Asia Steel - hkmma.org.hk

PREPARED BY NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES (ASIA) LTD THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 13

CBRC investigating iron ore trade finance

n CBRC investigation may trigger a sell off of iron ore

The CBRC has asked banks to investigate their iron ore trade finance business (source: Southern

Metropolitan News). As a result, the amount of iron ore trade finance is likely to decrease significantly

after the 1 May holiday. We expect a significant short-term sell off of iron ore given the large amount

of China iron ore port inventory related to trade finance (we estimate c30%) and the expected

reduction in trade finance alongside current weak demand from steel mills. Iron ore futures have

already fallen 3% in the past two business days with the spot price down to USD114/t on 25 April

(down16% YTD).

n Our channel checks: finance margin hike likely, discounting letters of credit becoming harder

According to the iron ore traders, bankers and a domestic iron ore producer that we have spoken to:

a) iron ore traders have been asked by their banks to increase iron ore finance margins, and b) iron

ore is expected to drop to cUSD100/t (lower than the March bottom of USD105/t). Since iron ore

borrowers don’t tend to hedge positions (unlike copper traders), they will bear all the price risk and

could have to dump stock on hand for cash. We think the CBRC might have done this now to: 1) help

consolidate the steel market, and 2) reduce banking risk.

n Most positive for Posco; most negative for small steel mills and iron ore traders

We expect Posco to benefit the most from the CBRC investigation and from substantial new capacity

from Australia in 2Q14 because: 1) it imports 100% of it iron ore; and 2) auto and energy steel product

prices are relatively resistant to iron ore price drops. Small steel mills and iron ore traders are facing

tight funding and have participated in trade finance as an easier source of funding than official bank

loans. We expect the CBRC investigation to trigger defaults among iron ore traders (especially

speculators) and small steel mills.

BNPP recommendations

Company BBG code Rating Share price Target price Upside/downside

POSCO 005490 KS BUY 292,500.00 365,000.00 +24.8%

Hyundai Steel 004020 KS BUY 68,000.00 80,500.00 +18.4%

Maanshan Steel 323 HK HOLD 1.62 1.52 -6.2%

Angang Steel 347 HK REDUCE 4.71 3.73 -20.8%

Source: BNP Paribas

29 APRIL 2014

SECTOR REPORT

ASIA STEEL

Rachel Cheung [email protected]

+852 2825 1824

Our research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index. Please contact your salesperson for

authorisation. Please see the important notice on the back page.

http://equities.bnpparibas.com/

ASIA STEEL Rachel Cheung

2 BNP PARIBAS 29 APRIL 2014

Investment thesis

Korea’s steel market is highly concentrated. The top two

producers have a combined 77% volume market share, while

in China the top two have only 12%, implying better pricing

power for Korea’s steel leaders. Korean steel makers focus

on high-end products where prices are more defensive; profit

margins widen when iron ore costs fall.

We expect the price of iron ore to fall to USD110/t in 2Q14,

from USD122/t in 1Q14, due to large new supply from the top

5 global iron ore suppliers in 2Q-3Q14 and destocking

pressure following the end of iron ore financing in China.

Prices of high-end steel products, which are the focus

segments for the Korean steel makers, are defensive and

less sensitive to raw material costs. This is because

customers are more concerned about stable product quality

and support services. We expect Korean steel makers' profit

margins to expand in 2H14, leading to 10-15% earnings

rebound for Posco and Hyundai Steel.

We prefer Korean over Chinese steel makers, based on 1)

market concentration, 2) exposure to high-margin steel, 3)

limited and visible supply growth, and 4) exports.

Upside catalysts for Korea steel sector in next nine months

1) Private China steel mills defaulting on debt; 2)

urbanisation and stabilising policies in China; 3) HMG price

hike in 2H14E; 4) new and substantial iron ore supply from

top 5 suppliers in 2Q-3Q14; and 5) an end to iron ore

financing in China.

Two BUYs: Posco vs HSC; avoid Angang Steel

Posco has a defensive business model through

diversification (steel, energy, trading and construction) and

distribution (Korea, Indonesia, Thailand, India, China, etc).

We believe this is the best way to sustain profitability in the

steel sector in the long term.

HSC: With its strong relationships with Hyundai Motor Group

(HMG) and Hyundai Heavy (009540 KS), HSC has a

competitive advantage over peers. We believe it will capture

market share from domestic suppliers in the long term.

Angang Steel is our key REDUCE. We think Posco

deserves to trade at a premium to Angang, but it currently

trades at a 6% discount (Posco at 0.53x 12-month fwd P/B,

vs Angang at 0.56x). We expect Angang to de-rate

accordingly.

Posco’s and HSC’s profit margins are most defensive

Source: Bloomberg

Posco is trading at a discount to Angang

Source: Bloomberg, BNP Paribas estimates

(20.0)

(10.0)

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10.0

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4Q

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3Q

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13

(NPM, %)

Posco HSC

Angang Magang

China Steel sector NPM

(60)

(40)

(20)

0

20

40

60

80

100

(0.5)

0.0

0.5

1.0

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2.0

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p-0

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Jan

-05

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6

Jan

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Se

p-0

7

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Jan

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p-0

9

May-1

0

Jan

-11

Se

p-1

1

May-1

2

Jan

-13

Se

p-1

3

(%)(x) P/BV: Angang - POSCO



Iron ore is used as a financing tool & not supported by real demand

EXHIBIT 1: Iron ore future price dropped 3% in two days EXHIBIT 2: Iron ore spot price not yet dropped

