kolao holdings - mirae asset daewoo

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including tAnalysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including tAnalysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including tAnalysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. he U.S. he U.S. he U.S.

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

KOLAO Holdings (900140 KS)

Valuation premium justified

Snapshot: Anchored by car sales business in Laos; Expanding presence in region

We initiate our coverage on KOLAO Holdings with a Buy rating and a target price of

W37,000. KOLAO Holdings is the offshore holding company of KOLAO Developing

(Laos), which has grown into one of the largest private companies in Laos since its

establishment in 1997. KOLAO Developing has grown on the back of 1) used car sales

and 1) the operation of Hyundai Motor (HMC) and Kia Motors dealerships in Laos, and is

advancing into neighboring countries, including Myanmar and Cambodia. In addition,

the company is pursuing both regional and business expansion by expanding into

financial services with auto loans.

KOLAO Holdings has successfully offered localized auto loans and 24 hour aftermarket

services. The company looks to emulate its proven business model in Myanmar and

Cambodia.

Catalysts: Negatives dissipating; To grow in tandem with Laos’ long-term growth

Shares of KOLAO Holdings experienced a significant correction from October 2013 to

early 2014 due to 1) capital outflow from emerging markets arising from US Fed

tapering, 2) the discontinuation of the used car business, and 3) market concerns about

its entry into the uproven CKD business. However, we believe that these negatives are

dissipating, given that: 1) capital is returning to emerging market funds; and the CKD

business is delivering better-than-expected performance.

We expect the company to grow in tandem with Laos’ long-term economic growth in

light of 1) KOLAO Group Chairman Oh Sei-young’s commitment to building the business

in Laos and 2) the KOLAO Group’s tight relations with the Laos government.

Valuation: High P/E multiple is justified

In addition to Laos’ long-term growth potential, we attribute KOLAO Holdings’

valuation premium to the fact that: 1) there are limited investment options in Indochina

despite the region’s high growth potential; and 2) the company’s extensive business

know-how has delivered tangible results in the emerging markets. Furthermore, the

company’s fundamentals have improved, while expectations for new markets, including

Myanmar, have leveled up.

In deriving our target price of W37,000, we applied the 2014F average P/E of its peers

(35.7x). We screened its peers with companies that share similar growth and

profitability as KOLAO Holdings.

FY (12) 12/11 12/12 12/13 12/14F 12/15F 12/16F

Revenue (Wbn) 186 276 334 459 605 758

OP (Wbn) 22 29 34 52 70 85

OP Margin (%) 11.8 10.5 10.2 11.3 11.6 11.2

NP (Wbn) 22 29 28 50 68 83

EPS (W) 514 683 638 1,037 1,431 1,729

ROE (%) 25.8 27.8 14.3 16.7 19.3 19.2

P/E (x) 14.9 25.4 42.4 27.0 19.6 16.2

P/B (x) 3.4 6.4 4.8 4.2 3.4 2.8

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests

Source: Company data, KDB Daewoo Securities Research estimates

Auto

Company Report

April 15, 2014

(Initiate) Buy

Target Price (12M, W) 37,000

Share Price (04/11/14, W) 28,000

Expected Return 32%

OP (14F, Wbn) 52

Consensus OP (14F, Wbn) 53

EPS Growth (14F, %) 62.6

Market EPS Growth (14F, %) 28.7

P/E (14F, x) 27.0

Market P/E (14F, x) 10.7

KOSPI 1,997.44

Market Cap (Wbn) 1,340

Shares Outstanding (mn) 48

Free Float (%) 55.8

Foreign Ownership (%) 29.4

Beta (12M) 0.91

52-Week Low 20,400

52-Week High 31,902

(%)(%)(%)(%) 1M1M1M1M 6M6M6M6M 12M12M12M12M

Absolute 6.3 -10.5 -1.8

Relative 4.5 -9.3 -4.1

Daewoo Daewoo Daewoo Daewoo Securities CSecurities CSecurities CSecurities Co., Ltd.o., Ltd.o., Ltd.o., Ltd.

[Small Cap]

Daewoo Lee +822-768-4132

[email protected]

60

80

100

120

140

4.13 8.13 12.13 4.14

KOLAO Holdings KOSPI

KOLAO Holdings

2

April 15, 2014

KDB Daewoo Securities Research

KOLAO Holdings: Rapid growth continues

1. Company history and overview

KOLAO Holdings is the offshore holding company of KOLAO Developing, which has grown into

one of the largest private companies in Laos since its establishment in 1997. The company started

establishing dealerships for Kia Motors in 2000 and Hyundai Motor in 2001. Since then, the

company has steadily signed sales contracts with major parts makers, including tire makers.

Furthermore, the company forged a strategic alliance with Hyundai Wia in 2012, laying the

foundation for the CKD business, and strengthened the commercial vehicle unit by signing a sales

contract with Doosan Infracore in 2013.

KOLAO Holdings’ auto business focused on new car dealerships for Hyundai Motor and Kia

Motors as well as used car sales. However, the Laos government has recently banned import/sales

of used cars, citing safety and environmental concerns. As such, the company has exited the used

car business and entered the CKD business. There were initial concerns about its shift from the

successful used car business to the new, unproven CKD business. However, the upsides of the

CKD business, are now attracting attention, including 1) the utilization of existing employees, 2)

the simplification of logistical and inventory management, 3) higher production efficiency, and 4)

the ease of cost management. In addition, given that sales of the company’s first CKD 1-tonne

truck (Super-1) have been robust since its debut in September 2013, concerns about the CKD

business have faded.

According to the Transportation Ministry of Laos, the fastest growing vehicles are passenger cars

and mini-buses, the sales of which expanded at respective CAGRs of 26.2% and 26.6%, thanks to

income growth and higher tourism demand during 2009-2012. Furthermore, the sales of pickup

trucks, SUVs, heavier trucks, and buses also increased at respective CAGRs of 16.6%, 16.8%,

13.3%, and 9.3%, during the same period. We believe the auto market in Laos holds enormous

growth prospects. Although its auto penetration rate climbed at a CAGR of nearly 20% for the

past five years, the market has mainly been oriented towards commercial-vehicles.

KOLAO Holdings has also been engaged in motorcycle production since 2003. The company

designs and assembles motorcycles with parts ordered from neighboring countries, including

China. The company has emerged as a major player with one-third share of the Laos motorcycle

market, which had been dominated by Chinese makers (for low-end) and Japanese makers (for

high-end). The company, which focuses on mid-end products, is seeing its motorcycle sales

expand by more than 20% annually.

Figure Figure Figure Figure 1111. . . . GDP and GDP growth GDP and GDP growth GDP and GDP growth GDP and GDP growth rate rate rate rate trend of Ltrend of Ltrend of Ltrend of Laosaosaosaos

Source: Export-Import Bank of Korea, KDB Daewoo Securities Research

10.3 10.9

15.9

34.3 10.8

5.6

8.1

3.1

0

2

4

6

8

10

12

0

5

10

15

20

25

30

35

40

2013 2014 2015F 2020F

(%)(US$bn)Laos GDP(L) Laos GDP growth (R)

KOLAO Holdings

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April 15, 2014


The cumulative number of registered motorcycles climbed at a CAGR of 12.2% during 2009-2012,

according to the Transportation Ministry of Laos. In addition, motorcycle penetration stands at

around just 15%, lower than those of neighboring countries. We expect the Laos motorcycle

market to expand steadily due to poor public transportation infrastructure. In order to meet

strong emerging market demand, KOLAO Holdings and its chairman recently acquired a combined

32% stake in KR Motors (formerly known as S&T Motors) - 16% each.

KOLAO Holdings is currently offering auto loans via its subsidiary Indochina Bank, and looks to

expand this business. We will discuss this expansion in greater detail later in the report.

We believe KOLAO Holdings has a solid presence in Laos. In particular, the company has

successfully offered localized auto loans and 24 hour aftermarket services. The company looks to

emulate its proven business model in Myanmar and Cambodia.

