 85 miles 62 miles Battery size 23 kWh 7.6 kWh 6.7 kWh 27 kWh 28 kWh 16 kWh

Name Nissan LEAF Porsche Panamera Tesla Model S Tesla Model X Toyota RAV4 EV Toyota Prius S E-Hybrid Plug-in Hybrid

Availability Now Now Now 2015 Now Now Base MSRP US$28,980 US$107,605 US$81,000 US$80,000 US$50,700 US$30,800Est. tax credit US$7,500 US$4,752 US$7,500 US$7,500 US$7,500 US$2,500Technology EV PHEV EV EV EV PHEVBody type Sedan SUV Sedan SUV SUV Sedan Seats 5 4 5 7 5 5EV Range 84 miles 22 miles 285 miles 230 miles 100 miles 11 miles Battery size 24 kWh 9.4 kWh 85 kWh 85 kWh 42 kWh 4 kWh

SOURCES: IRS, DOE, CIMB


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Figure 29: EV/PHEV models United StatesMaker Model Availability Base MSRP Est. tax credit Technology Body type Battery size EV rangeBMW i3 2014 US$42,300 US$7,500 EV Sedan 22 kWh 70 milesBMW i3 (w/ Range Extender) 2014 US$45,200 US$7,500 EV Sedan 22 kWh 70 milesBMW i8 2014 US$135,925 US$3,793 PHEV Coupe 7.1 kWh 25 miles Cadillac ELR 2014 US$75,000 US$7,500 PHEV Coupe 16 kWh 35 miles Chevrolet Spark EV 2014 US$28,570 US$7,500 EV Coupe 21 kWh 82 milesChevy Volt 2014 US$34,184 US$7,500 PHEV Sedan 17 kWh 38 milesFiat 500e 2014 US$31,800 US$7,500 EV Sedan 24 kWh 87 miles Ford C-Max Energi 2014 US$32,950 US$4,001 PHEV Wagon/Van 7.6 kWh 21 miles Ford Focus Electric 2014 US$35,200 US$7,500 EV Hatchback 23 kWh 76 miles Ford Fusion Energi 2014 US$34,700 US$4,001 PHEV Sedan 7.6 kWh 21 miles Honda Accord Plug-in Hybrid 2014 US$39,780 US$3,626 PHEV Sedan 6.7 kWh 13 miles Kia Soul EV 2014 N/A N/A EV Sedan 27 kWh 90 miles Mercedes B-Class Electric Drive 2014 US$42,400 US$7,500 EV Sedan 28 kWh 85 miles Mitsubishi i-MIEV 2014 US$23,845 US$7,500 EV Sedan 16 kWh 62 miles Nissan LEAF 2014 US$28,980 US$7,500 EV Sedan 24 kWh 84 miles Porsche Panamera S E-Hybrid 2014 US$107,605 US$4,752 PHEV SUV 9.4 kWh 22 miles Tesla Model S 2014 US$81,000 US$7,500 EV Sedan 85 kWh 285 miles Tesla Model X 2015 US$80,000 US$7,500 EV SUV 85 kWh 230 milesToyota RAV4 EV 2014 US$50,700 US$7,500 EV SUV 42 kWh 100 miles Toyota Toyota Prius 2014 US$30,800 US$2,500 PHEV Sedan 4 kWh 11 miles Smart Smart Electric Drive 2014 US$25,000 US$7,500 EV Micro Car 17 kWh 68 miles Volkswagen E-Golf 2014 US$47,782 US$ EV Sedan 24 kWh 85 miles

EuropeMaker Model Availability Base MSRP Technology Body type Battery size EV rangeNissan LEAF Visia 2014 EUR21,490 EV Hatchback 28 kWh 124 miles Renault Zoe 2014 EUR25,183 EV Micro Car 22 kWh 130 miles Mitsubishi Outlander PHEV 2012 EUR35,501 PHEV SUV 12 kWh 34 miles Volvo V60 PHEV 2014 EUR56,343 PHEV Hatchback 12 kWh 30 miles Renault Kangoo ZE 2014 EUR21,487 EV Panel Van 22 kWh 115 miles Toyota Prius PHEV 2014 EUR43,900 PHEV Sedan 5.2 kWh 15 miles Tesla Model S 2014 EUR72,000 EV Sedan 85 kWh 285 miles Opel Ampera 2012 EUR42,900 EV Hatchback 16 kWh 50 miles Smart Fortwo ED 2014 EUR21,246 EV Micro Car 17.6 kWh 68 miles VW e-Up! 2014 EUR24,270 EV Sedan 18.7 kWh 93 milesBMW i3 2014 EUR34,950 EV Sedan 18.8 kWh 118 miles Chevy Volt 2014 EUR42,900 PHEV Sedan 17 kWh 38 miles Citroen C-Zero 2014 EUR29,600 EV Micro Car 16 kWh 80 miles Citroen Berlingo Electrique 2014 EUR26,220 EV Van 22.5 kWh 69 milesBollore Bluecar 2013 EUR19,000 EV 3-door 30 kWh 160 milesPeugeot iOn micro car 2014 EUR32,105 EV Micro Car 16 kWh 93 milesGoupil G3 2014 EUR17,000 EV Electric Utility Vehic 14 kWh 62 miles Renault Fluence ZE 2014 EUR25,690 EV Sedan 22 kWh 100 milesMia Electric Mia 2013 EUR22,714 EV Van 12 kWh 80 miles

ChinaMaker Model Availability Base MSRP MSRP after credits Technology EV rangeBeijing Auto (BAICC30 EV N/A NA EV 124 milesBeijing Auto (BAICE150 EV 2013 RMB249,800 EV 93 miles BMW Brilliance 1E 2014 RMB400,000 EV 93 miles BYD e6 2010 RMB300,000 EV 205 milesBYD-Daimler DENZA EV 2014 RMB369,000 - RMB399,000 EV 186 milesChangan Benni EV N/A N/A RMB100,000 EV 93 miles Changan E30 EV 2012 N/A RMB100,000 EV 100 miles Chery Riich M1 2010 RMB149,800 - 229,800 EV 84 miles Foton Midi EV N/A RMB100,000 EV 109 miles Geely EK-2 N/A RMB100,000 EV 112 miles Hafei Saibao EV N/A RMB180,000 EV 118 miles Haima Freema EV 2011 RMB160,000 EV 100 miles JAC iEV 2014 RMB169,000 EV 100 miles Lifan 320 EV N/A RMB100,000 EV 78 miles Lifan 620 EV 2012 RMB249,800 EV 124 miles SAIC Rowe E50 2012 RMB234,000 EV 112 miles Shanghai-GM Springo EV (Chevy Sail EV) 2012 RMB258,000 EV 103 milesZotye 5008 (Nomad II) EV 2010 RMB210,000 EV 124 miles Zotye M300 EV 2010 RMB250,000 EV 200 miles

SOURCES: plugincars.com, insideevs.com, CIMB


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5. REGULATORY STANDARDS 5.1 Stringent emission standards fuelling electrification The drive to reduce fuel consumption in the transportation sector has reached unprecedented levels in the last several years. Hybrid and full electric vehicles are now sought after as critical technologies that can reduce fuel consumption and emission of CO2, of which the increased levels in the atmosphere are considered a major contributor to global warming.

While the successful launches of Tesla’s Model S and more recently the BMW i3 have renewed interest in EVs, we believe that the stringent emission standards adopted by governments worldwide, along with falling battery costs and improving charging infrastructure, will drive vehicle electrification. Without more EVs on the road, auto makers will be hard pressed to meet the aggressive emission standards over the long term.

Emission standards and targets differ by region. However, the goal appears to be the same in that all major regions (the US, EU, Japan and China) are unlikely to meet the stringent emission standards without more electrification. The below table summarises the emission goals of major markets.

Figure 30: Summary of emission targets for major markets

Region Description

US

EU

Japan

China

Car greenhouse gas emissions: from 256 gCO2/mi in 2013 to 225 gCO2/mi in 2016 and 143 gCO2/mi in 2025

Car fuel consumption: from 8.03 L/100km in 2008 to 6.9 L/100km for 2015; proposed for 2020 is 5 L/100km

Car fuel economy: from 15.1 km/L in 2010 to 16.8 km/L in 2015 and 20.3km/L in 2020

Car fuel CO2 emissions: from 160 g/km in 2006 to 130 g/km in 2015 and 95 g/km in 2020

Car fuel economy: from 31.1 mpg in 2013 to 36.2 mpg in 2016 and 56.2 mpg in 2025

SOURCES: EPA, ICCT, METI, MIIT

Figure 31: Emission targets for selected markets

SOURCES: ICCT


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5.2 The US In the US, the Environment Protection Agency (EPA) and the Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) jointly established a national programme for the new emissions and fuel economy standards, as a response to President Obama’s call for a strong and coordinated federal greenhouse gas (GHG) and fuel economy programme.

Based on the two agencies’ 2010 Regulatory Announcement, the national programme requires US vehicles (fleet-wide basis) to achieve CO2 emissions of less than 250 g/mile (155 g/km) and fuel economy of 35.5 miles per gallon (MPG) by 2016. This represents improvements of 15% and 18%, respectively, in emissions and fuel economy vs. 2012 levels.

Subsequently in 2012, the two regulatory bodies released an updated Regulatory Announcement extending the programme further to 2017-2025. The new standards are more aggressive, requiring US vehicles to achieve CO2 emissions of less than 163 g/mile (101 g/km) and fuel economy of 54.5 MPG by 2025 – representing improvements of 35% and 54%, respectively, vs. 2016 requirements. We believe that these standards are unlikely to be met without a material increase in EV sales.

Figure 32: Fleet-wide emission targets under CO2 standards (g/mi) and their corresponding fuel economy (mpg) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Passenger Cars (g/mi) 263 256 247 236 225 212 202 191 182 172 164 157 150 143Light Trucks (g/mi) 346 337 326 312 298 295 285 277 269 249 237 225 214 203Combined Cars & Trucks (g/mi) 295 286 276 263 250 243 232 222 213 199 190 180 171 163Combined Cars & Trucks (mpg) 30.1 31.1 32.2 33.8 35.5 36.6 38.3 40 41.7 44.7 46.8 49.4 54 54.5

SOURCES: EPA

As for missing the annual target, penalties are in place to assess the fines on vehicle manufacturers for failure to meet the fuel economy and emission standards. For example, manufacturers whose fleets fail to meet the standards are liable for a civil penalty of US$5.5 per each tenth of a MPG missed times the total volume of vehicles manufactured for a given year. From 1983 to 2004, manufacturers paid more than US$618m in civil penalties.

The EPA and NHTSA jointly estimate that the average cost for a 2016 vehicle would go up by US$950 due to the national programme (expenditure associated with increased fuel economy technology). However, a consumer who purchases the new car in cash will save enough (due to lower fuel costs) over the first three years to offset the higher costs, while a consumer purchasing the vehicle using credit would see immediate savings of US$130-180/year (with fuel savings outweighing loan payments).

5.3 Europe In Europe, the European Parliament and the Council of the European Union regulate the implementation of CO2 targets for vehicles through a voting process. The mandatory CO2 standards for passenger cars were first introduced in 2009, setting a 2015 target of 130 g/km (more aggressive than the US) for the fleet average of all manufacturers combined, from about 160 g/km in 2006 (individual manufacturers were assessed using different targets depending on the average weight of the cars – the heavier the weight, the higher the CO2 target).

The implementation of the CO2 target has led to a significant improvement in the average CO2 emission level of new cars, dropping by 17% from 160 g/km in 2006 to 132 g/km in 2012 (twice the rate of decline prior to the introduction of the mandatory target). As a result, the 2015 target of 130 g/km was nearly reached two years ahead of the target year.

We believe that these targets were achieved through various means such as general improvement in performance, downsizing, varying the valve train, and increasing sales of hybrids/EVs. As the following table illustrates, most key EU OEMs have met or are very close to meeting their individual 2015 targets by 2012.


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Figure 33: Performance requirements of key EU passenger car manufacturers

Mass (kg)2012 (Actual) 2015 (Target) 2020 (Target)

Daimler 1,583 143 140 101 BMW 1,563 138 139 100 GM 1,445 134 133 96 Volkswagen 1,417 133 132 96 Ford 1,322 129 128 92 Renault-Nissan 1,329 128 128 93 Fiat (incl. Chrysler) 1,209 124 123 89 Toyota 1,325 122 128 92 PSA (Peugeot-Citroen) 1,374 122 130 94

CO2 (g/km)

SOURCES: ICCT

Subsequent to the 2009 agreement, the European Parliament and the Council of the European Union reached another agreement at the end of 2013 to implement a 2020 CO2 target of 95 g/km for passenger vehicles (a final ruling was made in Feb 2014 that requires 95% of new vehicles to comply by 2020 and 100% by 2021). The new target implies a 28% reduction from 2012 levels. Given the limitation on performance improvement, we believe that further emission cuts are likely to be driven by vehicle electrification.

Missing the individual company targets do not appear to be a viable option as the EU has imposed severe penalties. Based on the latest guidelines, manufacturers that fail to meet their emission targets will need to pay €95 for every g/km of excess emissions per vehicle. This means that manufacturers which miss the emission requirement by 5 g/km would need to pay a fine of €475 per vehicle, the approximate average operating profit per vehicle sold in the European market.

5.4 Japan In Japan, the Energy Conservation Law (first passed in 1979) authorises the Ministry of International Trade and Industry (MITI) to establish fuel economy standards for gasoline and diesel passenger vehicles. In 1999, a revision of the law established the Top Runner Programme (TRP), an energy efficiency system applicable to automobiles, under the authority of the Ministry of Economy, Trade and Industry (METI).

Under the TRP, the most fuel-efficient automobile in each weight class is identified as a ‘top runner’, setting the fuel consumption target for that class. All other vehicles in the same class are required to exceed the new target values for their weight class within three to 10 years.

The first TRP in 1999 established a fleet average target of approximately 15.1 km/L for 2010. Subsequently in 2007, METI set a 2015 target of 16.8 km/L, while recently it has set a 2020 target of 20.3 km/L. Historically, Japan’s fuel economy standards have been more rigorous in comparison with other countries, but the targets for 2020 are less aggressive than those of the US and the EU.

In Japan, fuel economy targets are based on weight class, with automakers allowed to accumulate credits in one weight class for use in another. The current legislation in Japan does not entail any direct penalties or fines on automakers that do not comply with the government-regulated emission standards.

However, under Japan’s mandatory vehicle inspection programme, any vehicle that does not comply with government standards is not permitted to be driven on public roads. Moreover, the indirect sales impact on new cars that do not meet government emission standards is that the relevant automakers will be ineligible for government subsidies, effectively making their car prices less attractive.


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Figure 34: Passenger car fuel efficiency targets for 2015 and 2020

FE target FE target21.8 24.621.0 24.520.8 23.720.5 23.418.7 21.817.2 20.315.8 1914.4 17.613.2 16.512.2 15.411.1 14.410.2 13.59.4 12.78.7 11.97.4 10.6

Curb weight (kg)Curb Weight (kg)

741 - 855856 - 970

971 - 10801081 - 1195

1421 - 1530

2015 2020

601 - 740 Less than 740

1196 - 13101311 - 1420

1991 - 21002101 - 2270

2271 or above

1531 - 16501651 - 17601761 - 18701871 - 1990

2271 or above

741 - 855856 - 970

971 - 1080

1651 - 17601761 - 18701871 - 19901991 - 21002101 - 2270

1081 - 11951196 - 13101311 - 14201421 - 15301531 - 1650

SOURCES: METI

5.5 China In China, the Ministry of Industry and Information Technology (MIIT) sets the fuel consumption standards. There have been a total of four phases that have been proposed since 2004. Phases I and II, which were introduced for 2005-06 and 2008-09 respectively, required each individual vehicle model to comply with fuel consumption regulations prior to entering the market.

This contrasted with policies in the US and the EU, which permit auto manufacturers to meet targets by averaging emissions over their entire fleet of models. The completed Phases I and II contributed to a combined overall reduction in fleet consumption of approximately 10% from 9.11 L/100km (11 km/L) in 2002 to 8.03 L/100km (12.4 L/km) in 2008.

In Aug 2009, Phase III was introduced for 2012-15. In Phase III, a corporate-average fuel consumption (CAFC) target was also established for manufacturers, in addition to specific fuel consumption limits by weight class. Based on Phase III standards, the fleet average fuel consumption for new vehicles is required to fall below 7 L/100km (14.3 km/L) or 167 gCO2/km by 2015.

As for the Phase IV fuel consumption standard that extends the target year to 2020, it is currently under development in China. A target of 5 L/100km (20 km/L) has been proposed.

Figure 35: China’s phased implementation plan over 2005-2020

Phase I Phase II Phase III Phase IVYear 2005-2006 2008-2009 2012-2015 2020Fuel Consumption Standard (L/100km) 9.1 8.1 6.9 5.0

SOURCES: MIIT

At the moment, there are no direct fines for automakers failing to meet these standards in China. However, the MIIT will publicly name manufacturers whose CAFC levels exceed China’s 2015 fleet-wide target of 6.9 L/100km, even if the manufacturer meets its individual CAFC target, as determined by its corporate-average fleet weight.

MIIT can also ban the production of new models that fail to meet its specific weight-based Phase III standard target for the following year, if the manufacturer misses its CAFC target for the current year. These measures clearly incentivise automakers to comply with the standards, which should lead to the more rapid development of EVs in China.


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6. INCENTIVISING EV PURCHASES 6.1 Government sponsorship a key variable at initial stage Governments around the world have set goals to increase the footprint of EVs, motivated by the long-term targets for climate change mitigation and reduction of petroleum use. To accomplish these goals, governments have enacted direct subsidies and fiscal incentives, along with regulatory policies (discussed in the previous section), to help accelerate the movement of EVs into the mainstream market.

Given the higher upfront costs for EVs, we believe that one of the factors that will initially drive vehicle electrification would be government incentives (i.e. direct subsidies and tax incentives). As such, we highlight the types of government incentives as well as levels that are available in different markets currently. Besides direct subsidies (a one-time bonus upon purchase of an EV) and fiscal incentives (a reduced purchase price and/or annual tax for EVs), fuel savings also come into play when determining EVs' economics vs. ICE vehicles. We discuss this in the following section: EV Economics.

Figure 36: Types of government subsidies

Country Direct subsidies Fiscal incentivesUS Yes NoFrance Yes YesUK Yes YesGermany No YesThe Netherlands No YesNorway No YesSweden Yes YesDenmark No YesJapan Yes YesChina Yes Yes

SOURCES: ICCT

As the above data illustrates, the degree of incentives vary worldwide. According to ICCT, the Netherlands and Norway are on the high end for BEVs, while at the lower end are countries such as Austria and Germany, which offer no or little incentives. It is not surprising to see that markets with high incentives usually have higher penetration rate of EVs than markets with very little incentives. However, this is not always the case as can be seen in the UK, where incentives are high and yet the penetration rate remains on the lower end (Figure 35).


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Figure 37: A comparison of fiscal incentive policy vs. penetration rate

SOURCES: ICCT

6.2 Direct subsidies There are numerous direct subsidy programmes around the world, and they are relatively easy to quantify as subsidies are usually defined as fixed amounts that are paid if a certain set of pass/fail criteria is met. Below, we highlight some of the direct subsidies in major markets. For countries such as Norway and the Netherlands whose penetration rate is relatively high, the government offers very attractive fiscal incentives instead of direct subsidies.

The US and California: A federal subsidy programme for EVs allows for a one-time bonus, depending on the battery capacity of the vehicle, of up to a maximum of US$7,500 in the form of tax credit. The credit acts as a subsidy on vehicles that are propelled by a battery of 4kWh or more (US$2,500 for first 4kWh plus $417 for each additional 1kWh up to a maximum credit of US$7,500). Each automaker will get 100% credit for the first 200,000 eligible vehicles sold, and then this will be gradually phased out. In California, there is another subsidy programme at the state level, granting BEV purchasers another US$2,500 and PHEV purchasers another US$1,500 as a form of one-time bonus payment.

France: Within the context of the French Bonus/Malus vehicle taxation system, owners of vehicles emitting less than 20 g/km of CO2 receive a one-time bonus of up to €6,300 or about US$8,500 (within the limit of 27% of purchase price). For vehicles emitting between 21 and 60 g/km of CO2, the bonus is €4,000 or about US$5,400.

UK: Since 2011, customers who purchase a new EV emitting less than 75 g/km of CO2 receive a one-time bonus of 25% of the car, up to a maximum of £5,000 or about US$7,800.

Sweden: Since 2012, cars with a CO2 emission of 50 g/km and less receive a one-time ‘super green car premium’ of SEK40,000 (about US$6,000). The programme runs through 2014 and will be paid to a maximum of 5,000 cars.

Japan: A government programme has allowed for a one-time bonus for EVs since 2009. The programme was extended to 2013 with adjustments and provides a bonus based on the price difference between the EV and a comparable gasoline car. The bonus is capped at ¥850,000 (about US$8,500).


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China: Since 2010, a national programme provides a one-time bonus for EVs. The programme was recently extended from 2013 to 2015 with some revisions. The bonus is between Rmb35,000 and Rmb60,000 (about US$5,600-9,800) for BEVs, depending on the battery range of the vehicle, and Rmb35,000 (about US$5,600) for PHEVs with a battery range of not less than 50km.

Figure 38: Types of direct incentives offered

Country Description US One-time federal tax credit up to US$7,500.France One-time bonus of EUR6,300 (~US$8,500) for vehicles that emit

< 20 g/km CO2, EUR4,000 (~US$7,800) for 21-60 g/km.UK One-time bonus of 25% of the car value up to GBP5,000

(~US$7,800).Sweden One-time 'super green car' premium of SEK40,000 (~US$6,000) for

first 5,0000 vehicles (ends in 2014).Japan One-time bonus of up to JPY850,000 (~US$8,500).China One-time bonus of RMB35,000 - RMB60,000 (US$5,600-US$9,700)

for BEV. RMB35,000 for PHEV. SOURCES: ICCT

6.3 Fiscal incentives Fiscal incentives are also an integral element of encouraging the purchase of EVs. There are basically four main categories where tax breaks may exist in major markets: 1) VAT, 2) one-time purchase/registration tax, 3) annual circulation tax, and 4) company car tax. In the following paragraphs, we discuss what they are and the potential impact on EV purchases in major markets.

1) VAT – Most markets apply VAT when a vehicle is purchased. The range of the tax is between 5% in Japan and 25% in Denmark, Norway and Sweden. It is usually applied to the base price of the vehicle (excluding any purchase/registration tax). As a result, EV car owners end up paying more VAT than their conventional counterparts in most markets due to the higher base price. Norway is the only major market which excludes BEVs (but not PHEVs) from VAT.

2) One-time purchase/registration tax – Most markets charge a purchase or registration tax in addition to the VAT. But markets such as the Netherlands offer a tax break to EVs as the registration tax depends on the level of CO2 emission of a vehicle. In Denmark, the registration tax is calculated based on the vehicle price, safety equipment on board and fuel consumption, but BEVs are exempted from registration tax altogether.

3) Annual circulation tax – Some markets charge an annual vehicle ownership tax, and in so doing, provide a tax break for EVs. For example, in Germany, the annual circulation tax is calculated based on the CO2 emissions and engine capacity of a vehicle. BEVs and PHEVs are exempted from circulation tax for a period of 10 years from the date of their first registration. However, the savings are relatively small.

4) Company car tax – This is popular in many European countries. The basic idea behind the company car system is that rather than paying a higher salary to its employees, the company offers the employee a car and to pay all related charges including fuel costs. The company can claim the costs for the vehicle and associated charges as business expenditures, and is subject to a lower tax. The employee, on the other hand, has access to a vehicle that he/she can also use for private trips. In return, the employee has to pay a special company car tax to account for the monetary benefit of having free access to a vehicle. The Netherlands provides a good example of the effect that such a system can have on the costs of driving an EV. In the Netherlands, generally 25% of the vehicle’s price will be considered part of the driver’s income and is subject to income tax.


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Figure 39: Types of fiscal incentives offered

Country TypesUS None at the federal levelFrance Company car taxUK Company car taxGermany Company car taxThe Netherlands Company car tax, registration and ownership tax Norway VAT, registration tax Sweden Company car tax, annual road taxDenmark Company car tax, registration taxJapan VAT, acquisition and annual tonnage taxesChina VAT of 10% exempt from Sept-2014 to end-2017

SOURCES: ICCT


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7. EV ECONOMICS 7.1 Does it make sense to own an EV? While the global regulatory push to lower emissions is the main driver for EV growth, we do not believe that the industry can ‘take-off’ until the economics are justified. In our view, the EV industry is at the cusp of becoming competitive with ICE vehicles. Based on our analysis, we believe that investments in EVs could offer a reasonably compelling payback period based on the cost differential between gasoline and electric driving, while taking into consideration incentives offered by governments for EV purchases. The total cost of ownership (TCO) model also indicates that the total cost (initial cost and fuel/maintenance cost) of owning an EV for five years could be comparable to owning a similar if not a lower-grade ICE vehicle. We explain the details of our analysis below.

7.2 Total cost of ownership (TCO) and payback analysis We have conducted two different TCO/payback analysis (Figures 40 and 41) – one based on 2013 battery cost estimates (battery pack cost of US$564/kWh for EV, US$611/kWh for PHEV and US$705/kWh for HEV) and another based on 2016 projected battery costs (US$356/kWh for EV, US$385/kWh for PHEV and US$444/kWh for HEV using next generation batteries). As apple-to-apple comparisons are difficult at this stage given the limited availability of xEV models, we have chosen to compare the best-selling car in the US, the Toyota Camry with 1) the Toyota Camry HEV, its sister hybrid; 2) the Chevy Volt, the longest-selling PHEV; 3) the Nissan Leaf, the most popular EV; and 4) the BMW i3, the new EV on the block. The comparisons were made based on US market conditions. We observe the following from our analysis:

• Toyota Camry HEV – the TCO (five years) for a Camry HEV was US$1,121 or 3% higher than owning an ICE Camry based on 2013 battery costs. There is not much of a drop-off in 2016, as it only falls to US$940 (2.5% higher). For 2013 and 2016, the payback periods were 6.8 and 6.5 years, respectively, the highest among all types of EVs compared in this exercise.

• Chevy Volt – the TCO for a Volt was US$466 or just 1% higher than a Camry based on 2013 battery costs, after incentives. Based on 2016 assumption, the TCO falls US$3,521 or 9% below Camry's. In terms of the payback period, it improves from 5.5 years (2013) to 1.2 years (2016).

• Nissan Leaf – the TCO for a Nissan Leaf was US$8,682 or 23% lower than owning a Camry based on 2013 battery costs, while dropping further to US$14,035 or 37% based on 2016 battery costs. The payback period moves from minus 0.4 years (meaning already cheaper at the initial stage) in 2013 to minus 3.8 years in 2016.

• BMW i3 – the TCO for a BMW i3 was US$4,348 or 12% higher than owning a Camry based on 2013 battery costs, but drops to -US$559 or 1.5% lower based on 2016 battery costs. The payback period moves from the highest of 7.6 years in 2013 to a more reasonable 4.7 years in 2016.

We note that these results may not be representative for all markets as vehicle prices, tax rates, fuel prices, electricity prices and incentives invariably differ in each market. However, given that the US is the biggest EV market, we believe that the faster xEVs become competitive vis-à-vis ICE vehicles in the US, the faster the EV battery market will take off.