Sources: Wind; BNP Paribas Sources: Bloomberg; BNP Paribas

EXHIBIT 3: Iron ore port inventory EXHIBIT 4: Iron ore steel mills inventory

Sources: Bloomberg; BNP Paribas Sources: MySteel; BNP Paribas

Tight funding in China and weak recover of steel demand

EXHIBIT 5: Steel price in relation to China M2 growth

EXHIBIT 6: Property floor space sold growth is negative in 1Q14

Sources: CEIC; BNP Paribas Sources: CEIC; BNP Paribas

700

750

800

850

900

950

1,000

Oct-

13

Nov-1

3

Nov-1

3

Nov-1

3

Dec-1

3

Dec-1

3

Jan

-14

Jan

-14

Feb-1

4

Feb-1

4

Mar-

14

Mar-

14

Ap

r-14

Ap

r-14

(RMB/tonne) Iron ore future price - Dalian May 2014

600

650

700

750

800

850

900

Oct-

13

Nov-1

3

Nov-1

3

Nov-1

3

Dec-1

3

Dec-1

3

Jan

-14

Jan

-14

Feb-1

4

Feb-1

4

Mar-

14

Mar-

14

Ap

r-14

Ap

r-14

(RMB/tonne) TJ spot

(15)

(10)

(5)

0

5

10

15

20

0

20

40

60

80

100

120

Jul-0

8

Jan

-09

Jul-0

9

Jan

-10

Jul-1

0

Jan

-11

Jul-1

1

Jan

-12

Jul-1

2

Jan

-13

Jul-1

3

Jan

-14

(m-m %)(mt) China iron ore inventory (LHS)

Iron ore inventory weekly (RHS)

0

20

40

60

80

100

120

140

0

100

200

300

400

500

600

700

Jul-1

1

Se

p-1

1

Nov-1

1

Jan

-12

Mar-

12

May-1

2

Jul-1

2

Se

p-1

2

Nov-1

2

Jan

-13

Mar-

13

May-1

3

Jul-1

3

Se

p-1

3

Nov-1

3

Jan

-14

Mar-

14

Average imported iron ore inventory at steel mills (LHS)

Average domestic iron ore inventory at steel mills (RHS)

('000 tonnes) ('000 tonnes)

10

12

14

16

18

20

22

24

26

28

30

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

Jan

-03

Jul-0

3Jan

-04

Jul-0

4Jan

-05

Jul-0

5Jan

-06

Jul-0

6Jan

-07

Jul-0

7Jan

-08

Jul-0

8Jan

-09

Jul-0

9Jan

-10

Jul-1

0Jan

-11

Jul-1

1Jan

-12

Jul-1

2Jan

-13

Jul-1

3Jan

-14

(y-y %)(RMB/tonne) Rebar steel price M2 growth (RHS)

(100)

(80)

(60)

(40)

(20)

0

20

40

60

80

100

120

Jan

-02

Au

g-0

2

Mar-

03

Oct-

03

May-0

4

Dec-0

4

Jul-0

5

Feb-0

6

Se

p-0

6

Ap

r-07

Nov-0

7

Jun

-08

Jan

-09

Au

g-0

9

Mar-

10

Oct-

10

May-1

1

Dec-1

1

Jul-1

2

Feb-1

3

Se

p-1

3

(y-y %) China steel production

Floor space sold



EXHIBIT 7: FAI slowed down from 21% in 1Q13 to 18% in 1Q14 EXHIBIT 8: Tangshan steel billet profit and loss

Sources: CEIC; BNP Paribas Sources: Wind; BNP Paribas

EXHIBIT 9: China steel consumption grew 4% y-y in 1Q14 EXHIBIT 10: Steel price is more defensive for high value steel products

Sources: CEIC; BNP Paribas Sources: MySteel; BNP Paribas

15

20

25

30

35

40

Jan

-05

Jul-0

5

Jan

-06

Jul-0

6

Jan

-07

Jul-0

7

Jan

-08

Jul-0

8

Jan

-09

Jul-0

9

Jan

-10

Jul-1

0

Jan

-11

Jul-1

1

Jan

-12

Jul-1

2

Jan

-13

Jul-1

3

Jan

-14

(%) FAI growth rate

(400)

(300)

(200)

(100)

0

100

200

300

400

2,500

3,000

3,500

4,000

4,500

5,000

Ap

r-11

Jun

-11

Au

g-1

1

Oct-

11

Dec-1

1

Feb-1

2

Ap

r-12

Jun

-12

Au

g-1

2

Oct-

12

Dec-1

2

Feb-1

3

Ap

r-13

Jun

-13

Au

g-1

3

Oct-

13

Dec-1

3

Feb-1

4

(RMB/tonne)(RMB/tonne)

Tangshan Q235 billet profit/loss (RHS)

Tangshan Q235 billet ex-factory price

Tangshan Q235 billet cost

(30)

(20)

(10)

0

10

20

30

40

50

60

70

0

10

20

30

40

50

60

70

Jan

-02

Jul-0

2Jan

-03

Jul-0

3Jan

-04

Jul-0

4Jan

-05

Jul-0

5Jan

-06

Jul-0

6Jan

-07

Jul-0

7Jan

-08

Jul-0

8Jan

-09

Jul-0

9Jan

-10

Jul-1

0Jan

-11

Jul-1

1Jan

-12

Jul-1

2Jan

-13

Jul-1

3Jan

-14

(y-y %)(mt)

Factory adjusted cons. (LHS)

Factory adjusted cons. monthly (RHS)

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400Jun

-05

Dec-0

5

Jun

-06

Dec-0

6

Jun

-07

Dec-0

7

Jun

-08

Dec-0

8

Jun

-09

Dec-0

9

Jun

-10

Dec-1

0

Jun

-11

Dec-1

1

Jun

-12

Dec-1

2

Jun

-13

Dec-1

3

(USD/tonne)

US CRC price EU CRC price

Korea CRC price Japan CRC price



Financial statements Angang Steel

Profit and Loss (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E

Revenue 90,207 77,748 75,233 72,867 69,290

Cost of sales ex depreciation (82,549) (69,789) (61,225) (60,004) (55,559)

Gross profit ex depreciation 7,658 7,959 14,009 12,863 13,731

Other operating income 201 (1,625) 0 0 0

Operating costs (3,306) (4,545) (4,894) (4,253) (4,044)

Operating EBITDA 4,553 1,789 9,114 8,610 9,687

Depreciation (6,778) (5,841) (6,065) (6,290) (6,514)