We expect the company to grow in tandem with Laos’ long-term economic growth in light of 1)

Kolao Group Chairman Oh Sei-young’s commitment to building the business in Laos and 2) the

Kolao Group’s tight relations with the Laos government.

TTTTableableableable 1111. . . . HHHHistory of KOLAO Developing istory of KOLAO Developing istory of KOLAO Developing istory of KOLAO Developing

DateDateDateDate DetailsDetailsDetailsDetails

Mar. 1997 Established General Motors

Apr. 1999 Took over Savannakhet factory and KOLAO Developing

Oct. 2000 Signed dealership contract with Kia Motors

Jan. 2001 Opened showrooms in Savang, completed construction of A/S center, and started auto parts distribution business

Jun. 2001 Signed dealership contract with Hyundai Motor

Mar. 2002 Signed sales contract with Kumho Tire, Hyundai Mobis, and SK Energy

Jun 2003 Started motocycle business

Dec. 2004 Opened showroom in Tesong

Apr. 2006 Opened showroom in Thongpong

Dec. 2007 Opened showroom in Savannakehet

Jan. 2009 Opened showroom in Thongkhankham

Apr. 2009 Signed sales contract with Chery Automobile

Jul. 2009 Opened showroom in Thakhek

Oct. 2009 Opened showroom in Phonphanau

Sept. 2009 Built factory in Thongpong

Dec. 2009 KOLAO Holdings took 100% stake in KOLAO Developing

May 2010 Opened KOLAO Auto City

Mar. 2011 Opened showroom in Pakse

Mar. 2011 Built logistics center in Thongpong

Jun. 2011 Opened showroom in ALM

Sept. 2011 Expanded capacity of Thongpong logistics center

Mar. 2012 Signed sales contract with Nexen Tire

Jun. 2012 Signed sales contract with Delco Batteries

Sept. 2012 Opened motorcycle showroom in Tesong

Oct. 2012 Forged strategic alliance with Hyundai Wia

Dec. 2012 Built KOLAO training center

Feb. 2013 Signed sales contract with Doosan Infracore

Source: KOLAO Holdings, KDB Daewoo Securities Research

KOLAO Holdings

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April 15, 2014


Indochina: Land of opportunity

Armed with cheap labor, Indochina has been attracting foreign capital despite poor

infrastructure. Global production is shifting from China, where labor costs have risen to

uncompetitive levels, to Indochina. We believe countries such as Laos, Myanmar, and Cambodia,

holds significant room for growth, and are relatively more attractive than Vietnam, where labor

costs have soared.

Foreign direct investment (FDI) into Indochina has soared since the second half of 2000.

Following the end of military rule in Myanmar in 2011, the country has seen a surge in FDI.

Cambodia has also experienced an impressive growth in FDI relative to its population.

Figure Figure Figure Figure 2222. . . . LLLLaosaosaosaos''''s s s s annual FDI trendannual FDI trendannual FDI trendannual FDI trend Figure Figure Figure Figure 3333. . . . Myanmar's annual FDI trendMyanmar's annual FDI trendMyanmar's annual FDI trendMyanmar's annual FDI trend

Source: UNCTAD, KDB Daewoo Securities Research Source: UNCTAD, KDB Daewoo Securities Research

Figure Figure Figure Figure 4444. . . . Cambodia's annual FDI trendCambodia's annual FDI trendCambodia's annual FDI trendCambodia's annual FDI trend Figure Figure Figure Figure 5555. . . . Avg. mAvg. mAvg. mAvg. monthly onthly onthly onthly pay of pay of pay of pay of ffffactory actory actory actory workerworkerworkerworker in major in major in major in major cities in cities in cities in cities in emerging coemerging coemerging coemerging countriesuntriesuntriesuntries

Source: UNCTAD, KDB Daewoo Securities Research Source: KOTRA, KDB Daewoo Securities Research

0

50

100

150

200

250

300

350

1992 1997 2002 2007 2012

(US$mn)

0

500

1,000

1,500

2,000

2,500

1992 1997 2002 2007 2012

(US$mn)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1992 1997 2002 2007 2012

(US$mn)

352

317

82

118

68

111

130

286

Guangzhou

Shenzhen

Phnom Penh

Vientiane

Yangon

Hanoi

Ho Chi Minh

Bangkok(US$)

KOLAO Holdings

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April 15, 2014


Figure Figure Figure Figure 6666. . . . AvAvAvAvg.g.g.g. per capita GDP of ASEAN countriesper capita GDP of ASEAN countriesper capita GDP of ASEAN countriesper capita GDP of ASEAN countries (2012)(2012)(2012)(2012) Figure Figure Figure Figure 7777. . . . AAAAvvvvg.g.g.g. GDP growth of ASEAN countriesGDP growth of ASEAN countriesGDP growth of ASEAN countriesGDP growth of ASEAN countries (2012(2012(2012(2012----2017201720172017FFFF))))

Source: IMF, KDB Daewoo Securities Research Source: IMF, World Bank, KDB Daewoo Securities Research

Figure Figure Figure Figure 8888. . . . CCCCaaaar penetrationr penetrationr penetrationr penetration rate of ASEAN countriesrate of ASEAN countriesrate of ASEAN countriesrate of ASEAN countries (2012)(2012)(2012)(2012)

Figure Figure Figure Figure 9999. . . . Population and population density of ASEAN Population and population density of ASEAN Population and population density of ASEAN Population and population density of ASEAN countriescountriescountriescountries (2012)(2012)(2012)(2012)

Source: Ministry of Public Work and Transport Department (Laos),

Department of Road Transport Administration (Myanmar),

Euromonitor (other countries), KDB Daewoo Securities Research

Source: World Bank, KDB Daewoo Securities Research

933 1,445

834

4,105

2,614

1,527

10,304

Cambodia Laos Myanmar Indonesia Philippines Vietnam Malaysia

(US$) 7.37.1

6.7

5.4 5.5 5.45.2


(%)

1939

7

398386

172

72


(Thenumber of cars per 1,000 persons)

15 7

64

245

96 89

29

83

30

95

129

320

269

88


Population

Population density

(1mn persons, 1person/1km2)

KOLAO Holdings

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April 15, 2014


Figure Figure Figure Figure 10101010. . . . MyanmarMyanmarMyanmarMyanmar’’’’s population pyramids population pyramids population pyramids population pyramid (2015F)(2015F)(2015F)(2015F) Figure Figure Figure Figure 11111111. . . . LaosLaosLaosLaos’’’’ssss population pyramidpopulation pyramidpopulation pyramidpopulation pyramid (2015F)(2015F)(2015F)(2015F)

Source: UN, KDB Daewoo Securities Research Source: UN, KDB Daewoo Securities Research

Figure Figure Figure Figure 12121212. . . . CambodiaCambodiaCambodiaCambodia’’’’s population pyramids population pyramids population pyramids population pyramid (2015F)(2015F)(2015F)(2015F) Figure Figure Figure Figure 13131313. . . . KoreaKoreaKoreaKorea’’’’s population pyramids population pyramids population pyramids population pyramid (2015F)(2015F)(2015F)(2015F)


Figure Figure Figure Figure 14141414. . . . JapanJapanJapanJapan’’’’s population pyramid(2015F)s population pyramid(2015F)s population pyramid(2015F)s population pyramid(2015F) Figure Figure Figure Figure 15151515. . . . ChinaChinaChinaChina’’’’s population pyramids population pyramids population pyramids population pyramid (2015F)(2015F)(2015F)(2015F)


<Figures 6-9> show that the GDPs and auto penetration rates of Laos, Myanmar, and Cambodia

remain at levels lower than its neighbors.