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Figure 40: TCO (five years) and payback analysis – based on 2013 battery cost estimate ICE HEV PHEV EV EV

Model Toyota Camry Toyota Camry HEV Chevy Volt Nissan Leaf BMW i3MSRP (US$) 22,425 26,330 34,170 28,800 41,350 Sales tax (7%) 1,570 1,843 2,392 2,016 2,895 Incentives (US$) - - 7,500 7,500 7,500 Total purchase cost (US$) 23,995 28,173 29,062 23,316 36,745 xEV premium over ICE vehicle (US$) 4,178 5,067 (679) 12,750

EV range per charge (miles) 38 75 81 Battery capacity (kwh) 1.5 16.5 24.0 22.0 Battery pack unit cost (US$/kwh) 705 611 564 564 Battery pack cost (US$/kwh) 1,058 10,082 13,536 12,408

Total miles driven 15,000 15,000 15,000 15,000 15,000 Gasoline 15,000 15,000 3,000 - - Battery - - 12,000 15,000 15,000

Fuel economy (mpg) 28 41 37 - - Annual fuel consumption (gallons) 536 366 81 - - Per unit fuel cost (US$/gal) 3.60 3.60 3.60 3.60 3.60 Total annual fuel cost (US$) 1,929 1,317 292 - -

Battery mileage (miles/kwh) - - 2.3 3.1 3.7 Electricity tariff rate (US$/kwh) 0.11 0.11 0.11 0.11 0.11 Total annual electricity cost (US$) - - 716 528 448

Annual maintenance cost (US$) 800 800 800 600 600

Total annual cost (US$) 2,729 2,117 1,808 1,128 1,048 Annual savings over ICE vehicle (US$) 611 920 1,601 1,680

Payback period (years) 6.8 5.5 (0.4) 7.6

TCO (5 years) 37,638 38,758 38,104 28,956 41,985 Diff vs. ICE vehicle (US$) 1,121 466 (8,682) 4,348

SOURCES: CIMB

Figure 41: TCO (five years) and payback analysis – based on 2016 battery cost projection ICE HEV PHEV EV EV

Model Toyota Camry Toytao Camry HEV Chevy Volt Nissan Leaf BMW i3MSRP (US$) 22,425 26,161 30,444 23,797 36,764 Sales tax (7%) 1,570 1,831 2,131 1,666 2,573 Incentives (US$) - - 7,500 7,500 7,500 Total purchase cost (US$) 23,995 27,993 25,075 17,963 31,838 xEV premium over ICE vehicle (US$) 3,998 1,080 (6,032) 7,843

EV range per charge (miles) 38 75 81 Battery capacity (kwh) 2.0 16.5 24.0 22.0 Battery pack unit cost (US$/kwh) 444 385 356 356 Battery pack cost (US$/kwh) 889 6,355 8,533 7,822

Total miles driven 15,000 15,000 15,000 15,000 15,000 Gasoline 15,000 15,000 3,000 - - Battery - - 12,000 15,000 15,000

Fuel economy (mpg) 28 41 37 - - Annual fuel consumption (gallons) 536 366 81 - - Per unit fuel cost (US$/gal) 3.60 3.60 3.60 3.60 3.60 Total annual fuel cost (US$) 1,929 1,317 292 - -

Battery mileage (miles/kwh) - - 2.3 3.1 3.7 Electricity tariff rate (US$/kwh) 0.11 0.11 0.11 0.11 0.11 Total annual electricity cost (US$) - - 716 528 448

Annual maintenance cost (US$) 800 800 800 600 600

Total annual cost (US$) 2,729 2,117 1,808 1,128 1,048 Annual savings over ICE vehicle (US$) 611 920 1,601 1,680

Payback period (years) 6.5 1.2 (3.8) 4.7

TCO (5 years) 37,638 38,578 34,117 23,603 37,078 Diff vs. ICE vehicle (US$) 940 (3,521) (14,035) (559)



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TCO in Europe varies by market

According to an analysis conducted by the International Council on Clean Transportation (ICCT), the TCO can vary widely within Europe given various incentive programs (one-time bonus payment, VAT, one-time registration taxes, fuel/electricity costs, etc.). In countries such as Norway, where incentives are high, prices for EVs are extremely competitive. In France, prices are relatively comparable but very high in Germany (Figure 42). We highlight the key differences below.

Norway – a relatively high amount of taxes is added for the Clio (ICE vehicle), while the Zoe (BEV) is partly exempt from these charges. For the Clio, a 25% VAT applies, plus a one-time registration fee of about €4,100. The Zoe is fully exempt from both taxes. Electricity prices in Norway are on the lower end of the European spectrum, while fuel prices are on the higher end. As a result, the estimated fuel cost savings for the Renault Zoe are €2,045. In sum, the BEV has a TCO that is more than €2,335 lower than a gasoline vehicle.

France – with a one-time bonus of €7,000 for the Renault Zoe, it more than compensates for the higher VAT due to a higher base price. Furthermore, electricity tariffs are comparably low in France, resulting in high fuel cost savings when switching from the Renault Clio to the Zoe. Altogether, the estimated incentives provided for the BEV are €8,108. Taking into account all of these incentives, the TCO for the Renault Zoe is slightly higher than its combustion engine counterpart.

Germany – the only incentive provided is a ~€72 of annual circulation tax (total of four years) for the Zoe. With fuel cost savings for the BEV estimated to be €2,838, the TCO for the Zoe is €27,081 vs. €18,736 for the Clio. Excluding fuel cost savings, taxes for the BEV are €1,476 higher than for its gasoline counterpart. This is due to the fact that the base price of the BEV is higher; the VAT is therefore also higher.

Figure 42: Comparison of incentives in Europe – Norway, France and Germany

SOURCES: ICCT


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8. CHARGING INFRASTRUCTURE 8.1 Charging stations need to grow in tandem with EVs Although advancements have been made in the last couple of years, barriers such as inadequate charging point density and lengthy charge times still need to be resolved in order for EVs to be accepted as a solution for mainstream transportation.

Most current EV owners charge their cars overnight at their residences, which many consider more convenient than going to an EV charging station. However, many prospective buyers still seek access to a robust nationwide charging station network before even considering the purchase of an EV. Even for those who mostly charge their cars at home, knowing that there is sufficient infrastructure in place could appease range anxiety.

But the high costs of equipment/installation and space constraints currently impede the fast buildout of such a network in many parts of the world. We believe that a sufficient buildout of charging infrastructure, along with falling EV battery costs, could be the key to a successful ramp-up of EVs in the market place.

Figure 43: Projected fast-charging stations worldwide

SOURCES: IHS

8.2 The US is the most advanced The US is by far the most advanced in terms of building out EV charging stations (c.10k stations as at Aug 2014, about half of the global total); yet charging stations only represent about 8% of total gas stations nationwide. Although EV charging stations have nearly doubled in the past two years, we believe a quicker rollout would lead to stronger EV sales. Predictably, California had the most EV charging stations (~2,200), followed by Texas (~700) and Florida (~600) (Figure 45). Tesla is also doing its part as it plans to raise the number of super charge stations in North America from the current 104 to 187 by the end of 2014 and 258 by 2015, which would cover 98% of the US population and parts of Canada (Figures 46 and 47).


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Figure 44: Number of charging stations and outlets in the US as at Aug 2014

Station Outlet Level I 257 763 Level 2 7,475 14,822 DC Fast Charge 267 819 Legacy 107 107 Public 8,578 20,797 Private 1,593 3,022 Total 10,171 23,819

SOURCE: DOE

Figure 45: States with the most charging stations as at Aug 2014

SOURCES: DOE

Figure 46: Tesla Supercharger Network as at Aug 2014 Figure 47: Anticipated Supercharger Network by end-2015

SOURCE: TESLA MOTORS SOURCE: TESLA MOTORS

Charging stations should cater to users’ needs

The best type of charging station to install in any given location depends on how long people are willing to spend at that location, and for residences, the size of the battery. As Figure 48 illustrates, for a private charging unit (home or office), level I and II are likely to suffice. For a public charging unit, a minimum of level II is probably necessary given the time constraints – i.e. DC fast charge is ideal for highways.


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According to the Electrification Coalition, a one hour charge at a level I charger would allow a driving range of ~5 miles, while a level II charger would allow a range of 11-23 miles. The DC fast charge, on the other hand, would allow a substantial increase to 168 miles of range for an hour of charge. However, as expected, the DC fast charge would also require the most investment (US$24k to US$80k per station), compared with level 1 and II charging stations at residences (no cost or as low as US$650) (Figure 49).

Minimal impact on the electricity grid

Currently, the additional load on the electricity grid due to the employment of EV is fairly low. A recent study done by the US DOE (Department of Energy) showed that the existing electrical infrastructure could fuel 73% of the light-duty vehicle fleet if they were transitioned into EVs. Even in California where EV sales are the highest, most utilities are not concerned about the impact that EVs could have on their systems, as upgrading transformers is well within the normal costs of their business.

Figure 48: Best locations for charging infrastructure

Level I X XLevel II X X XDCFC X

Home Office Publicly available Highway

SOURCE: ELECTRIFICATION COALITION

Figure 49: Cost of charging stations for Level II and DC Fast Charging

Charge station hardware $450- $1,500-$2,500 $1,500-$3,000 $12,000-$35,000Electrician materials $50-$150 $210-$510 $150-$300 $300-$600Electrician labor $100-$350 $1,240-$2,940 $800-$1,500 $1,600-$3,000Other materials $50-100 $50-$150 $100-$400Other labor $250-$750 $2,500-$7,500 $5,000-$15,000Transformer N/A N/A N/A $10,000-$25,000Mobilization $50-$200 $250-$500 $250-$500 $600-$1,200Permitting $0-$1000 $50-$200. $50-$200 $50-$200Total Cost $650- $3,550-$7,500 $5,300-$13,150 $23,650-$80,400

Level II Home

Level II Parking Garage

Level II Curbside

DC Fast Charging

SOURCES: RMI

Figure 50: Miles gained from an hour of charging with different on-board chargers at various types of charging stations

Type 3.3kW 6.6kW Description

Level I 5 5Level l uses a standard 12V outletwith a 12-15A circuit

Level II 11.5 23Level ll uses a standard 240V outlet(used for clothes dryers and electric stoves)with a 12-80A circuits

DC Fast Charge 168 168DC Fast Chargers require three phasepower at 400+V and provide power to the vehicle at 20-100kW

SOURCES: ELECTRIFICATION COALITION


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9. EV BATTERY MARKET OUTLOOK 9.1 xEV battery market to grow at 36% CAGR until 2016 Based on our xEV unit forecast, we expect the overall EV battery market to grow at a 36% CAGR over 2014-2016, with a significant growth spurt kicking in from 2016 on the back of 1) growing demand for xEVs on the back of significant improvement in the driving range from increased battery capacity and 2) larger number of new xEV model rollouts from automakers’ more aggressive electrification strategies in light of the implementation of more stringent fuel consumption/carbon emission regulations.

Figure 51: CIMB xEV battery market forecast (Base case) 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E CAGR ('14-'20)

HEV Battery cell size (kwh) 1.5 1.5 1.6 2.0 2.0 2.1 2.1 2.2 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 1,560,642 1,615,831 1,702,710 1,874,802 2,288,310 2,723,898 3,205,268 3,948,800 14.2% Total battery cell market size (kwh) 2,340,963 2,496,459 2,709,608 3,729,333 4,642,915 5,637,245 6,766,134 8,502,400 20.2% Total battery cell market size (US$m) 1,100 1,138 1,198 1,105 1,334 1,572 1,830 2,230 10.6%

PHEV Battery cell size (kwh) 12.0 12.4 12.7 15.9 16.2 16.6 16.9 17.2 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 71,359 124,929 183,707 396,522 783,352 1,187,580 1,612,880 2,226,000 63.5% Total battery cell market size (kwh) 856,308 1,544,120 2,338,737 6,310,053 12,715,196 19,662,049 27,237,565 38,343,483 72.1% Total battery cell market size (US$m) 402 704 1,034 1,870 3,654 5,481 7,365 10,058 58.4%

EV Battery cell size (kwh) 24.0 24.7 25.5 31.8 32.5 33.1 33.8 34.5 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 104,875 160,605 220,170 394,962 773,608 1,170,218 1,587,480 2,226,560 54.7% Total battery cell market size (kwh) 2,517,000 3,970,161 5,605,880 12,570,456 25,114,054 38,749,207 53,617,243 76,706,257 62.9% Total battery cell market size (US$m) 1,183 1,810 2,479 3,724 7,218 10,802 14,499 20,120 49.9%

Total xEV battery Battery cell size (kwh) 3.3 4.2 5.1 8.5 11.0 12.6 13.7 14.7 23.9% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 1,736,876 1,901,365 2,106,587 2,666,286 3,845,270 5,081,696 6,405,628 8,401,360 25.3% Total battery cell market size (kwh) 5,714,271 8,010,741 10,654,225 22,609,841 42,472,165 64,048,501 87,620,942 123,552,140 55.1% Total battery cell market size (US$m) 2,686 3,652 4,712 6,699 12,207 17,855 23,694 32,408 42.7%Overall growth projectionxEV unit growth (yoy) NA 9% 11% 27% 44% 32% 26% 31%xEV battery cell market growth (kwh, yoy) NA 40% 33% 112% 88% 51% 37% 41%xEV battery cell market growth (value, yoy) NA 36% 29% 42% 82% 46% 33% 37%

SOURCES: CIMB


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Figure 52: CIMB xEV battery market forecast (Base case) - US 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E CAGR ('14-'20)

HEV Battery cell size (kwh) 1.5 1.5 1.6 2.0 2.0 2.1 2.1 2.2 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 496,697 535,244 574,350 619,010 636,500 644,670 659,600 656,800 4.1% Total battery cell market size (kwh) 745,046 826,952 913,992 1,231,327 1,291,440 1,334,177 1,392,377 1,414,196 9.6% Total battery cell market size (US$m) 350 377 404 365 371 372 377 371 0.8%

PHEV Battery cell size (kwh) 12.0 12.4 12.7 15.9 16.2 16.6 16.9 17.2 5.3% Battery cell cost (US$/kwh) 470.0 455.9 442.2 296.3 287.4 278.8 270.4 262.3 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 49043.0 65210.0 82050.0 167300.0 271350.0 370272.0 471614.0 591120.0 42.7% Total battery cell market size (kwh) 588,516 805,996 1,044,562 2,662,329 4,404,491 6,130,373 7,964,397 10,182,210 50.3% Total battery cell market size (US$m) 277 367 462 789 1,266 1,709 2,154 2,671 38.3%

EV Battery cell size (kwh) 24.0 24.7 25.5 31.8 32.5 33.1 33.8 34.5 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 48,260 64,808 82,050 150,570 241,200 327,294 415,548 525,440 40.6% Total battery cell market size (kwh) 1,158,240 1,602,053 2,089,124 4,792,191 7,830,206 10,837,624 14,035,162 18,101,707 48.1% Total battery cell market size (US$m) 544 730 924 1,420 2,250 3,021 3,795 4,748 36.3%

Total xEV battery Battery cell size (kwh) 4.2 4.9 5.5 9.3 11.8 13.6 15.1 16.7 21.9% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 594,000 665,262 738,450 936,880 1,149,050 1,342,236 1,546,762 1,773,360 16.9% Total battery cell market size (kwh) 2,491,802 3,235,000 4,047,678 8,685,847 13,526,137 18,302,175 23,391,936 29,698,112 42.5% Total battery cell market size (US$m) 1,171 1,475 1,790 2,574 3,887 5,102 6,326 7,790 31.1%

SOURCES: CIMB

Figure 53: CIMB xEV battery market forecast (Base case) - Europe 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E CAGR ('14-'20)

HEV Battery cell size (kwh) 1.5 1.5 1.6 2.0 2.0 2.1 2.1 2.2 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 153,578 193,489 220,350 257,890 314,600 371,220 426,660 496,800 18.3% Total battery cell market size (kwh) 230,367 298,940 350,654 512,992 638,314 768,259 900,654 1,069,690 24.5% Total battery cell market size (US$m) 108 136 155 152 183 214 244 281 14.6%

PHEV Battery cell size (kwh) 12 12 13 16 16 17 17 17 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 5,772 10,363 14,690 45,510 147,862 255,012 364,302 546,480 91.6% Total battery cell market size (kwh) 69,264 128,084 187,015 724,223 2,400,062 4,222,082 6,152,162 9,413,273 101.7% Total battery cell market size (US$m) 33 58 83 215 690 1,177 1,664 2,469 85.6%

EV Battery cell size (kwh) 24 25 25 32 32 33 34 34 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 25,650 35,821 44,070 60,680 169,884 284,064 400,404 612,720 57.4% Total battery cell market size (kwh) 615,600 885,497 1,122,093 1,931,262 5,515,036 9,406,157 13,523,672 21,108,552 65.7% Total battery cell market size (US$m) 289 404 496 572 1,585 2,622 3,657 5,537 52.4%

Total xEV battery Battery cell size (kwh) 4.9 5.5 5.9 8.7 13.5 15.8 17.3 19.1 21.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 185,000 239,673 279,110 364,080 632,346 910,296 1,191,366 1,656,000 36.8% Total battery cell market size (kwh) 915,231 1,312,522 1,659,762 3,168,477 8,553,412 14,396,498 20,576,489 31,591,516 65.9% Total battery cell market size (US$m) 430 598 734 939 2,458 4,013 5,564 8,287 52.6%

SOURCES: CIMB


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Figure 54: CIMB xEV battery market forecast (Base case) - China 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E CAGR ('14-'20)

HEV Battery cell size (kwh) 1.5 1.5 1.6 2.0 2.0 2.1 2.1 2.2 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 34,393 62,488 94,440 176,750 409,488 669,942 954,320 1,423,350 70.2% Total battery cell market size (kwh) 51,590 96,544 150,287 351,589 830,839 1,386,479 2,014,514 3,064,701 79.2% Total battery cell market size (US$m) 24 44 66 104 239 387 545 804 64.9%

PHEV Battery cell size (kwh) 12 12 13 16 16 17 17 17 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 1,147 19,176 40,137 101,000 211,748 335,544 470,516 664,230 148.1% Total battery cell market size (kwh) 13,764 237,010 510,976 1,607,264 3,437,051 5,555,396 7,945,855 11,441,551 161.3% Total battery cell market size (US$m) 6 108 226 476 988 1,549 2,149 3,001 140.4%

EV Battery cell size (kwh) 24 25 25 32 32 33 34 34 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 6,460 25,360 47,220 101,000 210,132 332,108 465,080 664,230 93.8% Total battery cell market size (kwh) 155,040 626,904 1,202,297 3,214,527 6,821,629 10,997,029 15,708,108 22,883,101 104.1% Total battery cell market size (US$m) 73 286 532 952 1,961 3,066 4,248 6,002 87.8%

Total xEV battery Battery cell size (kwh) 5.2 9.0 10.3 13.7 13.3 13.4 13.6 13.6 14.6% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 42,000 107,024 181,797 378,750 831,368 1,337,594 1,889,916 2,751,810 81.8% Total battery cell market size (kwh) 220,394 960,458 1,863,560 5,173,379 11,089,519 17,938,904 25,668,477 37,389,353 108.2% Total battery cell market size (US$m) 104 438 824 1,533 3,187 5,001 6,941 9,807 91.6%

SOURCES: CIMB

Figure 55: CIMB xEV battery market forecast (Base case) - Japan 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E CAGR ('14-'20)

HEV Battery cell size (kwh) 1.5 1.5 1.6 2.0 2.0 2.1 2.1 2.2 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 796,343 745,970 729,960 703,152 699,432 691,062 690,408 680,450 -2.2% Total battery cell market size (kwh) 1,194,515 1,152,524 1,161,622 1,398,701 1,419,127 1,430,188 1,457,411 1,465,118 3.0% Total battery cell market size (US$m) 561 525 514 414 408 399 394 384 -5.3%

PHEV Battery cell size (kwh) 12 12 13 16 16 17 17 17 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 14,122 16,293 18,960 23,712 28,992 33,972 39,248 43,900 17.6% Total battery cell market size (kwh) 169,464 201,387 241,376 377,341 470,591 562,454 662,802 756,190 23.8% Total battery cell market size (US$m) 80 92 107 112 135 157 179 198 13.9%

EV Battery cell size (kwh) 24 25 25 32 32 33 34 34 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 14,535 16,487 18,960 23,712 28,992 33,972 39,248 43,900 17.1% Total battery cell market size (kwh) 348,840 407,569 482,752 754,682 941,183 1,124,908 1,325,604 1,512,380 23.3% Total battery cell market size (US$m) 164 186 213 224 270 314 358 397 13.5%

Total xEV battery Battery cell size (kwh) 2.1 2.3 2.5 3.4 3.7 4.1 4.5 4.9 12.9% Battery cell cost (US$/kwh) 470.00 455.90 442.22 296.29 287.40 278.78 270.42 262.30 -8.0% Change in battery price (%) NA -3.0% -3.0% -33.0% -3.0% -3.0% -3.0% -3.0% Vehicles (units) 825,000 778,751 767,880 750,576 757,416 759,006 768,904 768,250 -1.0% Total battery cell market size (kwh) 1,712,819 1,761,480 1,885,750 2,530,724 2,830,902 3,117,550 3,445,817 3,733,688 11.8% Total battery cell market size (US$m) 805 803 834 750 814 869 932 979 2.8%

SOURCES: CIMB


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In our more optimistic bull-case scenario, we anticipate that the global EV battery market could grow by as much as 66% on average over 2014-2016, from which we expect major battery suppliers in Korea, namely LG Chem and Samsung SDI, to benefit the most due to increasing economies of scale.

Figure 56: CIMB xEV battery market forecast (Bull case) 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E CAGR ('14-'20)

HEV Battery cell size (kwh) 1.5 1.5 1.6 2.0 2.0 2.1 2.1 2.2 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 221.11 210.06 199.55 189.58 183.89 -12.5% Change in battery price (%) NA -3.0% -3.0% -50.0% -5.0% -5.0% -5.0% -3.0% Vehicles (units) 1,560,642 1,615,831 1,702,710 2,507,562 3,401,646 4,345,630 5,362,108 6,410,490 22.4% Total battery cell market size (kwh) 2,340,963 2,496,459 2,709,608 4,988,011 6,901,842 8,993,501 11,319,097 13,802,814 28.8% Total battery cell market size (US$m) 1,100 1,138 1,198 1,103 1,450 1,795 2,146 2,538 12.7%

PHEV Battery cell size (kwh) 12.0 12.4 12.7 15.9 16.2 16.6 16.9 17.2 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 221.11 210.06 199.55 189.58 183.89 -12.5% Change in battery price (%) NA -3.0% -3.0% -50.0% -5.0% -5.0% -5.0% -3.0% Vehicles (units) 71,359 124,929 183,707 1,041,098 1,970,409 2,956,288 3,999,248 5,079,100 83.9% Total battery cell market size (kwh) 856,308 1,544,120 2,338,737 16,567,513 31,983,222 48,945,509 67,537,435 87,488,941 93.7% Total battery cell market size (US$m) 402 704 1,034 3,663 6,718 9,767 12,803 16,088 69.4%

EV Battery cell size (kwh) 24 25 25 32 32 33 34 34 5.3% Battery cell cost (US$/kwh) 470.00 455.90 442.22 221.11 210.06 199.55 189.58 183.89 -12.5% Change in battery price (%) NA -3.0% -3.0% -50.0% -5.0% -5.0% -5.0% -3.0% Vehicles (units) 104,875 160,605 220,170 1,082,682 2,016,594 3,005,882 4,051,848 5,133,890 74.3% Total battery cell market size (kwh) 2,517,000 3,970,161 5,605,880 34,458,520 65,465,780 99,533,202 136,851,438 176,865,428 83.6% Total battery cell market size (US$m) 1,183 1,810 2,479 7,619 13,751 19,862 25,944 32,523 60.5%

Total xEV battery Battery cell size (kwh) 3.3 4.2 5.1 12.1 14.1 15.3 16.1 16.7 26.2% Battery cell cost (US$/kwh) 470.00 455.90 442.22 221.11 210.06 199.55 189.58 183.89 -12.5% Change in battery price (%) NA -3.0% -3.0% -50.0% -5.0% -5.0% -5.0% -3.0% Vehicles (units) 1,736,876 1,901,365 2,106,587 4,631,342 7,388,649 10,307,800 13,413,204 16,623,480 38.1% Total battery cell market size (kwh) 5,714,271 8,010,741 10,654,225 56,014,044 104,350,844 157,472,213 215,707,970 278,157,183 74.2% Total battery cell market size (US$m) 2,686 3,652 4,712 12,385 21,920 31,424 40,893 51,150 52.3%Overall growth projectionxEV unit growth (yoy) NA 9% 11% 120% 60% 40% 30% 24%xEV battery cell market growth (kwh, yoy) NA 40% 33% 426% 86% 51% 37% 29%xEV battery cell market growth (value, yoy) NA 36% 29% 163% 77% 43% 30% 25%

SOURCES: CIMB

As we expect a higher concentration of BEV and PHEV relative to HEV over time due to increasing battery performance and improvements in the cost structure, we expect to see the overall xEV battery market outpace the xEV unit growth for the foreseeable future. Both BEV/PHEV volume growth and increasing battery density should drive a stronger overall demand for batteries, and hence market expansion.

Figure 57: xEV battery cell market forecast

Figure 58: xEV battery cell price forecast Figure 59: xEV unit forecast

-

10,000

20,000

30,000

40,000

50,000

60,000

2016E 2017E 2018E 2019E 2020E

(USD m)

Base case Bull case

150

170

190

210

230

250

270

290

310

2016E 2017E 2018E 2019E 2020E

(USD/kWh)

Base case Bull case

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

2016E 2017E 2018E 2019E 2020E

(mn)

Base case Bull case

SOURCES: CIMB SOURCES: CIMB SOURCES: CIMB


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9.2 LIB to be the mainstream source of EV propulsion For over a century, the lead-acid battery has long been used for ICE automobiles due to a proven track record, safety, cost competitiveness (c.US$40-70/kWh), etc. However its application to EV was deemed less suitable, mostly due to the battery’s low energy density (c.30-50Wh/kg), which has long been and is still the key performance hurdle for a functional EV battery.

Next entered NiMH (nickel metal hydride) batteries about 13 years ago, with a higher energy density of c.100Wh/kg. These were the first type of batteries that auto makers adopted for HEV models, namely the Toyota Prius (jointly developed between Toyota and Panasonic).

Nonetheless, despite the NiMH’s high reliability, the general performance was still lacking, and its relatively high cost sensitivity to the prices of key metals, e.g. nickel and cobalt, meant that room for significant cost reduction was limited.

Then came the LIB (lithium-ion battery) in 2009, which still remains the most widely accepted battery technology to date, mainly due to its 1) relatively higher energy density (50-100% greater than existing HEV NiMH batteries), 2) sufficiently good life, 3) more efficient form factor (i.e. smaller and lighter), and 4) more room for potential cost reduction, primarily through the enhancement of cathode performance.