Goodwill amortisation 0 0 0 0 0

Operating EBIT (2,225) (4,052) 3,049 2,320 3,173

Net financing costs (1,470) (1,846) (1,200) (1,162) (1,122)

Associates 391 402 (1,220) (400) (400)

Recurring non operating income 0 0 80 0 0

Non recurring items 0 0 0 0 0

Profit before tax (3,304) (5,496) 709 759 1,651

Tax 955 1,116 48 (142) (308)

Profit after tax (2,349) (4,380) 757 617 1,343

Minority interests 186 223 15 (26) (56)

Preferred dividends 0 0 0 0 0

Other items 0 0 0 0 0

Reported net profit (2,163) (4,157) 772 591 1,287

Non recurring items & goodwill (net) 0 0 0 0 0

Recurring net profit (2,163) (4,157) 772 591 1,287

Per share (RMB)

Recurring EPS * (0.30) (0.57) 0.11 0.08 0.18

Reported EPS (0.30) (0.57) 0.11 0.08 0.18

DPS 0.00 0.00 0.00 0.00 0.00

Growth

Revenue (%) (2.2) (13.8) (3.2) (3.1) (4.9)

Operating EBITDA (%) (58.3) (60.7) 409.5 (5.5) 12.5

Operating EBIT (%) (168.8) 82.1 (175.2) (23.9) 36.7

Recurring EPS (%) nm nm nm (23.4) 117.6

Reported EPS (%) (205.3) 92.2 (118.6) (23.4) 117.6

Operating performance

Gross margin inc depreciation (%) 1.0 2.7 10.6 9.0 10.4

Operating EBITDA margin (%) 5.0 2.3 12.1 11.8 14.0

Operating EBIT margin (%) (2.5) (5.2) 4.1 3.2 4.6

Net margin (%) (2.4) (5.3) 1.0 0.8 1.9

Effective tax rate (%) - - (6.8) 18.7 18.7

Dividend payout on recurring profit (%) - - 0.0 0.0 0.0

Interest cover (x) (1.2) (2.0) 1.6 1.7 2.5

Inventory days 60.5 65.1 62.4 61.7 63.9

Debtor days 23.1 37.1 39.6 35.1 35.4

Creditor days 42.6 52.6 57.5 54.8 56.9

Operating ROIC (%) (2.0) (4.4) 4.9 3.0 4.3

ROIC (%) (1.5) (3.5) 2.6 2.1 3.1

ROE (%) (4.1) (8.5) 1.6 1.2 2.6

ROA (%) (1.2) (2.8) 2.1 1.6 2.3

*Pre exceptional, pre-goodwill and fully diluted

Revenue By Division (RMB m) 2011A 2012A 2013E 2014E 2015E

Flat products 72,397 63,153 60,235 59,086 56,149

Wire rods 4,393 3,960 4,252 4,167 3,948

Silicon Steel 5,729 3,451 3,583 3,522 3,338

Seamless steel pipes 1,780 1,157 1,444 1,393 1,320

Large steel sections 1,956 2,238 3,087 3,122 2,958

Others 3,951 3,789 1,577 1,577 1,577

Sources: Angang Steel; BNP Paribas estimates



Financial statements Angang Steel

Cash Flow (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E

Recurring net profit (2,163) (4,157) 772 591 1,287

Depreciation 6,778 5,841 6,065 6,290 6,514

Associates & minorities (577) (625) 1,205 426 456

Other non-cash items 50 (3,491) (3,491) (3,491) (3,491)

Recurring cash flow 4,088 (2,432) 4,552 3,816 4,766

Change in working capital 218 3,155 1,200 446 26

Capex - maintenance (5,495) (2,918) (3,600) (3,600) (3,600)

Capex - new investment 0 0 0 0 0

Free cash flow to equity (1,189) (2,195) 2,151 662 1,192

Net acquisitions & disposals 0 0 0 0 0

Dividends paid (1,085) 0 0 0 0

Non recurring cash flows (1,206) 1,486 2,238 3,017 2,987

Net cash flow (3,480) (709) 4,389 3,680 4,180

Equity finance 0 51 0 0 0

Debt finance 2,170 366 (3,652) 900 200

Movement in cash (1,310) (292) 737 4,580 4,380

Per share (RMB)

Recurring cash flow per share 0.57 (0.34) 0.63 0.53 0.66

FCF to equity per share (0.16) (0.30) 0.30 0.09 0.16

Balance Sheet (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E

Working capital assets 28,001 24,940 21,749 21,064 20,030

Working capital liabilities (17,970) (18,064) (16,072) (15,834) (14,826)

Net working capital 10,031 6,876 5,676 5,230 5,204

Tangible fixed assets 69,655 60,993 58,528 55,838 52,923

Operating invested capital 79,686 67,869 64,204 61,068 58,127

Goodwill 0 0 0 0 0

Other intangible assets 3 6,677 6,677 6,677 6,677

Investments 2,125 2,740 2,788 2,836 2,884

Other assets 2,790 3,838 3,838 3,838 3,838

Invested capital 84,604 81,124 77,507 74,419 71,526

Cash & equivalents (2,341) (2,049) (2,786) (7,365) (11,745)

Short term debt 20,831 25,891 25,891 26,791 26,991

Long term debt * 13,821 9,053 5,401 5,401 5,401

Net debt 32,311 32,895 28,506 24,827 20,647

Deferred tax 0 0 0 0 0

Other liabilities 0 0 0 0 0

Total equity 50,739 46,598 47,370 47,961 49,248

Minority interests 1,554 1,631 1,631 1,631 1,631


* includes convertibles and preferred stock which is being treated as debt

Per share (RMB)