KOLAO Holdings

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April 15, 2014


1. Laos

Market overviewMarket overviewMarket overviewMarket overview

Population 7 million

GDP per capita US$ 1,565 (2013)

Language Lao language, Thai

Political system Socialism

The ruling party Lao People's Revolutionary Party (only one party)

Currency Lao KIP (LAK) / US$ / BAHT (THB)

Exchange rate US$/LAK rate was 8,025 (Feb. 2014)

Source: KOTRA, KDB Daewoo Securities Research

Major economic indicatorMajor economic indicatorMajor economic indicatorMajor economic indicator

ClassClassClassClass 2010201020102010 2011201120112011 2012201220122012 2013201320132013 2014F2014F2014F2014F

GDP growth 8.5% 8.0% 7.9% 8.3% 7.3%

GDP per capita (US$) 1,158 1,320 1,445 1,565 1,679

Exchange rate (US$/LAK) 8,060 8,023 8,026 8,025 -

Inflation rate (CPI) 6.0% 7.6% 4.7% 6.5% 6.0%

FDI (US$mn) 279 301 294 - -

Source: The Export-Import Bank of Korea, KDB Daewoo Securities Research

The key exports of Laos are mineral resources (42% of exports as of 2013) and agricultural

products (17%). The country also exports water power plants (26%) and clothing (8%). In 2012,

the economy grew by 8.3% on the back of mineral production growth (gold: +61% YoY), growth

of the water power industry (+29% YoY), and construction projects related to the ASEAN

Universidad. We expect the country will deliver growth of around 7% after 2013, fueled by robust

FDI into mining development, power plant industry, and construction projects.

With the economy growing, auto demand has been rising. The number of auto registrations grew

at a CAGR of 18.4% during 2009 and 2012. The registration of passenger cars (out of four-

wheeled vehicles) increased at a CAGR of a whopping 26.2%, but still account for just 13% of

four-wheeled vehicles. This stems from the fact that demand for commercial vehicles (and trucks)

surged in line with the government-led national development projects. Meanwhile, penetration of

passenger cars remains low, partially due to underdeveloped infrastructure (e.g., roads). Excluding

Vientiane (capital city), most cities lack paved roads. However, the recent surge in tourism is

spurring the country to improve its infrastructure, which should help raise GDP per capita and

demand for passenger cars over the long term.

At the moment, motocycles are most popular means of transportation. The registration of

motocycles rose at a CAGR of 12.2% during 2009-2012. However, the number of motocycles

owned per 1,000 people remains at only 150 (15% of population). Given the country’s poor public

transportion system, demand for motocycles is likely to steadily rise on the back of income

growth, not only in Laos but neighboring countries as well.

KOLAO Holdings

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April 15, 2014


Figure Figure Figure Figure 16161616. . . . CCCCumulative umulative umulative umulative number of number of number of number of carcarcarcarssss registered in registered in registered in registered in LLLLaosaosaosaos Figure Figure Figure Figure 17171717. . . . CCCCumulative umulative umulative umulative number of number of number of number of cars (4 wheels)cars (4 wheels)cars (4 wheels)cars (4 wheels) and and and and commercial cars registered in commercial cars registered in commercial cars registered in commercial cars registered in LLLLaosaosaosaos





Figure Figure Figure Figure 18181818. . . . More than 90% of roads are unpaved in LaosMore than 90% of roads are unpaved in LaosMore than 90% of roads are unpaved in LaosMore than 90% of roads are unpaved in Laos Figure Figure Figure Figure 19191919. . . . Paved roads in LaosPaved roads in LaosPaved roads in LaosPaved roads in Laos

Source: KOTRA, KDB Daewoo Securities Research Source: KOTRA, KDB Daewoo Securities Research

Figure Figure Figure Figure 20202020. . . . Breakdown of vehicle marketBreakdown of vehicle marketBreakdown of vehicle marketBreakdown of vehicle market in Lin Lin Lin Laos aos aos aos (2013)(2013)(2013)(2013)

Source: KOLAO Hondings, KDB Daewoo Securities Research

0

0.05

0.1

0.15

0.2

0.25

0.3

2009 2010 2011 2012

(mn)

Bus Truck

SUV Mini bus

Passenger car Pick up truck

CAGR+26.2%

13%

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2009 2010 2011 2012

(mn)

Cars (4 wheels) and commercial vehiclesMotocycles

CAGR

CAGR

Pick up truck53%

Passenger car14%

Commercial car14%

SUV6%

Mini bus13%

KOLAO Holdings

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April 15, 2014


Figure Figure Figure Figure 21212121. . . . VehicleVehicleVehicleVehicle market trends market trends market trends market trends in Laosin Laosin Laosin Laos

Source: KDB Daewoo Securities Research

KOLAO Holdings is focusing on passenger cars, mini buses, and heavier trucks. The company’s

product mix consists of a limited number of SUVs, but no pick-up trucks. The pick-up truck

segment, which is the biggest pie of the country’s auto market, is being dominated by Toyota.

However, Chinese companies have been chipping away at Toyota’s market share in the pick-up

truck segment. Meanwhile, KOLAO Holdings has grown its presence in the passenger car, mini

bus, and heavier truck market in 2013. The company’s smooth operation of CKD business is

brightening its long-term growth outlook. For instance, expansion into the truck/pick-up truck

market has gained momentum with solid sales of its 1-tonne truck (Super-1). And later this

month, KOLAO Holdings is slated to roll out a 2.5-tonne truck (D-250), and release a 1-tonne

truck (D-100) and pick-up truck (Extreme) in 2H. Furthermore, the company’s presence in the

passenger car segment is also growing.

The company’s exit from the used car business, which has a proven business model, and entry

into the unchartered territory of CKD business, raised investor concerns. In addition, initial delays

to its Super-1 model amplified these concerns. However, the Super-1 was well received with

competitive prices (even compared with Chinese models), decent design, and quality engines and

transmissions from Korea. KOLAO Holdings currently sells over 400 units per month of Super-1.

Considering robust sales of the Super-1, the company has postponed the launch of another 1-

tonne truck (D-100), which was originally scheduled for April. Meanwhile, the company has also

delayed the release of a pick-up model (Partner) to after 2015 to concentrate on sales of the 1-

tonne and 2.5-tonne trucks for now. The company plans to adjust the release timing depending

on sales of the upcoming pick-up truck (Extreme).

We expect the release of new models will provide a boost to KOLAO Holdings’ CKD business.

Given the high margins of CKD business relative to sales of Hyundai and Kia models, CKD growth

should lead to an overall increase in margins.

2012

Aug. 2013Accumulattive

OtherHyundai

ToyotaKia

OtherHyundai

Toyota

Kia

Passenger car

Other

Hyundai

Toyota Kia0.4%

Other

HyundaiToyota

Kia4%

Mini bus

OtherHyundai

ToyotaKia

5.3%

Other

HyundaiKia7.4%

DAEHAN

Truck

Other

Hyundai

Toyota

Kia7.7%

OtherHyundai

Toyota

Kia1.9%

SUV

Other

Toyota

Other

Toyota

Pick-uptruck

KOLAO Holdings

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April 15, 2014


2. Myanmar


Population 62.4 million

GDP per capita US$ 855 (2012)

Language Burmese (official)

Political system Presidental Republic

The ruling party Union Solidarity and Development Party

Currency Burmese kyat (MMK)

Industrial structure Agriculture (43%), industry (21%), services & trading (36%)


Major economic indicatorMajor economic indicatorMajor economic indicatorMajor economic indicator


GDP growth 5.3% 5.5% 6.3% 6.8% 6.9%

GDP per capita (US$) 742 824 835 884 915

Exchange rate (US$/MNK) 970 815 853 937 999


FDI (US$mn) 1,285 2,200 2,243 - -

Source: The Export-Import Bank of Korea, KDB Daewoo Securities Research

Since the end of military rule in 2011, the new government has shown a strong willingness to

support the economy, develop natural resources, and attract foreign capital. As an increasing

number of foreign companies are expanding into Myanmar on the back of improved investment

environment and economic sanctions are lifting, FDI is likely to continue to grow. The job market

is stable with an unemployment rate of only 4% (vs. 8% in Korea; 12% in eurozone). CPI growth

has risen to around 6.6%.

