Company Report

Wonik Materials
BUY (I) / TP: W 55,000 (I)

(104830 KS)

Sung-ho Jo
sungho.jo@tongyang.co.kr +822-3770-3478

Growing on stable earnings

Small-batch producer of diverse specialty gases
Wonik Materials makes high-purity specialty gases used in semicon/display lines. The company was split off from Atto (currently Wonik IPS) on Dec 1, 2006. Its major products are NH3 (ammonia) and NO (nitric oxide), and major merchandise products are GeH4 (germane) and Si2H6 (disilane). Its key customer is Samsung Electronics (SEC; 68% of sales), and the largest shareholder is Wonik IPS (48.7% stake).

Set to benefit from rising semicon and AMOLED investment

Jun 28, 2012

KOREA IT component
Share price (won, Jun 25) Paid-in capital (Wbn) Market cap (Wbn) BPS (won) Net debt to equity (%) Shares outstanding Avg daily T/O (2M, Wbn) Avg daily vol (2M, shrs) 52-week high (won) 52-week low (won) Foreign ownership (%) Major shareholders (%) Wonik IPS 49.6 43,200 3 255 18,459 -47.1 5,909,000 1 14,511 48,000 35,500 3.90

As an exclusive supplier of specialty gas for SECs new semicon lines, Wonik Materials has taken away some market share from overseas rivals. It is also the exclusive supplier of 13 of 15 specialty gases used in AMOLED lines. Thus, it is well set to benefit from larger investment in memory semicon, flexible AMOLED panel lines, and large AMOLED lines.

Stronger ties with customers thanks to differentiated service

Wonik currently makes small batches of more than 100 gas products, but has to shift to mass production for some to satisfy customer demands. In particular, it is expanding facilities for mass production of NO and N2O (nitrous oxide). It is also trying to source GeH4 domestically to strengthen its ties with customers.

Stock performance (%)

1M Absolute Relative Abs (US$)
(won) 60,000 50,000 40,000 30,000 60 20,000 10,000 0 Dec 2011 WIMCO(LHS) Rel. to KOSDAQ(RHS) 40 20 0

3M (5.0) 3.5 (7.0)

12M

Forecasts and valuations (K-IFRS)

FY ends Dec Sales Chg (% y-y) Reported OP Adjusted OP* NP, CI EPS, CI (won) Chg (% y-y) P/E (x) P/B (x) EV/EBITDA (x) ROA (%) ROE (%) 2010 66.6 12.0 15.1 15.1 11.4 2,757.9 9.4 0.0 0.0 0.0 18.3 26.5 2011 90.0 35.2 19.8 20.0 15.7 3,759.8 36.3 10.2 2.1 7.3 15.5 19.9 2012E 110.9 23.2 24.4 24.4 19.4 3,301.9 -12.2 12.9 2.0 7.0 13.9 16.4 2013E 137.6 24.1 30.4 30.4 23.9 4,062.0 23.0 10.5 1.7 5.2 14.9 17

(Wbn) 2014E 165.1 20.0 36.5 36.5 28.7 4,882.7 20.2 8.7 1.4 3.9 15.1 17.3

4.6 (0.2) 6.5

(%) 140 120 100 80

Source: Datastream

Note: * Adjusted OP = reported OP (K-IFRS) other operating profit/loss. CI = controlling interest Source: TONGYANG Securities

www.tys.co.kr/english

TONGYANG Research

Wonik Materials (104830 KS)

