www.wooriwm.com

2013 earnings turnaround to be weaker than expected

4Q12 preview: Earnings to miss consensus on deter iorating margins at housing arm

We expect Hyundai Development Company (HDC) to register 4Q12 (consolidated) sales of W943.4bn (down 23% y-y). On a non-consolidated basis, sales are estimated at W647bn, a decline of 35% y-y.

Amid the sharp deterioration of the pre-sale apartment market since early-2012, the companys gross margin is highly likely to disappoint at some recently-completed projects (in 4Q12), including projects in Ulsan and Daegu.

We revise down our 2013 (consolidated) operating margin forecast from 7.9% to 6.4% (vs 9.8% in 2011 and 1.5% in 2012), as: 1) margins on self-owned land construction projects are expected to fall sharply; and 2) the sales contribution from self-owned land construction projects is likely to rise slower than expected, given that in 2012, the number of pre-sale apartments related to self-owned construction projects stood at only 3,800 units (out of total pre-sale apartments of 11,300 units).

Will shares return to housing sector boom P/B level of 1x?

We maintain our Hold rating and slightly lower our target from W23,000 to W22,000.

Believing that it is unlikely to enjoy a lofty ROE (such as that experienced during the housing sector boom), we maintain our conservative stance towards HDC. Assuming the companys portfolio remains centered on housing, we estimate a sustainable ROE of 5~6% and a fair P/B of around 0.7x.

That being said, should the firms shares pull back sharply (due to soft 4Q12 results), we recommend adopting a conservative trading buy approach, given that the property market is likely to pick up gradually in Seoul and neighboring cities in 2H13.

In order to merit a P/B valuation of more than 0.7x, we believe that sustainable ROE growth is necessary. Fortunately, according to recent media reports, there is possibility that HDC will secure orders related to the Tongyeong complex power plant number one (920MW), a project which is outlined under the governments 6th Long-term Power Development Plan. Should the company secure growth potential in the power plant market, we believe that its sustainable ROE would improve.

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Hyundai Development Company

KOSPI

Hyundai Development Company (012630.KS) Comment Jan 25, 2013

4Q12 preview (Units: Wbn, %)

4Q12E 4Q11 3Q12 Estimates y-y q-q Consensus

Sales 1,225.4 806.9 943.4 -23.0 16.9 940.9 Operating profit 149.9 27.0 2.8 -98.1 -89.5 54.5 Pre-tax profit 115.6 15.6 -15.5 N/A N/A 33.6 Net profit excl minority interests 90.8 6.8 -13.9 N/A N/A 25.5 Source: FnGuide, Woori I&S Research Center estimates

Sector Construction Kospi 1,964.48 Kosdaq 508.63 Market cap (common) US$1,529.28mn Outstanding shares (common) 75.4mn 52W high (12/03/16) W28,850 low (12/11/16) W17,800 Dividend yield (2011) 4.2% Foreign ownership 49.0%

Hold (maintain) TP W22,000 (lower) CP (13/01/24) W21,650

Analyst

Wayne Lee 822)768-7598, wayne.lee@wooriwm.com

Derek Lee 822)768-7737, derek.lee@wooriwm.com

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Hyundai Development Company www.wooriwm.com

Earnings forecasts (Units: Wbn, won, x, %)

2011 2012E 2013F 2014F Sales - Revised 4,108 3,361 3,927 4,162

- Previous 3,361 3,807 4,083

- Change 0.0 3.2 1.9

Operating profit - Revised 401 52 251 275

- Previous 115 302 368

- Change -55.0 -16.7 -25.2

Adj operating profit - Revised 403 116 251 275

- Previous 179 302 368

- Change -35.2 -16.7 -25.2

EBITDA 438 75 276 300

Net profit 225 27 131 147

Net profit excl minority interests 222 20 119 133

EPS - Revised 2,942 269 1,582 1,771

- Previous 563 1,644 2,099

- Change -52.2 -3.7 -15.6

P/E 5.7 80.5 13.7 12.2

P/B 0.5 0.7 0.7 0.6

EV/EBITDA 7.0 42.3 11.7 10.8

ROE 9.1 0.8 4.8 5.2

Source: Woori I&S Research Center estimates

With current business structure, ROE and P/B unlikely to rise above 5% and 0.7x, respectively

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Hyundai Development Company www.wooriwm.com

Rating and target price update

Company Code Date Rating Target price

Hyundai Development

Company 012630.KS 2013.01.25 Hold W22,000(12M)

2012.07.23 Hold W23,000(12M)

2012.07.05 Hold W25,900(12M)

2011.10.13 Hold W22,500(12M)

2011.04.13 Hold W34,000(12M)

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Woori Investment & Securities stock ratings

1. Period: Uniform 12-month 2. Rating System: Based on a stocks absolute return from the date of publication

l Strong Buy: high conviction Buy rated stocks l Buy: greater than +15% l Hold: 0% and +15% l Reduce: less than 0%

Compliance notice

l Woori I&S does not have a stake greater than or equal to 1% in Hyundai Development Company as of the preparation date. l Woori I&S has not provided this material to any institutional investor or other third party in advance. l The analyst and his/her spouse do not own any securities of Hyundai Development Company as of the preparation date. l This report correctly reflects the analysts opinion and was written without any external influence or intervention.

Disclosures

The research is based on current public information that Woori I&S considers reliable, but Woori I&S does not represent it as accurate or complete and it should not be relied on as such. Furthermore, the research does not take into account particular investment objectives, financial situations or individual client needs, and Woori I&S is in no way legally responsible for future returns or loss of original capital. All materials in this report are the intellectual property of Woori I&S. Copying, distributing, transmitting, transforming or lending of this material without Woori I&S' consent is prohibited.