Although the country is relatively underdeveloped compared to its neighbors in Indochina,

investors have high expectations on Myanmar’s growth potential in light of its population. As of

2012, Myanmar’s population stood at 64mn, almost ten times larger than that of Laos (7mn). In

particular, the government is focusing on improving transportation infrastructure to promote the

tourism industry, which should also be positive for the automobile market.

Myanmar is emerging as a new battle ground for car makers in the emerging markets, since it

allowed car imports in April 2012. KOLAO Holdings is making its foray into the country based on

its business model combining car sales, financing programs, and after-sales services, which has

already proven successful in Laos. The company plans to rapidly expand its sales network in

Myanmar by giving rights to dealers in major cities to appoint sub-dealers in small cities.

Currently, passenger cars account for 75% of Myanmar’s cumulative registered four-wheeled vehicles.

Given the country’s limited pool of consumers that can afford to buy passenger cars and poor road

conditions, however, its commercial vehicle market is expected to grow sharply going forward.

KOLAO Holdings set its market share target in Myanmar at 10%. This target appears to be

aggressive in light of the country’s population and intense competition in the commercial vehicle

market. However, we believe the company will be able to achieve its goal based on its unique

business model that it has implemented for the last five years in Laos and its differentiated

strategies.

In addition, KOLAO Holdings’ acquisition of a motorcycle maker KR Motors (previously S&T

Motors) should provide tailwinds to the company’s outreach into Indochina. Myanmar is likely to

see a steep growth in the commercial vehicle market in the near term. However, the motorcycle

market also holds a great growth potential as the market is not largely affected by road

conditions and infrastructure. In Laos, KOLAO is responsible for design and parts assembly to

sales. However, the company needs to cooperate with more specialized companies to expand into

larger neighboring markets, in our view. As for KR Motors, the company should be able to take

advantage of KOLAO’s experience and extensive network in the Indochina market. Although

KOLAO is expected to focus on the dealership business for Hyundai Motor Group for the time

being, the company should make efforts to tap into the motorcycle market in Myanmar in the

near future.

KOLAO Holdings

11

April 15, 2014


Figure Figure Figure Figure 22222222. . . . CCCCumulative umulative umulative umulative number of number of number of number of cars registered in Myanmarcars registered in Myanmarcars registered in Myanmarcars registered in Myanmar Figure Figure Figure Figure 23232323. . . . CCCCumulative umulative umulative umulative number of number of number of number of carcarcarcarssss (4 wheels) (4 wheels) (4 wheels) (4 wheels) registered in registered in registered in registered in Myanmar Myanmar Myanmar Myanmar

Source: Department of Road Transport Administration Myanmar,


Source: Department of Road Transport Administration Myanmar,


Figure Figure Figure Figure 24242424. . . . MyanmarMyanmarMyanmarMyanmar’’’’s car ownership rates car ownership rates car ownership rates car ownership rate is is is is lowest lowest lowest lowest in in in in Indochina Indochina Indochina Indochina

Figure Figure Figure Figure 25252525. . . . MyanmarMyanmarMyanmarMyanmar’’’’ssss tax rates by car typetax rates by car typetax rates by car typetax rates by car type

Source: KOTRA, Department of Road Transport Administration Myanmar,


Source: KOTRA, Department of Road Transport Administration Myanmar,


table table table table 2222. Myanmar. Myanmar. Myanmar. Myanmar’’’’s major construction companies s major construction companies s major construction companies s major construction companies and and and and theirtheirtheirtheir road repair planroad repair planroad repair planroad repair planssss

CompanyCompanyCompanyCompany RRRRoad sectionoad sectionoad sectionoad section LengthLengthLengthLength (km)(km)(km)(km)

Shwe Thanlwin Kyaito-Thaton-Mawlamyine 127

Thaton-Hpant 42

Asia World

Yangon-Pathein 182

Pathein-Agwe Saung 48

Myit Ngae-Htonebo-Pyin Oo Lwin 14

Shwe Thung Sagaing-Monywa 117

Ohntaw-Shwebo 69

Myat Noe The Meiktila-Kyaukpadaung-Nyaung U- Bangan 151

Nyaung U-Myingyin 64

Taung Paw Dae Tha Lam Meiktila-Taunggyi 225

Khaine Mar Thaw Pan Dine Pahot-Kamine-Lawa-Lonkhinn 97

Nansiaung-Namti 143

Total 1,279 Source: Department of Road Transport Administration Myanmar, KDB Daewoo Securities Research

0

0.5

1

1.5

2

2.5

3

3.5

4

2009 2010 2011 2012 2013 2Q

(mn)

백

Motocycles

Cars (4 wheels) and commercial vehicles

CAGR+13.2%

CAGR+6.2%

0

0.1

0.2

0.3

0.4

0.5

2009 2010 2011 2012 2013 2Q

(mn)

Bus Truck Passenger car

CAGR+5.9%

75%

3.9%

0.7%

15.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Laos Myanmar Cambodia 0 5 10 15 20 25 30 35 40 45

Bus

Under engine

displacement 2000㏄

Upper engine

displacement 2000㏄

Ambulance engine

Truck

Special purpose vehicles

Heavy vehicles

(%)

Commercial tax

Duty

KOLAO Holdings

12

April 15, 2014


3. Cambodia


Population 15 million

Per capita GDP US$933 (2012)

Language Khmer (Official)

Political system Unitary parlia mentary constitutional monarchy

Currency Riel (KHR)

Industrial structure Service and tourism (42%), Agriculture (34%), Others (24%)


Major economic indicatorMajor economic indicatorMajor economic indicatorMajor economic indicatorssss


GDP growth 6.1% 7.1% 7.3% 7.0% 7.2%

Per capita GDP (US$) 753 853 934 1,015 1,108

Exchange rate (US$/KHR) 4,051 4,039 3,995 4,038 4,049


FDI (US$mn) 783 902 1,557 - -


We also see a a significant growth potential in Cambodia. The country’s population is about twice

as large as Laos. As of 2012, its per capita GDP stood at US$933 with a car penetration rate of

1.9%, which are levels in between those of Laos and Myanmar. In making its foray into Cambodia,

KOLAO Holdings plans to expand its foothold into the new car sales and motorcycle market after

entering the CKD market with its own brand Daehan. Cambodia is a favorable market for foreign

companies due to its transparent legal and regulatory systems and business environment.

Figure Figure Figure Figure 26262626. . . . NNNNumber of newumber of newumber of newumber of newly registeredly registeredly registeredly registered carcarcarcars in Cs in Cs in Cs in Cambodiaambodiaambodiaambodia Figure Figure Figure Figure 27272727. . . . Car ownership rates in Cambodia, Korea, and JapanCar ownership rates in Cambodia, Korea, and JapanCar ownership rates in Cambodia, Korea, and JapanCar ownership rates in Cambodia, Korea, and Japan

Source: KOTRA, KDB Daewoo Securities Research Source: KOTRA, KOSTAT, KDB Daewoo Securities Research

0

200

400

600

800

1,000

1,200

1,400

1990 1995 2000 2005 2010

(cars)

Motorcycle

Passenger car

15.7%

38.8%

59.1%

0%

10%

20%

30%

40%

50%

60%

70%

Cambodia Korea Japan

KOLAO Holdings

13

April 15, 2014


Figure Figure Figure Figure 28282828. . . . GDP and GDP growth GDP and GDP growth GDP and GDP growth GDP and GDP growth rate rate rate rate trendtrendtrendtrendssss inininin CambodiaCambodiaCambodiaCambodia