Small-batch producer of diverse specialty gases

Makes and sells diversified high purity special gases
Wonik Materials makes high-purity specialty gases used in semicon/display lines. The company was split off from Atto (currently Wonik IPS) on Dec 1, 2006. It began supplying small amounts of specialty gases in 2003 upon customer requests and later emerged as a small-batch producer of diverse specialty gases. Its major products are: 1) NH3, the nitride material for semiconductors and LED; 2) NO, nitric oxide used as the oxide material for NAND; 3) GeH4, germane, material to form electrode shield; and 4) Si2H6, disilane, used to make polysilicon. Others include PH3 (phosphine), and C3H6, propylene, used as a material for etching hard mask. GeH4 generates 30% of total sales, and the rest less than 10%.
Table 1. Key products and merchandises
Application NO (nitric oxide) NH3 (ammonia) C3H6 (propylene) PH3 N2O GeH4 (germane gas) Merchandise Semicon Diffusion, CVD process Semicon, LCD, AMOLED Semicon, LCD, thin film Product Semicon (F) Process Heat treatment process (annealing in flash mem) Auxiliary End prod Note gas after evap SiON Si3N4, [GaN] Highly durable oxide with N-rich layer growth Accounts for 30% of domestic highpurity NH3 market

Semicon (F), LCD, crystal Used for nitride evaporation SiH4, form, AMOLED, LED (GaN formed in LED) [TMGa] Semicon Evaporation gas for semicon etching hard mask Material for diffusion process Used for oxide evaporation Electrode shield formed (to cap capacitor top plate) SiH4 SiH4

SiO2 SiGe Better than SiH4 in response and evaporation speed, and uniformity of contacted area Exclusive supplier for SEC semicon Accounts for 90% of domestic mkt

Si2H6 (disilane)

Note: Semiconductor (F)-Flash Memory, Semiconductor (D)-DRAM; crystal form and thin film are solar cell type Source: Company data, TONGYANG Securities

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Table 2. Characteristics, by customer

Company SEC Semiconductor Major products GeH4, NO, NH3 Note To use more domestic specialty gases Supplying to new semicon lines; likely to supply if SEC expands capacity further SEC SMD LCD AMOLED GeH4, NO, NH3 N2O, NH3 LCD industry to grow y-y on demand recovery Exclusively supplies 13 of 15 gases (excl NF3, SiH4); SMD sales account for 60% of total Demand to grow on A2P2 lines coming on-line in 2012 SK Hynix Semiconductor Portion of sales to SK Hynix very small due to lack of investment in specialty gas; may supply specialty gas to new lines from 2H after SKT acquisition

Source: Company data, TONGYANG Securities

By business, 72% of sales come from the semicon industry, 14% from FPD, 6% from LED, and 8% from other. The semicon industry should continue to represent a large portion of sales until 2014, when the AMOLED TV market is expected to expand. The key customer is SEC, which accounted for 68% of sales in 2011. If all affiliates (SMD and Samsung LED) are included, sales from the Samsung Group account for 86% of total sales. Other customers include SK Hynix. With large sales dependence on the Samsung Group, relations with the group have a big impact on earnings. The largest shareholder is Wonik IPS, with a 48.7% stake.
Chart 1. Customer breakdown (2011) Chart 2. Sales breakdown (2011)

O ther 1 5 .6 %

O ther 6% P roduc t M erc handis e 49% 45% (N O , N 2 O , C 3 H 6 , N H 3 , etc )

Sams ung affiliates 8 5 .7 % T otal s ales W9 0 bn (G 2 H 4 , Si2 H 6 , etc )

T otal s ales W9 0 bn

Source: Company data, TONGYANG Securities

Source: Company data, TONGYANG Securities

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Wonik Materials (104830 KS)

Chart 3. Sales breakdown by business (2011)

O ther 8%

Chart 4. Shareholder breakdown

LE D 6% A M O LED 9% LC D 5%

O ther 22%

Wonik I P S 49%

NPS 6% Y urie A s s et Semic on 7 2 % M gmt 7 % Stic I nves tment T otal s ales W9 0 bn #1 9 8% KoFC Woori G rowth C hamp 8%