Figure 60: xEV battery pack business forecast by type

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2009 2010 2011 2012 2013 2014e 2015e 2016e

(USD m)

Li Ion Total Li-Ion EV NiMH HEV Li-Ion HEV Li-Ion PHEV

SOURCES: CIMB, ADVANCED AUTOMOTIVE BATTERIES

9.3 xEV battery price to fall 37% over the next 3 years We expect the overall xEV battery cost to fall by 37% over the next 3 years (2014-2016), driven by the following two factors in general:

1) Improvement in electrode performance via the use of a new mix of chemistries involving more nickel-concentrated cathodes, a transition to silicon-based anodes, etc. to improve the overall energy density and to reduce the power fade.

2) Higher efficiency of manufacturing costs via improved economies of scale, especially from 2016 when automakers are expected to significantly increase the overall volume of new xEV rollouts with upgraded batteries. In 2016 alone, we are anticipating a 33% decline in the average price of a xEV battery due to these cost reduction effects.


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Figure 61: xEV volume projection (Base case vs. Bull case)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Thousands

Base Bull

SOURCES: CIMB

9.4 Micro hybrids can supplement EVs While the EV/PHEV models are set to take off in the next couple of years on the back of new model launches using cheaper and more efficient next-generation batteries, we believe there is potential for micro hybrids to carve out a niche market for themselves given the cost effectiveness.

Micro hybrids utilise a lithium-ion battery rated under 60 volts (generally, lithium-ion batteries are around 48 volts), with a capacity of 0.5-0.8 kwh to power a motor/generator and to help shift the electrical system load away from the conventional 12-volt battery that is also on board. While the conventional 12-volt lead-acid battery could start the car and handle some duties, the 48-volt lithium-ion battery could power an 8-12-kilowatt motor/generator utilising start-stop and regenerative braking. At the same time, it could also take on the electrical load of power-intensive accessories such as power steering, HVAC and power brakes.

A critical advantage that a micro hybrid battery has is that it does not need a thermal management system and can minimise the need to alter the existing powertrain system. As a result, micro hybrids have the potential to slash production costs to only several hundred dollars more than a conventional gasoline-powered car while delivering the same fuel efficiency as a mild hybrid. According to Johnson Controls Power Solutions, micro hybrids offer as much as a 15-20% improvement in fuel economy, or about the same as the benefits of more expensive mild hybrids.

Consequently, if OEMs choose to supplement the EV line-up with micro hybrids to achieve emission targets, we believe the xEV battery market size could grow materially. As Figure 62 illustrates, a 30% penetration rate of micro hybrids would add another US$6.3bn to the xEV battery market (equivalent to 20% of our projected xEV battery market size for 2020).

Figure 62: Potential global market size for micro HEV (cell basis) Total vehicles Penetration rate Battery size Battery cost Battery market size

(m units) (%) (kwh) (US$/kwh) (US$bn)80 30% 0.7 380 6.380 40% 0.7 380 8.580 50% 0.7 380 10.6

SOURCES: CIMB


35

10. OEM AND BATTERY MAKERS 10.1 Growing demand for vehicle electrification to expand collaboration between battery makers and OEMs Based on the increasingly stringent emission and fuel consumption targets in key markets across the globe, we expect global leading automakers to show stronger efforts in expanding their xEV offerings going forward. Although Tesla and BMW may be the high profile names in this regard, we expect many other prominent names to show a more concerted effort in expanding their vehicle electrifications. This should lead to a significant reduction in the overall carbon emission/fuel consumption for the respective maker/brand.

One major trend that we are seeing is the growing number of battery suppliers and auto makers forming a joint venture to co-develop xEV models and supply battery packs/cells, as highlighted in Figure 63 below. Among the major battery suppliers, Panasonic, LG Chem and Samsung SDI are the most active names.

Figure 63: Summary of tie-ups between major battery suppliers and OEMs Country Battery type Battery maker Automotive OEM EV type Model Contract yearJapan Film Pouch AESC Nissan 51% Fuji Heavy HEV R1e Sep-09

NEC 42% PHEV StellaNEC Tokin 7% HEV G4e

Renault Nissan BEV Fluence Apr-07BEV City CarBEV KangooBEV LEAF

Can Prismatic Lithium Energy Japan GS Yuasa 51% Mitsubish motors BEV i-MiEV Jun-09Mitsubishi Corp 46% Peugeot Citroen BEV iOn Jun-08Mitsubish Motors 3% BEV C-Zero

Blue Energy Co., Ltd. GS Yuasa International 51% Honda HEV CR-Z Dec-08Honda Motor 49% HEV New Civic Hybrid

HEV Accord HybridPHEV Accord Plug-In Hybrid

Primearth EV Energy Toyota 80.5% Toyota BEV eQ naPansonic 19.5% PHEV Prius

PHEV Prius aPanasonic Tesla BEV Model S Oct-13

BEV RoadstersHonda HEV Insight naFord HEV Fusion Hybrid Electric 2012

HEV C-Max Hybrid ElectricPHEV Fusion EnergiPHEV C-Max Energi

Suzuki BEV e-Let's 2011Audi PHEV A3 e-TRON na

Korea Film Pouch LG Chem Hyundai/ Kia HEV Sonata/K5 Hybrid 2007HEV Grandeur/K7 HybridHEV Optima Hybrid

GM PHEV Chevrolet Volt 2009BEV Chevrolet SparkPHEV Cadillac ELRPHEV Opel Ampera

Renault BEV Renault Zoe Sep-09BEV Renault Twizy

Ford BEV Ford Focus 2010Volvo PHEV Volvo V60 Apr-10

PHEV Volvo XC60PHEV Volvo V70BEV Volvo C30

Film Pouch SK Innovation Kia BEV Soul EV 2012Mercedes-benz BEV Benz SLS AMG 2011

Can Prismatic Samsung SDI BMW PHEV i8 2009BEV i3

Chrysler (Fiat) BEV F500e 2010Ferrari HEV LaFerrari Hybrid naMahindra HEV na Oct-13Delphi HEV,BEV na 2009

US Cylindrical Johnson controls - Saft Johnson controls 51% Daimler HEV Mercedez Benz S400 Hybrid Feb-08Saft 49% BMW HEV BMW 7 ActiveHybrid Oct-08

Ford PHEV F-750 naChina Prismatic BYD BYD Auto BEV E6 na

Daimler 50% Daimler-BYD BEV Denza EV 2012BYD Auto 50%

Stake (JV)

Shenzhen BYD Daimler New Technology

SOURCES: CIMB Research


36

10.2 IT battery powerhouses e.g. Panasonic, LG Chem and Samsung SDI leading the electrification of automobiles Panasonic, the main supplier of the 18650 cylindrical battery for Tesla’s highly-acclaimed Model S, also has several other outstanding projects with other global auto OEMs, including the VW Group, Honda, Ford, where it is working on the joint development of batteries for current and future line-ups of HEV and PHEV models.

Figure 64: Panasonics’ cylindrical battery pack for Tesla

SOURCES: CIMB, FAST COMPANY

LG Chem and Samsung SDI are two other names that are also highly active in collaborating with automakers’ xEV projects, as evidenced by the list of customers that the companies are working with (LG Chem supplies batteries to GM, Ford, Renault, Volvo, Hyundai, etc., while Samsung SDI is reportedly tied up with BMW, Mahindra, the VW Group, Chrysler and other numerous undisclosed OEMs).

Figure 65: LG Chem’s pouch battery cell Figure 66: Samsung SDI’s prismatic battery cell

SOURCES: CIMB, ETNEWS SOURCES: CIMB, Bosch


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LIB currently enjoys several advantages over other battery power sources such as NiMH batteries (i.e. LIB boasts higher energy density, longer life, better space/weight savings, etc.). Under such condition, we believe that the traditional LIB names, e.g. LG Chem, Samsung SDI and Panasonic that have strong expertise in IT applications are likely to remain in a superior position for xEV applications due to their strong expertise in the cell manufacturing process and better cost structures.

Figure 67: Global xEV battery market share by company (2014)

LG Chem, 29%

AESC, 28%

Samsung SDI, 18%

Panasonic, 14%

Others, 11%


Figure 68: Global LIB (IT applications) market share by capacity (4Q13)

Panasonic, 23%

SDI, 19%

LGC, 16%

Sony, 11%

Others, 31%



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11. TYPES OF BATTERIES 11.1 LIB is the most acceptable energy source of xEV Among the automotive battery applications, the primary goal for all battery makers has been to increase the overall energy density. This has led a market shift towards lithium-based chemistries since 2009, although other alternatives could still demonstrate better longevity and lower overall costs.

There have previously been other alternative technologies that were deployed in vehicle applications, most notably, NiMH (nickel metal hydride). Until recently, it dominated the hybrid (non-plugin) market headlined by Toyota Prius, but it cannot compete with LIB due to its relatively lower energy (<100Wh/kg vs. 100-180Wh/kg for current lithium ion cells) despite proven reliability.

Since then, Toyota has turned to LIB as the source of battery power behind its plug-in hybrid model (from 2012), supporting our view that higher energy density is the most important factor behind the increasing adoption of LIB over other types of batteries.

Figure 69: Comparison of power and energy density between different battery technologies

SOURCES: CIMB, ELEMENT ENERGY

11.2 LIB market divided into three types – cylindrical, prismatic and polymer The xEV battery market is largely divided into three types of form: cylindrical, prismatic and polymer. The current big 3 in the EV battery space – Panasonic, LG Chem and Samsung SDI – are all moving in separate directions in terms of EV battery form factor.

Panasonic is the largest adopter of the cylindrical type battery, supplying a cylindrical 18650 type battery for Tesla’s Model S. LG Chem produces polymer (or pouch) type batteries for the likes of Volt (GM) and VW’s Audi brand. Samsung SDI is focused on the prismatic (or can) type, with BMW as the anchor adopter of this form factor for its dedicated EV line-up consisting of the i3 (BEV) and the i8 (PHEV).


39

Figure 70: Comparison summary of three xEV battery types – Cylindrical vs. Prismatic vs. Polymer Type Features Battery maker Capacity Automotive OEM

- Applicable to variety of designs- Easily cooled due to the large surface area- Light in weight- High energy density- Degradation under low temperatures- Relatively vulnerable to external shock- Simple manufacturing process- Low manufacturing cost under economy of scale- Shock-resistant- Fit to thinner sizes- Relatively heavy in weight- Limited in applicable designs

- Easy to manufacture

- High mechanical stability

- Limited in applicable designs

- Easily heated

- Short in life span

PROS

30-22,000mAh

400-2,000mAh

1,200-3,200 mAh

Pouch

Prismatic

Cylindrical

PROS

CONS

PROS

CONS

CONS

BMWVolkswagen

Chrysler

GMFord

Hyundai KiaRenaultVolvo

Tesla

Samsung SDI

Panasonic

LG Chem

SOURCES: CIMB,ZERO EMISSION MOTORING, ECVV, OXIS ENERGY, BATTERY UNIVERSITY

Figure 71: Cell type comparison from vehicle application context Prismatic Cylindrical Pouch

Heat rejection/ cooling Good Good-space betw een cells can be used for cooling

Good

Stacking Easiest Requires extra parts Requires extra parts

Assembly in module Good Requires integrationHardest: requires more housing to add rigidity


Below is a more detailed explanation of each battery type.

Cylindrical battery The cylindrical battery was the predominant type of battery in the 2000s, and was adopted for a wide range of portable devices; mainly laptops, camcorders, gaming consoles, etc. However, due to the increasing demand for thinner form factors and the growth of the smartphone market, cylindrical batteries have lost market share to prismatic and polymer batteries. The main drawback was its fixed form factor, which has limited its application to standardised products. However, its price competitiveness and high mechanical stability helped the battery to regain its presence in new, emerging applications which include e-bikes and power tools. Currently, the 18650 format (18mm in diameter and 65mm in length) is the most commonly used product.

In terms of EV application, Tesla’s Model S adopts the advanced 18650 type battery cells supplied by Panasonic, taking advantage of their cheaper costs vs. other form factors, and Tesla’s advanced proprietary BMS technology.


40

Prismatic Introduced in the early 1990s, the prismatic cell has been primarily used in mobile phones. Its competitive edge lies in the low manufacturing costs and the capacity to facilitate thinner form factors. Prismatic cells have expanded into new applications, mainly electric powertrains and EVs, as cells with capacities of 20-30Ah have become available in larger formats. The prismatic cell allows efficient space utilisation and flexible form factors. However, it can also be relatively less efficient from a thermal management perspective. Prismatic cells for portable devices range from 400mAh to more than 3,000mAh.

Samsung SDI and Panasonic are two of the major suppliers of prismatic xEV batteries, and are also the vendors for various European and Japanese auto makers.

Figure 72: Trade-off summary in cell packaging (Cylindrical vs. Prismatic) Cylindrical Prismatic- Higher energy density - Thin profile- Standardized sizes - Low weight- Low cost / watt-hour - Volumetric efficiency- Fat form factor - Few standardized sizes- Tolerance issues - Swelling- Getting hard to increase capacity - More packaging material than cylindrical

- Higher price / watt-hour

Pros

Cons

SOURCES: CIMB

Polymer The lithium polymer battery comes in a soft package or pouch, which allows a lighter weight and variety of designs for the applied devices. The main benefit of the pouch cell is the efficient use of space. However, due to the absence of hard packaging, it is relatively more vulnerable to high humidity, and its service life can be reduced under high temperatures. Polymer cells are generally the result of a customisation process for specific applications, and there is no standardised format in the market, which makes it rather difficult for customers to shift from one supplier to another. LG Chem and ASEC are the headline names in this type of EV battery space, with their customers being mainly US automakers and Nissan, respectively.


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12. BATTERY MATERIALS 12.1 Cathodes and separators are the most critical components of battery cells There are four major parts that make up an LIB cell – anode, cathode, separator and electrolyte. These four combine to form c.50%+ of an average LIB cell bill-of-materials (BOM) cost, and c.20%+ of the overall pack production cost in general. That said, we believe the cathode and separator, which account for the largest cost portion of an average battery cell, are the most important components that form an EV battery, and also has the most room to cut down on costs.

Figure 73: Prismatic battery cell component breakdown

SOURCES: CIMB, ELECTRONIC DESIGN

Figure 74: Battery cell cost breakdown (2015E) Figure 75: Battery cell material cost breakdown (2015E)

Raw materials58%

Depreciation20%

Labor6%

Overheads1%

SG&A10%

Margin5%

Cathode39%

Anode18%

Electrolyte13%

Separator19%

Housing and feed-throughs

11%

SOURCE: CIMB RESEARCH, ROLAND BERGER SOURCE: CIMB RESEARCH, ROLAND BERGER


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Cathode

The cathode active material is currently either a lithium metal oxide or lithium iron phosphate. The current R&D focuses on improving the reversibility of the active materials, and developing new active materials with higher voltages/capacity (mAh/g). The current level of reversibility is c.160mAh/g, which is considerably lower than the anode capacity. Thus, a need for R&D is greater for the cathode than the anode.

Figure 76: Cathode chemistries split

46%

14%

5%3%

32%

LCO LMO LFP NCA NMC

SOURCES: CIMB, AVICENNE

Figure 77: Cathode material characteristics Type Chemical formula mAh/g mAh/cc Average voltage (V) Features Main applicationsLCO LiCoO₂ 145 550 3.9 Industry norm

NCALi[NiCoAI]O₂Ni/Co/AI =

80/15/5175 525 3.8

High densityLong lifeLow stabilityLow thermal stability

Small (high-end)Power tool

Li[NiCoMn]O₂Ni/Co/Mn =

33/33/33145 465 3.8

Relatively high Structural stabilityLong battery lifeLow stabilityLow thermal stability

Small (low-end)Power tool

Li[NiCoMn]O₂Ni/Co/Mn =

50/20/30163 500 3.8

High densityRelatively high structural stabilityHigh thermal stabilityLow voltage

Small (low-end)Power tool

xEVESS

NMO LiMn₂O₄ 100 263 4.0

High stabilityLow priceSignificantly low densityPoor heat tolerance

Power toolxEVESS

LFP LiFePO₄ 132 254 3.4

High stability Low priceLow density and voltageHeavy (contains iron)

Power toolxEVESS

NCM

SOURCES: CIMB, KOREA ELECTRONICS TECHNOLOGY INSTITURE


43

Anode

The most common active material for the anode is graphite. The current anode R&D is focusing on developing materials that are safer but also have a higher capacity (charge per unit of weight) than graphite (~300mAh/g). We believe that the next-generation anode could adopt a mixture of graphite and silicon.

Figure 78: Anode material characteristics Type PROS CONS Main application Manufacturer

OrganicLow priceHigh energy density

High resistanceLow stabilityShort battery life

Small (low-end)BTR, Mitsubishi Chem, Hitachi Chem, Posco Chemtech

SyntheticLow resistanceHigh energy densityLong battery life

High priceComplex manufacturing process

Small (high-end)Large (EV/ESS)

Hitachi Chem, JFE,Nippon Carbon, Posco Chemtech

HardHigh outputDensity stability

Low capacityLow stability

Power toolLarge (EV/ESS) Kureha, SK Innovation

SoftHigh outputHigh charging speed Low capacity

Power toolLarge (EV/ESS)

Hitachi Cheem, PCT (JV between GS Caltex and JX NOE)

Non- carbon materials

Si/Sncomposite

High capacity

High pricePoor heat toleranceShort battery life

Large (EV/ESS) R&D

Graphite

Carbon

SOURCES: CIMB, KOREA ELECTRONICS TECHNOLOGY INSTITUTE

Separator

The separator provides a physical separation of the electrodes while being porous to the conducting lithium ions. R&D efforts are directed at improving separator stability for safety, and reducing separator thickness which eats into a battery unit’s overall capacity. The separator can be coated with a ceramic to improve thermal stability.

Electrolyte

The electrolyte is in a liquid form, most typically a lithium salt dissolved in organic solvents that conduct ions. Electrolyte additives can be used to increase the performance or improve cell life and safety. The challenge for current R&D is to increase the voltage range that an electrolyte can operate over.

Some solid types of electrolyte may display conductivity as much as liquid types, with the advantage of avoiding any leakages. However, one big challenge in using the solid state form is maintaining the surface contact between electrodes and electrolyte over a wide range of temperatures, as the materials in contact have different thermal properties.

Figure 79: Summary of major suppliers for each battery cell component Component Cathode Anode Separator Electrolyte

Market share of top 3 suppliers

61% 65% 78% 65%

Toda Kogyo (JP) BTR Energy Materials (CH) Tonen/Toray (JP) Mitsubishi Cheem (JP)Nichia Chemical (JP) Nippon Carbon (JP) Celgard (US) Ube industries (JP)

Umicore (BE) Hitachi Chemicals (JP) Asahi Kasei (JP) Cheil Industries (KO)Top 3 suppliers



44

12.2 Near- to mid-term drivers for cost reduction may come from improving the performance of cathodes We believe that the main drivers for an improvement in the energy density of batteries could be 1) developing electrode materials with higher capacity and 2) developing cells using higher voltage chemistry.

We expect that the next generation of technologies that deliver a higher density of energy are likely to be nickel cobalt manganese composite cathodes and high capacity anodes (with a higher silicon mix), which could gradually become available to mass-produced batteries in years to come. We believe that higher voltage cathode chemistries will occur in the next phase of development in a couple years’ time.

Figure 80: xEV battery cell material business breakdown – Cathode materials e.g. NMC form a big chunk of the overall cell material market

0

100

200

300

400

500

600

700

800

NMC LFP LMO Graphite/ carbon Electrolyte Separator

(USD m)


Figure 81: Summary of LIB cells employed in current EVs Cell maker Chemistry Capacity Configuration Voltage Weight Volume Ener dens Spec Ener

Anode/Cathode Ah Voltage Kg liter Wh/liter Wh/kg Company ModelAESC G/LMO-NCA 33 Pouch 3.75 0.8 0.4 309 155 Nissan Leaf

LG Chem G/LMC-LMO 36 Pouch 3.75 0.86 0.49 275 157 Renault ZoeLI-Tec G/NMC 52 Pouch 3.65 1.25 0.6 316 152 Daimler Smart

Li Energy Japan G/LMO-NMC 50 Prismatic 3.7 1.7 0.85 218 109 Mitsubishi i-MiEVSamsung G/NMC-LMO 64 Prismatic 3.7 1.8 0.97 243 132 Fiat 500

Lishen Tianjin G-LFP 16 Prismatic 3.25 0.45 0.23 226 116 Coda EVToshiba LTO-NMC 20 Prismatic 2.3 0.52 0.23 200 89 Honda Fit

Panasonic G/NCA 3.1 Cylindrical 3.6 0.045 0.018 630 248 Tesla Model S

Used in


Figure 82: Key material breakdown for pouch/prismatic type xEV batteries EV TypeBattery type Film PouchOEM Honda Nissan Hyundai / Kia Nissan GM Mitsubishi BYD Nissan Renault , FordBattery manufacturer Panasonic Toshiba BEC HVE LG Chem AESC PEVE Panasonic LG Chem LEJ BYD AESC LG ChemCathode NCM LNMO NCM NCM, LMO LMO, NCM LMO, LNO LNO NCM LMO, NCM LMO, NCM LFP LMO, LNO LMO, NCMAnode GP LTO HC HC, SC GP, HC SC GP GP, SC GP, HC GP Mix GP GP GP, HCSeparator 3 Layer Celrose PE Wer 3 Layer PP dry 3Layer 3Layer 3 Layer PP dry PE w et PP dry PP dry PP dry

Toyota ToyotaCan Prismatic Film Pouch

HEVCan Prismatic Film Pouch

BEVCan Prismatic

PHEV

SOURCES: CIMB, SNE RESEARCH


45

13. BATTERY COST ANALYSIS 13.1 2016 may be the inflection point for xEV battery margin Based on our expectation that the battery cell market volume is likely to grow by 112% in 2016, we expect the material makers’ margins to turn positive in 2016 despite the anticipated 33% yoy drop in battery cell price. Our assumption is based on a significant decline in unit costs from: 1) increased economies of scale for both battery cell makers and material suppliers; 2) higher battery density resulting in less materials used; and 3) advancement in battery chemistries.

Assuming a 20% raw material cost decline per kWh, as well as improving economies of scale of both the cell and materials makers, we expect battery cell makers’ average margins to turn positive from -8% in 2015 to 4% in 2016.

Figure 83: Battery cell cost breakdown Figure 84: Impact of volume increase in 2016 on battery cell price

-100

0

100

200

300

400

500

600

2015E 2016E 2017E 2018E 2019E 2020ERaw materials Depreciation Labor Other SG&A Margin

(US$/kwh)

0

50

100

150

200

250

300

350

400

450

500

2015 price Scalability inraw

materials

Fall indepreciation

Fall in labor Fall in SG&A Margin 2016 price

2015 price Raw materials Depreciation Labor Other SG&A Margin 2016 price

(US$/kwh)

-32%

-53%-53%

-53% Turnpositive


Near-term battery cell price of US$300/kWh to be achievable

Back in 2011, the US Department of Energy (DOE) estimated that the battery cell cost per kWh would decline from US$1,000 in 2010 to US$300 in 2015. While the plan has been delayed due to the slower-than-expected growth in the EV rollout, we expect that the US$300 target could be achieved by 2016-17. DOE had estimated that the following factors would lead to a drop in cell costs:

1) Pack hardware: increasing energy density allows for a lower number of cells, leading to packaging efficiencies;

2) Cell formation: cell formation optimisation; 3) Cell hardware and assembly: higher energy materials reduce cell size,

resulting in cell hardware reduction; 4) Electrode processing: Higher speed coating techniques and cell stacking; 5) Material costs: Increasing cell material capacities leads to lower cell size,

lower amount of electrode needed per cell and additional savings through low cost synthesis.


46

Figure 85: US DOE estimation of battery cell price change from 2010 to 2015

0

100

200

300

400

500

600

700

800

900

1,000

2010 Pack hardware Cell formation Cell hardwareand assembly

Electrodeprocessing

Cell material cost 2015

Cell material cost Electrode processing Cell hardware and assembly Cell formation Pack hardware

-80%

-75%-65%

-65%

-68%

SOURCE: CIMB RESEARCH, DOE

13.2 Battery cell The raw materials typically account for c.50%+ of total battery cell costs. The key materials include lithium, manganese, cobalt, nickel, graphite, electrolyte chemicals, copper foil, etc.

Reducing battery fade may be the key to a further reduction in battery costs

We believe that the next step for battery makers is to develop batteries that 1) degrade less and 2) use a larger charge window. Aside from developing batteries with higher energy density that will allow for more efficient space utilisation and weight saving, along with cost savings from raw materials, we believe that another important focus for R&D will be developing batteries that degrade less and safely use a larger portion of charge window. In this respect, we believe that the usage of LMO, LTO and iron phosphates could allow batteries to use a larger portion of its capacity (up to 90%), whereas others may operate within only up to 70% of their charge windows to maximise the battery life. As progress is made to improve the overall battery fade and to further expand charge windows, the cost of EV batteries should decline further.

Significant performance improvement likely in a couple years' time

We believe that the chemistry of LMO-NMC blends provide a lower cost (but are likely to require more aggressive cooling) option for LIB makers. Furthermore, cost reduction could be achieved through engineering and chemistry optimisation, while the procurement of cheaper materials from China could also help.

However, we think that significant cost reduction will take place only if chemistries with higher capacity or voltage come into play. We now believe that upgrades are close to the mass production stage based on our checks with the companies, and the significant cost reduction per kWh will likely become reality around 2016, in our view.

Within the next couple of years, we believe that significant battery capacity improvement (by c.70%+) will be achieved through the use of higher capacity NMC cathodes possibly charged to a slightly higher voltage (e.g. 4.2V vs. 3.8V currently), and further improvement in cell engineering.


47

Figure 86: NMC is a predominant type of cathode for many LIB based EV and PHEV models

Company ModelA123 LEP 20 Fisker KarmaLG Chem LMO-NMC 15 GM Volt

LMO-NMC 15 Volvo V60NMC-LMO 36 Renault Zoe

LEJ LFP 21 Mitsubishi OutlanderLFP 21 Daimler S class

LMO-NMC 50 Mitsubishi i-MiEVSamsung SDI NMC-LMO 26 Porche Panamera

NMC-LMO 26 BMW i-8NMC-LMO 64 Fiat 500

Sanyo NMC 24 Ford C-MaxNMC 24 Ford FusionNMC 24 Audi A3NMC 22 Toyota Prius

Blue Energy NMC 21 Honda AccordAESC LMO-NCA 33 Nissan LeafLi-Tec NMC 52 Daimler SmartLishen Tianjin LFP 16 Coda EVToshiba LTO-NMC 20 Honda FitPanasonic NCA 3.1 Tesla Model S

Used inCapacity (Ah)

Cathode chemistryCell maker


Figure 87: Cost reduction efforts to be made at the cell/pack level Pack production Cell materials Pack componentsCheaper as fewer cells to handle and test per kWh on the production line.

A greater active material Wh/kg means less material to purchase per kWh

Fewer dcells to connect and monitor: cost reduction in BMS, wiring harness and interconnectors.

Greater active material Wh/kg (mAh/g and/or voltage) also means less cell material to handle in the plant.

This translates in a cost reduction if the material cost per kg does not increase when mAh/g and/or V increase

Smaller pack volume reduces the housing cost.


Potential factors that may drive up the overall battery costs

On the other hand, we are aware that there may be other factors that could actually increase battery costs, such as additional safety features such as crush protection, protection against fire propagation, more complex cooling systems, higher costs of testing, additional electronics for safety, reliability and diagnosis.