Figure Figure Figure Figure 29292929. . . . FDI as a FDI as a FDI as a FDI as a percentage of GDP in Cambodia and major Asian countriespercentage of GDP in Cambodia and major Asian countriespercentage of GDP in Cambodia and major Asian countriespercentage of GDP in Cambodia and major Asian countries


0

2

4

6

8

10

12

0

1

2

3

4

5

6

2013 2015 2015F 2020F

(%)($bn)

x 10

Cambodia GDP(L)

Cambodia GDP growth rate (R)

7.3

5

3.83.4

1.7

0

1

2

3

4

5

6

7

8

Cambodia LAOS China Malaysia Indonesia

(%)

Average: 4.2%

KOLAO Holdings

14

April 15, 2014


Growth to accelerate going forward

1. Earnings outlook

TableTableTableTable 3333. . . . Quarterly/Quarterly/Quarterly/Quarterly/annualannualannualannual earnings outlookearnings outlookearnings outlookearnings outlook (Wbn, Wmn)

2013201320132013 2014F2014F2014F2014F 2015F2015F2015F2015F 2016F2016F2016F2016F

1Q 1Q 1Q 1Q 2Q 2Q 2Q 2Q 3Q 3Q 3Q 3Q 4Q 4Q 4Q 4Q AnnualAnnualAnnualAnnual 1Q 1Q 1Q 1Q 2Q 2Q 2Q 2Q 3Q 3Q 3Q 3Q 4Q 4Q 4Q 4Q AnnualAnnualAnnualAnnual

Laos

New car sales (dealership)

Volume 2,321 2,530 2,432 2,533 9,816 2,460 2,631 2,602 2,736 10,429 11,994 13,793

Revenue 52.5 62.1 57.5 57.9 229.9 59.0 64.7 64.5 69.8 258.0 326.7 398.2

% of revenue 67.0 70.4 70.6 66.9 68.7 55.7 58.1 56.7 54.4 56.2 54.0 52.6

ASP 22.62 24.53 23.64 22.84 23.42 24.00 24.59 24.79 25.51 24.74 27.24 28.87

CVD

Volume 102 159 132 43 436 130 130 130 130 520 598 676

Revenue 8.4 14.0 8.7 3.3 34.4 11.0 11.2 10.7 10.9 43.8 54.5 64.6

% of revenue 10.7 15.9 10.6 3.9 10.3 10.4 10.1 9.4 8.5 9.5 9.0 8.5

ASP 81.98 87.98 65.73 77.83 78.84 84.54 86.54 82.19 83.71 84.24 91.08 95.63

CKD

Volume - - 250 453 703 1,300 1,250 1,300 1,370 5,220 6,264 7,204

Revenue - - 3.5 6.0 9.5 17.3 16.4 18.0 19.8 71.5 97.1 117.3

% of revenue - - 4.3 7.0 2.8 16.3 14.7 15.9 15.4 15.6 16.0 15.5

ASP - - 13.90 13.30 13.52 13.31 13.13 13.88 14.45 13.71 15.51 16.28

Motorcycle

Volume 10,412 9,320 8,381 12,094 40,207 11,698 10,386 9,285 13,970 45,338 51,285 57,396

Revenue 7.2 6.6 6.0 8.3 28.1 7.9 6.9 6.3 9.7 30.9 36.9 43.4

% of revenue 9.2 7.5 7.3 9.5 8.4 7.5 6.2 5.6 7.6 6.7 6.1 5.7

ASP - - 0.71 0.68 0.70 0.68 0.67 0.68 0.69 0.68 0.72 0.76

Parts/AS Revenue 5.1 5.9 4.9 6.1 22.1 6.8 7.4 6.4 7.7 28.2 38.6 52.1

% of revenue 6.5 6.7 6.0 7.1 6.6 6.4 6.6 5.7 6.0 6.1 6.4 6.9

Other Revenue 5.1 1.8 3.3 4.0 14.2 3.0 2.7 4.5 5.4 15.6 20.8 24.9

% of revenue 6.5 2.1 4.1 4.6 4.3 2.8 2.4 3.9 4.2 3.4 3.4 3.3

Total Revenue 78.3 90.4 83.9 85.6 338.2 105.0 109.4 110.5 123.1 448.0 574.6 700.6

% of revenue 99.9 102.5 102.9 99.0 101.1 99.2 98.2 97.1 96.1 97.6 94.9 92.5

Myanmar

New car sales (dealership)

Volume - - 10 91 101 120 170 220 270 780 1,560 2,496

Revenue - - 0.3 1.9 2.2 2.3 3.4 4.7 6.5 16.9 36.7 62.8

% of revenue - - 0.4 2.2 0.6 2.2 3.0 4.1 5.1 3.7 6.1 8.3

ASP - - 28.73 20.68 21.47 19.16 19.95 21.40 23.98 21.63 23.51 25.16

Post- closing adjustments

0.1 -2.2 -2.7 -1.1 -5.9 -1.4 -1.4 -1.4 -1.4 -5.7 -5.8 -5.8

Final

Revenue 78.3 88.2 81.5 86.5 334.5 105.9 111.4 113.8 128.2 459.2 605.4 757.5

Gross profit 14.6 17.5 18.2 17.9 68.3 21.8 22.8 23.4 26.5 94.6 121.1 146.0

GP margin (%) 18.7 19.9 22.4 20.7 20.4 20.6 20.5 20.5 20.7 20.6 20.0 19.3

Operating profit 7.7 8.3 9.5 8.3 33.8 11.7 12.5 12.8 14.9 51.9 69.9 84.6

OP margin (%) 9.8 9.4 11.6 9.6 10.1 11.1 11.2 11.2 11.6 11.3 11.5 11.2

Source: KDB Daewoo Securities Research estimates

KOLAO Holdings

15

April 15, 2014


In 2014, KOLAO Holdings is projected to remain on a robust growth trajectory with revenue of

W459.2bn (+37.3% YoY) and an operating profit of W51.9bn (+53.7% YoY, OP margin of 11.3%)

on a consolidated basis.

While the new car sales, CVD, and motorcycle businesses are expected to grow 10-20% YoY, the

CKD business (launched in 3Q13) is anticipated to drive up top- and bottom-line growth. The CKD

business recorded W9.5bn in revenue (based on sales of 703 units) last year with only one model

(Super-1). The model continues to be popular this year, selling over 400 units per month. As the

company plans to add new models to its CKD lineup this year (D-250 in April; D-100 and Extreme

in 2H), its CKD sales are expected to grow to W71.5bn (5,220 units). We believe the company’s

CKD ASP will steadily rise thanks to the launch of new models in the short-term and an increase in

the proportion of large trucks in the sales mix in the longer term.

OP margin is projected to rise 1.4%p YoY to 11.5% on the back of 1) a low base of comparison

due to a temporary deterioration in margins in 1H13 from the write-off of used-car inventory,

and 2) a sharp increase in revenue contribution from CKD. We forecast KOLAO to maintain robust

margins in the medium term, which should support its product mix diversification and marketing

efforts in the early stages of its expansion into the emerging markets.

Figure Figure Figure Figure 30303030. . . . Car sales Car sales Car sales Car sales volume volume volume volume forecast by forecast by forecast by forecast by type in Laostype in Laostype in Laostype in Laos Figure Figure Figure Figure 31313131. . . . Car Car Car Car salessalessalessales forecast by typeforecast by typeforecast by typeforecast by type in in in in LaosLaosLaosLaos

Source: Kolao Holdings, KDB Daewoo Securities Research Source: Kolao Holdings, KDB Daewoo Securities Research

Notably, the company’s revenue jumped in 4Q (December in particular) in recent years. In our

view, the trend is driven by an increase in auto consumption by rural population. In the rural

areas, people usually see a strong inflow of cash in winter after the harvesting season ends in fall.

An increase in auto consumption by rural population indicates that demand for trucks will remain

solid for a considerable period of time.