Total shares outstanding: 5,909,000

Source: Company data, TONGYANG Securities

Source: Company data, TONGYANG Securities

Stiff entry barrier and customer satisfaction sustain growth

The specialty gas industry has stiff entry barriers. A company building a new line or undergoing technical migration is unlikely to suddenly switch its gas supplier, because even the slightest difference in a gas properties can reduce yields and the quality of the finished good. Because of this high entry barrier, Wonik has been able to achieve steady sales growth, while maintaining margins around 20%. Wonik is very good at supplying a wide variety of specialty gases in small batches. Thanks to its solid track record, it is now supplying for Samsungs new semicon line. Its rivals include Kanto Denka Korea, Matheson Gas Products Korea, and Air Products Korea. But given Woniks good customer service and greater production in Korea, we think Woniks sales will grow faster than peers as downstream industries move to localize their supplier base.
Chart 5. Sales in 2006~2011
(Wbn)

Chart 6. Operating margin in 2006~2011

25% 20% 6 6 .6 5 9 .5 15% 10% 5% 0% 2 3 .2 % 2 0 .9 % 2 2 .6 % 2 0 .2 % 2 1 .9 %

100 90 80 70 60 50 40 30 20 10 0 2006 2007 2008 2009 2010 1 .8 3 4 .2 4 7 .2

9 0 .0

-5% -4 .5 % -10% 2011 2006 2007 2008 2009 2010 2011

Source: Wonik Materials, TONGYANG Securities

Source: Wonik Materials, TONGYANG Securities

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Chart 7. Client mix (Samsungs sales portion)

SE C s emic on SM D O thers 9 0 .0 % 8 7 .2 % SE C L C D Sams ung L E D % Sams ung affiliates 8 5 .7 % 8 2 .3 % 100% 80% 60% 40% 20% 0% 2008 2009 2010 2011

Chart 8. Peer comparison: y-y sales growth, 2008~2011

30% 25% 20% 15% 10% 5% 0% -5 % -10% -6 .2 % Wonik OCI D aes ung Kanto M athes on D enka Korea G as Korea A ir P rodutc s Korea M aterials M aterial I nd G as - 1 .3 % -0 .1 % 2 4 .0 % 2 3 .9 %

(Wbn) 100 80 60 40 20 -

1 3 .3 %

A vg s ales C A G R 9 .0 %

Source: Wonik Materials, TONGYANG Securities

Source: Wonik Materials, TONGYANG Securities

Valuation
We initiate coverage of Wonik Materials at BUY with a target price of W55,000. By offering a wide variety of specialty gases in small batchesa business that can be dangerous and time-consumingit was able to distinguish itself from others and forge a close relationship with Samsung Electronics (SEC). It is building a plant in Jeonui to boost capacity and is working on in-house production of GeH4, which it has imported from overseas. We expect Wonik to continue to grow thanks to its solid client base. We are especially upbeat about the outlook for AMOLED-related business. Wonik supplies 13 of the 15 gases needed in the AMOLED process and its major client is SMD, a leader in the AMOLED industry. Woniks growth potential looks even stronger if we consider the potential rise of AMOLED TV. That said, we advise investors take a long-term approach, given uncertain global macro conditions. Our target price of W55,000 is the average of fair value estimates based on ROE-P/B and sum-of-the-parts valuations. In sum-of-the-parts, we used the average peer EV/EBITDA of 7.8x. We also applied a 20% premium given its close ties with SEC, tough entry barriers, and stable earnings. For the ROE-P/B analysis, we assumed a cost of equity of 12.1% (risk-free return 5%, expected return 10.5%, beta 1.1x) and perpetual growth rate of 5% to calculate a fair P/B. We then applied a 20% premium to the same reasons as above.