Cathode capacity/voltage improvement may be the next step to the further innovation of batteries

Industry research suggests that the above design changes may translate to a c.50%+ improvement in battery performance, coupled with the potential for a substantial reduction in costs. However, the key challenge would be to ensure that these advanced technologies could still provide adequate longevity without compromising safety in any way.

Figure 88: Theoretical energy density of new battery technologies based on different cathode adoptions Type Example battery Ceil voltage Theoretical

Wh/kgTheoretical

Wh/l Practical cell Wh/kg

Intercalataion Today's LMO-Gr 3.8 550 110-165Theoretical max intercalation 240-300Reaction - sulphur Li-Sulphur 2.2 2567 2200 300-800Reaction - Metal-air Li-O₂ (non-aqueous) 3 3505 3430 700-1000Reaction - Metal-air Li-O₂ (aqueous) 3.2 3582 2230 700-1000Reaction - Metal-air Zn-air 1.65 1086 6090 220-330



48

Figure 89: Comparison of different anode properties LTO Graphite Silicon

Type Intercalation Intercalation AlloyingTheoretical capacity mAh/g 175 330 4200Voltage vs Li/Li+ (V) 1.5 0.1 0.1Current collector Aluminium Copper Copper

Main drawbacksLow voltage & low energy density cell

Safety issuesVolume expansion (up to 300%), poor cycling ability

Development statusNew product, in

series car in 2012Commonly used

Si/C alloys used in some consusmer cells


Figure 90: Comparison of different electrolyte types

Type Organic liquid Polymer liquid Polymer solid Inorganic solid

PROS Currently used Less leak proneHigh safety Cell can be flexibleEasy to manufacture

High safetyWide V windowSolid (strength)

CONS Under R&D: lower conductivity and volume/ interface problem

SAFETY ISSUES (can combust)Limited voltage window

Conventional battery (use separator) Solid state battery

Organic liquid

Polymer in liquidPolymer in liquidInorganic material

1990 2030?


Superseding LIB with a new technology not likely for the foreseeable future

We believe that the next generation of battery technologies headlined by lithium-oxygen to replace the current LIB technology could remain a formidable task for the market due to the high cost barriers. For example, more exotic active materials may have higher cost disadvantages, the need for a complex air management system, lower voltages, etc.

Hence, we expect that LIB’s combination of relatively high power density and acceptable cycle life could allow it to remain as the mainstream source of EV power supply for the foreseeable future.

Figure 91: Working process of Li-Air battery vs. Li-ion battery

SOURCES: CIMB, TOYOTA


49

13.3 Battery packs Battery packs for EV applications are rather complex systems composed of multiple modules with supporting subsystems to maintain the battery cells and communicate key parameters to a higher level vehicle controller.

Figure 92: Example of a battery pack

SOURCES: CIMB, AXEON

Basically, a pack would include modules, cooling system, mechanical enclosures/fasteners, battery controller and electrical components, including contactors, connectors, sensors and fuses.

The modules are, in turn, composed of several individual cells (typically four or more) arranged in a parallel, series or parallel/series combination with related electronics. Modules include a thermal management system, voltage/temperature sensors, and may also include electronic control functions such as a cell-balancing system.

Figure 93: Battery pack cost breakdown

27%

29%

16%

6%

13%

9%

Cell materials Pack components Depreciation/financingLabour Overheads Margin and warranty



50

Figure 94: Battery cell materials cost breakdown Figure 95: Battery pack components cost breakdown

43%

16%

7%

8%

9%

17%

Cathode Anode Foils Electrolyte Separator Other

17%

28%

16%

13%

20%

6%

BMS Power electronics Wiring harness and connectors

Internal cell support Housing Temperature control SOURCES: CIMB, ELEMENT ENERGY SOURCES: CIMB, ELEMENT ENERGY

Tesla’s pack cost is known to have significantly lower costs vs. its competition due to 1) lower cost per kWh of the 18650 cells, 2) the overall higher production volume and 3) the lower cost per kWh of pack components and integration for larger screen packs.

Figure 96: Key attributes of EV battery packs Pack Cell

Energy Voltage Weight Avg.Power Ratio Peak Power Ratio Spec.Energy Weight FractionkWH V Kg kW kW/Kwh Kw kW/kWh Wh/kg %

Nissan Leaf Nissan AESC 24 345 294 18 0.8 90 3.8 82 53%Renault Kangoo Renault AESC 24 360 260 15 0.6 54 2.3 92 58%Renault Zoe Renault LG 26 360 280 16 0.6 80 3.1 93 59%Daimler Smart Deutsche Accum. Li-Tec 18 340 175 15 0.9 55 3.1 101 66%

Mitsubishi i-MiEV LEJ LEJ 16 330 200 12 0.8 60 3.8 80 74%Fiat 500 Bosch Samsung 24 364 272 18 0.8 125 5.2 88 67%

Coda EV Coda Lishen 33 333 450 18 0.5 110 3.3 73 63%Honda Fit Honda Toshiba 20 333 18 0.9 100 5BMW i3 BMW Samsung 23 355 20 0.9 120 5.3BMW Active E BMW Samsung 32 355 20 0.6 140 4.4GM Spark A123 A123 20 333 16 0.8 100 5Ford Focus Ford LG 23 360 227 18 0.8 120 5.2 101 64%Tesla Model S Tesla Panasonic 60 365 24 0.4 200 3.3

Power ratio pack loadCarmaker Model Pack maker Cell maker

Pack Parameters Power ratio avg.load



51

14. BATTERY-RELATED PLAYS 14.1 Battery material plays in Korea The global battery material markets are currently dominated by the Japanese, US and Chinese makers. Apart from the materials produced in-house by the cell makers, high value-added materials such as cathode and separators are largely imported. Attempts to localise the material production are underway, as Korean material producers are investing in developing competitive products for the big 3 Korean and other global battery makers such as Panasonic.

We recommend that investors focus on battery material producers that have been supplying materials for the small-sized second batteries. We think the small-cap material makers, under a market cap of US$200m, that have recently developed new materials, are likely to find it difficult to penetrate the battery cell market given time needed to build up reference on reliability.

Figure 97: Key EV and battery material plays in Korea

Battery cell

CathodeSamsung Fine Chemical(004000 KS, US$18bn)Eco Pro(086520 KS, US$115mn)LANDF(069970 KS, US$99mn)Cosmo AM&T(086520 KS, US$85mn)Phoenix Material(050090 KS, US$64mn)

AnodePOSCO Chemtech(003670 KS, US$867mn)Phoenix Material through POSCO ESM(050090 KS, US$64mn)SeparatorSK Innovation(096770 KS, US$9bn)LG Chem(051910 KS, US$18bn)Toptec(108230 KS, US$179mn)Samsung SDIthrough Cheil Industries(006400 KS, US$10bn)ElectrolyteSoulbrain(036830 KS, US$478mn)Foosung(093370 KS, US$264mn)Leechem(131100 KS, US$33mn)

Anode collectorIljin Materials(020150 KS, US$417mn)

Cell makerLG Chem(051910 KS, US$18bn)Samsung SDI(006400 KS, US$10bn)SK Innovation(096770 KS, US$9bn)

SOURCE: CIMB RESEARCH, BLOOMBERG

Figure 98: Global market share of cathode (2011) Figure 99: Global market share of anode (2011)

Umicore23%

Nichia Corp18%

Chinese local27%

Cell maker in-house

6%

Others26%

Hitachi Chemical32%

BTR New Energy22%

Nippon Carbon9%

JFE Chemical8%

Mitsubishi Chemical

4%

Shanghai Shanshan

4%

Others21%

SOURCE: CIMB RESEARCH, IIT SOURCE: CIMB RESEARCH, IIT


52

Figure 100: Global market share of separator (2011) Figure 101: Global market share of electrolyte (2011)

Asahi Kasei22%

Polypore (Celgard)

22%

Toray Tonen17%

SK Innovation16%

Ube Industries9%

Entek5%

Others9%

Panax Etec18%

Ube Industries10%

Mitsubishi Chem24%

Zhangjiagang Guotai-Huarong

19%

Chinese locals20%

Cell maker in-house

5%

Others4%

SOURCE: CIMB RESEARCH, IIT SOURCE: CIMB RESEARCH, IIT

Figure 102: Market cap comparison of global cathode material makers

Figure 103: Market cap comparison of global anode material makers

Figure 104: Market cap comparison of global electrolyte makers

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000(US$ m)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000(US$ m)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000(US$ m)

SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG

Materials from consumer applications to EVs To improve the performance of batteries, different types of chemical formulas for the lithium-based batteries are under development. Typically, new chemistries developed for consumer electronics are being developed to fit the requirements of EVs, after some time lag. This means that chemistries that are not ready for consumer application today are unlikely to penetrate the automotive battery market. The reasons for the time delay are new challenges in the scaling-up process, especially in terms of quality control and a lack of experience in high volume production.


53

Material development likely to be gradual, rather than a step-up

Until now, the time lapse between the proof of concept in a lab and the commercialisation of successful battery chemistries has been at least 10 years. This means that any battery development that is currently at the conceptual level is unlikely to penetrate the commercial market for at least the next 10-15 years. Therefore, we expect that the material developments are likely to be gradual, rather than a sudden step-up in terms of performance. We therefore expect pricing pressure to intensify as battery prices are lowered in the near term until volume picks up.

Figure 105: Development time of chemistries from concept to commercial cell

Figure 106: Comparison of performance of current lithium ion cells

Chemistry First paper /patent

First commercialrechargeable cell First use in series car

Lithium (LCO) 1979 1991 2008 (Tesla)

Lithium (LMO) 1983 1996 2009 (iMieV)

Lithium (LFP) 1994 2006 2007 (MODEC van)

Ni-MH 1967 1990 1997 (Prius)

Cathode LCO LMO NCA NMC LFPType Polyanion

Energy

Power

Safety

Expected cost

Low temperature

High temperature

Cycle life

Calendar life

Metal oxides

SOURCE: CIMB RESEARCH, ELEMENTENERGY NOTE: GREEN COLOR HIGHLIGHT RELATIVELY ADVANTAGEOUS STATE, RED MOST

DISADVANTAGEOUS / SOURCE: CIMB RESEARCH, ELEMENTENERGY

Material manufacturers under pricing pressure

Given our expectation that battery cell prices are likely to fall 41% over the next five years (from US$470 in 2013 to US$279 in 2018), we expect that battery material manufacturers are likely to face further pricing pressure. Our channel checks with Korea’s battery material makers revealed that they are facing headwinds from multiple fronts including: 1) lower-than-expected demand from EVs that are leading to the under-utilisation of production lines; 2) substitutes available from Chinese makers that are leading to further pricing pressure, as well as loss of market share within the battery pack makers and 3) potential for more entry into the market by Japanese material makers if and when the volume picks up.

Figure 107: Battery cell cost breakdown (2015E) Figure 108: Battery cell material cost breakdown (2015E)

Raw materials58%

Depreciation20%

Labor6%

Overheads1%

SG&A10%

Margin5%

Cathode39%

Anode18%

Electrolyte13%

Separator19%

Housing and feed-throughs

11%



54

Most room for technological improvements are in cathodes

Cathode materials that have higher voltages and/or higher capacity (mAh/g) are currently under development. Given that the highest reversible capacity used in commercial cells is approximately 160mAh/g, cathodes have higher room for improvement since this is significantly lower than the anode capacity (graphite-type with ~300 mAh/g). While LMO, LFP and NCA type lithium cathodes are currently being used, the next paradigm for EV batteries is likely to be NMC cathode-type batteries, now used by prototype vehicles. However, we do not see any meaningful contribution from Korean manufacturers on the cathode front given the technological time lag with Japanese manufacturers.

Figure 109: Type of Lithium batteries and their uses Figure 110: Cathode chemistries split (2011)

Cathode activematerial name Material Abbrevi

ation Short form Technological maturityfor EV

Lithium cobaltoxide LiCoO2 LCO Li-cobalt

Used in the original Teslabut rejected on safetyconcerns by OEMs

Lithiummanganeseoxide

LiMn2O4 LMOLi-manganeseor spinel

Already in series car(eg. Leaf, Volt, iMiEV)

Oithium ironphosphate LiFePO4 LFP

Li-phosphate

Already in series car(eg. Fisker EV)

Lithium nickelmanganesecobalt oxide

LiNiMnCoO2 NMC NMCUsed in consumer goodsand EV prototypes

Lithium nicketcobalt aluminiumoxide

LiNiCoAlO2 NCA NCAAlready in series car(eg. Plug-in Prius)

LCO46%

LMO14%

LFP5%

NCA3%

NMC32%

SOURCE: CIMB RESEARCH SOURCE: CIMB RESEARCH, AVICENNE 2011

Cathode material production suffering from oversupply Given the relatively superior cost efficiency of NCM, various companies have been entering the market, replacing LCO. In Korea, LANDF (066970 KS, N/R) and Daejung Energy Materials (unlisted) were the only producers prior to 2009, but Eco Pro (086520 KS, N/R) entered into the market in 2011 and recently STM (joint venture of Samsung Fine Chemicals and Toda), COSMO AM&T (005070 KS, N/R) and Phoenix Materials (050090 KS, N/R) have started production of NCM cathode materials.

Figure 111: LIB cathode material supply chain and market estimate in Korea

Figure 112: Average OP margin of Korea’s small-cap battery material producers

0%

20%

40%

60%

80%

100%

120%

140%

0

5,000

10,000

15,000

20,000

25,000

2009 2010 2011 2012 2013

Demand Supply Supply rate in Korea (RHS)

-15%

-10%

-5%

0%

5%

10%

15%

20%

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14

Cathode Anode collector AnodeSeparator Electrolyte

SOURCE: CIMB RESEARCH, SOLAR&ENERGY 2012 SOURCE: CIMB RESEARCH, QUANTIWISE


55

Given the entry of existing cathode material producers into NCM, we expect that profitability is likely to be under pressure until battery volume picks up in a meaningful way. Also, other companies that have not been able to develop NCM are likely to exit the market, as was the case for Hanwha Chemical which decided to scrap its secondary battery material business in Jul 2014. Since 2010, the company invested in targeting mid- to large-sized secondary batteries, but it seems that its LFP and LTO type batteries failed to gain market traction owing to market’s preference for NCM types.

Figure 113: Cathode cost breakdown (2015E) Figure 114: Cathode material cost breakdown (2015E)

Raw materials63%

Depreciation12%

Energy / Utilities9%

Overheads1%

SG&A10%

Margin5%

Nickel20%

Cobalt32%

Manganese7%

Lithium carbonate12%

Carbon black1%

Al foil25%

PVDF Binder3%


Anode becoming a commodity Our channel check with POSCO Chemtech (003670 KS, N/R) has revealed that it has just started to penetrate into anodes for IT/mobile applications, and hence likely to take more time to develop anodes for EV and ESS. While the localisation potential of anodes is substantial (only 1% localisation of anodes), given that the Chinese with a 24% of global market share are aggressively lowering prices with little room for technological differences, we believe that it may take longer than expected for the Korean maker to achieve global competitiveness.

Higher EV volume may lead to improved profitability of elecfoil and electrolyte producers (Iljin Materials and Soulbrain)

Among the Korean battery material makers, we highlight Iljin Materials (020150 KS, N/R) and Soulbrain (036830 KS, N/R), as we see upside potential to their earnings if EV volume starts to pick up. Iljin Materials produces an anode collector (elecfoil) that is supplied to the Big 3 battery cell makers in Korea, while Soulbrain supplies electrolytes (LiPF6) mostly to Samsung SDI. While both companies note that the demand from EVs has been slower than expected and they are suffering from low profitability due to the under-utilisation of their production lines, we see upside potential if the battery volume of the Big 3 increases. Iljin Materials has the potential for margin expansion due to an improvement in its product mix (it can easily change its PCB material lines to elecfoil), while Soulbrain’s US plant that is currently running at a c.10% utilisation rate may see significant upside to its profitability on increased battery demand from US battery makers.


56

Figure 115: Global ICS (PCB material) market share (2013) Figure 116: Global I2B (anode collector) market share (2013) Mitsui12%

Furukawa6%

Iljin4%

Nanya15%

LS1%

Others62%

Iljin Materials30%

Furukawa9%

LS21%

Nippon Denkai3%

CCP6%

Others31%

CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH, COMPANY

Figure 117: Net profit trend of Soulbrain MI (US electrolyte production plant)

Figure 118: US battery cell market size forecast

-2.6

-6.8

-5.2

-3.0

-8

-7

-6

-5

-4

-3

-2

-1

0

2010 2011 2012 2013

Soulbrain MI net profit

(W bn)

1,1711,475

1,790

2,574

3,887

5,102

6,326

7,790

26% 21%

44%

51%

31%

24% 23%

20%

25%

30%

35%

40%

45%

50%

55%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Total battery cell market size (US$m) % yoy growth (RHS)

(US$ m)

SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH

Margin of cell material companies to improve despite significant battery cell price drop in 2016

We believe margin expansion of cell makers are likely to lead to eased cost pressure for material makers. Also, while we assume 20% raw material cost reduction per kWh (in view of cell makers’ price cuts), we believe improved economies of scale alone could offset the price cut pressure. Assuming a fixed-cost base of 40% for material producers and a 100% increase in battery volume, a 20% cut in unit fixed cost is possible, in our view, and should fully offset price pressures coming from cell makers.


57

Korean auto parts makers are better near-term EV plays Given that a full-blown EV market expansion is still more than 12 months away and battery cell and material makers are likely to continue recording losses on their EV battery businesses, we highlight the Korean auto parts makers as a near-term EV plays. We came back from visits to Woory Industrial (072470 KS, N/R) and S&T Motiv (064960 KS, N/R) with positive impressions as both companies expect revenues and margins to pick up on the back of rising sales portion of EV-related components.

Woory Industrial’s key competitive edge is in its industry-leading efforts to develop new auto parts based on their R&D efforts in high voltage, advanced motor and sensor technology. The company is already the sole supplier of PTC heaters to Tesla for their Model S (full EVs require electric heating system due to absence of heat source of a combustion engine) and is seeking to penetrate into Tesla’s newer models as well as to other EV makers.

Figure 119: Revenue breakdown trend by product type Figure 120: Woory Industrial: Quarterly OP trend

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014E 2015E

Climate control New products

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

1

2

3

4

5

6

1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14

Operating Income (LHS) OPM (RHS)

(W bn)

SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH, QUANTIWISE

S&T Motiv is a leading manufacturer of motors in Korea and is the sole vendor of HSG (Hybrid Shift Generators) for all of Hyundai Motor Group’s hybrid EV line up. The company expects its sole vendor status to be maintained at least until 2016 – year when we expect a significant EV volume growth. The company’s margins should improve on rising portion of new auto parts (OPM of 9-10%) vs. OPM of 5-6% for conventional parts.

Figure 121: S&T Motiv: Motor sales breakdown (2013) Figure 122: Hyundai Motor Group monthly hybrid EV sales trend

MDPS32%

Power train32%

HEV/EV10%

Convenience26%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

HMC/KIA's HEV sales (LHS, units) YoY (RHS) SOURCES: CIMB RESEARCH, COMPANY SOURCES: CIMB RESEARCH, COMPANY

Petrochemical│South Korea

August 27, 2014


EV boom – full throttle ahead We believe that LG Chem’s electric vehicle (EV) battery sales could take off in the next 12-18 months, with the launch of 2016 EV models by global OEMs from 4Q15 onwards. The new models are likely to be equipped with next generation batteries that are substantially cheaper and higher in density, which translates into improved affordability and driving range. As a leading EV battery maker with contracts with 13 OEMs globally, LG Chem stands to benefit from the upturn. Maintain our Add rating and SOP-based target price.

What Happened LG Chem’s EV battery business is gaining momentum, with the announcement of several battery contracts in the past few months. Since Jun, LG Chem announced that it has signed three battery contracts – the latest was with Audi (part of the VW Group) to supply batteries for the company’s PHEV/micro hybrid models. According to management, more battery contracts with the VW Group may be forthcoming as Audi shares many auto platforms with VW.

What We Think EV boom to resume. The initial take-up of EVs has been disappointing but we believe that the material advancements in battery technology and costs will fuel growth from 4Q15 onwards, when the new models are launched. We forecast xEV sales to expand by a robust 25% CAGR in 2013-2020, raising xEV penetration rate from 2.2% in 2013 to 2.9% in 2016 and 8.1% in 2020. We believe that these are attainable since if all major markets met their emission standards, the penetration rate would rise to 16% in 2020. Strong sales growth. Based on its leading position, we believe that LG Chem will be a prime beneficiary of EV market growth. We forecast LG Chem’s EV battery revenue will rise significantly from 2H15 onwards on the back of major OEMs’ new model launches. The strong momentum should be sustained in 2016-2020 (48% CAGR) as all major markets seek to comply with mostly stringent emission targets. We also estimate that LG Chem’s EV battery losses will turn to profit in mid-2016, once it achieves economies of scale.

What You Should Do Stay invested as we believe its EV battery growth will catalyse the stock in the next 12-18 months. We are also positive on the petrochemical cycle over the next 2-3 years, which should lead to strong earnings momentum in FY15-17.

CIMB Analyst(s)

————————————————————————————————————————

Peter K. LEE T (82) 2 6730 6122 E [email protected]

John PK PARK T (82) 2 6730 6125 E [email protected] Share price info Share price perf. (%) 1M 3M 12M

Relative -5 0.7 -12.8

Absolute -3.3 3.6 -3.3

Major shareholders % held LG Corp 33.5 National Pension 7.3


LG Chem FLASH NOTE 051910 KS / 051910.KS Current W275,000

Market Cap Avg Daily Turnover Free Float Target W360,000

US$17,922m US$51.00m 66.5% Prev. Target W360,000 W18,224,552m W52,100m 66.27 m shares Up/Downside 30.9%

Conviction| |

79.0

85.0

91.0

97.0

103.0

109.0

230,000

250,000

270,000

290,000

310,000

330,000

Price Close Relative to KOSPI (RHS)

Source: Bloomberg

200400600800

Aug-13 Nov-13 Feb-14 May-14

Vol t

h

Financial Summary Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F

Revenue (Wb) 23,263 23,144 23,000 23,499 25,096Operating EBITDA (Wb) 2,779 2,762 2,546 3,103 3,497Net Profit (Wb) 1,495 1,266 1,118 1,629 1,942Normalised EPS (W) 22,551 19,103 16,877 24,585 29,298Normalised EPS Growth (30.1%) (15.3%) (11.7%) 45.7% 19.2%FD Normalised P/E (x) 12.19 14.40 16.29 11.19 9.39DPS (W) 4,000 4,000 4,000 4,000 4,000Dividend Yield 1.45% 1.45% 1.45% 1.45% 1.45%EV/EBITDA (x) 7.03 6.87 7.38 5.92 5.07P/FCFE (x) NA 22.59 28.22 20.48 16.03Net Gearing 14.7% 9.2% 10.4% 8.1% 4.7%P/BV (x) 1.71 1.57 1.47 1.33 1.19ROE 14.8% 11.4% 9.3% 12.5% 13.3%% Change In Normalised EPS Estimates (11.9%) (2.1%) 0.3%Normalised EPS/consensus EPS (x) 0.97 1.07 1.10

275,000

360,000

238,500 323,000

Target

52-week share price range

Current SOURCE: CIMB, COMPANY REPORTS

The CIMB Stock Selection Tools (SST) are designed to complement and enhance the investment decision making process. The SST incorporate a range of analytical tools, providing ready access to key company and market data, valuation tools and charts. If you are interested in subscribing to the 'Stock Selection Tools', please contact your CIMB account manager.