Meanwhile, the passenger car market in Indochina should display accelerated growth driven by an

improvement in income levels and transportation infrastructure. Although commercial vehicles

should drive growth in the earlier stages, passenger cars should serve as a strong growth engine

as development gains speed in the emerging markets.

Demand for heavy equipment vehicles is anticipated to grow sharply going forward on the back

of growth in infrastructure investment. Accordingly, we believe that KOLAO Holdings’ CKD

business will comfortably achieve YoY growth this year with annual sales of around 800 units.

0

10

20

30

40

50

60

70

80

90

2013 2014F 2015F 2016F

Motorcycle

CKD

CVD

New car (dealership)

('000)

0

100

200

300

400

500

600

700

2013 2014F 2015F 2016F

Motorcycle

CKD

CVD

New car (dealership)

(Wbn)

KOLAO Holdings

16

April 15, 2014


2. Expansion of financial business

KOLAO Holdings is expanding its presence in financial services. The financial unit will provide

amortized financing to DAEHAN, and other financial services will be offered by LVMC Investment,

KOLAO Holdings’ wholly-owned subsidiary and a financial holding company. LVMC, which stands

for Laos, Vietnam, Myanmar and Cambodia, will provide loans for companies operating in these

regions. LVMC also plans to acquire a 12% stake in Indochina Bank.

Laos’ auto loan business is highly profitable, thanks to high, fixed-rate interests that are typical at

the initial stage of emerging market growth. Currently, roughly 50-60% of new car buyers take

out loans from KOLAO Holdings via Indochina Bank. A buyer typically puts a down payment of

30% with the remainder borrowed at 8-10% APR. Delinquency rate is extremely low at just

0.02%. For KOLAO Holdings, this results in a return of approximately low- to mid-10% range. On

the back of such strong returns and market expansion, Indochina Bank reported a profit in 2012,

for the first time since its incorporation in December 2008. KOLAO Holdings will be able to

recognize future gains from the bank, once it acquires a 12% stake (the company is awaiting

approval from the Bank of Laos).

LVMC is seeking a joint venture with Korean companies to provide loans in Myanmar and

Cambodia. However, as the firm’s immediate focus is the auto business, the joint venture plan will

likely take some time before taking full shape.

KOLAO Holdings’ expansion in financial services is meaningful in that the company is broadening

its reach beyond manufacturing. As Laos and the neighboring Indochina countries continue to

develop, KOLAO Holdings’ presence in these regions should strengthen.

Figure Figure Figure Figure 32323232. . . . KKKKOLAOOLAOOLAOOLAO HoldingsHoldingsHoldingsHoldings’’’’ shareholding shareholding shareholding shareholding structure structure structure structure and affilatesand affilatesand affilatesand affilates


Finance

IndochinaBank

Retail

K-Plaza

i-Furniture

Energy

KOLAOFarm

KOLAOEnergy

Logistics

GloviaThai

GloviaLao

Construction

I-Tech

Leisure

Lao C.C.

Media

LanxangMedia

KOLAO

Production/Sales

KOLAOHoldingsMyanmar

KOLAOHoldings

KOLAODeveloping

(Laos)

100% 100% 100%

KOLAOHoldingsSingapore

KDCKorea

LVMCInvestment

(Hong Kong)

100%

51%

KR motors(S&T Motors)

16%

KOLAO Holdings

17

April 15, 2014


Valuation: High P/E is justified

In our valuation of KOLAO Holdings’ stock, we do not believe that a typical auto maker/seller can

be a good comparison. While KOLAO Holdings has maintained an OP margin above 10% along

with strong revenue growth from manufacturing and sales alone, other companies are barely able

to eke out thin margins in developed markets without offering auto loans, amid flat revenue

growth.

In fact, there are few companies at home and abroad that can equal KOLAO Holdings’ growth and

stability. For 2014, we expect KOLAO Holdings to report at least a 50% rise in operating profit,

with a debt-to-equity-ratio of less than 20%. The company’s long-term growth outlook is also

bright. As Indochina countries are anticipated to develop into the world’s new manufacturing

base, KOLAO Holdings’ close ties with the Laos government and localization know-how will allow

the company to thrive over the long term.

KOLAO Holdings’ media subsidiary, LanXang Media, is a good representation of KOLAO Holdings’

mission and vision in Laos. The media company has not only published the country’s first

economic journals, but also produces children’s books and high-quality text books, which are

desperately lacking in the country. Instead of focusing strictly on widening margins, the publisher

strives to improve the quality of Laos’ publications and content. As the Laos government looks to

expand the role of the media firm going forward, and in light of the company’s robust growth

outlook for 2014-15 and beyond, we believe the company deserves a rich valuation premium.

After KOLAO Holdings’ shares peaked in October 2013, they have undergone a significant

correction, due to US Fed tapering and concerns over the company’s CKD business. However, we

believe these negatives have mostly faded. The correction in the emerging markets appears

excessive relative to developed markets, and capital is flowing back into the region.

Figure Figure Figure Figure 33333333. . . . Capital is flowing back intoCapital is flowing back intoCapital is flowing back intoCapital is flowing back into emerging emerging emerging emerging marketsmarketsmarketsmarkets


We adivse investors to emphasize on the positives than the negatives. Indochina is set to become

one of the world’s new growth pillars thanks to cheap labor, but the size of the capital market

remains small with limited options for investors. As such, we believe KOLAO Holdings deserves to

trade a rich valuation premium given its established presence and extensive business know-how in

this region.

600

700

800

900

1,000

1,100

1,200

1,300

1/10 7/10 1/11 7/11 1/12 7/12 1/13 7/13 1/14

Number of iShare emerging ETF accounts

(mn accounts)

After Mar. 26, +4.26%

KOLAO Holdings

18

April 15, 2014


Figure Figure Figure Figure 34343434. . . . Comparison Comparison Comparison Comparison of of of of capital market sizecapital market sizecapital market sizecapital market size (Market caps(Market caps(Market caps(Market caps of of of of listed listed listed listed companiecompaniecompaniecompaniessss))))


In selecting our peer group, we screened for companies with 2014 growth estimated for revenue

of +37% (±20%p), operating profit of 53% (±20%p), net profit of 79% (±20%p), and EPS of 37%

(±10%p) with profitability (+16.7% (±10%p) for ROE) in line with KOLAO Holdings. The

discrepancy in the valuation multiple between global peers and emerging-specific peers is due to

premiums given to emerging markets.

In deriving our target price of W37,000, we applied the 2014F average P/E of nine emerging

market peers ( 35.7x). As we are unable to clearly project when KOLAO Holdings’ financial unit

will contribute materially to earnings, we opted to exclude it from our valuation at this time.

TTTTableableableable 4444. Global . Global . Global . Global ppppeer valuationeer valuationeer valuationeer valuation

CompanyCompanyCompanyCompany CountryCountryCountryCountry Market capMarket capMarket capMarket cap OP MarginOP MarginOP MarginOP Margin (%)(%)(%)(%) PPPP////EEEE ((((xxxx)))) PPPP////BBBB ((((xxxx)))) ROEROEROEROE (%)(%)(%)(%) EV/EBITDAEV/EBITDAEV/EBITDAEV/EBITDA ((((xxxx))))

((((WbnWbnWbnWbn)))) 13F13F13F13F 14F14F14F14F 13F13F13F13F 14F14F14F14F 13F13F13F13F 14F14F14F14F 13F13F13F13F 14F14F14F14F 13F13F13F13F 14F14F14F14F

KOLAO Holdings Korea 1,264 10.2 11.3 42.4 27.0 4.8 4.2 14.3 16.7 32.0 21.4

Bellway PLC UK 3,344 13.6 16.4 15.5 11.2 1.38 1.43 9.2 13.4 11.1 8.4

Cabot Oil & Gas Corp US 14,056 30.3 38.1 61.5 28.1 7.32 4.92 12.9 21.5 14.6 8.4

Chongqing Lummy Pharmaceutical China 978 10.7 10.1 90.6 53.0 5.33 4.95 6.9 11.7 45.4 29.4