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Wonik Materials (104830 KS)

Table 3. Sum-of-the-parts valuation

Value of operations (1) 2012E EBITDA Fair multiple (x) Premium (%) Value of assets (2) Securities under equity method Long-term securities Net cash (3) Shareholder value (1 + 2 + 3) Total shares (000 shrs) Target price 278 30 7.8 20 2 0 2 47 327 5,909 55,411

(Wbn)

2012E average peer EV/EBITDA Close ties with SEC, high entry barrier, stable earnings 2011 book value

2012E

Note: Peers are OCI Materials, Cheil Industries, and Nano Plasma Center Source: TONGYANG Securities

Table 4. ROE-P/B analysis

Valuations Rf (%) Rm (%) Beta (x) Ce (%) ROE (%) G (%) Fair P/B (x) Estimated BPS (won) Premium (%) Target price (won) Source: TONGYANG Securities 3.5 10.0 1.1 10.6 16.7 5.0 2.1 21,700 20% 54,607 P/B = (ROE - g) / (Ce - g) 2012E Close ties with SEC, high entry barrier, stable earnings Ce = Rf + x (Rm - Rf) Average ROE in 2012E ~2013E

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Table 5. Peer group comparison

Wonik Materials Sales 2011 2012E 2013E Reported OP 2011 2012E 2013E NP 2011 2012E 2013E EPS (won) 2011 2012E 2013E P/E (x) 2011 2012E 2013E P/B (x) 2011 2012E 2013E EV/EBITDA (x) 2011 2012E 2013E ROE (%) 2011 2012E 2013E 19.91 18.29 21.08 22.2 15.22 15.31 8.18 9.50 10.90 28.97 27.82 29.24 7.3 6.7 4.6 6.3 3.9 3.1 15.7 10.8 8.9 17.1 13.7 9.5 2.1 2.1 1.7 3.5 1.2 1.1 1.8 1.5 1.3 4.6 3.5 2.7 10.2 12.1 8.8 17.2 8.4 7.3 23.4 16.5 13.1 21.1 16.0 11.5 3,760 3,639 4,990 6,230 5,025 5,769 4,725 6,097 7,660 1,181 1,512 2,105 15.7 21.4 29.5 65.7 53.0 60.9 241.1 319.7 401.7 34.6 44.5 61.9 19.8 26.4 35.6 97.8 75.6 87.2 281.8 403.3 567.3 34.7 46.2 64.9 90.0 113.7 147.9 296.4 292.9 319.1 5,417.3 6,296.8 7,309.7 129.4 163.8 229.6 OCI Materials Cheil Industries DS Hi-Metal

(Wbn)
Nano Plasma Center 33.5 50.0 92.2 4.5 11.0 24.0 4.7 9.6 20.9 662 1,327 2,883 26.1 13.3 6.1 2.0 1.9 1.5 21.7 9.2 4.3 11.15 15.47 28.23

Note: Figures for Wonik and Cheil are our estimates (Cheil based on consolidated); OCI, DS, Nano are consensus Source: Fnguide, TONGYANG Securities

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Wonik Materials (104830 KS)

Investment points

1. Earnings stability
While specialty gases are an important part of a process, able to affect yields and product functions, they makes up only about 10% of raw material costs. As such, there is not much benefit in reducing cost, so pricing pressure from clients is fairly limited. Also, relationships with clients usually last a long time because switching suppliers often means lower yields. Thus, special gas supplies show relatively stable earnings trends.

2. Capacity growth
Wonik is building another plant (its second) in Jeonui, where it will produce GeH4, as well as NO and N2O. This expansion is part of efforts to meet surging demand from Korean clients. Like with chemicals, a special gas properties can change during transportation, and thus, clients are more inclined to source them locally rather than ship them in from overseas.

3. Beneficiary of increased capex for semiconductor and AMOLED

Wonik is set to benefit from increased capex for semicon and AMOLED. Semicon demand continues to rise, and major client SEC plans to build its #16 NAND flash line in China. Meanwhile, AMOLED is a fledgling industry, with SMD expected to start building its V1 line at end-2012. We expect the rise of AMOLED TVs to be a boon to specialty gas demand going forward.