Book value per share 7.01 6.44 6.55 6.63 6.81

Tangible book value per share 7.01 5.52 5.62 5.71 5.88

Financial strength

Net debt/equity (%) 61.8 68.2 58.2 50.1 40.6

Net debt/total assets (%) 30.8 32.5 29.6 25.4 21.0

Current ratio (x) 0.8 0.6 0.6 0.7 0.8

CF interest cover (x) 0.2 (0.2) 2.8 1.6 2.1

Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * neg neg 35.6 46.5 21.4

Recurring P/E @ target price (x) * neg neg 28.2 36.8 16.9

Reported P/E (x) neg neg 35.6 46.5 21.4

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0

P/CF (x) 6.7 (11.3) 6.0 7.2 5.8

P/FCF (x) (23.1) (12.5) 12.8 41.5 23.1

Price/book (x) 0.5 0.6 0.6 0.6 0.6

Price/tangible book (x) 0.5 0.7 0.7 0.7 0.6

EV/EBITDA (x) ** 12.0 28.2 7.5 6.8 5.6

EV/EBITDA @ target price (x) ** 10.9 25.5 6.8 6.1 5.0

EV/invested capital (x) 0.7 0.8 0.7 0.7 0.7

* Pre exceptional, pre-goodwill and fully diluted ** EBITDA includes associate income and recurring non-operating income

Sources: Angang Steel; BNP Paribas estimates



Financial statements Maanshan Steel

Profit and Loss (RMB m) Year Ending Dec 2012A 2013A 2014E 2015E 2016E

Revenue 74,244 73,622 71,617 70,264 70,954



Other operating income 153 888 112 112 112

Operating costs (4,454) (2,929) (1,430) (1,599) (1,615)

Operating EBITDA 611 4,976 4,911 5,339 5,912

Depreciation (3,508) (3,788) (3,764) (3,953) (4,150)


Operating EBIT (2,897) 1,187 1,147 1,387 1,762

Net financing costs (1,463) (1,154) (997) (977) (969)

Associates 0 0 0 0 0



Profit before tax (3,746) 322 150 410 793

Tax (54) (114) (30) (82) (159)

Profit after tax (3,801) 208 120 328 634

Minority interests (63) (51) (8) (23) (44)



Reported net profit (3,863) 157 111 305 590


Recurring net profit (3,863) 157 111 305 590

Per share (RMB)

Recurring EPS * (0.50) 0.02 0.01 0.04 0.08

Reported EPS (0.50) 0.02 0.01 0.04 0.08

DPS 0.00 0.00 0.00 0.00 0.00

Growth

Revenue (%) (14.3) (0.8) (2.7) (1.9) 1.0

Operating EBITDA (%) (88.8) 714.6 (1.3) 8.7 10.7

Operating EBIT (%) (354.0) (141.0) (3.4) 20.9 27.1

Recurring EPS (%) nm nm (29.1) 173.9 93.4

Reported EPS (%) (5,635.0) (104.1) (29.1) 173.9 93.4




Operating EBIT margin (%) (3.9) 1.6 1.6 2.0 2.5

Net margin (%) (5.2) 0.2 0.2 0.4 0.8

Effective tax rate (%) - 35.5 20.0 20.0 20.0

Dividend payout on recurring profit (%) - 0.0 0.0 0.0 0.0

Interest cover (x) (1.6) 1.3 1.2 1.4 1.8

Inventory days 66.8 58.4 55.3 55.7 55.4

Debtor days 41.3 41.4 43.4 43.2 42.6

Creditor days 65.0 66.3 66.4 66.9 66.5

Operating ROIC (%) (6.7) 1.8 2.2 2.6 3.3

ROIC (%) (4.8) 2.1 2.0 2.4 3.1

ROE (%) (15.3) 0.7 0.5 1.3 2.5

ROA (%) (2.9) 1.3 1.3 1.6 2.0


Revenue By Division (RMB m) 2012A 2013A 2014E 2015E 2016E

Flat products 26,676 27,495 25,621 24,398 24,105

Section steel 9,013 7,893 7,967 7,549 7,458

Wire rods 23,340 23,767 23,063 23,361 23,081

Train wheels 1,795 1,329 1,827 1,818 3,172

Others 13,420 13,138 71,617 70,264 70,954

Sources: Maanshan Steel; BNP Paribas estimates



Financial statements Maanshan Steel

Cash Flow (RMB m) Year Ending Dec 2012A 2013A 2014E 2015E 2016E

Recurring net profit (3,863) 157 111 305 590

Depreciation 3,508 3,788 3,764 3,953 4,150

Associates & minorities 63 51 8 23 44

Other non-cash items 2,404 2,404 2,404 2,404 2,404

Recurring cash flow 2,111 6,400 6,288 6,684 7,188

Change in working capital 6,335 41 78 53 (27)

Capex - maintenance 0 0 0 0 0

Capex - new investment (4,947) (5,521) (3,764) (3,953) (4,150)

Free cash flow to equity 3,499 920 2,601 2,784 3,011


Dividends paid (385) 0 0 0 0

Non recurring cash flows (2,605) (1,382) (2,221) (2,377) (2,473)

Net cash flow 509 (462) 380 407 538

Equity finance 316 182 0 0 0

Debt finance (1,345) (4,396) 0 0 0

Movement in cash (521) (4,676) 380 407 538

Per share (RMB)

Recurring cash flow per share 0.27 0.83 0.82 0.87 0.93

FCF to equity per share 0.45 0.12 0.34 0.36 0.39

Balance Sheet (RMB m) Year Ending Dec 2012A 2013A 2014E 2015E 2016E






Goodwill 0 0 0 0 0

Other intangible assets 0 0 0 0 0

Investments 1,215 1,141 1,141 1,141 1,141

Other assets 3,339 2,685 2,612 2,563 2,588



Short term debt 11,113 16,505 16,505 16,505 16,505

Long term debt * 18,176 8,388 8,388 8,388 8,388

Net debt 19,506 19,786 19,406 18,999 18,461



Total equity 23,127 23,131 23,361 23,666 24,256




Per share (RMB)