Petrochemical│LG Chem

August 27, 2014

59

Figure 1: Our assumptions for LG Chem’s xEV battery division 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Global xEV battery cell market size (US$m) 2,686 3,652 4,712 6,699 12,207 17,855 23,694 32,408 36,544 42,892 YoY % change 36% 29% 42% 82% 46% 33% 37% 13% 17%Battery cell ASP (US$/kwh) 470 456 442 296 287 279 270 262 254 247 YoY % change -3% -3% -33% -3% -3% -3% -3% -3% -3%Total xEV vehicles (m) 1.7 1.9 2.1 2.7 3.8 5.1 6.4 8.4 9.2 10.5 YoY % change 9% 11% 27% 44% 32% 26% 31% 10% 14%xEV penetration rate (%) 2.2% 2.3% 2.4% 2.9% 4.1% 5.2% 6.3% 8.1% 8.7% 9.6%

LG Chem xEV revenues (Wbn) 480 522 835 1,489 2,712 3,967 5,265 7,201 8,592 10,084 YoY % change 9% 60% 78% 82% 46% 33% 37% 19% 17% Market share (%) 20% 15% 18% 22% 22% 22% 22% 22% 24% 24%

OP (Wbn) (86) (86) (64) 74 190 357 474 648 773 908 YoY % change 0% -25% -216% 155% 88% 33% 37% 19% 17% OP margin (%) -18% -16% -8% 5% 7% 9% 9% 9% 9% 9%

SOURCES: CIMB

Figure 2: LG Chem’s xEV revenues vs. market share Figure 3: LG Chem’s xEV operating profit (OP) vs. OP margin forecasts

10

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18

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26

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0

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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

(%)(Wbn)

xEV revenues Market share (RHS)

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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

(%)(Wbn)

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SOURCES: CIMB SOURCES: CIMB

Figure 4: LG Chem's announced xEV battery contracts with OEMs OEM Type Status1) GM PHEV, EV Current customer

2) Hyundai Motor HEV Current customer

3) Kia Motor HEV Current customer

4) Renault EV Current customer

5) Volvo PHEV Current customer

6) Ford EV Current customer

7) Samsung Renault EV Current customer

8) Eaton Corp HEV NA

9) Chang'an Auto HEV NA

10) Shanghai Motors PHEV NA

11) Qoros HEV NA

12) First Auto Works PHEV NA

13) Audi PHEV NA SOURCES: CIMB, COMPANY REPORTS


August 27, 2014

60

Figure 5: EV/PHEV models with LG Chem's batteries

OEM Model EV/PHEV Launch year Battery capacity(kwh) Battery range (mi) MSRP (US$)

GM VOLT PHEV 2010 17 38 34,184

GM Spark EV EV 2013 21 82 28,570

Ford Focus EV EV 2012 23 76 35,170

Renault TWIZY EV 2011 7 62 11,172

Renault Fluence ZE EV 2011 22 115 28,915

Renault ZOE EV 2012 22 130 22,676

Renault Samsung SM3 ZE EV 2013 22 115 39,095

Volvo V60 PHEV 2012 11 31 76,000 SOURCES: CIMB, COMPANY REPORTS

Figure 6: LG Chem's EV/PHEV battery capacity Location Capacity (gwh) NoteKorea 2.0

US 0.2-0.8 Currently 1 of 3 lines in operation (0.2gwh)

China 1.0-1.5 US$450m investment; to start production in 2016

Total 3.2-4.3 SOURCES: CIMB, COMPANY REPORTS

Figure 7: Earnings summary (Wbn) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14F 4Q14F 2012 2013 2014F 2015F 2016FRevenues 5,721 5,917 5,865 5,641 5,673 5,869 5,781 5,677 23,263 23,144 23,000 23,499 25,096

EBITDA 661 756 767 583 633 615 672 611 2,779 2,768 2,530 3,103 3,497

OP 409 502 516 316 362 360 410 343 1,911 1,743 1,475 2,051 2,443

Petrochemical 324 367 380 262 308 291 323 287 1,436 1,333 1,209 1,657 1,826

I&E Materials (IT & Electronic) 97 119 102 61 37 47 59 48 435 379 192 291 353

Energy Solution (12) 16 34 (6) 17 25 28 8 39 32 77 102 263

NP (Controlling Interest) 339 398 352 177 288 227 330 268 1,494 1,266 1,113 1,629 1,942

ROE (%) 10% 8% 11% 9% 15% 11% 9% 12% 13%

OP margin Overall 7.1% 8.5% 8.8% 5.6% 6.4% 6.1% 7.1% 6.1% 8.2% 7.5% 6.4% 8.7% 9.7%

Petrochemical 7.4% 8.1% 8.6% 6.1% 7.0% 6.4% 7.5% 6.7% 8.2% 7.6% 6.9% 9.6% 10.3%

I&E Materials (IT & Electronic) 11.8% 14.6% 12.9% 8.2% 5.5% 6.6% 7.6% 6.6% 12.6% 12.0% 6.6% 9.5% 10.2%

Energy Solution -2.0% 2.6% 4.8% -0.9% 2.5% 3.5% 3.6% 1.0% 1.6% 1.2% 2.7% 3.1% 6.3%

KRW/US$ (Avg) 1,085 1,123 1,109 1,062 1,069 1,029 1,011 1,010 1,127 1,095 1,030 1,010 1,010

Oil Price - Dubai ($/bbl) 108 101 106 107 104 106 104 103 109 105 105 103 101

Petrochem Spreads ($/t) LLDPE-Naphtha 465 516 533 572 572 574 572 569 355 522 572 611 641

PP-Naphtha 481 541 535 566 550 533 531 541 441 531 539 541 561

PVC-Naphtha 76 115 100 52 96 74 (138) (167) 30 86 (34) (93) (71)

SBR-Naphtha 1,988 1,585 1,425 1,361 1,039 768 900 1,000 1,914 1,165 927 1,100 1,300

SBR-Butadiene 1,128 1,057 1,208 771 566 387 450 500 428 616 476 550 650

ABS-Naphtha 1,041 1,030 1,011 954 972 936 970 980 1,027 1,009 964 1,000 1,020 SOURCES: CIMB, COMPANY REPORTS


August 27, 2014

61

Figure 8: LG Chem's SOP valuation – base case Method

(Wbn) (W/shr)Core operation 15,990 241,283 P/B vs. ROELCD glass 1,744 26,320 DCFEV battery 6,127 92,451 DCFTotal value 23,861 360,055

Equity Value


Figure 9: LG Chem's SOP valuation – bullish case Method

(Wbn) (W/shr)Core operation 15,990 241,283 P/B vs. ROELCD glass 1,744 26,320 DCFEV battery 9,135 137,840 DCFTotal value 26,869 405,443

Equity Value


Figure 10: 1-year forward P/BV

0

150,000

300,000

450,000

600,000

750,000

900,000

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

(W)

Close 0.8x 1.6x 2.4x 3.2x 4x

SOURCES: Datastream, CIMB


August 27, 2014

62

Balance Sheet

(Wb) Dec-13A Dec-14F Dec-15F Dec-16FTotal Cash And Equivalents 1,928 2,046 2,221 2,628Total Debtors 3,333 3,354 3,508 3,731Inventories 2,564 2,568 2,654 2,730Total Other Current Assets 207 208 218 232Total Current Assets 8,032 8,176 8,601 9,321Fixed Assets 8,560 9,104 9,852 10,598Total Investments 448 868 1,089 1,329Intangible Assets 263 288 312 338Total Other Non-Current Assets 144 145 152 162Total Non-current Assets 9,415 10,406 11,406 12,426Short-term Debt 2,207 2,531 2,531 2,531Current Portion of Long-Term DebtTotal Creditors 2,149 2,152 2,224 2,288Other Current Liabilities 242 244 255 271Total Current Liabilities 4,598 4,927 5,010 5,090Total Long-term Debt 805 817 817 817Hybrid Debt - Debt ComponentTotal Other Non-Current Liabilities 318 320 335 356Total Non-current Liabilities 1,123 1,138 1,152 1,174Total Provisions 0 0 0 0Total Liabilities 5,721 6,064 6,162 6,264Shareholders' Equity 11,597 12,393 13,727 15,372Minority Interests 129 124 118 111Total Equity 11,726 12,517 13,845 15,483

Profit & Loss

(Wb) Dec-13A Dec-14F Dec-15F Dec-16FTotal Net Revenues 23,144 23,000 23,499 25,096Gross Profit 3,309 3,098 3,696 4,200Operating EBITDA 2,762 2,546 3,103 3,497Depreciation And Amortisation (1,019) (1,071) (1,052) (1,054)Operating EBIT 1,743 1,475 2,051 2,443Financial Income/(Expense) (33) (38) (32) (24)Pretax Income/(Loss) from Assoc. 5 13 0 0Non-Operating Income/(Expense) (114) (60) 11 0Profit Before Tax (pre-EI) 1,601 1,390 2,029 2,418Exceptional ItemsPre-tax Profit 1,601 1,390 2,029 2,418Taxation (331) (275) (406) (484)Exceptional Income - post-tax 0 0 0 0Profit After Tax 1,271 1,115 1,624 1,935Minority Interests (5) 4 6 7Preferred DividendsFX Gain/(Loss) - post taxOther Adjustments - post-taxPreference Dividends (Australia)Net Profit 1,266 1,118 1,629 1,942Normalised Net Profit 1,271 1,115 1,624 1,935Fully Diluted Normalised Profit 1,266 1,118 1,629 1,942

Key Ratios

Dec-13A Dec-14F Dec-15F Dec-16FRevenue Growth (0.51%) (0.62%) 2.17% 6.80%Operating EBITDA Growth (0.6%) (7.8%) 21.9% 12.7%Operating EBITDA Margin 11.9% 11.1% 13.2% 13.9%Net Cash Per Share (W) (16,350) (19,657) (17,005) (10,867)BVPS (W) 174,993 187,012 207,130 231,962Gross Interest Cover N/A N/A N/A N/AEffective Tax Rate 20.7% 19.8% 20.0% 20.0%Net Dividend Payout Ratio 23.3% 26.5% 18.2% 15.2%Accounts Receivables Days 52.00 53.06 53.30 52.79Inventory Days 47.77 47.06 48.12 47.15Accounts Payables Days 41.25 39.44 40.33 39.51ROIC (%) 14.3% 11.6% 15.5% 17.2%ROCE (%) 12.3% 9.6% 12.4% 13.6%

Cash Flow

(Wb) Dec-13A Dec-14F Dec-15F Dec-16FEBITDA 2,762 2,546 3,103 3,497Cash Flow from Invt. & Assoc. 5 13 0 0Change In Working Capital (212) (22) (166) (233)(Incr)/Decr in Total ProvisionsOther Non-Cash (Income)/Expense 1,247 1,280 1,265 1,259Other Operating Cashflow (1,214) (1,160) (1,073) (1,079)Net Interest (Paid)/Received (30) (32) (32) (24)Tax Paid (331) (275) (406) (484)Cashflow From Operations 2,229 2,350 2,690 2,937Capex (1,193) (1,600) (1,800) (1,800)Disposals Of FAs/subsidiariesAcq. Of Subsidiaries/investmentsOther Investing Cashflow (229) (105) 0 0Cash Flow From Investing (1,422) (1,704) (1,800) (1,800)Debt Raised/(repaid)Proceeds From Issue Of SharesShares RepurchasedDividends Paid (295) (296) (296) (296)Preferred DividendsOther Financing Cashflow 96 618 296 296Cash Flow From Financing (199) 322 0 0Total Cash Generated 608 968 890 1,137Free Cashflow To Equity 807 646 890 1,137Free Cashflow To Firm 872 738 986 1,233

Key Drivers

Dec-13A Dec-14F Dec-15F Dec-16FOil Price (US$/bbl) 105.4 104.6 102.8 101.0 Volume Growth (%) N/A N/A N/A N/ARatio Of Up To Downstream (x) 0.4 0.5 0.6 0.5 Operating Cash Cost (US$/bbl) N/A N/A N/A N/ARatio Of High To Low Margin (x) N/A N/A N/A N/A


0.05.0

10.015.020.025.030.035.040.045.050.0

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

12-month Forward Rolling FD P/E (x)

Kumho Petrochemical LG Chem

Technology Components│South Korea

August 27, 2014


Progressing step by step Our visit to Samsung SDI confirmed that the company’s xEV battery business is improving not only financially but also intrinsically, more specifically in terms of improving the overall battery performance. While we still maintain our view that the potential synergy from the merger with Cheil Industries is more likely a long-term progression, we think SDI’s xEV battery business is in a comfortable place in terms of its long-term competitiveness against peers. Hence, on the structural xEV growth theme, we maintain our Add rating and 12-month target price of W202,000 based on SOP valuation. Potential upside catalysts are 1) better-than-expected improvement in xEV/ESS battery profitability, and 2) recovery of Samsung’s smartphone competitiveness.

xEV battery division seemingly making sound progress Our visit to SDI’s xEV battery production line left an impression that the company is catering to strong demand from various customers, BMW in particular, as indicated by its plan to a) expand its L2 capacity from 300k cells/month to 500k by end-14, and 2) build two more production lines (L4 and L5) between end-14 and 2015. Also, we were able to confirm that SDI’s R&D efforts have made significant progress on its BEV battery performance and energy capacity, with further developments still under progress in the pipeline. Progression on EV battery performance looking positive According to the engineers, SDI has made significant improvements in the overall battery capacity and operating voltage to increase the overall driving range by more than 80% from the current production version. With further improved versions in the pipeline for future adoption, we are increasingly confident that SDI is in a position to deliver a highly competitive battery performance to tackle the key area of concerns for the proliferation of BEVs – the insufficient driving range. We believe the company’s upgraded version of EV battery will be in the market by 2016 which may lead to a significant increase in economies of scale and hence, better cost structure/profitability. Maintaining positive long-term view We believe SDI is set to benefit long-term from the proliferation of xEVs, particularly from 2016 when upgraded battery performance may help raise the overall attractiveness/feasibility of BEV ownership. However we expect the BEP from xEV business to be reached in 2017, per our forecast in figure 7. Meanwhile, the latest check on 3Q14 operations suggest that the company is generally on track to meet its expectations, with potential downside risk coming from Samsung’s perceived struggle on smartphone business.

CIMB Analyst(s)

————————————————————————————————————————



Share price info Share price perf. (%) 1M 3M 12M

Relative -10.7 -6.5 -26

Absolute -9 -3.6 -16.5

Major shareholders % held SEC 19.7


Samsung SDI FLASH NOTE 006400 KS / 006400.KS Current W147,000



Conviction| |


70.0

80.0

90.0

100.0

110.0

130,000

150,000

170,000

190,000

210,000


Source: Bloomberg

11223


Vol m


Revenue (Wb) 5,771 5,016 4,105 4,129 4,674Net Profit (Wb) 1,472 131 183 354 514Normalised EPS (W) 32,299 2,867 4,022 7,770 11,274Normalised EPS Growth 360% (91%) 40% 93% 45%FD Normalised P/E (x) 4.55 51.28 36.55 18.92 13.04Price To Sales (x) 1.16 1.34 1.63 1.62 1.43DPS (W) 1,500 1,500 1,500 2,000 2,000Dividend Yield 1.02% 1.02% 1.02% 1.36% 1.36%EV/EBITDA (x) 4.75 6.40 4.43 2.33 1.72P/FCFE (x) 26.40 NA 18.00 16.26 15.52Net Gearing 2.18% 5.67% 1.10% (0.25%) (0.13%)P/BV (x) 0.91 0.91 0.85 0.82 0.78ROE 21.8% 1.8% 2.4% 4.4% 6.2%% Change In Normalised EPS Estimates 0.000% (0.316%) 0.024%Normalised EPS/consensus EPS (x)

147,000

202,000

139,000 198,500

Target


Current



Technology Components│Samsung SDI

August 27, 2014

64

Figure 1: BMW i3 sales trend (global) Figure 2: Samsung SDI xEV battery earnings forecast

-

500

1,000

1,500

2,000

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1Q14 2Q14 3Q14F

-200.0%

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2013 2014F 2015F 2016F 2017F 2018F 2019F 2020F

Sales OP OP margin (RHS)

NOTE: 3Q14F SALES ARE BASED ON JULY SALES DATA SOURCES: CIMB, BMW


Figure 3: Post merger quarterly earnings forecast (W bn, consolidated) 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14F 4Q14F 2012 2013 2014F 2015FSamsung SDI (before merger)Revenue 1,376.7 1,477.4 1,502.9 1,414.2 1,208.2 1,306.9 1,296.6 1,204.8 1,135.7 1,048.6 966.6 1,128.6 5,771.2 5,016.5 4,104.7 4,147.1

Small size batteries 743.0 873.0 904.0 829.0 772.0 843.0 836.0 749.0 773.0 743.0 785.9 774.0 3,349.0 3,200.0 3,075.9 3,264.1

PDP 519.0 494.0 499.0 516.0 368.0 408.0 390.0 383.0 297.0 211.0 57.9 12.3 2,028.0 1,549.0 578.2 -

ESS 4.0 12.0 21.0 25.0 10.2 16.9 18.0 9.3 4.2 30.0 36.3 59.1 62.0 54.4 129.6 300.0

EV batteries - - - - 8.0 14.0 25.6 38.0 60.8 64.6 86.5 108.4 - 85.6 320.3 583.0

OP 16.9 82.6 86.7 0.7 (33.3) 32.3 29.2 (55.6) (39.0) 0.7 14.0 19.5 186.9 (27.4) (5.8) 191.6 Small size batteries 67.8 92.5 100.3 80.2 61.8 71.7 76.1 30.0 57.2 60.9 70.7 61.9 340.8 239.5 250.8 275.9

PDP (0.1) 9.0 4.2 2.5 (22.1) - - (29.0) (30.2) (9.5) (10.0) (10.0) 15.6 (51.1) (59.7) -

ESS (7.0) (7.0) (5.9) (7.0) (26.7) (7.6) (8.0) (3.4) (11.0) (6.6) (6.2) (4.7) (26.9) (45.7) (28.5) 9.0

EV batteries - - - (40.0) (40.7) (31.6) (33.0) (44.6) (49.0) (39.1) (34.6) (21.7) (40.0) (150.0) (144.4) (93.3)

OPM 1.2% 5.6% 5.8% 0.0% -2.8% 2.5% 2.3% -4.6% -3.4% 0.1% 1.4% 1.7% 3.2% -0.5% -0.1% 4.6%Small size batteries 9.1% 10.6% 11.1% 9.7% 8.0% 8.5% 9.1% 4.0% 7.4% 8.2% 9.0% 8.0% 10.2% 7.5% 8.2% 8.5%

PDP 0.0% 1.8% 0.8% 0.5% -6.0% 0.0% 0.0% -7.6% -10.2% -4.5% -17.3% -81.3% 0.8% -3.3% -10.3% na

ESS -175.0% -58.3% -28.1% -28.0% -262.2% -45.0% -44.4% -36.1% -261.9% -22.0% -17.0% -8.0% -43.4% -84.0% -22.0% 3.0%

EV batteries na na na na -509.0% -226.0% -128.9% -117.5% -80.6% -60.5% -40.0% -20.0% na -175.2% -45.1% -16.0%

Cheil Industries (before merger)Revenue 1,428.6 1,513.0 1,487.6 1,580.8 1,523.0 1,628.1 1,125.5 1,091.0 1,048.6 1,060.8 1,110.8 1,058.9 6,009.9 5,367.6 4,279.1 4,610.5

EM 376.0 407.4 385.1 401.0 387.1 434.2 408.7 386.6 365.1 365.9 379.8 375.0 1,569.5 1,616.6 1,485.7 1,647.2

Chemicals 613.1 675.7 731.7 645.0 642.2 731.1 716.8 704.4 683.5 694.9 731.0 683.9 2,665.5 2,794.5 2,793.4 2,963.3

OP 72.4 110.0 64.1 75.2 72.1 72.7 84.0 (9.3) 25.3 29.3 44.0 19.5 321.7 219.5 118.1 222.2 EM 29.0 58.0 34.0 37.0 35.0 52.0 57.0 10.8 18.5 16.8 19.6 12.9 166.7 154.8 67.8 139.5

Chemicals 20.0 31.0 28.0 3.0 12.0 21.0 27.2 (20.1) 6.8 12.5 24.4 6.6 89.3 40.1 50.3 82.7

OPM 5.1% 7.3% 4.3% 4.8% 4.7% 4.5% 7.5% -0.9% 2.4% 2.8% 4.0% 1.8% 5.4% 4.1% 2.8% 4.8%EM 7.7% 14.2% 8.8% 9.2% 9.0% 12.0% 13.9% 2.8% 5.1% 4.6% 5.1% 3.5% 10.6% 9.6% 4.6% 8.5%

Chemicals 3.3% 4.6% 3.8% 0.5% 1.9% 2.9% 3.8% -2.9% 1.0% 1.8% 3.3% 1.0% 3.4% 1.4% 1.8% 2.8%

Samsung SDI (post merger)Revenue 2,805.2 2,990.4 2,990.5 2,995.0 2,731.2 2,935.0 2,422.1 2,295.8 2,184.3 2,109.4 2,077.4 2,187.5 11,781.1 10,384.1 8,383.9 8,757.6

qoq -1% 7% 0% 0% -9% 7% -17% -5% -5% -3% -2% 5%

yoy 8% 6% 8% 6% -3% -2% -19% -23% -20% -28% -14% -5% 7% -12% -19% 4%

OP 89.3 192.6 150.8 75.9 38.8 105.0 113.2 (64.9) (13.6) 30.0 57.9 39.0 508.6 192.1 112.3 413.8 qoq 25% 116% -22% -50% -49% 170% 8% -157% -79% -320% 93% -33%

yoy 2% 65% 168% 6% -57% -45% -25% -185% -135% -71% -49% -160% 53% -62% -42% 268%

OPM 3.2% 6.4% 5.0% 2.5% 1.4% 3.6% 4.7% -2.8% -0.6% 1.4% 2.8% 1.8% 4.3% 1.8% 1.3% 4.7% SOURCE: QUANTIWISE, CIMB RESEARCH, COMPANY DATA


August 27, 2014

65

Figure 4: P/E band Figure 5: P/BV band

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

(W b)

21x

27x32x38x43 x

7,000

9,000

11,000

13,000

15,000

17,000

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

(W b) 1.6x 1.4x

1.2x

1.0x

0.9x

SOURCES: QUANTIWISE, CIMB RESEARCH SOURCES QUANTIWISE, CIMB RESEARCH

Figure 6: Samsung SDI (post-merger) SOP valuation summary (W bn) EBITDA Rationale Fair EVCore operation FY14F FY15F Tgt multiple (x)Samsung SDI 584.6 753.1 5,076.2 Small (IT) batteries 496.2 521.3 7.2 10% discount to the global peer avg. 3,662.9 Mid-to-large (EV & ESS) batteries 64.2 185.0 NM DCF valuation 1,413.3 PDP 24.2 46.7 NM NM NACheil Industries 369.7 479.1 3,207.4 Electronic materials 236.0 311.3 6.1 20% discount to the global peer avg. 1,663.8 Chemicals 133.7 167.8 10.2 20% discount to the global peer avg. 1,543.6 Non-core assets Stake Mkt cap. Implied value Acquisition cost Net valueListedSamsung C&T 7.2% 11,403.8 818.8 5.1 621.9 Hotel Shilla 0.1% 4,140.6 2.9 0.3 2.3 Samsung Fine Chemicals 14.7% 1,079.7 158.2 42.9 130.3 S1 11.0% 2,941.1 324.4 62.0 260.9 imarket Korea 1.5% 1,283.1 18.9 0.1 14.3 Samsung Engineering 13.1% 2,796.0 366.3 76.1 296.0 Samsung Heavy Industry 0.4% 6,579.9 27.6 5.7 22.3 Samsung Techwin 0.1% 2,584.7 3.1 0.7 2.5 UnlistedSamsung Everland 8.0% 417.9 10.5 319.3 Samsung Display 15.2% 4,740.3 30% discount to BV 3,318.2 Others 438.2 30% discount to BV 306.7 Core EV 8,283.6 Non-core assets 5,294.8 Net debt FY14F FY15F (339.0)

Samsung SDI 90.9 -9.3Cheil Industries -272.5 -487.1

Total equity value 13,917.4 # of shares (post merger) 68,764,530 Fair value per share (KRW) 202,000 Current share price (KRW) 147,000 Potential upside 37%

SOURCE: CIMB RESEARCH, COMPANY DATA


August 27, 2014

66

Figure 7: Samsung SDI EV battery DCF analysis based on CIMB xEV battery cell market forecast (USD mn) 2013 2014F 2015F 2016F 2017F 2018F 2019F 2020FGlobal xEV battery cell market 2,686 3,652 4,712 6,699 12,207 17,855 23,694 32,408 Global xEV units (mn) 1.7 1.9 2.1 2.7 3.8 5.1 6.4 8.4 yoy 7.1% 9.5% 10.8% 26.6% 44.2% 32.2% 26.1% 31.2%Global BEV battery size (kWh) 24.0 24.7 25.5 31.8 32.5 33.1 33.8 34.5 yoy na 3.0% 3.0% 25.0% 2.0% 2.0% 2.0% 2.0%Samsung SDI sales 78 311 583 875 1,639 2,500 3,909 6,620 Samsung SDI M/S 2.9% 8.5% 12.4% 13.1% 13.4% 14.0% 16.5% 20.4%

(W bn) 2013 2014F 2015F 2016F 2017F 2018F 2019F 2020FSales 85.6 320.3 583.0 874.9 1,639.3 2,500.4 3,909.1 6,619.9 OP (150.0) (144.4) (93.3) (52.5) 27.0 66.6 182.6 406.8 OPM -175.2% -45.1% -16.0% -6.0% 1.6% 2.7% 4.7% 6.1%Dep. 17 50 101 168 222 263 303 344 EBITDA (133.3) (94.1) 7.6 115.9 249.5 329.5 486.0 750.7 Tax (assuming 22%) - - - - 5.9 14.7 40.2 89.5 Capex 267.3 270.0 540.0 540.0 324.0 324.0 324.0 324.0 Capex to sales 312% 84% 93% 62% 20% 13% 8% 5%FCF (400.6) (364.1) (532.4) (424.1) (80.5) (9.1) 121.8 337.2

xEV battery sales 2013 2014F 2015F 2016F 2017F 2018F 2019F 2020FxEV unit sales 7,563 31,043 59,926 78,036 147,778 227,822 359,994 470,352 BMW 3,920 22,000 37,400 48,620 84,143 110,086 137,379 178,379 Others 3,643 9,043 22,526 29,416 63,636 117,736 222,615 291,972 ASP/kWh (USD) 470 456 442 296 287 279 270 262 Cost/KWh (USD) 1,294 661 513 314 283 271 258 246 KWh per unit* 22 22 22 38 39 39 40 54 *: Based on BMW i3 spec

PV of FCF 2013 2014F 2015F 2016F 2017F 2018F 2019F 2020FYear 0 1 2 3 4 5 6 7 TV*WACC

7% (400.6) (340.3) (465.0) (346.2) (61.4) (6.5) 81.2 210.0 5,676.0 8% (400.6) (337.1) (456.4) (336.6) (59.2) (6.2) 76.8 196.7 4,865.1 9% (400.6) (334.0) (448.1) (327.5) (57.0) (5.9) 72.6 184.5 4,257.0

10% (400.6) (331.0) (440.0) (318.6) (55.0) (5.7) 68.8 173.0 3,784.0 11% (400.6) (328.0) (432.1) (310.1) (53.0) (5.4) 65.1 162.4 3,405.6

*: Terminal growth rate: 1%

WACC Sum of PV Sum of TV EV7% (928.2) 3,534.7 2,606.5 8% (922.1) 2,838.8 1,916.7 9% (915.4) 2,328.7 1,413.3

10% (908.4) 1,941.8 1,033.4 11% (901.1) 1,640.3 739.3

SOURCE: CIMB RESEARCH, COMPANY DATA


August 27, 2014

67

Figure 8: Peer valuation comparison Price Target

Price Market Cap

(local curr) (local curr) (US$ m) CY14 CY15 CY14 CY15 CY14 CY15 CY14 CY15 CY14 CY15

Samsung SDI 006400 KS ADD 147,000 202,000 9,941 36.6 18.9 70% 0.9 0.8 2.4% 4.5% 5.5 3.0 1.0% 1.4%Battery makersLG Chem 051910 KS ADD 275,000 360,000 17,922 14.4 11.0 18% 1.5 1.3 10.4% 12.6% 7.0 5.8 1.5% 1.5%Gs Yuasa Corp 6674 JP NR 642 na 2,556 15.6 13.4 85% 1.8 1.6 11.8% 12.6% 8.9 7.9 1.5% 1.6%Panasonic Corp 6752 JP NR 1,248 na 29,471 17.4 13.7 na 1.8 1.6 9.9% 11.6% 4.7 4.3 1.2% 1.6%Coslilght Tech 1043 HK NR 7 na 344 11.9 8.6 na na na na na na na na naSCUD Group 1399 HK NR 1 na 168 9.3 6.5 68% 0.7 0.6 na na 8.4 5.9 na naJohnson Controls, Inc JCI US NR 49 na 32,564 15.3 13.2 16% 2.6 2.3 17.1% 17.5% 10.2 9.0 1.8% 1.7%Average 14.0 11.0 47% 1.7 1.5 12.3% 13.6% 7.8 6.6 1.5% 1.6%

Electric VehicleBYD Company 1211 HK NR 51 na 18,529 98.3 51.1 98% 3.8 3.4 4.7% 8.2% 21.4 17.1 0.0% 0.0%Sinopoly Battery 729 HK NR 0 na 1,109 na na na na na na na na na na naTesla Motors, Inc. TSLA US NR 263 na 32,722 241.8 85.3 268% 30.1 23.2 13.1% 33.9% 89.1 38.8 0.0% 0.0%Average 170.0 68.2 183% 17.0 13.3 8.9% 21.0% 55.2 28.0 0.0% 0.0%

ECMDuksan Hi-Metal 077360 KS NR 15,650 na 453 19.9 9.6 13% 1.7 1.5 6.8% 12.5% 19.0 9.4 na naNitto Denko 6988 JP NR 5,236 na 8,758 14.5 13.5 12% 1.5 1.4 8.4% 8.3% 5.8 5.5 1.9% 1.9%JSR 4185 JP NR 1,759 na 4,030 14.7 13.2 3% 1.2 1.1 6.4% 6.9% 5.8 5.2 2.3% 2.3%ECM average 16.4 12.1 9% 1.5 1.3 7.2% 9.2% 10.2 6.7 2.1% 2.1%