CPI Yuanda Environmental-Protection Group

China 1,654 11.6 13.2 63.1 27.9 4.64 2.99 7.4 11.6 26.2 13.4

Eagle Materials US 4,396 21.3 26.9 33.2 20.6 - - 17.4 22.3 16.4 11.6

Eo Technics Korea 696 18.6 23.0 14.8 12.2 2.16 2.41 15.6 21.6 9.8 8.6

Guangdong Alpha Animation and Culture

China 3,418 17.7 21.0 85.9 49.6 11.85 8.82 14.6 18.4 - 36.0

Henan Pinggao Electric China 2,607 12.6 14.3 20.6 17.4 2.56 2.91 13.1 17.8 15.6 15.5

Ibase Technology Taiwan 201 12.7 14.2 15.1 14.0 1.46 2.31 15.9 20.1 7.3 9.4

Inspur Electronic Information Industry China 2,057 3.7 3.7 67.2 44.6 9.13 6.84 12.7 15.2 53.7 48.4


Leyard Optoelectronic China 767 12.6 11.3 32.7 35.3 3.54 5.33 11.5 14.7 - -

LMS Korea 207 15.1 17.0 - 8.0 - 1.53 16.0 22.3 - 6.8

Phoenix Healthcare Group China 1,355 18.5 20.2 60.6 42.2 - 4.18 18.8 10.9 - 26.1

S-1 Corp Korea 3,165 10.1 11.7 31.9 22.8 3.10 3.90 10.0 15.9 9.6 9.1

Shanghai Zhixin Electric China 2,264 11.8 12.0 36.1 28.7 4.83 5.39 17.4 24.4 23.5 17.3

Suzhou Anjie Technology China 942 24.7 29.0 45.3 23.0 5.40 - 12.4 13.2 34.7 -

Average 15.0 17.2 43.7 27.2 4.9 4.1 14.1 17.2 22.5 18.2

Source: Bloomberg, KDB Daewoo Securities Research

0 0.01

4.043

11.037

44.071

0

5

10

15

20

25

30

35

40

45

50

Cambodia Laos Indonesia Korea Japan

($tr)

KOLAO Holdings

19

April 15, 2014


TTTTableableableable 5555. Global . Global . Global . Global ppppeer valuationeer valuationeer valuationeer valuation (Emerging(Emerging(Emerging(Emerging marketmarketmarketmarkets os os os only)nly)nly)nly)

CompanyCompanyCompanyCompany Country Market capMarket capMarket capMarket cap OP MarginOP MarginOP MarginOP Margin (%)(%)(%)(%) PPPP////EEEE ((((xxxx)))) PPPP////BBBB ((((xxxx)))) ROEROEROEROE (%)(%)(%)(%) EV/EBITDAEV/EBITDAEV/EBITDAEV/EBITDA ((((xxxx))))

((((WbnWbnWbnWbn)))) 13F13F13F13F 14F14F14F14F 13F13F13F13F 14F14F14F14F 13F13F13F13F 14F14F14F14F 13F13F13F13F 14F14F14F14F 13F13F13F13F 14F14F14F14F


Chongqing Lummy Pharmaceutical China 978 10.7 10.1 90.6 53.0 5.33 4.95 6.9 11.7 45.4 29.4

CPI Yuanda Environmental-Protection Group

China 1,654 11.6 13.2 63.1 27.9 4.64 2.99 7.4 11.6 26.2 13.4

Guangdong Alpha Animation and Culture

China 3,418 17.7 21.0 85.9 49.6 11.85 8.82 14.6 18.4 - 36.0

Henan Pinggao Electric China 2,607 12.6 14.3 20.6 17.4 2.56 2.91 13.1 17.8 15.6 15.5

Inspur Electronic Information Industry China 2,057 3.7 3.7 67.2 44.6 9.13 6.84 12.7 15.2 53.7 48.4

Leyard Optoelectronic China 767 12.6 11.3 32.7 35.3 3.54 5.33 11.5 14.7 - -

Phoenix Healthcare Group China 1,355 18.5 20.2 60.6 42.2 - 4.18 18.8 10.9 - 26.1

Shanghai Zhixin Electric China 2,264 11.8 12.0 36.1 28.7 4.83 5.39 17.4 24.4 23.5 17.3

Suzhou Anjie Technology China 942 24.7 29.0 45.3 23.0 5.40 - 12.4 13.2 34.7 -

Average 13.8 15.0 55.8 35.7 5.9 5.2 12.8 15.3 33.2 26.6

Source: Bloomberg, KDB Daewoo Securities Research

KOLAO Holdings

20

April 15, 2014


KOLAO Holdings (900140 KS/Buy/TP: W37,000)

Comprehensive Income Statement (Summarized)Comprehensive Income Statement (Summarized)Comprehensive Income Statement (Summarized)Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)Statement of Financial Condition (Summarized)Statement of Financial Condition (Summarized)Statement of Financial Condition (Summarized)

(Wbn) 12/13 12/14F 12/15F 12/16F (Wbn) 12/13 12/14F 12/15F 12/16F

RevenueRevenueRevenueRevenue 334334334334 459459459459 605605605605 758758758758 Current AssetsCurrent AssetsCurrent AssetsCurrent Assets 271271271271 315315315315 391391391391 482482482482

Cost of SalesCost of SalesCost of SalesCost of Sales 266266266266 365365365365 484484484484 612612612612 Cash and Cash Equivalents 95 142 162 195

Gross ProfitGross ProfitGross ProfitGross Profit 68686868 94949494 121121121121 146146146146 AR & Other Receivables 61 88 116 145

SG&A ExpensesSG&A ExpensesSG&A ExpensesSG&A Expenses 35353535 43434343 51515151 61616161 Inventories 71 86 113 141

Operating Profit (Adj)Operating Profit (Adj)Operating Profit (Adj)Operating Profit (Adj) 34343434 52525252 70707070 85858585 Other Current Assets 44 -1 0 1

Operating ProfitOperating ProfitOperating ProfitOperating Profit 34343434 52525252 70707070 85858585 NonNonNonNon----Current AssetsCurrent AssetsCurrent AssetsCurrent Assets 71717171 72727272 72727272 71717171

NonNonNonNon----Operating ProfitOperating ProfitOperating ProfitOperating Profit ----6666 ----1111 0000 0000 Investments in Associates 0 0 0 0

Net Financial Income -3 -1 0 0 Property, Plant and Equipment 41 42 43 41

Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 3 3 3 3

Pretax Profit 28 51 70 85 Total AssetsTotal AssetsTotal AssetsTotal Assets 343343343343 388388388388 463463463463 553553553553

Income Tax 0 1 1 1 Current LiabilitiesCurrent LiabilitiesCurrent LiabilitiesCurrent Liabilities 46464646 43434343 49494949 57575757

Profit from Continuing Operations 28 50 69 83 AP & Other Payables 19 21 28 35

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 22 22 22 22

Net ProfitNet ProfitNet ProfitNet Profit 28 50 69 83 Other Current Liabilities 5 0 -1 0

Controlling Interests 28 50 68 83 NonNonNonNon----Current LiabilitiesCurrent LiabilitiesCurrent LiabilitiesCurrent Liabilities 24242424 23232323 23232323 23232323

Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 23 23 23 23

Total Comprehensive ProfitTotal Comprehensive ProfitTotal Comprehensive ProfitTotal Comprehensive Profit 28282828 50505050 69696969 83838383 Other Non-Current Liabilities 1 0 0 0

Controlling Interests 28 50 68 83 Total LiabilitiesTotal LiabilitiesTotal LiabilitiesTotal Liabilities 70707070 66666666 72727272 79797979

Non-Controlling Interests 0 0 0 0 Controlling InterestsControlling InterestsControlling InterestsControlling Interests 271271271271 321321321321 390390390390 472472472472