Book value per share 3.00 3.00 3.03 3.07 3.15

Tangible book value per share 3.00 3.00 3.03 3.07 3.15

Financial strength

Net debt/equity (%) 76.5 77.0 74.8 72.4 68.8


Current ratio (x) 1.1 0.8 0.8 0.8 0.8

CF interest cover (x) 6.8 6.6 7.4 7.9 8.4

Valuation 2012A 2013A 2014E 2015E 2016E

Recurring P/E (x) * neg 64.0 90.3 33.0 17.1

Recurring P/E @ target price (x) * neg 60.0 84.7 30.9 16.0

Reported P/E (x) neg 64.0 90.3 33.0 17.1

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0

P/CF (x) 4.8 1.6 1.6 1.5 1.4

P/FCF (x) 2.9 10.9 3.9 3.6 3.3

Price/book (x) 0.4 0.4 0.4 0.4 0.4


EV/EBITDA (x) ** 26.3 6.1 6.6 6.0 5.3




Sources: Maanshan Steel; BNP Paribas estimates



Financial statements POSCO

Profit and Loss (KRW b) Year Ending Dec 2012A 2013A 2014E 2015E 2016E

Revenue 63,604 61,865 63,343 65,710 67,734




Operating costs (3,589) (3,635) (3,698) (3,801) (3,890)


Depreciation (2,564) (2,686) (3,284) (3,284) (3,284)


Operating EBIT 3,653 2,996 3,450 3,818 4,639

Net financing costs 231 (296) (379) (409) (420)

Associates (23) (180) (150) 0 0

Recurring non operating income (493) (574) (410) (60) (60)


Profit before tax 3,368 1,946 2,511 3,349 4,158

Tax (983) (591) (762) (1,017) (1,263)

Profit after tax 2,386 1,355 1,748 2,332 2,896

Minority interests 76 21 2 (38) (76)



Reported net profit 2,462 1,376 1,750 2,293 2,819


Recurring net profit 2,462 1,376 1,750 2,293 2,819

Per share (KRW)

Recurring EPS * 31,874 17,533 21,948 28,762 35,355

Reported EPS 31,874 17,533 21,948 28,762 35,355

DPS 10,681 7,926 8,000 10,000 10,000

Growth

Revenue (%) (7.7) (2.7) 2.4 3.7 3.1

Operating EBITDA (%) (19.6) (8.6) 18.5 5.5 11.6

Operating EBIT (%) (33.2) (18.0) 15.1 10.7 21.5

Recurring EPS (%) (32.6) (45.0) 25.2 31.0 22.9

Reported EPS (%) (32.6) (45.0) 25.2 31.0 22.9




Operating EBIT margin (%) 5.7 4.8 5.4 5.8 6.8

Net margin (%) 3.9 2.2 2.8 3.5 4.2

Effective tax rate (%) 29.2 30.4 30.4 30.4 30.4

Dividend payout on recurring profit (%) 33.5 45.2 36.4 34.8 28.3

Interest cover (x) - 7.6 7.6 9.2 10.9

Inventory days 77.6 70.8 66.0 63.4 64.3

Debtor days 64.5 66.5 64.7 62.0 62.2

Creditor days 29.8 29.9 28.8 28.0 28.3

Operating ROIC (%) 5.5 4.2 4.7 5.0 5.9

ROIC (%) 3.5 2.4 2.9 3.7 4.4

ROE (%) 6.3 3.4 4.1 5.2 6.2

ROA (%) 2.8 1.9 2.4 3.0 3.6


Revenue By Division (KRW b) 2012A 2013A 2014E 2015E 2016E

Steel 35,259 31,795 32,258 32,762 33,910

Construction 4,676 6,897 7,242 7,459 7,683

Trading 18,946 18,308 18,978 20,477 20,980

Others 4,724 4,865 4,865 5,011 5,162

Sources: POSCO; BNP Paribas estimates



Financial statements POSCO

Cash Flow (KRW b) Year Ending Dec 2012A 2013A 2014E 2015E 2016E

Recurring net profit 2,462 1,376 1,750 2,293 2,819

Depreciation 2,564 2,686 3,284 3,284 3,284


Other non-cash items (80) (61) (327) (107) 54


Change in working capital 2,374 857 810 (519) (444)



Free cash flow to equity 119 (3,942) (283) 151 1,913


Dividends paid (772) (618) (638) (638) (797)

Non recurring cash flows 584 48 261 (526) (1,073)

Net cash flow (69) (4,511) (660) (1,013) 42

Equity finance 0 1,848 0 0 0

Debt finance 0 1,646 (387) 124 114

Movement in cash (69) (1,018) (1,047) (889) 156

Per share (KRW)

Recurring cash flow per share 64,029 50,974 59,035 68,605 77,213

FCF to equity per share 1,546 (50,220) (3,547) 1,899 23,990

Balance Sheet (KRW b) Year Ending Dec 2012A 2013A 2014E 2015E 2016E






Goodwill 0 0 0 0 0


Investments 7,398 8,570 8,031 7,912 8,346

Other assets 8,026 8,459 8,882 9,326 9,792



Short term debt 10,509 10,714 10,360 10,360 10,360

Long term debt * 14,412 15,533 15,540 15,540 15,540

Net debt 18,183 18,813 19,513 20,402 20,246


Other liabilities 2,304 2,586 2,519 2,613 2,693

Total equity 39,454 42,046 43,158 44,654 46,676




Per share (KRW)

Book value per share 510,770 527,287 541,235 559,997 585,353

Tangible book value per share 510,770 527,287 541,235 559,997 585,353

Financial strength

Net debt/equity (%) 42.9 41.1 41.6 42.1 40.1


Current ratio (x) 1.6 1.6 1.5 1.5 1.5

CF interest cover (x) - 17.4 15.6 13.1 14.6

Valuation 2012A 2013A 2014E 2015E 2016E

Recurring P/E (x) * 9.2 16.7 13.3 10.2 8.3

Recurring P/E @ target price (x) * 11.5 20.8 16.6 12.7 10.3

Reported P/E (x) 9.2 16.7 13.3 10.2 8.3

Dividend yield (%) 3.7 2.7 2.7 3.4 3.4

P/CF (x) 4.6 5.7 5.0 4.3 3.8

P/FCF (x) 189.1 (5.8) (82.5) 154.0 12.2

Price/book (x) 0.6 0.6 0.5 0.5 0.5


EV/EBITDA (x) ** 7.8 9.1 7.5 6.7 6.0




Sources: POSCO; BNP Paribas estimates



Financial statements Hyundai Steel

Profit and Loss (KRW b) Year Ending Dec 2012A 2013A 2014E 2015E 2016E

Revenue 14,146 13,533 16,272 16,319 17,089




Operating costs (535) (576) (687) (708) (748)