ChemicalDow Chem DOW US NR 53 na 63,442 17.8 13.3 13% 2.0 1.8 na na 9.2 8.0 2.7% 3.1%Hanwha Chemical Corp 009830 KS HOLD 16,550 18,800 2,636 24.3 8.3 541% 0.6 0.6 2.3% 6.9% 9.1 6.7 3.0% 3.0%Lotte Chemical 011170 KS ADD 164,500 220,000 5,545 13.5 7.0 72% 0.8 0.8 6.4% 11.5% 4.9 2.6 0.9% 0.9%Formosa Petrochem 6505 TT NR 75 na 23,823 24.4 24.4 10% 2.8 2.8 10.7% 10.0% 24.4 24.4 3.6% 4.0%Formosa Plastics 1301 TT NR 78 na 16,579 20.2 17.9 -7% 1.8 1.7 7.0% 7.6% 34.1 29.0 2.9% 3.2%Nan Ya Plastics 1303 TT NR 72 na 19,066 17.4 16.4 11% 1.9 1.8 8.9% 8.9% 28.5 26.7 3.6% 3.8%Chemical average 19.6 14.5 107% 1.7 1.6 7.1% 9.0% 18.4 16.2 2.8% 3.0%

Average (Total) 51.3 24.9 83% 4.5 3.7 7.6% 11.4% 19.4 12.1 1.5% 1.6%

Recurring ROE (%) EV/EBITDA (x) Dividend

Yield (%)Company Bloomberg Ticker Recom. Core P/E (x) 2-year EPS

CAGR (%)P/BV (x)

SOURCE: BLOOMBERG, CIMB RESEARCH


August 27, 2014

68

Balance Sheet

(Wb) Dec-13A Dec-14F Dec-15F Dec-16FTotal Cash And Equivalents 761 1,013 1,001 995Total Debtors 699 572 575 651Inventories 526 430 433 490Total Other Current Assets 78 138 141 143Total Current Assets 2,063 2,153 2,150 2,279Fixed Assets 1,788 1,749 1,932 2,178Total Investments 4,805 5,013 5,307 5,752Intangible Assets 167 129 101 78Total Other Non-Current Assets 1,733 1,719 1,418 1,181Total Non-current Assets 8,492 8,611 8,757 9,190Short-term Debt 415 415 290 203Current Portion of Long-Term Debt 0 53 53 61Total Creditors 1,024 833 789 882Other Current Liabilities 88 72 73 82Total Current Liabilities 1,527 1,373 1,206 1,228Total Long-term Debt 769 629 633 716Hybrid Debt - Debt ComponentTotal Other Non-Current Liabilities 4 4 3 4Total Non-current Liabilities 773 633 636 720Total Provisions 713 750 751 763Total Liabilities 3,013 2,756 2,593 2,712Shareholders' Equity 7,378 7,835 8,118 8,537Minority Interests 164 174 193 220Total Equity 7,542 8,009 8,310 8,757

Profit & Loss

(Wb) Dec-13A Dec-14F Dec-15F Dec-16FTotal Net Revenues 5,016 4,105 4,129 4,674Gross Profit 756 640 843 1,002Operating EBITDA 403 452 687 685Depreciation And Amortisation (431) (458) (497) (428)Operating EBIT (27) (6) 190 258Financial Income/(Expense) (10) (23) (20) (18)Pretax Income/(Loss) from Assoc. 406 249 311 456Non-Operating Income/(Expense) (184) 27 (3) (4)Profit Before Tax (pre-EI) 184 247 478 693Exceptional ItemsPre-tax Profit 184 247 478 693Taxation (36) (54) (105) (152)Exceptional Income - post-taxProfit After Tax 148 193 373 541Minority Interests (17) (10) (19) (27)Preferred DividendsFX Gain/(Loss) - post taxOther Adjustments - post-tax 0 0 0 0Preference Dividends (Australia)Net Profit 131 183 354 514Normalised Net Profit 148 193 373 541Fully Diluted Normalised Profit 131 183 354 514

Key Ratios

Dec-13A Dec-14F Dec-15F Dec-16FRevenue Growth (13.1%) (18.2%) 0.6% 13.2%Operating EBITDA Growth (37.1%) 12.1% 52.0% (0.3%)Operating EBITDA Margin 8.0% 11.0% 16.6% 14.7%Net Cash Per Share (W) (9,387) (1,929) 464 254BVPS (W) 161,948 171,970 178,185 187,384Gross Interest Cover (0.83) (0.18) 6.61 9.51Effective Tax Rate 19.6% 22.0% 22.0% 22.0%Net Dividend Payout Ratio 51.6% 38.7% 20.0% 18.4%Accounts Receivables Days 52.60 56.47 50.68 47.99Inventory Days 46.45 50.35 47.94 45.98Accounts Payables Days 94.99 97.76 90.10 83.31ROIC (%) (0.61%) (0.15%) 4.96% 6.90%ROCE (%) (0.10%) (0.01%) 1.97% 2.57%

Cash Flow

(Wb) Dec-13A Dec-14F Dec-15F Dec-16FEBITDA 403.2 452.1 687.4 685.4Cash Flow from Invt. & Assoc.Change In Working Capital (123.3) (137.4) (217.9) (209.1)(Incr)/Decr in Total ProvisionsOther Non-Cash (Income)/ExpenseOther Operating Cashflow 80.0 466.7 430.1 428.6Net Interest (Paid)/Received (15.3) (27.1) (23.9) (22.3)Tax Paid (36.1) (54.4) (105.1) (152.5)Cashflow From Operations 308.4 699.9 770.6 730.2Capex (668.3) (450.0) (720.0) (720.0)Disposals Of FAs/subsidiariesAcq. Of Subsidiaries/investmentsOther Investing Cashflow 164.1 208.9 482.1 417.8Cash Flow From Investing (504.2) (241.1) (237.9) (302.2)Debt Raised/(repaid) 75.6 (86.8) (120.9) 3.5Proceeds From Issue Of Shares 0.0 0.0 0.0 0.0Shares RepurchasedDividends Paid (92.9) (70.8) (70.8) (94.5)Preferred DividendsOther Financing Cashflow (34.1) (34.1) (34.1) (34.1)Cash Flow From Financing (51.4) (191.7) (225.8) (125.1)Total Cash Generated (247.2) 267.2 306.9 302.9Free Cashflow To Equity (120.2) 372.1 411.8 431.5Free Cashflow To Firm (163.0) 490.5 561.4 455.1

Key Drivers

Dec-13A Dec-14F Dec-15F Dec-16FASP Change (%, Main Product) -3.3% -8.5% -1.0% -1.0%Unit sales growth (%, main prod) -1.2% 5.1% 9.4% 3.7%No. Of Lines (main Product) N/A N/A N/A N/ARev per line (US$, main prod) N/A N/A N/A N/AASP chg (%, 2ndary prod) N/A N/A N/A N/AUnit sales grth (%, 2ndary prod) N/A N/A N/A N/ANo. Of Lines (secondary Product) N/A N/A N/A N/ARev per line (US$, 2ndary prod) N/A N/A N/A N/A


0.05.0

10.015.020.025.030.035.040.045.050.0



Hanwha Chemical Corp LG Chem Lotte Chemical Samsung SDI

Technology Components│South Korea

August 27, 2014


Playing a key role in LG Group’s automotive strategy We believe LG Innotek’s diversification strategy for its component business – from traditional IT parts for smartphones, TVs, etc. to LED illumination and now electric automotive parts – is progressing well and should place the company ahead of its peers in terms of overall growth and profitability curve. We expect more synergies among LG Group affiliates (e.g. collaboration with LG Chem on xEV BMS development), which should generate more positive results in the future. Based on these positive prospects, we maintain our Add rating and 12-month target price of W168,000 (based on 2.0x FY15 P/BV, the average multiple applied during the LED TV upcycle). Potential near-term catalyst may be faster-than-expected LED business turnaround.

What Happened LG Innotek’s automotive component division appears to be in a good shape, supported by its solid order intakes (c.W301bn in 1H14) and significant backlog YTD (W3.4tn in 2Q14) which we think will translate to a stable revenue stream for the next 5-7 years. The company recently completed its manufacturing plant in Mexico (Jun 2014), where automotive motors and sensors will be manufactured, including DCT (dual clutch transmission) motors, EPS motors, ABS, etc. We believe this will eventually become a hub for the company to expand into both North and South American markets. Also we expect Innotek to utilize LGE’s marketing channels to cross-sell more of its product offerings.

What We Think We expect Innotek to continue its expansion into more OEM customers, and to improve its overall product mix and profitability by expanding exposure to relatively newer and higher margin products e.g. automotive camera modules, LEDs, wireless connectivity components, etc. We also believe the company’s growing expertise in power controller IC for BMS (battery management system) application (in conjunction with LG Chem) will lead to future opportunities from the structural xEV market growth.

What You Should Do Our positive long-term outlook on Innotek is mostly based on the existence of attractive long-term growth drivers in 1) automotive components which should continue to grow in size and variety of offerings, and 2) LED business which should continue its path to recovery on rising utilisation and improving product mix despite the increasingly conservative overall margin outlooks.

CIMB Analyst(s)

————————————————————————————————————————




Relative -3.9 3.9 34.4

Absolute -2.2 6.8 43.9

Major shareholders % held LGE 47.9


LG Innotek FLASH NOTE 011070 KS / 011070.KS Current W133,000



Conviction| |


66

88

110

133

155

67,000

87,000

107,000

127,000

147,000


Source: Bloomberg

200

400

600


Vol t

h


Revenue (Wb) 5,316 6,212 6,503 7,187 7,769Net Profit (Wb) (24.9) 15.5 178.3 253.9 313.7Normalised EPS (W) (1,237) 770 7,133 10,157 12,548Normalised EPS Growth (83%) NA 826% 42% 24%FD Normalised P/E (x) NA 172.6 16.8 13.1 10.6Price To Sales (x) 0.50 0.43 0.51 0.46 0.43DPS (W) - - - - - Dividend Yield 0% 0% 0% 0% 0%EV/EBITDA (x) 8.13 6.67 5.07 4.57 4.20P/FCFE (x) NA 53.03 NA 12.40 12.73Net Gearing 140% 134% 50% 31% 16%P/BV (x) 2.12 2.04 1.67 1.48 1.30ROE (1.9%) 1.2% 10.8% 12.0% 13.0%% Change In Normalised EPS Estimates 0% 0% 0%Normalised EPS/consensus EPS (x) 0.95 0.92 0.96

133,000

168,000

75,000 150,000

Target


Current



Technology Components│LG Innotek

August 27, 2014

70

Figure 1: Korean auto parts suppliers’ aggregate share price performance (YTD)

Figure 2: ADAS (advanced driving assistance system) demand to show sharp growth in the long term

90

95

100

105

110

115

120

125

130

135

140

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14

Total auto parts makers aggretate KOSPI Index

01 Jan 2014 = 100

0

10

20

30

40

50

60

70

(USD b)

2012 2017

Note: Included companies are Halla visteon Climate Control, Hanil E-Hwa, S&T Motiv,

Sungwoo Hitech, SL, Pyeong Wha Automotive SOURCE: Quantiwise, CIMB Research


Figure 3: Automotive component demand CAGR (2013-2017F) by part

Figure 4: Advanced driver assistance system (ADAS) demand outlook (~2018F)

0%

5%

10%

15%

20%

25%

30%

0

2

4

6

8

10

12

14

16

18

20

2010 2011 2012 2013 2014 2015 2016 2017 2018

(USD b)

5-yr CAGR 17%

SOURCES: CIMB Research SOURCES: CIMB Research


August 27, 2014

71

Figure 5: LG Innotek automotive component business snapshot

EPS Motor

An EPS motor makes steering wheel operation easier during parking and low-speed driving and gives more sense of steering feel at mid-to-high speed.

DCT Motor

The DCT motor takes charge of odd or even numbered gears in the DCT system to assist gear shifting

Camera Module

This includes the viewing cameras that show images on the display directly to the driver and other cameras that helps the driver to drive safely.

Torque Angle Sensor

the torque angle sensor integrates the torque and angle sensor in one module to simultaneously detect steering torque and the steering angle.

BMS

BMS (Battery Management System) monitors the battery state so that the battery can be kept and used in the optimum state.

ABS Motor

ABS Motor prohibits the brake pads from locking on the rotors and prevent all four tires from and slipping or spinning.

Network Module

It is built into the Telematics device that connects vehicles to mobile communication networks and a Bluetooth/Wi-Fi module that provides wireless communication between the

AFLS Actuator

The AFLS actuator is a lighting system which moves for the driver, depending on the conditions, and is automatically implemented according to road conditions

LED Light Source Module

LED light source modules that are used for LED lamps on the exterior and interior of the car.

SOURCE: CIMB RESEARCH, COMPANY DATA, ETNews

Figure 6: LG Innotek automotive component sales breakdown (FY13)

Motor / Sensor, W268.0bn

Wireless / Communication,

W157.4bn

BMS, W22.5bn

Others (camera modules, LED),

W0.6bn

SOURCES: Company data, CIMB Research


August 27, 2014

72

Figure 7: LG Innotek automotive component annual orders Figure 8: LG Innotek automotive component order backlog

-

500

1,000

1,500

2,000

2,500

2011 2012 2013 2014F

(W b)

-

1,000

2,000

3,000

4,000

2010 2011 2012 2013 2Q14

(W b)

SOURCES: Company data, CIMB Research SOURCES: Company data, CIMB Research

Figure 9: Earnings forecast summary (1Q12-4Q14F, 2012-2015F) (Wbn) 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14P 3Q14F 4Q14F 2012 2013 2014F 2015FSales 1,234.0 1,235.8 1,219.9 1,626.3 1,550.9 1,521.1 1,595.5 1,544.0 1,458.8 1,542.9 1,691.7 1,809.2 5,316.0 6,211.5 6,502.6 7,186.9 Optics Solution 384.7 328.0 269.1 679.7 641.1 557.4 619.5 705.1 586.3 589.6 675.7 802.4 1,661.5 2,523.1 2,654.1 3,053.6 LED 190.4 234.6 296.3 276.9 256.8 315.7 286.2 244.2 263.9 281.8 302.9 293.2 998.2 1,102.9 1,141.8 1,190.2 Substrate & Material 296.8 331.2 355.7 381.6 388.1 387.6 428.4 332.5 353.6 427.7 445.0 446.7 1,365.3 1,536.6 1,673.0 1,799.0 Auto components & Electronics 357.6 332.1 289.5 279.3 265.0 263.3 263.4 259.0 265.4 260.1 268.1 266.9 1,258.5 1,050.7 1,060.4 1,144.1Operating income 27.6 16.9 26.5 6.3 15.8 35.7 55.7 28.9 63.1 89.9 98.6 96.9 77.3 136.2 348.5 401.8 Optics Solution 16.9 14.1 6.7 12.2 22.4 25.6 24.8 33.1 25.8 25.9 30.4 36.9 50.0 106.0 119.1 140.0 LED -26.7 -39.9 -27.6 -41.5 -33.4 -32.2 -31.5 -26.9 -26.4 -12.7 -6.1 -5.9 -135.6 -123.9 -51.0 23.8 Substrate & Material 27.9 31.5 34.9 27.9 19.8 24.0 25.7 8.9 29.0 64.1 61.2 52.8 122.3 78.5 207.1 179.0 Auto components & Electronics 9.4 11.1 12.3 7.7 6.9 5.1 8.2 12.1 13.4 12.5 13.1 13.0 40.6 32.3 52.0 58.9OP margin 2.2% 1.4% 2.2% 0.4% 1.0% 2.3% 3.5% 1.9% 4.3% 5.8% 5.8% 5.4% 1.5% 2.2% 5.4% 5.6% Optics Solution 4.4% 4.3% 2.5% 1.8% 3.5% 4.6% 4.0% 4.7% 4.4% 4.4% 4.5% 4.6% 3.0% 4.2% 4.5% 4.6% LED -14.0% -17.0% -9.3% -15.0% -13.0% -10.2% -11.0% -11.0% -10.0% -4.5% -2.0% -2.0% -13.6% -11.2% -4.5% 2.0% Substrate & Material 9.4% 9.5% 9.8% 7.3% 5.1% 6.2% 6.0% 2.7% 8.2% 15.0% 13.8% 11.8% 9.0% 5.1% 12.4% 10.0% Auto components & Electronics 2.6% 3.4% 4.3% 2.8% 2.6% 1.9% 3.1% 4.7% 5.1% 4.8% 4.9% 4.9% 3.2% 3.1% 4.9% 5.2%Pretax income 0.1 -7.9 3.7 -13.3 -9.8 6.8 28.9 -4.0 34.7 55.4 76.3 74.5 -17.5 22.0 241.0 325.6Net income -2.4 4.5 3.6 -30.6 -6.5 6.9 27.7 -12.6 16.4 43.6 60.0 58.2 -24.9 15.5 178.3 253.9

SOURCE: BLOOMBERG, CIMB RESEARCH

Figure 10: LG Innotek automotive component earnings forecast

0.0%

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August 27, 2014

73

Figure 11: Band chart – EV/EBITDA Figure 12: Band chart – P/BV

50,000

100,000

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250,000

Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15

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SOURCE: QUANTIWISE, CIMB RESEARCH SOURCE: QUANTIWISE, CIMB RESEARCH

Figure 13: Global auto parts maker earnings summary

Ticker Last price 2013 2014 F 2015 F 2013 2014 F 2015 F 2013 2014 F 2015 F 2013 2014 F 2015 F

Domestic

LG INNOTEK CO LTD 011070 ks equity 130,000.0 5,677 6,386 7,000 11% 124 324 400 2.2% 5.1% 5.7% 79% 14 164 247 317%HYUNDAI MOBIS CO LTD 012330 ks equity 290,000.0 31,258 35,712 38,607 11% 2,673 3,083 3,418 8.6% 8.6% 8.9% 13% 3,127 3,581 3,876 11%HALLA VISTEON CLIMATE CONTRO 018880 ks equity 53,000.0 4,743 5,402 5,821 11% 332 396 448 7.0% 7.3% 7.7% 16% 271 312 353 14%S&T MOTIV CO LTD 064960 KS equity 35,150.0 878 1,051 1,172 16% 47 73 86 5.4% 7.0% 7.3% 34% 31 51 51 28%SUNGWOO HITECH CO LTD 015750 KS equity 16,150.0 2,839 3,293 3,525 11% 195 224 246 6.9% 6.8% 7.0% 12% 119 131 147 11%HWA SHIN CO LTD 010690 KS equity 11,400.0 1,356 1,466 1,563 7% 61 90 97 4.5% 6.1% 6.2% 27% 1 69 57 694%SL CORP 005850 KS equity 20,350.0 1,135 1,290 1,377 10% 32 74 79 2.8% 5.7% 5.7% 56% 67 81 87 14%PYEONG HWA AUTOMOTIVE CO LTD 043370 KS equity 22,500.0 913 1,082 1,200 15% 63 78 88 6.9% 7.2% 7.4% 19% 43 55 64 22%Average (ex. LG Innotek) 12% 6.0% 7.0% 7.2% 25% 114%

International

DENSO CORP 6902 JP equity 4,657.5 40,899 41,224 43,702 3% 3,771 4,009 4,396 9.2% 9.7% 10.1% 8% 2,870 2,707 2,988 2%AISIN SEIKI CO LTD 7259 Jp equity 3,950.0 28,181 28,137 29,453 2% 1,709 1,903 2,112 6.1% 6.8% 7.2% 11% 900 926 1,024 7%TOYOTA INDUSTRIES CORP 6201 JP Equity 5,140.0 20,049 20,588 21,399 3% 1,075 1,385 1,506 5.4% 6.7% 7.0% 18% 916 1,083 1,163 13%NOK CORP 7240 JP equity 2,307.0 5,905 6,248 6,538 5% 325 448 484 5.5% 7.2% 7.4% 22% 217 284 313 20%JOHNSON CONTROLS INC JCI US equity 48.9 42,730 43,197 44,412 2% 2,813 2,761 3,160 6.6% 6.4% 7.1% 6% 1,833 2,111 2,438 15%MAGNA INTERNATIONAL INC MGA US equity 113.9 34,835 36,596 38,240 5% 1,869 2,374 2,627 5.4% 6.5% 6.9% 19% 1,667 1,885 2,069 11%AUTOLIV INC ALV US equity 103.4 8,803 9,418 9,935 6% 761 825 961 8.6% 8.8% 9.7% 12% 533 576 638 9%VALEO SA FR FP equity 93.8 16,086 17,056 18,663 8% 967 1,159 1,335 6.0% 6.8% 7.2% 18% 583 724 852 21%Average 4% 6.6% 7.4% 7.8% 14% 12%

Operating marginOperating profit (USD m)Revenue (USD m) 2-yr rev CAGR

2-yr OP CAGR

Net profit (USD m) 2-yr NP CAGR

SOURCES: BLOOMBERG, CIMB RESEARCH

Figure 14: Global auto parts maker peer valuation comparison summary

2013 2014 F 2015 F 2013 2014 F 2015 F 2013 2014 F 2015 F 2013 2014 F 2015 F 2013 2014 F 2015 FDomestic

LG INNOTEK CO LTD 168.6 17.6 12.1 771 7,379 10,788 274% 2.0 1.8 1.6 65,295 70,908 82,179 1.2 11.3 14.2HYUNDAI MOBIS CO LTD 8.1 7.7 7.1 35,804 37,657 40,747 7% 1.4 1.2 1.0 210,384 241,074 280,189 18.5 16.8 15.6HALLA VISTEON CLIMATE CONTRO 19.1 17.2 15.1 2,776 3,079 3,500 12% 3.8 3.4 2.9 13,995 15,813 18,301 20.5 20.6 20.2S&T MOTIV CO LTD 14.4 9.6 9.4 2,446 3,660 3,735 24% 0.9 0.9 0.8 37,319 38,921 41,993 6.9 9.6 9.1SUNGWOO HITECH CO LTD 7.4 7.2 6.4 2,177 2,259 2,532 8% 1.2 1.0 0.9 13,753 15,646 17,887 16.5 15.4 15.1HWA SHIN CO LTD 380.0 5.7 6.9 30 1,994 1,660 644% 1.2 1.0 0.8 9,582 11,822 13,512 0.3 19.9 14.1SL CORP 9.4 8.3 7.7 2,158 2,449 2,645 11% 1.0 0.9 0.8 19,422 21,757 24,256 11.7 11.9 11.3PYEONG HWA AUTOMOTIVE CO LTD 10.0 8.4 7.3 2,256 2,664 3,085 17% 1.2 1.1 0.9 18,204 20,626 23,703 13.2 13.6 13.8Average (ex. LG Innotek) 64.1 9.2 8.6 103% 1.5 1.4 1.2 12.5 15.4 14.2International

DENSO CORP 12.9 13.3 12.1 361 350 386 3% 1.4 1.3 1.2 3,377 3,616 3,897 11.5 10.0 10.4AISIN SEIKI CO LTD 12.4 11.6 10.5 319 340 375 8% 1.1 1.0 1.0 3,551 3,813 4,110 9.7 9.2 9.6TOYOTA INDUSTRIES CORP 17.6 14.5 13.5 293 355 382 14% 0.9 0.9 0.8 5,641 5,929 6,196 5.7 6.2 6.3NOK CORP 18.3 13.6 12.4 126 169 185 21% 1.2 1.1 1.0 1,921 2,077 2,234 7.0 8.5 8.6JOHNSON CONTROLS INC 28.4 15.4 13.2 2 3 4 47% 2.7 2.6 2.3 18 19 21 9.8 16.9 18.3MAGNA INTERNATIONAL INC 16.6 13.1 11.3 7 9 10 21% 2.6 2.6 2.3 44 44 49 16.4 20.0 20.0AUTOLIV INC 20.3 16.8 14.7 5 6 7 18% 2.5 2.4 2.2 42 43 48 12.6 13.9 15.4VALEO SA 16.4 13.0 11.3 6 7 8 21% 3.1 2.6 2.2 30 36 42 19.8 20.8 21.0Average 17.9 13.9 12.4 19% 1.9 1.8 1.6 11.5 13.2 13.7

ROE (%)PER PBREPS (local curr.) 2-yr EPS CAGR

BPS (local curr.)