EBITDA 36 55 73 88 Capital Stock 12 12 12 12

FCF (Free Cash Flow) -52 20 20 34 Capital Surplus 153 153 153 153

EBITDA Margin (%) 10.8 12.0 12.1 11.6 Retained Earnings 107 156 225 307

Operating Profit Margin (%) 10.2 11.3 11.6 11.2 NonNonNonNon----Controlling InterestsControlling InterestsControlling InterestsControlling Interests 1111 1111 1111 2222

Net Profit Margin (%) 8.4 10.9 11.2 10.9 Stockholders' EquityStockholders' EquityStockholders' EquityStockholders' Equity 272272272272 322322322322 391391391391 474474474474

Cash Flows (Summarized)Cash Flows (Summarized)Cash Flows (Summarized)Cash Flows (Summarized) Forecasts/Valuations (Summarized)Forecasts/Valuations (Summarized)Forecasts/Valuations (Summarized)Forecasts/Valuations (Summarized)

(Wbn)(Wbn)(Wbn)(Wbn) 12/13 12/14F 12/15F 12/16F 12/13 12/14F 12/15F 12/16F

Cash Flows from Op Activities -26 23 23 36 P/E (x) 42.4 27.0 19.6 16.2

Net Profit 28 50 69 83 P/CF (x) 31.4 24.6 18.3 15.3

Non-Cash Income and Expense 10 5 4 5 P/B (x) 4.8 4.2 3.4 2.8

Depreciation 2 3 3 3 EV/EBITDA (x) 32.0 22.8 16.7 13.6

Amortization 0 0 0 0 EPS (W) 638 1,037 1,431 1,729

Others 8 2 1 2 CFPS (W) 861 1,140 1,530 1,835

Chg in Working Capital -59 -29 -49 -51 BPS (W) 5,675 6,712 8,143 9,860

Chg in AR & Other Receivables -41 -28 -28 -29 DPS (W) 0 0 12 12

Chg in Inventories -14 -14 -27 -28 Payout ratio (%) 0.0 0.0 0.8 0.7

Chg in AP & Other Payables 7 2 6 7 Dividend Yield (%) 0.0 0.0 0.0 0.0

Income Tax PaidIncome Tax PaidIncome Tax PaidIncome Tax Paid ----1111 ----1111 ----1111 ----1111 Revenue Growth (%) 21.0 37.4 31.8 25.3

Cash Flows from Inv Activities -56 23 -4 -2 EBITDA Growth (%) 16.1 52.8 32.7 20.5

Chg in PP&E -26 -4 -4 -2 Operating Profit Growth (%) 17.2 52.9 34.6 21.4

Chg in Intangible Assets -3 0 0 0 EPS Growth (%) -6.6 62.5 38.0 20.8

Chg in Financial Assets -27 27 0 0 Accounts Receivable Turnover (x) 7.3 6.3 6.0 5.9

OthersOthersOthersOthers 0000 0000 0000 0000 Inventory Turnover (x) 5.1 5.9 6.1 6.0

Cash Flows from Fin Activities 162 0 0 -1 Accounts Payable Turnover (x) 18.9 19.4 20.9 20.7

Chg in Financial Liabilities - - - - ROA (%) 11.4 13.7 16.2 16.4

Chg in Equity 132 0 0 0 ROE (%) 14.3 16.7 19.3 19.2

Dividends Paid -1 0 0 -1 ROIC (%) 21.6 24.2 27.6 27.9

OthersOthersOthersOthers ---- ---- ---- ---- Liability to Equity Ratio (%) 25.9 20.4 18.5 16.8

Increase (Decrease) in Cash 80 46 20 33 Current Ratio (%) 584.7 737.9 789.8 852.6

Beginning Balance 15 95 142 162 Net Debt to Equity Ratio (%) -28.5 -30.2 -30.0 -31.8

Ending BalanceEnding BalanceEnding BalanceEnding Balance 95959595 142142142142 162162162162 195195195195 Interest Coverage Ratio (x) 0.0 48.1 0.0 0.0

Source: Company data, KDB Daewoo Securities Research estimates

KOLAO Holdings

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APPENDIX 1

Important Disclosures & Disclaimers

2222----Year Rating and Target Price HistoryYear Rating and Target Price HistoryYear Rating and Target Price HistoryYear Rating and Target Price History

Company Company Company Company ((((Code)Code)Code)Code) DateDateDateDate RatingRatingRatingRating Target PriceTarget PriceTarget PriceTarget Price

KOLAO Holdings(900140) 04/14/2014 Buy 37,000

No Coverage

05/02/2012 Trading Buy 14,000

04/05/2012 Buy 13,000

Analyst CertificationAnalyst CertificationAnalyst CertificationAnalyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein. DisclaimersDisclaimersDisclaimersDisclaimers This report is published by Daewoo Securities Co., Ltd. (“Daewoo”), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur

Stock RatingsStock RatingsStock RatingsStock Ratings Industry RatingsIndustry RatingsIndustry RatingsIndustry Ratings

Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving

Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes

Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening

Sell : Relative performance of -10%

Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆))

* Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

DisclosuresDisclosuresDisclosuresDisclosures

As of the publication date, Daewoo Securities Co., Ltd and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.

0

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20,000

30,000

40,000

Apr 12 Apr 13 Apr 14

(W) KOLAO Holdings

KOLAO Holdings

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April 15, 2014


DistributionDistributionDistributionDistribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.

KDB Daewoo Securities International Network

Daewoo Securities Co. Ltd. (Seoul)Daewoo Securities Co. Ltd. (Seoul)Daewoo Securities Co. Ltd. (Seoul)Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong)Daewoo Securities (Hong Kong)Daewoo Securities (Hong Kong)Daewoo Securities (Hong Kong) Ltd. Ltd. Ltd. Ltd. Daewoo Securities (America)Daewoo Securities (America)Daewoo Securities (America)Daewoo Securities (America) Inc. Inc. Inc. Inc. Head Office 34-3 Yeouido-dong, Yeongdeungpo-gu Seoul 150-716 Korea

Two International Finance Centre Suites 2005-2012 8 Finance Street, Central Hong Kong

320 Park Avenue, 31st Fl. New York, NY 10022 United States

Tel: 82-2-768-3026 Tel: 85-2-2514-1304 Tel: 1-212-407-1000

Daewoo Securities (Europe) Ltd. Daewoo Securities (Europe) Ltd. Daewoo Securities (Europe) Ltd. Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Daewoo Securities (Singapore) Pte. Daewoo Securities (Singapore) Pte. Daewoo Securities (Singapore) Pte. Ltd.Ltd.Ltd.Ltd. Tokyo Representative OfficeTokyo Representative OfficeTokyo Representative OfficeTokyo Representative Office Tower 42, Level 41 25 Old Broad Street London EC2N 1HQ United Kingdom

6 Battery Road, #11-01 Singapore, 049909

7th Floor, Yusen Building 2-3-2 Marunouchi, Chiyoda-ku Tokyo 100-0005 Japan

Tel: 44-20-7982-8016 Tel: 65-6671-9845 Tel: 81-3- 3211-5511

Beijing Representative OfficeBeijing Representative OfficeBeijing Representative OfficeBeijing Representative Office Shanghai Shanghai Shanghai Shanghai RepresentativeRepresentativeRepresentativeRepresentative OfficeOfficeOfficeOffice Ho Chi Minh Representative OfficeHo Chi Minh Representative OfficeHo Chi Minh Representative OfficeHo Chi Minh Representative Office Suite 2602, Twin Towers (East) B-12 Jianguomenwai Avenue Chaoyang District, Beijing 100022 China

Unit 13, 28th Floor, Hang Seng Bank Tower 1000 Lujiazui Ring Road Pudong New Area, Shanghai 200120 China

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Tel: 86-10-6567-9699 Tel: 86-21-5013-6392 Tel: 84-8-3910-6000

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