Depreciation (706) (678) (1,160) (1,160) (1,160)

Goodwill amortisation (13) (14) (14) (14) (14)

Operating EBIT 872 763 1,331 1,519 1,877

Net financing costs 41 4 (349) (342) (314)

Associates 18 16 0 0 0



Profit before tax 931 782 981 1,177 1,563

Tax (134) (90) (196) (235) (344)

Profit after tax 796 692 785 942 1,219

Minority interests 0 0 0 0 0



Reported net profit 796 692 785 942 1,219


Recurring net profit 796 692 785 942 1,219

Per share (KRW)

Recurring EPS * 9,449 6,922 6,788 8,143 10,545

Reported EPS 9,449 6,922 6,788 8,143 10,545

DPS 790 716 716 716 916

Growth

Revenue (%) (7.3) (4.3) 20.2 0.3 4.7

Operating EBITDA (%) (19.4) (8.5) 72.2 7.5 13.3

Operating EBIT (%) (31.6) (12.5) 74.5 14.1 23.6

Recurring EPS (%) 6.5 (26.7) (1.9) 20.0 29.5

Reported EPS (%) 6.5 (26.7) (1.9) 20.0 29.5




Operating EBIT margin (%) 6.2 5.6 8.2 9.3 11.0

Net margin (%) 5.6 5.1 4.8 5.8 7.1

Effective tax rate (%) 14.4 11.6 20.0 20.0 22.0

Dividend payout on recurring profit (%) 8.4 10.3 10.6 8.8 8.7

Interest cover (x) - - 3.8 4.5 6.0

Inventory days 76.2 87.5 92.0 99.9 99.5

Debtor days 59.7 58.3 53.5 57.2 56.0

Creditor days 22.8 26.0 28.7 31.1 31.0

Operating ROIC (%) 4.5 3.4 4.7 5.4 6.5

ROIC (%) 4.0 3.1 4.2 4.7 5.6

ROE (%) 8.4 6.1 6.0 7.0 8.4

ROA (%) 3.4 2.6 3.6 4.1 4.8


Revenue By Division (KRW b) 2012A 2013A 2014E 2015E 2016E

HRC & CRC 5,936 5,441 7,834 7,625 7,616

Plate 1,107 955 1,772 2,247 2,332

Rebar 2,416 2,173 2,017 1,942 1,915

H beam 2,154 1,880 1,754 1,688 1,680

Section 812 786 737 714 1,437

Stainless steel CR 284 232 218 213 212

Heavy & others 1,420 1,348 1,261 1,225 1,233

Others 18 718 679 665 665

Sources: Hyundai Steel; BNP Paribas estimates



Financial statements Hyundai Steel

Cash Flow (KRW b) Year Ending Dec 2012A 2013A 2014E 2015E 2016E

Recurring net profit 796 692 785 942 1,219

Depreciation 706 678 1,160 1,160 1,160


Other non-cash items (154) (45) (485) (22) (498)


Change in working capital 820 (318) (411) (9) (147)



Free cash flow to equity (711) (1,306) (101) 921 734


Dividends paid 0 0 0 0 0

Non recurring cash flows 228 (318) (296) (173) 319

Net cash flow (482) (1,624) (397) 747 1,054

Equity finance (9) 325 0 0 0

Debt finance 158 1,051 34 (547) (518)

Movement in cash (333) (248) (363) 200 536

Per share (KRW)

Recurring cash flow per share 16,000 13,254 12,622 17,986 16,268

FCF to equity per share (8,433) (13,065) (876) 7,962 6,349

Balance Sheet (KRW b) Year Ending Dec 2012A 2013A 2014E 2015E 2016E






Goodwill 0 0 0 0 0


Investments 2,047 2,577 2,703 2,842 2,940

Other assets 391 593 623 654 687


Cash & equivalents (1,100) (852) (489) (690) (1,225)

Short term debt 4,036 3,810 5,080 4,880 4,680

Long term debt * 6,550 8,890 7,620 7,320 7,020

Net debt 9,486 11,848 12,211 11,510 10,475



Total equity 9,831 12,977 13,079 13,938 15,051

Minority interests 157 170 170 170 170



Per share (KRW)

Book value per share 116,638 112,228 113,111 120,538 130,167

Tangible book value per share 116,638 112,228 113,111 120,538 130,167

Financial strength

Net debt/equity (%) 95.0 90.1 92.2 81.6 68.8


Current ratio (x) 0.9 1.0 0.8 0.9 1.0

CF interest cover (x) - - 4.0 7.1 6.5

Valuation 2012A 2013A 2014E 2015E 2016E

Recurring P/E (x) * 7.2 9.8 10.0 8.4 6.4

Recurring P/E @ target price (x) * 8.5 11.6 11.9 9.9 7.6

Reported P/E (x) 7.2 9.8 10.0 8.4 6.4

Dividend yield (%) 1.2 1.1 1.1 1.1 1.3

P/CF (x) 4.2 5.1 5.4 3.8 4.2

P/FCF (x) (8.1) (5.2) (77.7) 8.5 10.7

Price/book (x) 0.6 0.6 0.6 0.6 0.5


EV/EBITDA (x) ** 9.3 12.0 8.0 7.4 6.2




Sources: Hyundai Steel; BNP Paribas estimates



Disclaimers and Disclosures

APPENDIX

DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S) (BNP Paribas Securities (Asia) Ltd)

ANALYST(S) CERTIFICATION

Rachel Cheung, BNP Paribas Securities (Asia) Ltd, +852 2825 1824, [email protected].

The analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certify(ies) that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies or issuers mentioned in this report; and (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst herein. Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSE and/or FINRA regulations.

IMPORTANT DISCLOSURES REQUIRED IN THE UNITED STATES BY FINRA RULES AND OTHER JURISDICTIONS "BNP Paribas” is the marketing name for the global banking and markets business of BNP Paribas Group. No portion of this report was prepared by BNP Paribas Securities Corp (US) personnel, and it is considered Third-Party Affiliate research under NASD Rule 2711. The following disclosures relate to relationships between companies covered in this research report and the BNP entity identified on the cover of this report, BNP Securities Corp., and other entities within the BNP Paribas Group (collectively, "BNP Paribas").

The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this report:

Company Ticker Disclosure (as applicable)

Angang Steel 347 HK 6

POSCO 005490 KS 5

BNP Paribas represents that: 1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees. 2. It had an investment banking relationship with this company in the last 12 months. 3. It received compensation for investment banking services from this company in the last 12 months. 4. It expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months. 5. It beneficially owns 1% or more of any class of common equity securities of the subject company. 6. It makes a market in securities in respect of this company. 7. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in

securities issued by this company. The financial interest is in the common stock of the subject company, unless otherwise noted. 8. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company or has received compensation from the

company.

IMPORTANT DISCLOSURES REQUIRED IN KOREA The disclosure column in the following table lists the important disclosures applicable to each Korea listed company that has been rated and/or recommended in this report:

Company Ticker Price (as of 28-Apr-2014 closing price) Interest

POSCO 005490 KS KRW292,500 N/A

Hyundai Steel 004020 KS KRW68,000 N/A

1. The performance of obligations of the Company is directly or indirectly guaranteed by BNP Paribas Securities Korea Co. Ltd (“BNPPSK”) by means of payment guarantees, endorsements, and provision of collaterals and/or taking over the obligations.

2. BNPPSK owns 1/100 or more of the total outstanding shares issued by the Company. 3. The Company is an affiliate of BNPPSK as prescribed by Item 3, Article 2 of the Monopoly Regulation and Fair Trade Act. 4. BNPPSK is the financial advisory agent of the Company for the Merger and Acquisition transaction or of the Target Company whereby the size of the

transaction does not exceed 5/100 of the total asset of the Company or the total number of outstanding shares. 5. BNPPSK has taken financial advisory service regarding listing to the Company within the past 1 year. 6. With regards to the tender offer initiated by the Company based on Item 2, Article 133 of the Financial Investment Services and Capital Market Act,

BNPPSK acts in the capacity of the agent for the tender offer designated either by the Company or by the target company, provided that this provision shall apply only where tender offer has not expired.

7. the listed company which issued the stocks in question in case where 40 days has not passed since the new shares were listed from the date of entering into arrangement for public offering or underwriting-related agreement for issuance of stocks

8. The Company is recognized as having considerable interests with BNPPSK. 9. The analyst or his/her spouse owns (including delivery claims of marketable securities based on legal regulations and trading and misc. contracts) the

following securities or rights (hereinafter referred to as “Securities, etc.” in this Article) regardless of whose name is used in the trading. 1) Stocks, bond with stock certificate, and certificate of pre-emptive rights issued by the Company whose securities dealings are being solicited. 2) Stock options of the Company whose securities dealings are being solicited. 3) Individual stock future, stock option, and warrants that use the stocks specified in Item 1) as underlying.



History of change in investment rating and/or target price

Angang Steel (347 HK)

rachel.cheung started covering this stock from 07-Feb-2012 Price and TP are in local currency Valuation and risks: Upside risks to our PB-based TP: 1) earlier steel mill closures than we expect due to tight funding; 2) announcement of a solid plan for closure compensation by the Hebei government; and 3) lower-than-expected capacity in the central government’s third list of up-to-standard steel mills in early 2014 Sources: Bloomberg; BNP Paribas

Maanshan Steel (323 HK)

Rachel.cheung started covering this stock from 07-Feb-2012 Price and TP are in local currency Valuation and risks: Upside risks to our PB-based TP are: lower-than-expected coke and iron ore prices in 2014; and a higher steel price. Downside risks: tighter liquidity; and a sharp drop in steel prices and cash profit Sources: Bloomberg; BNP Paribas

POSCO (005490 KS)

rachel.cheung started covering this stock from 04-Apr-2014 Price and TP are in local currency Valuation and risks: Risks to our residual income based TP include: 1) HMC or other automotive customers lowering automotive sheet prices again in 2H14; 2) higher-than expected iron ore prices; 3) larger-than-expected losses in its Indonesia business; and 4) lower-than-expected earnings from the Myanmar project. Sources: Bloomberg; BNP Paribas

Date Reco TP

27-Apr-11 HOLD 10.20

19-Sep-11 Not Rated

7-Feb-12 BUY 7.12

5-Jul-13 HOLD 3.42

9-Jan-14 REDUCE 4.65

3.07

4.07

5.07

6.07

7.07

8.07

9.07

10.07

11.07

Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14

(HKD) Angang Steel Target Price

Date Reco TP

27-Apr-11 HOLD 3.80

19-Sep-11 Not Rated

7-Feb-12 BUY 3.57

5-Jul-13 REDUCE 1.32

9-Jan-14 HOLD 2.11

1.18

1.68

2.18

2.68

3.18

3.68

4.18


(HKD) Maanshan Steel Target Price

Date Reco TP

27-Apr-11 BUY 610,000.00

1-Jul-11 BUY 580,000.00

20-Sep-11 BUY 530,000.00

3-Jul-12 BUY 500,000.00

29-Nov-12 BUY 420,000.00

13-Mar-13 HOLD 360,000.00

10-Jun-13 HOLD 300,000.00

21-Aug-13 HOLD 330,000.00

31-Mar-14 Not Rated

4-Apr-14 BUY 380,307.55

24-Apr-14 BUY 365,000.00

245,250

295,250

345,250

395,250

445,250

495,250

545,250

595,250

645,250


(KRW) POSCO Target Price



Hyundai Steel (004020 KS)

rachel.cheung started covering this stock from 04-Apr-2014 Price and TP are in local currency Valuation and risks: Downside risks to our TP, based on our residual income model, are: 1) HMG lowering its automotive sheet price again in 2H14 following the decline in iron ore prices, 2) higher-than-expected scrap prices, and 3) an increase in China’s section steel imports, thus eroding prices for Korean steel Sources: Bloomberg; BNP Paribas