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74

Figure 15: Peer valuation table

Price Target Price

(local curr) (local curr) CY14 CY15 CY14 CY15 CY14 CY15 CY14 CY15 CY14 CY15LG Innotek 011070 KS ADD 131,000 168,000 3,039 18.4 12.9 316% 1.6 1.5 10.7% 12.0% 4.3 3.8 0.0% 0.0%

LEDEverlight 2393 TT NR 77 na 1,097 16.3 15.3 20% 1.9 1.9 12.3% 12.3% 7.3 7.2 4.1% 5.1%Lumens 038060 KS HOLD 7,990 8,200 370 16.5 11.7 0% 1.6 1.5 10.0% 13.0% 4.1 3.4 1.2% 2.6%Epistar 2448 TT NR 26,900 39,000 1,537 39.1 25.4 35% 2.6 2.4 6.8% 9.9% 11.9 10.4 0.6% 1.2%Seoul Sem 046890 KS ADD 63 na 1,959 35.5 16.7 911% 1.2 1.1 4.4% 8.0% 8.4 7.0 1.4% 2.4%Cree CREE US NR 45 na 5,527 24.5 20.7 65% 1.8 1.7 na na 12.2 10.2 na naAverage 26.4 17.9 206% 1.8 1.7 8.4% 10.8% 8.8 7.7 1.8% 2.8%PCBIbiden 4062 JP NR 2,050 na 2,978 17.1 14.2 200% 0.9 0.8 5.1% 5.9% 4.1 3.9 1.6% 1.7%Shinko 6967 JP NR 764 na 994 17.8 16.3 48% 0.7 0.7 4.3% 4.7% 3.0 3.1 2.6% 2.6%UTC 3037 TT REDUCE 24 17 1,244 na 32.1 -2% 0.8 0.8 -0.9% 2.6% 5.3 3.8 0.0% 1.2%Kinsus 3189 TT ADD 130 130 1,933 12.6 11.0 27% 2.2 2.0 17.9% 18.8% 5.7 4.8 4.0% 4.5%Average 15.8 18.4 68% 1.2 1.1 6.6% 8.0% 4.5 3.9 2.0% 2.5%Camera moduleSEMCO 009150 KS ADD 54,700 73,000 4,005 48.8 20.2 -23% 1.0 0.9 2.0% 4.7% 5.9 5.2 0.4% 0.4%Partron 091700 KS ADD 9,670 29,000 513 4.0 3.1 28% 1.3 1.0 37.7% 36.3% 2.2 1.1 4.1% 4.7%Largan Precision 3008 TT ADD 2,460 2,860 10,999 18.7 15.5 48% 7.4 5.7 47.3% 41.5% 12.6 10.2 1.2% 2.2%Average 23.8 12.9 18% 3.2 2.5 29.0% 27.5% 6.9 5.5 1.9% 2.4%Average (Total) 22.0 16.4 97% 2.1 1.8 14.7% 15.4% 6.7 5.7 1.9% 2.6%

P/BV (x) Recurring ROE (%) EV/EBITDA (x) Dividend Yield (%)Company Ticker Recom. Mkt Cap

(US$ m)Core P/E (x) 2-year

EPS CAGR



August 27, 2014

75

Balance Sheet

(Wb) Dec-13A Dec-14F Dec-15F Dec-16FTotal Cash And Equivalents 402 655 958 1,258Total Debtors 1,166 1,220 1,349 1,458Inventories 376 394 435 470Total Other Current Assets 65 65 66 67Total Current Assets 2,009 2,334 2,808 3,253Fixed Assets 2,105 1,978 1,871 1,830Total Investments 22 22 22 22Intangible Assets 168 160 153 148Total Other Non-Current Assets 279 283 292 300Total Non-current Assets 2,574 2,443 2,339 2,299Short-term Debt 38 38 38 38Current Portion of Long-Term Debt 595 395 395 395Total Creditors 941 950 1,047 1,124Other Current Liabilities 56 58 64 69Total Current Liabilities 1,629 1,441 1,544 1,627Total Long-term Debt 1,527 1,227 1,227 1,227Hybrid Debt - Debt ComponentTotal Other Non-Current Liabilities 11 11 13 14Total Non-current Liabilities 1,539 1,239 1,240 1,241Total Provisions 96 101 111 120Total Liabilities 3,264 2,781 2,896 2,988Shareholders' Equity 1,317 1,995 2,249 2,563Minority Interests 0 0 0 0Total Equity 1,317 1,995 2,249 2,563

Profit & Loss

(Wb) Dec-13A Dec-14F Dec-15F Dec-16FTotal Net Revenues 6,212 6,503 7,187 7,769Gross Profit 690 928 1,043 1,171Operating EBITDA 665 854 882 888Depreciation And Amortisation (529) (505) (480) (410)Operating EBIT 136 349 402 478Financial Income/(Expense) (96) (87) (76) (76)Pretax Income/(Loss) from Assoc. 0 0 0 0Non-Operating Income/(Expense) (18) (20) (0) 0Profit Before Tax (pre-EI) 22 241 326 402Exceptional ItemsPre-tax Profit 22 241 326 402Taxation (6) (63) (72) (88)Exceptional Income - post-taxProfit After Tax 16 178 254 314Minority InterestsPreferred DividendsFX Gain/(Loss) - post taxOther Adjustments - post-tax (0) (0) (0) (0)Preference Dividends (Australia)Net Profit 16 178 254 314Normalised Net Profit 16 178 254 314Fully Diluted Normalised Profit 16 178 254 314

Key Ratios

Dec-13A Dec-14F Dec-15F Dec-16FRevenue Growth 16.8% 4.7% 10.5% 8.1%Operating EBITDA Growth 21.3% 28.3% 3.3% 0.6%Operating EBITDA Margin 10.7% 13.1% 12.3% 11.4%Net Cash Per Share (W) (87,164) (40,219) (28,096) (16,079)BVPS (W) 65,287 79,808 89,965 102,513Gross Interest Cover 1.33 4.04 5.36 6.37Effective Tax Rate 29.4% 26.0% 22.0% 22.0%Net Dividend Payout Ratio NA NA NA NAAccounts Receivables Days 67.95 66.96 65.24 66.11Inventory Days 28.23 25.21 24.62 25.12Accounts Payables Days 71.03 61.90 59.31 60.22ROIC (%) 4.3% 11.0% 13.0% 15.6%ROCE (%) 4.2% 9.8% 10.7% 11.8%

Cash Flow

(Wb) Dec-13A Dec-14F Dec-15F Dec-16FEBITDA 665.5 853.8 881.9 887.6Cash Flow from Invt. & Assoc.Change In Working Capital (172.3) (144.8) (162.9) (164.6)(Incr)/Decr in Total ProvisionsOther Non-Cash (Income)/ExpenseOther Operating Cashflow 42.3 48.3 55.6 54.8Net Interest (Paid)/Received (93.4) (84.8) (73.5) (73.5)Tax Paid (6.5) (62.7) (71.6) (88.5)Cashflow From Operations 435.6 609.8 629.4 615.7Capex (435.0) (400.0) (396.0) (392.0)Disposals Of FAs/subsidiariesAcq. Of Subsidiaries/investmentsOther Investing Cashflow 30.0 31.4 34.7 37.6Cash Flow From Investing (405.0) (368.6) (361.3) (354.5)Debt Raised/(repaid) 20.0 (500.0) 0.0 0.0Proceeds From Issue Of Shares 0.0 500.0 0.0 0.0Shares RepurchasedDividends Paid 0.0 0.0 0.0 0.0Preferred DividendsOther Financing Cashflow (3.6) 11.4 34.9 39.2Cash Flow From Financing 16.4 11.4 34.9 39.2Total Cash Generated 47.0 252.7 303.1 300.4Free Cashflow To Equity 50.6 (258.8) 268.2 261.2Free Cashflow To Firm 133.2 327.6 343.2 336.3

Key Drivers

Dec-13A Dec-14F Dec-15F Dec-16FASP Change (%, Main Product) -7.8% -3.4% 0.0% 0.0%Unit sales growth (%, main prod) 64.7% 8.9% 18.1% 12.6%No. Of Lines (main Product) N/A N/A N/A N/ARev per line (US$, main prod) N/A N/A N/A N/AASP chg (%, 2ndary prod) N/A N/A N/A N/AUnit sales grth (%, 2ndary prod) N/A N/A N/A N/ANo. Of Lines (secondary Product) N/A N/A N/A N/ARev per line (US$, 2ndary prod) N/A N/A N/A N/A


0.05.0

10.015.020.025.030.035.040.045.050.0



Kinsus Interconnect Tech Largan PrecisionLG Innotek LumensPartron Samsung Electro-Mechanics

Auto Parts│South Korea

August 27, 2014


Proxy for green car growth We visited Woory Industrial and came back with a positive impression on the company’s pre-emptive R&D efforts in green auto parts coupled with its strength in developing products with high voltage, advanced motor and sensor technology.

The company has been re-rated as it is the sole supplier of PTC (positive temperature coefficient) heaters to Tesla Model S. Apart from Woory, only Denso produces auto PTC heaters globally. Generating the highest margin among its products, Woory expects Tesla EV volume growth to drive up its OPM in the near term. For more sustainable growth, Woory is developing new products as well as expanding its customer base.

Three pillars of growth The company is planning to seek growth with three approaches: 1) diversifying its customer base to overseas car makers, 2) raising its portion of new product line-ups, especially for green and premium cars, and 3) maintaining the technological gap through continuous R&D efforts. Woory expects the revenue portion from its largest customer (Halla Climate Control) currently at 46% in 2013 to fall as it penetrates into more European auto makers through moving its production lines to Hungary by 2015 and supplying more new products to Denso and Valeo. Also, Woory is focusing on raising its revenue portion of new products, and

sees their portion increasing from 22% in 2013 to 31% in 2014. Given the higher margins of new products, the company projects margin expansion with improving product mix of parts for green and premium cars.

Staying ahead of the crowd The company should not only benefit from the increase in EVs but also from auto makers’ efforts to increase average fuel efficiency and to provide greater comfort. Focusing on R&D, the company has been developing auto parts in three key categories: 1) green cars (PTC heaters, current sensors), 2) fuel efficiency (active air flap actuator, 3-way motorised valve, super charter), and 3) enhancing convenience (electric parking brakes, head lamp actuator, seat belt reminder).

Sector-high ROE Woory trades at a 46% premium over the weighted average 2014 P/E of Korean auto parts makers. However, we highlight that the company trades at 2.6x 2014 P/BV vs. 20% ROE, which is in-line with the sector P/BV-ROE trend with its industry- high ROE level.

Woory Industrial NOT RATED 072470 KS / 072470.KS

Current W14,900 Market Cap Avg Daily Turnover Free Float Target N/A

US$229.3m US$10.43m 60.8% Prev. Target N/A W233,175m W10,759m 15.65 m shares Up/Downside N/A

Conviction|

CIMB Analyst(s)

—————————————————————————————————————————


Company Visit Expert Opinion

Channel Check Customer Views

—————————————————————————————————————————


Relative -6.5 8.7 12.6

Absolute -4.8 11.6 22.1

Major shareholders % held Kim, Myung Jun 24.8 Kim, Jeong Woo 14.4 Standard Life Investments 6.2



60

76

92

108

124

140

8,300

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18,300


Source: Bloomberg

12345

8-13 11-13 2-14 5-14

Vol m

Financial SummaryDec-09A Dec-10A Dec-11A Dec-12A Dec-13A

Revenue (Wb) 100 137 201 243 290Operating Income (Wb) 3 4 9 13 18Net Profit (Wb) 1 4 6 6 12EPS (W) 70 316 456 433 795EPS growth na 353% 45% -5% 84%P/E (x) 203.2 44.8 31.0 32.7 17.8DPS (W) 30 30 30 30 30Dividend yield 0.21% 0.21% 0.21% 0.21% 0.21%P/BV (x) 7.0 5.7 4.6 3.9 3.1ROE 2.5% 10.8% 13.6% 11.9% 19.3%EV/EBITDA (x) 31.7 22.2 16.8 16.0 10.6Net gearing ratio 121.4% 99.3% 106.6% 100.2% 80.8%

14,9009,090 16,900


Current



Woory Industrial August 27, 2014

77

Figure 1: Woory Industrial: Revenue breakdown by product (2013)

Figure 2: Woory Industrial: Revenue breakdown by customer (2012)

Actuator31%

Heater control24%

Clutch coil16%

PTC heater8%

Electric parts8%

EPB3%

Others10%

HVCC46%

Others20%

Hyundai Mobis7%

Visteon7%

Mando5%

BEHR5%

Denso5%

Valeo5%

SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH, COMPANY

Figure 3: Revenue breakdown trend by product type Figure 4: Woory’s operating cash generation should offset capex requirements, leading to an improved balance sheet

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SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH, QUANTIWISE

Figure 5: Woory Industrial: Quarterly revenue trend Figure 6: Woory Industrial: Quarterly OP trend

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BASIS FROM PARENT TO CONSOLIDATED / SOURCE: CIMB RESEARCH, QUANTIWISE SOURCE: CIMB RESEARCH, QUANTIWISE

Woory Industrial August 27, 2014

78

Figure 7: Woory Industrial: P/E band Figure 8: Woory Industrial: Consensus EPS trend

0

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SOURCE: CIMB RESEARCH, QUANTIWISE SOURCE: CIMB RESEARCH, QUANTIWISE

Figure 9: Korean auto parts makers – P/E vs. EPS growth Figure 10: Korean auto parts makers – P/BV vs. ROE

Woory Industrial

Hyundai Mobis

Hyundai Wia

HVCC

Mando

Sungwoo Hitech

SL

S&T Motiv Pyeong Hwa Automotive

Saeron Automotive

Samwonsteel

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Saeron Automotive

Samwonsteel

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PB (2014F, x)


Figure 11: Woory Industrial and Tesla showing 0.94 correlation since 2013

0

50

100

150

200

250

300

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000


Woory Industrial (LHS) Tesla (RHS)

(W) (US$)

SOURCE: CIMB RESEARCH, DATASTREAM

Auto Parts│South Korea

August 27, 2014


All-round player powering up green cars From enhancing fuel efficiency to powering hybrid and full electric vehicles, S&T Motiv should benefit on the back of industry trends focusing on achieving tighter environmental standards on automobiles. The company expects it will be the sole supplier of HSG until 2016, which is when we project a full-blown EV market growth.

&T Motiv (S&TM) specialises in the manufacture of chassis (45% of 2013 revenue), motors (25%), electronics (18%) and defence technology (12%). Besides its stable auto parts and defence businesses, it should be a major beneficiary of EV volume growth given its strength in motors.

Leader in motors S&TM sees revenue growth of the motor business that generates c.8% OPM, accelerating on the back of higher sales of dual clutch transmission (DCT) actuators and hybrid shaft generators (HSG). It has two DCT motor deals, which combined is equivalent to 13% of its motor division’s FY13 sales: 1) a 5-year deal with Getrag (its first ever W100bn contract) effective 13 May; and 2) one with HMC, effective 14 Aug (W10bn p.a. for LF Sonata in the US). S&TM is the sole supplier of HSG for the hybrid models of Sonata, K5, Grandeur and K7 as well as for drive motors of the Soul EV. Given the high entry barriers for motors, S&TM expects to continue supplying its HSG

to Hyundai Motor Group (HMG) in 2014-16. Given our expectation of high volume growth for EVs in 2016-17, the company should benefit as the sole vendor for HMG. EV volume growth should lead to improved motor product mix as the portion of larger motors increases.

Oil pumps on firm footing S&TM will supply its new product, oil pumps for transmission, to US GM beginning in Jul 14 and Korea/ Shanghai GM in 2015. The product earns 9-10% OPM, higher than the 5-6% OPM of its other chassis products. Shanghai GM is scheduled to boost its capacity by 46% until FY15 to 4.1m units from 2.8m in FY13.

Valuation in line with peers but expected to grow faster S&TM is guiding for W1.1tr sales and W70bn OP for 2014, 1% and 4% higher than consensus, respectively. It trades at 9.6x FY14 P/E, in line with peers, but its EPS is expected to post a 22% 3-year CAGR, faster than the peer average growth rate of 9%.

S&T Motiv NOT RATED 064960 KS / 064960.KS



Conviction|

CIMB Analyst(s)

—————————————————————————————————————————




—————————————————————————————————————————


Relative 2.7 17.9 12.5

Absolute 4.4 20.8 22

Major shareholders % held S&T Holdings and others 45.8 National Pension Service 6.3 Shin Young Asset Mgmt. 5.7



78.083.789.495.1100.9106.6112.3118.0

24,00026,00028,00030,00032,00034,00036,00038,000


Source: Bloomberg

100200300400500

8-13 11-13 2-14 5-14

Vol t

h


Revenue (Wb) 440 649 910 905 960Operating Income (Wb) 23 47 35 34 52Net Profit (Wb) 9 38 40 22 34EPS (W) 758 3,306 3,419 1,501 2,340EPS growth -77% 336% 3% -56% 56%P/E (x) 46.8 10.7 10.4 23.6 15.1DPS (W) 0 400 400 500 600Dividend yield 0.00% 1.13% 1.13% 1.41% 1.69%P/BV (x) 1.4 1.2 1.2 1.1 1.0ROE 2.4% 10.0% 9.4% 4.9% 6.9%EV/EBITDA (x) 17.9 7.9 5.9 10.3 7.0Net gearing ratio 7.3% 1.9% -2.7% -3.6% -9.0%

35,45025,100 35,700


Current



S&T Motiv August 27, 2014

80

Figure 1: HMC/KIA's green car line-up Year HMC KIA2009 Forte HEV2011 YF Sonata HEV K5 HEV 2012 Avante HEV Ray EV2013 Grandeur HEV, Tucson FCEV K7 HEV2014E LF Sonata HEV Soul EV2015E Sonata PHEV new K5 HEV 2016E Avante HEV, Avante EV K5 PHEV, K3 HEV, K3 EV


Figure 2: S&T Motiv: Sales breakdown by product (2013) Figure 3: S&T Motiv: Sales breakdown by customer (2013)

Chassis35%

Motor20%

Electronic parts14%

Defense9%

Others22%

GM Korea32%

GM Global22%

Hyundai Mobis10%

Korean government

7%

Others29%

SOURCES: CIMB RESEARCH, COMPANY SOURCES: CIMB RESEARCH, COMPANY

Figure 4: S&T Motiv: Quarterly revenue trend Figure 5: S&T Motiv: Quarterly OP trend

-20%

0%

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40%

60%

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100%

120%

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350

1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14


(W bn)

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12

14

16

18

1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14


(W bn)

SOURCES: CIMB RESEARCH, QUANTIWISE SOURCES: CIMB RESEARCH, QUANTIWISE

S&T Motiv August 27, 2014

81

Figure 6: S&T Motiv: Motor sales breakdown (2013) Figure 7: Hyundai Motor Group monthly hybrid EV sales trend

MDPS32%

Power train32%

HEV/EV10%

Convenience26%

-60%

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100%

2,000

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8,000

9,000

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

HMC/KIA's HEV sales (LHS, units) YoY (RHS)

SOURCES: CIMB RESEARCH, COMPANY SOURCES: CIMB RESEARCH, COMPANY

Figure 8: S&T Motiv: P/BV band Figure 9: S&T Motiv: Consensus EPS trend

0

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09 10 11 12 13 14

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2014F 2015F 2016F

(W)


Figure 10: Korean auto parts makers – P/E vs. EPS growth Figure 11: Korean auto parts makers – P/BV vs. ROE

Woory Industrial

Hyundai Mobis

Hyundai Wia

HVCC

Mando

Sungwoo Hitech

SL

S&T Motiv

Pyeong Hwa Automotive

Saeron Automotive

Samwonsteel

4

6

8

10

12

14

16

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

12m forward P/E (x)

2Y CAGR EPS growth (2014-15F)

Woory Industrial

Hyundai Mobis

Hyundai Wia

HVCC

Mando

Sungwoo HitechSL


Saeron Automotive

Samwonsteel

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

8 10 12 14 16 18 20 22

ROE (2014F, %)

PB (2014F, x)


Technology - Others│South Korea

August 27, 2014


Beneficiary of surge in EV demand As a supplier of materials for semiconductor, display, and secondary batteries, Soulbrain has been suffering from overall weak demand across all the related sectors. The increased portion of revenue from electrolytes should improve the company’s product mix, allowing for more sustainable growth to help offset the cyclicality of tech demand.

Soulbrain supplies various materials to Samsung Electronics, LG Display, Hynix, and other global electronics makers. But its earnings have been under pressure due to the recent slowdown in end-customer demand. While secondary battery material revenue makes up for only 7% of the current total, we expect fast growth of the EV market to eventually improve the company’s product mix.

Key vendor of electrolytes to Samsung SDI Soulbrain’s share of electrolytes for LiB within Samsung SDI is c.40%. It should benefit when the latter’s EV battery volume picks up. But it believes growth and margins would be suppressed in the near term given: 1) cost reduction pressure as battery cell prices continue to fall while the key cell makers are recording losses; and 2) intensifying price competition from Chinese suppliers. However, given our expectation that cell makers’ margins should turn positive from 2016 and on increasing need for higher quality electrolytes, the company should benefit from the structural EV growth.

US EV market to bloom starting 2016 Given the lower-than-expected growth of the US EV market, and the bankruptcy of A123 Systems, a key customer, Soulbrain’s electrolyte plant in Michigan is continuing to record losses on low utilisation rate of c.10% currently. The company expects its US plant to reach breakeven by 2015, and we believe that the company should be a major beneficiary of the 44% yoy growth in the US battery market in 2016.

Trading at 1x P/BV vs. ROE of 15% Based on consensus estimates, the stock trades at 1.0x 2015 P/BV vs. 15% ROE. It has fallen by 34% YTD as its consensus EPS has been revised down by 39% and 35% for 2014 and 2015, respectively. While the stock may be volatile in the near term due to the high proportion of revenue from the cyclical tech sector, we believe key catalyst for the company would be sustained expansion from the structural growth of the EV market.

Soulbrain NOT RATED 036830 KS / 036830.KS



Conviction|

CIMB Analyst(s)

—————————————————————————————————————————




—————————————————————————————————————————


Relative -15.3 -24.3 -43.4

Absolute -13.6 -21.4 -33.9

Major shareholders % held Jung, Jiwan and others 44.1 NPS 10.3 Allianz Global Investors 8.8



50.061.773.385.096.7108.3120.0

27,00032,00037,00042,00047,00052,00057,000


Source: Bloomberg

200

400

600

8-13 11-13 2-14 5-14

Vol t

h


Revenue (Wb) 290 349 481 664 635Operating Income (Wb) 36 49 59 107 88Net Profit (Wb) 25 33 7 74 62EPS (W) 1,733 2,245 478 4,554 3,844EPS growth 36% 30% -79% 852% -16%P/E (x) 17.1 13.2 61.9 6.5 7.7DPS (W) 250 300 350 375 450Dividend yield 0.84% 1.01% 1.18% 1.27% 1.52%P/BV (x) 2.7 2.3 2.1 1.5 1.2ROE 15.0% 16.8% 3.2% 26.4% 17.3%EV/EBITDA (x) 10.4 9.5 14.2 4.3 4.6Net gearing ratio 12.3% 27.9% 72.5% 22.8% 12.4%

29,55029,550 54,700


Current



Soulbrain August 27, 2014

83

Figure 1: Soulbrain: Revenue trend Figure 2: Soulbrain: Revenue breakdown by product

154 178

313 348

60

134

201

251 206

54

30

46

59 48

10

0

100

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300

400

500

600

700

2010 2011 2012 2013 1Q14

Display Semiconductor Secondary battery Others

(W bn)

Annual consensus

44%37%

47%54%

46%

37%41%

38%32%

41%

8% 9%

9% 7% 7%

0%

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2010 2011 2012 2013 1Q14

Display Semiconductor Secondary battery Others SOURCE: CIMB RESEARCH, COMPANY, QUANTIWISE SOURCE: CIMB RESEARCH, COMPANY

Figure 3: Soulbrain: Revenue breakdown by customer Figure 4: Soulbrain: Share within key customer by product

49% 46%51% 51%

10% 20% 12% 13%

23%14%

13% 14%

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2010 2011 2012 2013

Samsung Electronics LG Display Hynix Others

50%

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100%

Display Semiconductor Secondary battery

2011 2012 2013 SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH, COMPANY

Figure 5: Soulbrain: Quarterly revenue growth trend Figure 6: Soubrain: Quarterly OP growth trend

-30%

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50%

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1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14


(W bn)

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15

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25

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35

1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14


(W bn)

SOURCE: CIMB RESEARCH, COMPANY , QUANTIWISE SOURCE: CIMB RESEARCH, COMPANY , QUANTIWISE

Soulbrain August 27, 2014

84

Figure 7: Net profit trend of Soulbrain MI (US electrolyte production plant)

Figure 8: US battery cell market size forecast

-2.6

-6.8

-5.2

-3.0

-8

-7

-6

-5

-4

-3

-2

-1

0

2010 2011 2012 2013

Soulbrain MI net profit

(W bn)

1,1711,475

1,790

2,574

3,887

5,102

6,326

7,790

26% 21%

44%

51%

31%

24% 23%

20%

25%

30%

35%

40%

45%

50%

55%

0

1,000

2,000

3,000

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5,000

6,000

7,000

8,000

9,000

2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Total battery cell market size (US$m) % yoy growth (RHS)

(US$ m)

SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH

Figure 9: Soulbrain: P/E band Figure 10: Soulbrain: Consensus EPS trend

0

10,000

20,000

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07 08 09 10 11 12 13 14

Price

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(W)

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2014F 2015F 2016F

(W)

SOURCE: CIMB RESEARCH, COMPANY, QUANTIWISE SOURCE: CIMB RESEARCH, COMPANY, QUANTIWISE

Technology - Others│South Korea

August 27, 2014


Global leader in anode collectors With 30% market share, Iljin Material is the global leader in I2B elecfoil (anode collectors) production. Iljin should benefit from EV market growth through improved product mix, with 1) the shift of loss-making PCB material production lines to profitable elecfoils for LiBs, and 2) a higher portion of more lucrative mid-large sized LiBs.

Losses from Iljin Material’s PCB materials business as well as from its 85%-held subsidiary Iljin LED are masking a double-digit margin on I2B (LiB battery) elecfoil business. We believe that the company can outgrow the market by penetrating into more battery makers.

Profitability under pressure on non-battery related biz Iljin’s consolidated OPM fell from 10.7% in 1Q11 to -12.5% in 2Q14 due largely to: 1) the commoditisation of ICS (elecfoils for PCBs), and 2) losses from the LED lighting business of its subsidiary, Iljin LED. While the losses from the LED business may continue in the near term, we think the company should be able to improve its profitability by shifting PCB material production lines to elecfoils for LiBs, which will not take much capex given the similarities in the production processes.

Global #1 in I2B elecfoils Iljin initiated development of elecfoils for secondary batteries in 2001 and commenced commercial production in 2004. With 30% of the global I2B elecfoil market share in 2013, it has

the biggest production capacity globally. EV growth should lead to margin expansion as OPM of elecfoils for EVs is 50-60% higher than that of small batteries for electronic devices. Currently, 87% of I2B revenues are derived from IT and mobile devices and the growth of the EV market should lead to improved product mix within the I2B elecfoil business.

Seeking to expand into Tesla X through Panasonic Iljin is gaining access to the EV market through Samsung SDI’s supply of LiBs to BMW’s i3 model. However, even assuming 40,000 unit sales of i3, total elecfoil volume will be around 54o tonnes, equivalent to 5% of I2B production capacity. To increase revenue from EVs, the company is seeking to supply its elecfoil to Tesla Model X as a second vendor through Panasonic. The company is upbeat about the prospects given its long-standing relationship with Panasonic on small batteries and the production constraints of competitors such as Nippon Denkai and Furukawa.

Iljin Materials NOT RATED 020150 KS / 020150.KS



Conviction|

CIMB Analyst(s)

—————————————————————————————————————————




—————————————————————————————————————————


Relative 1.6 6.6 -38.3

Absolute 3.3 9.5 -28.8

Major shareholders % held Huh, Jae Myung 62.8



49.0

64.0

79.0

94.0

109.0

8,600

10,600

12,600

14,600

16,600


Source: Bloomberg

1122

8-13 11-13 2-14 5-14

Vol m


Revenue (Wb) 203 298 330 393 350Operating Income (Wb) 21 38 11 -7 -15Net Profit (Wb) 13 38 14 -57 -7EPS (W) 456 1,399 345 -1,459 -187EPS growth -56% 207% -75% -522% -87%P/E (x) 23.9 7.8 31.6 -7.5 -58.2DPS (W) 0 150 50 0 0Dividend yield 0.00% 1.38% 0.46% 0.00% 0.00%P/BV (x) 4.0 2.9 1.3 1.6 1.6ROE 12.7% 30.1% 5.7% -19.1% -2.7%EV/EBITDA (x) 18.0 9.8 14.7 -10.4 16.6Net gearing ratio 32.2% 62.8% 17.2% 15.2% 40.5%

11,0009,340 16,150


Current



Iljin Materials August 27, 2014

86

Figure 1: Iljin Materials: Revenue (consolidated) trend Figure 2: Iljin Materials: Revenue (parent) trend

-10%

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35%

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(W bn)

SOURCE: CIMB RESEARCH, COMPANY NOTE: 2Q14 PARENT EARNINGS NOT AVAILABLE AS OF TIME OF WRITING


Figure 3: Iljin Materials: OP (consolidated) trend Figure 4: Iljin Materials: OP (parent) trend

-15%

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-5

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(W bn)

: CIMB RESEARCH, COMPANY NOTE: 2Q14 PARENT EARNINGS NOT AVAILABLE AS OF TIME OF WRITING


Figure 5: Global ICS (PCB material) market share (2013) Figure 6: Global I2B (anode collector) market share (2013) Mitsui12%

Furukawa6%

Iljin4%

Nanya15%

LS1%

Others62%

Iljin Materials30%

Furukawa9%

LS21%

Nippon Denkai3%

CCP6%

Others31%


Iljin Materials August 27, 2014

87

Figure 7: Elecfoil production volume Figure 8: Revenue (parent) breakdown

17,64114,110

18,334

13,212

3,442

5,705

6,745

5,171

378457

545

291

0

5,000

10,000

15,000

20,000

25,000

30,000

2010 2011 2012 2013

ICS I2B IHT

(Tonnes)

63.2% 64.5% 64.9% 61.3%

32.6% 30.0% 31.5% 35.6%

4.0% 3.7% 2.6% 3.0%

0%

10%

20%

30%

40%

50%

60%

70%

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90%

100%

2011 2012 2013 1Q14ICS I2B IHT Others


Ind Goods & Services│South Korea

August 27, 2014


Beneficiary of booming investments in energy efficiency We believe POSCO ICT stands to benefit from the government’s and corporates’ energy policy of promoting the efficient use of energy. POSCO ICT has built up references through participation in test projects in LED lighting and smart grids (EMS and ESS).