GENERAL DISCLAIMER This report was produced by BNP Paribas Securities (Asia) Ltd, member company(ies) of the BNP Paribas Group. This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set forth herein. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Customers are advised to use the information contained herein as just one of many inputs and considerations prior to engaging in any trading activity. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other investments. This report is not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the recipient’s own independent verification, or taken in substitution for the exercise of judgment by the recipient. Additionally, the products mentioned in this report may not be available for sale in certain jurisdictions. As an investment bank with a wide range of activities, BNP Paribas may face conflicts of interest, which are resolved under applicable legal provisions and internal guidelines. You should be aware, however, that BNP Paribas may engage in transactions in a manner inconsistent with the views expressed in this document, either for its own account or for the account of its clients.

Australia: This report is being distributed in Australia by BNP Paribas Sydney Branch, registered in Australia as ABN 23 000 000 117 at 60 Castlereagh Street Sydney NSW 2000. BNP Paribas Sydney Branch is licensed under the Banking Act 1959 and the holder of Australian Financial Services Licence no. 238043 and therefore subject to regulation by the Australian Securities & Investments Commission in relation to delivery of financial services. By accepting this document you agree to be bound by the foregoing limitations, and acknowledge that information and opinions in this document relate to financial products or financial services which are delivered solely to wholesale clients (in terms of the Corporations Act 2001, sections 761G and 761GA; Corporations Regulations 2001, division 2, reg. 7.1.18 & 7.1.19) and/or professional investors (as defined in section 9 of the Corporations Act 2001).

Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence.

Hong Kong: This report is prepared for professional investors and is being distributed in Hong Kong by BNP Paribas Securities (Asia) Limited to persons whose business involves the acquisition, disposal or holding of securities, whether as principal or agent. BNP Paribas Securities (Asia) Limited, a subsidiary of BNP Paribas, is regulated by the Securities and Futures Commission for the conduct of dealing in securities, advising on securities, providing automated trading services, dealing in futures contacts and advising on corporate finance. For professional investors in Hong Kong, please contact BNP Paribas Securities (Asia) Limited for all matters and queries relating to this report.

India: In India, this document is being distributed by BNP Paribas Securities India Pvt. Ltd. ("BNPPSIPL"), having its registered office at 5th floor, BNP Paribas House, 1 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 (Tel. no. +91 22 3370 4000 / 6196 4000). BNPPSIPL is registered with the Securities and Exchange Board of India (“SEBI”) as a stockbroker in the Equities and the Futures & Options segments of National Stock Exchange of India Ltd. and Bombay Stock Exchange Ltd. (SEBI regn. nos. INB/INF231474835, INB/INF011474831).

Indonesia: This report is being distributed by PT BNP Paribas Securities Indonesia and is delivered by licensed employee(s) to its clients. PT BNP Paribas Securities Indonesia, having its registered office at Menara BCA, 35th Floor, Grand Indonesia, Jl. M.H.Thamrin No.1, Jakarta, 10310, Indonesia, is a fully subsidiaries company of BNP Paribas SA and is licensed under Capital Market Law No. 8 of 1995 and the holder of broker-dealer and underwriter licenses issued by the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK). PT BNP Paribas Securities Indonesia is also a member of Indonesia Stock Exchange. Neither this research publication nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens except in compliance with applicable Indonesian capital market laws and regulations. This research publication is not an offer of securities in Indonesia. Some of the securities referred to in this research publication have not been registered with the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstance which constitute an offer within the meaning of Indonesian capital market laws and regulations.

Japan: This report is being distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited or by a subsidiary or affiliate of BNP Paribas not registered as a financial instruments firm in Japan, to certain financial institutions defined by article 17-3, item 1 of the Financial Instruments and Exchange Law Enforcement Order. BNP Paribas Securities (Japan) Limited is a financial instruments firm registered according to the Financial Instruments and Exchange Law of Japan and a member of the Japan Securities Dealers Association, the Financial Futures Association of Japan and the Type II Financial Instruments Firms Association. BNP Paribas Securities (Japan) Limited accepts responsibility for the content of a report prepared by another non-Japan affiliate only when distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited. Some of the foreign securities stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan.

Date Reco TP

27-Apr-11 BUY 170,000.00

20-Sep-11 BUY 137,000.00

3-Jul-12 BUY 100,000.00

17-Oct-12 BUY 99,000.00

16-Aug-13 Not Rated

4-Apr-14 BUY 85,301.03

26-Apr-14 BUY 80,500.00

54,990

74,990

94,990

114,990

134,990

154,990

174,990


(KRW) Hyundai Steel Target Price



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Additional Disclosures Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this note or your BNP Paribas representative.

All share prices are as at market close on 28 April 2014 unless otherwise stated.



RECOMMENDATION STRUCTURE

Stock Ratings Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price. BUY (B). The upside is 10% or more. HOLD (H). The upside or downside is less than 10%. REDUCE (R). The downside is 10% or more. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation. * In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.

Industry Recommendations Improving (é): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months. Stable (previously known as Neutral) (çè): The analyst expects the fundamental conditions of the sector to be maintained over the next 12 months. Deteriorating (ê): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months. Country (Strategy) Recommendations Overweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Neutral (N). Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Underweight (U). Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.

RATING DISTRIBUTION (as at 28 April 2014)

Total BNP Paribas coverage universe 663 Investment Banking Relationship (%)

Buy 346 Buy 4.30

Hold 211 Hold 4.30

Reduce 106 Reduce 2.80

Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report.

© 2014 BNP Paribas Group

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