POSCO ICT is a subsidiary of Korea’s third largest energy consumer, POSCO. It has built up references through test projects with POSCO for LED lighting, energy management and energy storage at the group’s steel mills. The company stands to benefit as POSCO, KEPCO and corporates with high energy consumption increase investments to improve their energy efficiency.

Leader in smart grid POSCO ICT participated in the government’s W12bn smart grid project in Jeju, together with KEPCO, to build an ESS, in conjunction with a wind power plant. Also, its FEMS (Factory Energy Management System) has managed to reduce the energy cost at POSCO’s Gwangyang steel mill by W7.6bn annually with an investment of W6.5bn. POSCO is looking to implement the system at 42 other factories going forward.

ESS orders picking up In Oct 13, KEPCO announced capex plan of W656bn in ESS until 2017. Company expects actual ESS orders to be announced starting from Sep-Oct.

Also, the Korean government is supporting the proliferation of ESS through smartgrid projects and Korea Energy Management Corp’s financial support for Mass Energy producers.

Economies of ESS should improve by 2016 We believe the current ESS price of around W1bn-1.2bn is near the breakeven point for users. ESS prices may fall another 10-20% by 2016 as BMS accounts for c.40% of costs and we expect battery cell prices should see 33% drop in 2016. Given improving economic benefits on adopting ESS in power generation, we see potential for significant ESS volume growth in tandem with the EV market growth by 2016-17.

Trading at lowest P/E multiple since merger The stock trades at 17x 12m forward P/E, based on consensus estimates. Increasing earnings from new growth drivers and synergies from POSCO E&C and POSCO Energy are likely the key catalysts for the stock.

POSCO ICT NOT RATED 022100 KS / 022100.KS


US$1,050m US$4.91m 31.6% Prev. Target N/A W1,067,284m W4,997m 152.0 m shares Up/Downside N/A

Conviction|

CIMB Analyst(s)

—————————————————————————————————————————




—————————————————————————————————————————


Relative -11.2 -18.2 -36.1

Absolute -9.5 -15.3 -26.6

Major shareholders % held POSCO 65.4 ESOP 2.0



60.066.472.979.385.792.198.6105.0

6,7007,2007,7008,2008,7009,2009,700

10,200


Source: Bloomberg

5

10

15


Vol m


Revenue (Wb) 369 830 1,006 1,128 1,207Operating Income (Wb) 17 25 31 31 66Net Profit (Wb) -71 18 29 15 25EPS (W) -873 128 208 106 165EPS growth na na 63% -49% 55%P/E (x) -8.2 55.8 34.2 67.2 43.2DPS (W) 0 0 25 25 50Dividend yield 0.00% 0.00% 0.35% 0.35% 0.70%P/BV (x) 20.9 4.3 4.6 4.4 3.0ROE -83.6% 11.6% 11.7% 6.0% 8.2%EV/EBITDA (x) 37.6 26.7 24.5 18.4 12.2Net gearing ratio 252.9% 60.6% 17.7% 88.4% 16.0%

7,0207,010 9,871


Current



POSCO ICT August 27, 2014

89

BACKGROUND POSCO ICT was founded in 2010 via the merger of POSDATA (system installation, network integration) and POSCON (engineering, plant automation service). Its steel-related business accounted for 70% of total revenue in 2013. It provides IT services, automation equipment and network solutions for POSCO’s steel mills and offices. Also, the company is looking into providing solutions for railway systems and baggage handling systems at airports.

While the steel business is highly correlated with POSCO Group’s overseas expansion plans, POSCO ICT’s new growth engines are: Smartgrid (including Energy Management System and Energy Storage System) and LED lights.

Other business areas include regular maintenance of measurement control equipment at power plants. The company boasts 50% market share in measurement control maintenance for Korea’s nuclear power plants.

Figure 1: Consolidated revenue breakdown by corporation Figure 2: Consolidated revenue breakdown by business

Steel70.1%

Green16.4%

POSCO LED5.0%

Ponu-tech4.6%

PT.POSCO ICT Indonesia

2.1%

Others1.7%

Engineering44.5%

IT system development and

operation30.4%

Construction (incl. nuclear power

plant)7.0%

IT, Servers products

6.9%

System maintenance

5.4%

Network3.1%

Industrial LED2.8%

SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH, COMPANY

OUTLOOK Leader in smart grid business POSCO ICT is a subsidiary of Korea’s third largest energy consumer, POSCO. It has built up references through test projects with POSCO for LED lighting, energy management and energy storage at the group’s steel mills. The company stands to benefit as POSCO and KEPCO increase their investments in energy efficiency.

POSCO ICT participated in the government’s W12bn smart grid project in Jeju, together with KEPCO, to build an ESS in conjuction with a wind power plant. Also, its FEMS (Factory Energy Management System) has managed to reduce the energy cost at POSCO’s Gwangyang steel mill by W7.6bn annually with an investment of W6.5bn. POSCO is looking to implement the system at 42 other factories going forward.

EMS and ESS orders picking up Given its successful reference projects, POSCO ICT received orders from Doosan Heavy to establish an FEMS in Mar 13. The order was worth W11bn, for which Doosan Heavy expects to save up to W6.4bn in energy cost annually. POSCO ICT also contracted with Japan’s Edison Power to enter Japan’s BESS (Battery Energy Storage System) market in Jun 13.


90

Figure 3: Major references and orders received for the smart grid business

Major project Period

Jeju Smart Grid Test Dec 2009 ~ May 2013

Oxygen plant at POSCO's Gwangyang steel mill May 2010 ~ Dec 2012

EMS for Doosan Heavy Industries Mar 2013 ~ Dec 2013

Establishment of smart industry system at POSCO, POS Hi-Metal, PoscoChemtech, POSCO Specialty Steel

Jan 2013 ~

BESS joint-venture with Japan's Edison Power (100kW, W0.4bn) Dec 2013 ~ Apr 2014

KEPCO Shin-an Micro Grid (1MW, W2.1bn) Feb ~ Oct 2014

LG Chem Ochang Factory PCS (1.5MW, W4.3bn) Mar ~ Jul 2014


Government policy favourable for ESS Policy focus on renewable energy intact

In the 2nd National Basic Energy Plan (NBEP) announced in 2013, the government maintained its target for 11% power generation from renewable energy sources. In its 6th energy supply and demand plans, the government targets to raise the proportion of renewable energy from 3.0% to 12.6% by 2027. It aims to increase the proportion of wind energy the most, followed by integrated gasification combined cycle (IGCC) systems and fuel cells.

Increase in renewable energy increases the need for energy storage

As the government targets to increase the proportion of renewable energy, especially wind energy that generates unstable electricity, the need to develop means for normalising electricity supply from volatile energy sources is rising. We think the use of ESS is likely to increase in tandem with the addition of renewable energy sources as they can normalise electricity generation by storing and discharging energy into the grid based on electricity demand.

Figure 4: 2nd National Basic Energy Plan Figure 5: Major changes to energy mix target 1st National Basic Energy Plan(2008~2030)

2nd National Basic Energy Plan(2013~2035)

1. Establish energy independence(Increase self development from 3% to40%

1. Control electricity demand(Lower demand by 15% vs. estimate)

2. Lower petroleum sourced energyportion from 43% to 33%

2. Establish dispersed power generationsystem (Target of 15% of total powergeneration)

3. Lower energy consumption3. Enhance eco-friendly and increasesafety (Reduce greenhouse gasemission by 20%)

4. Develop green technology for newgrowth engine and job creation

4. Strengthen energy security (Target ofenergy self-sufficiency at 40%)

5. Lower energy-poor population portionto 0%

5. Establish energy policies with thepeople (Implement energy voucher from2015)

Announceddate Nuclear Coal LNG

Current(2012) 26% 31% 28%

1st BNEP(2030) Aug 2008 41% 32% 19%

6th energy supplyand demand plan(2027)

Feb 2013 27% 34% 28%

Proposed 2nd NBEP(2035) Oct 2013 22~29%

SOURCE: CIMB RESEARCH, MOTIE SOURCE: CIMB RESEARCH, MOTIE


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Figure 6: Korea’s power plant capacity plan Figure 7: Korea’s power mix target

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2012 2015F 2020F 2025F 2027F

Nuclear Bituminous coal Anthracite coal LNG Oil Renewable energy

(MW)

25.6% 22.6% 20.9% 23.1% 22.7%

29.0%25.1% 30.3% 28.7% 28.2%

24.9%28.9% 23.3% 20.4% 20.1%

6.0%3.6%

2.7%0.8% 0.8%

13.1%18.8% 22.3% 26.5% 27.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2015F 2020F 2025F 2027F

Nuclear Bituminous coal Anthracite coal LNG Oil Renewable energy NOTE: RENEWABLE INCLUDES HYDRO AND GROUP / SOURCE: CIMB RESEARCH, MOTIE NOTE: RENEWABLE INCLUDES HYDRO AND GROUP / SOURCE: CIMB RESEARCH, MOTIE

Figure 8: Generation capacity CAGR target (2012-2020) Figure 9: Generation capacity CAGR target (2012-2027)

24%

16%

6% 5%

0%

-7%

10%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Renewableenergy

LNG Nuclear Bituminouscoal

Anthracitecoal

Oil Total

33%

14%12%

10%

-8%

-24%

14%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Renewableenergy

Bituminouscoal

Nuclear LNG Anthracitecoal

Oil Total

NOTE: RENEWABLE INCLUDES HYDRO AND GROUP / SOURCE: CIMB RESEARCH, MOTIE NOTE: RENEWABLE INCLUDES HYDRO AND GROUP / SOURCE: CIMB RESEARCH, MOTIE

Figure 10: Mixed target of renewable energy sources Figure 11: Target proportion of renewable energy in power generation

0%

10%

20%

30%

40%

50%

60%

70%

Wind Fuel cell IGCG BFG,COG,LDG

Hydro Solar Bio Ocean Waste

2013 2027

0%

2%

4%

6%

8%

10%

12%

14%

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Portion of renewable energy SOURCE: CIMB RESEARCH, MOTIE SOURCE: CIMB RESEARCH, MOTIE


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Figure 12: Electricity cost vs. price by type Figure 13: Electricity tariffs of major OECD countries (2012)

599

0

50

100

150

200

250

300

Sola

r

Oil

Pum

ped

stor

age

LNG

Hyd

ro

Com

bine

d

Oth

er

Ren

ewab

le

Anth

raci

teco

al Win

d

Tota

l

Bitu

min

ous

coal

Nuc

lear

(W/kWh)

SpecialIndustrial

GeneralResidential

Electricity cost(2012)

Electricity price(1H14)

Total

292

194

149134 130 116 104 104 94 89 82 70 67 61

122

0

50

100

150

200

250

300

350

400

450

Italy

Japa

n

Ger

man

y

UK

Swis

s

Fran

ce

Den

mar

k

Finl

and

New

Zea

land

Swed

en

Kore

a

Can

ada

US

Aust

ralia

OEC

D a

vera

ge

Industrial Residential

(US$/MWh)

NOTE: COST BASED ON 2012 DATA, PRICES AS OF 1H13

SOURCE: CIMB RESEARCH, KOREA HYDRO AND NUCLEAR POWER, KEPCO SOURCE: CIMB RESEARCH, OECD, IEA

LiB-ESS set to lift off from 2014 Global LiB-ESS market to see CAGR of 41% until 2016

According to Pike Research, the global lithium-ion battery (LiB) energy storage systems (ESS) (LiB-ESS) market is estimated to see 49% CAGR over 2012-20, outpacing total ESS market growth of 18% over the same period. Also, IIT forecasts that the share of LiB in major ESS types will increase from 12% in 2012 to 39% by 2020.

Figure 14: Global ESS market growth forecast Figure 15: Global LiB-ESS market growth forecast

0

10

20

30

40

50

60

2012 2015F 2020F

UPS Power Household

(US$ bn)

0

5

10

15

20

25

2012 2015F 2020F

UPS Power Household

(US$ bn)

SOURCE: CIMB RESEARCH, PIKE RESEARCH, KEXIM SOURCE: CIMB RESEARCH, PIKE RESEARCH, KEXIM


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ESS prices likely to reach critical point in 2014 Despite a few years of disappointing growth in the ESS market, we expect the market to register significant growth from 2014 onwards given: 1) KEPCO’s plan to invest W656bn in ESS until 2017; and 2) lower LiB prices due to EV growth.

KEPCO plans to invest W656bn in ESS until 2017

After three years of tests running 4MW and 8MW LiB-ESS at Jeju’s Jochun substation, KEPCO has decided to invest W656bn in ESS until 2017. It plans to install ESS in 14 power plants that have a supply contract of more than 10MW. KEPCO targets to install 500MW of total capacity. The installed ESSs are designed to normalise electrical frequency, which will reap an annual cost saving of W650bn if the 5% output limit (total 1,100MW) imposed on coal power plants is lifted, according to KEPCO.

Figure 16: KEPCO’s ESS investment plan Figure 17: Global LiB market growth forecast by type of battery

64.5 66.1

259.9 265.5

0

50

100

150

200

250

300

2014 2015 2016 2017

(W bn)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Lead acid NaSLiB Others (NiMH, Flow, Flywheel)% portion of LiB (RHS)

(MWh)

SOURCE: CIMB RESEARCH, KEPCO SOURCE: CIMB RESEARCH, IIT (2011)

ESS prices likely at break-even for users

We conducted an analysis to find the breakeven point for ESS installation. We base our study on the test project conducted by Samsung SDI at its Giheung production plant. According to local media, the company projects annual cost savings of W118m. Based on a payback period of 11.8 years, we estimate that the cost of the 1MW LiB-ESS was W1.4bn.

Based on our assumptions, installing ESS is likely to become an investible option for Samsung SDI by 2014 as NPV will be greater than zero. We anticipate NPV of W93m based on ESS cost of W1.0bn, annual energy cost savings of W169m (43% increase from the current level) and a 9% discount rate. While this study may not be applicable to all companies or cases, we believe that it reinforces our view that ESS-LiB prices are likely approaching economic viability for corporate investment.


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Figure 18: Major assumptions

Assumption Forecast Reason

Discount rate 9% Risk free rate (3%), Risk premium (6.3%),Beta of Samsung SDI (0.92x)

Annual benefit prior toelectricity price hike

W118m Based on Samsung SDI's annual saving estimate

Annual benefit afterelectricity price hike

+43% increaseDifference between optional pricing scheme compared tonormal pricing (26% lower tariff on off-peak pricing and17% higher tariff on peak hours)

Operational period 10 years Average operational timeframe for LiB-ESS

Price of 1MW ESS W1.0bn Average forecast price of ESS from BNEF at 2013(US$1,132/kWh), 2014 (US$723/kWh), USDKRW=1,100

SOURCE: CIMB RESEARCH

Figure 19: Sensitivity analysis on net present value (NPV) of installing ESS (W m) Annual savingDiscount rate 7% 8% 9% 10% 11% 7% 8% 9% 10% 11% 7% 8% 9% 10% 11% 7% 8% 9% 10% 11%1.3 -471 -508 -543 -575 -605 -305 -350 -391 -430 -466 -140 -191 -240 -285 -327 26 -33 -88 -140 -1881.2 -371 -408 -443 -475 -505 -205 -250 -291 -330 -366 -40 -91 -140 -185 -227 126 67 12 -40 -881.1 -271 -308 -343 -375 -405 -105 -150 -191 -230 -266 60 9 -40 -85 -127 226 167 112 60 121.0 -171 -208 -243 -275 -305 -5 -50 -91 -130 -166 160 109 60 15 -27 326 267 212 160 1120.9 -71 -108 -143 -175 -205 95 50 9 -30 -66 260 209 160 115 73 426 367 312 260 2120.8 29 -8 -43 -75 -105 195 150 109 70 34 360 309 260 215 173 526 467 412 360 3120.7 129 92 57 25 -5 295 250 209 170 134 460 409 360 315 273 626 567 512 460 412

Cos

t of

1M

W E

SS(W

bn)

W118m (Current) W142m (+20%) W165m (+40%) W189 (+60%)

SOURCE: CIMB RESEARCH, LOCAL PRESS

Falling LiB prices have brought forward ESS’s breakeven year

We believe that 2014 will be a pivotal year for the proliferation of ESS. Bloomberg New Energy Finance (BNEF) estimates that the price of an EV battery pack, which is essentially similar to that used in ESS, has fallen by 25% between Dec 11 and Jun 13. LiB prices are likely to fall further as growth in the EV market accelerates, which will boost ESS growth given the greater number of applications at lower cost. Given improving economic benefits on adopting ESS in power generation, we see potential for significant ESS volume growth in tandem with the EV market growth by 2016-17 and KEPCO’s heavy-tail ESS investment plan.

Figure 20: Estimate of breakeven year for ESS Figure 21: EV battery pack price trend and forecast

$0 $300 $600 $900 $1,200 $1,500

Arbitrage transaction

Increase power distribution reliability

Increase power transmission reliability

Emergency grid electricity supply

Household power supply and storage

Grid electricity supply and storage

Power demand and supply control

20132014201620172026Estimated BEP year 2012

1000+

800

689642

599

335

150

0

200

400

600

800

1000

1200

09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

(US$/kWh) (Forecast)

SOURCES: CIMB RESEARCH, KEXIM, BNEF SOURCES: CIMB RESEARCH, BNEF


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VALUATION Trading at lowest P/E multiple since merger The stock is trading at the lowest P/E level since the merger. The stock had been trading at a premium thanks to 1) stable growth as an affiliate of the POSCO group that plans to invest in new plants; 2) stable cashflow on revenue from operations of POSCO’s plants; and 3) expectation of new business growth from the energy business. Increasing earnings from new growth drivers and synergies from POSCO E&C and POSCO Energy are likely the key catalysts for the stock.

Figure 22: 12m forward P/E band chart Figure Consensus EPS trend

0

2,000

4,000

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10 11 12 13 14

Price

30x

25x

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(W)

340

360

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400

420

440

460

480

500

520

Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 142014F 2015F

(W)


Figure 23: Valuation comparison of ESS-related companies

Company Ticker Rec. Mkt cap Price performance (%) 2-year EPS(USD $m) 1m 3m 6m 1Y FY13 FY14 CAGR (%) FY13 FY14 FY13 FY14 FY13 FY14

POSCO ICT 022100 KS NR 1,046 -8.3 -12.6 -3.5 -23.6 21.0 17.0 51.5 2.6 2.3 13.3 14.5 0.7 0.7Hyosung 004800 KS NR 2,657 10.6 11.9 8.5 14.5 na 7.9 na 0.9 0.8 11.0 11.8 1.3 1.3LS Industrial Systems 010120 KS NR 1,843 0.2 -1.9 1.1 3.4 15.1 13.1 10.4 1.8 1.6 13.0 13.5 1.8 1.8Global & Yuasa Battery 004490 KS NR 641 -4.9 -1.9 -7.9 -4.0 7.7 6.6 18.4 0.9 0.8 12.3 12.7 na naAtlasBX 023890 KS NR 392 3.2 1.9 4.1 18.9 na na na na na na na na naPower Logics 047310 KS NR 105 -2.2 -10.8 -12.5 -29.1 na na na na na na na na naSang-A Flontec 089980 KS NR 94 -1.9 -3.0 5.5 9.6 na na na na na na na na naSamjin LND 054090 KS NR 52 -31.2 -36.8 -34.4 -33.2 na na na na na na na na naVitzrocell 082920 KS NR 86 -7.4 13.8 19.6 23.0 na 109.9 na na na na na na naSam Hwa Capacitor 001820 KS NR 49 -12.5 -17.9 -17.9 -18.3 -16.9 -507.8 nm na na na na na naPNESolution 131390 KS NR 47 -8.4 1.0 -11.9 -25.9 na na na na na na na na naKorea Display System 080530 KS NR 43 1.8 14.2 -7.5 29.5 na na na na na na na na naAnam Electronics 008700 KS NR 68 -15.5 25.9 33.3 56.5 na na na na na na na na naSam Hwa Electric 009470 KS NR 31 -25.0 -43.7 -15.5 -25.5 na na na na na na na na naRocket Electric 000420 KS NR 15 0.0 0.0 -43.3 -74.5 na na na na na na na na na

P/E (x) P/BV (x) ROE (%) Dividend yield(%)

NOTE: ESTIMATES BASED ON WISEFN CONSENSUS / SOURCE: CIMB RESEARCH, QUANTIWISE


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consent of CIMB. New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act 1978. Singapore: This report is issued and distributed by CIMB Research Pte Ltd (“CIMBR”). Recipients of this report are to contact CIMBR in Singapore in respect of any matters arising from, or in connection with, this report. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBR. As of August 26, 2014, CIMBR does not have a proprietary position in the recommended securities in this report.

South Korea: This report is issued and distributed in South Korea by CIMB Securities Limited, Korea Branch ("CIMB Korea") which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea. The views and opinions in this research report are our own as of the date hereof and are subject to change, and this report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial investment instruments and it is not intended as a solicitation for the purchase of any financial investment instrument. This publication is strictly confidential and is for private circulation only, and no part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB Korea. Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in Sweden. Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer or a placement within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China. Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBS. Corporate Governance Report: The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.

Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result Description: Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates. United Kingdom and Europe: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK) Limited (“CIMB UK”). CIMB UK is authorised and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X 7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are persons that are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”); (c) are persons falling within Article 49 (2) (a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the


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United Kingdom; or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons. Only where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does not constitute independent "investment research" under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research. United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand) Co. Ltd, CIMB Securities Limited, CIMB Securities (Australia) Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons who qualify as "U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc. Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Rating Distribution (%) Investment Banking clients (%)Add 58.9% 7.2%Hold 27.9% 3.9%Reduce 13.2% 1.0%

Distribution of stock ratings and investment banking clients for quarter ended on 30 June 20141467 companies under coverage for quarter ended on 30 June 2014

ACustomSpitzerKR_KRSpitzer

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013. AAV - Good, ADVANC - Excellent, AMATA - Very Good, ANAN – Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH – Good, BCP - Excellent, BEAUTY – Good, BEC - Very Good, BECL - Excellent, BGH - not available, BH - Very Good, BIGC - Very Good, BJC – Very Good, BMCL - Very Good, BTS - Excellent, CCET – Very Good, CENTEL – Very Good, CHG – not available, CK - Excellent, CPALL - Very Good, CPF - Excellent, CPN - Excellent, DELTA - Very Good, DTAC - Excellent, EA - Good, EGCO - Excellent, GFPT - Very Good, GLOBAL - Good, GLOW - Very Good, GRAMMY - Excellent, HANA - Excellent, HEMRAJ - Excellent, HMPRO - Very Good, ICHI - not available, INTUCH - Excellent, ITD – Very Good, IVL - Excellent, JAS – Very Good, KAMART – not available, KBANK - Excellent, KCE - Very Good, KKP – Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, M - not available, MAJOR - Very Good, MAKRO – Very Good, MC - not available, MCOT - Excellent, MEGA – not available, MINT - Excellent, OFM – Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS - Excellent, SAMART - Excellent, SAPPE - not available, SC – Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIM - Excellent, SIRI - Very Good, SPALI - Excellent, STA - Good, STEC - Very Good, SVI – Excellent, TASCO – Very Good, TCAP - Excellent, THAI - Excellent, THCOM – Excellent, TICON – Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Excellent, TTW - Excellent, TUF - Very Good, VGI – Excellent, WORK – Good.


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CIMB Recommendation Framework Stock Ratings Definition: Add The stock’s total return is expected to exceed 10% over the next 12 months. Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months. Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months. The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition: Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition: Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark. Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark. *Prior to December 2013 CIMB recommendation framework for stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange were based on a stock’s total return relative to the relevant benchmarks total return. Outperform: expected to exceed by 5% or more over the next 12 months. Neutral: expected to be within +/-5% over the next 12 months. Underperform: expected to be below by 5% or more over the next 12 months. Trading Buy: expected to exceed by 3% or more over the next 3 months. Trading Sell: expected to be below by 3% or more over the next 3 months. For stocks listed on Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Outperform: Expected positive total returns of 10% or more over the next 12 months. Neutral: Expected total returns of between -10% and +10% over the next 12 months. Underperform: Expected negative total returns of 10% or more over the next 12 months. Trading Buy: Expected positive total returns of 10% or more over the next 3 months. Trading Sell: Expected negative total returns of 10% or more over the next 3 months.

Asia

Malaysia Level 17, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral 50470 Kuala Lumpur. T: +60 (3) 2261 8888 F: +60 (3) 2261 8899

Singapore 50 Raffles Place #19-00 Singapore Land Tower (S048623) T: +65 6225-1228 F: +65 6224-6906

Indonesia The Indonesia Stock Exchange Building Tower II, 20th Floor Jl. Jend. Sudirman, Kav. 52-53 Jakarta 12190 T: +62 (21) 515-1330 F: +62 (21) 515-1335

Thailand 132 Sindhorn Tower 3, 12th Floor Wireless Road, Lumpini, Pathumwan Bangkok 10330 T: +66 (2) 841-9000 F: +66 (2) 657-9240

Hong Kong Units 7706-08, Level 77 International Commerce Centre 1 Austin Road West Kowloon T: +852 2868-0380 F: +852 2537-1928

China Unit 802 AZIA Center 1233 Lujiazui Ring Road Pudong New District Shanghai 200120 T: +86 (21) 6194-0212 / +86 (21) 6194-0218

Sri Lanka Sri Lanka Philippines Level 33, West Tower World Trade Center Echelon Square Colombo 01

John Keells Stock Brokers (Pvt) Ltd (a strategic partner with CIMB Securities) 130 Glennie Street Colombo 00200 T: +94 (0) 11 230 6271 F: +94 (0) 11 234 2068

SB Equities, Inc. (a strategic partner with CIMB Securities) 18F Security Bank Centre 6776 Ayala Ave. Makati 0719 T: +63 (2) 891-1243 / +63 (2) 891-1258 F: +63 (2) 813-3349

Taiwan South Korea India CIMB Securities Limited, Taiwan Branch 76F, No. 7, Xin-Yi Road Sec. 5 Taipei City T: +886 (2) 8729-8388 F: +886 (2) 8729-8391

CIMB Securities Limited, Korea Branch 15F, S-Tower, 116 Shinmun-ro 1-ga Jongro-gu, Seoul 110-700 T: +82 (2) 6730-6000 F: +82 (2) 6730-6183

CIMB Securities (India) Private Limited 1203, The Capital, Bandra Kurla Complex Mumbai 400 051, India T: +91 (22) 6602 5100

Vietnam CIMB Securities International Ltd. 90 Pasteur Street District 1, HCMC Vietnam T: +84 839146925 F: +84 839 146924

Europe Americas

United Kingdom (2719607) 27 Knightsbridge London, SW1X 7YB T: +44 (20) 7201-2199 F: +44 (20) 7201-2191

USA (52-1971703) 540 Madison Avenue 11th Floor, New York, N.Y. 10022 T: +1 (212) 616 8600 F: +1 (212) 616 8639

Australia

Sydney Level 29, Aurora Place 88 Phillip Street Sydney, NSW 2000 +61 2 9694 5000

Melbourne Level 32, 101 Collins St Melbourne, VIC 3000 +61 3 9631 1000

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