4. Market share growth on distinguished service and attractive price

The market for specialty gases used in semicon and display is dominated by foreign companies, as specialty gases require high refining technology. However, Wonik has managed to narrow the quality gap vs foreign names, while lowering prices. As a result, it has become a major specialty gas supplier for SECs new semicon line. It continues to expand its market share on distinguished services and competitive prices.

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Rising semicon and AMOLED investment a boon

Wonik Materials supplies high-purity specialty gases, whose downstream industries include semicon and display. Key customers are SEC and SMD, whose addition of new lines should translate to sales growth for Wonik. With SEC and SMD expected to continue to ramp up investment this year, we expect Wonik to benefit substantially.

Supplies specialty gas for SECs new semicon lines

Wonik has recently been the exclusive supplier of specialty gases for SECs newly added semicon lines. It was able to beat overseas rivals thanks to its close ties with SEC, streamlined production lines, and price competitiveness. We are upbeat about Wonik expanding its presence in the specialty gas market. SEC is poised to continue to ramp up semicon lines. After this years tech migration, SEC plans to invest in semicon lines. During tech migration, demand for GeH4 and Si2H6 should rise, which we believe will boost Woniks sales. Also, even if SEC adds new fabs in China, it will likely purchase products from Wonik, as Chinese players offer low-quality specialty gas.
Chart 9. SECs memory chip wafer input
('0 0 0 /month) 1 ,4 0 0 1 ,2 0 0 1 ,0 0 0 800 600 400 200 2010 2011 2012E 2013E 1 ,1 3 5 1 ,0 1 0 1 ,2 0 0 1 ,2 6 2

Chart 10. Wonik Materials semicon-related sales

(Wbn) 70 60 50 40 30 20 10 0 2010 2011 2012E 2013E 53 57 6 1 .5 6 4 .4

Source: TONGYANG Securities

Source: TONGYANG Securities

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Wonik Materials (104830 KS)

Wonik supplies 13 of 15 specialty gases for AMOLED production

AMOLED is emerging as an alternative to LCD, the current leader in display panels. Furthermore, as SMD takes the lead in the AMOLED market, this should be a boon to its part suppliers. Wonik began supplying specialty gas to Samsung SDI, when SDI (whose AMOLED division was transferred to SMD) started doing R&D for AMOLED; Wonik is now the exclusive supplier of 13 of the 15 specialty gases need in AMOLED production. (The remaining two gases, NF3 and SiH4, are supplied by OCI Materials.) Wonik supplies 60% of SMDs specialty gas needs (based on SMDs purchasing). AMOLED panels are currently being used only in some smartphones and tablets, but the market should grow if AMOLED TVs become popular. Currently, Wonik is the exclusive supplier of specialty gas for SMDs small-to-mid-sized-AMOLED lines. SMD plans to stick to a sole vendor strategy, and Wonik should benefit substantially. In particular, SMD plans to ramp up flexible and large-size display lines this year, meaning Woniks AMOLED-related sales should surge next year.
Chart 11. SMD monthly AMOLED panel capacity outlook
('0 0 0 /month) 200 180 160 140 120 100 80 60 40 20 0 2010 2011 2012E 2013E V 1 (8 G ) V 1 pilot (8 G ) A 3 (5 .5 G ) A 2 (5 .5 G ) A 1 (4 .5 G )

Chart 12. Woniks AMOLED related sales

(Wbn)

40 35 30 25 20 15 10 5 0 2010 2011 2012E 2 .5 8 1 9 .3

3 4 .2

2013E

Source: TONGYANG Securities

Source: TONGYANG Securities

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Earnings growth to continue

We forecast 2012 sales at W110.9bn (+23.2% y-y), operating profit at W24.4bn (+21.6% y-y), and operating margin at 22%. Rising semicon investment should be a boon to Wonik, and this year, stronger momentum should come from a spike in specialty gas demand as SMD ramps up AMOLED production lines. We expect Woniks AMOLED-related sales to jump 135% y-y from W8.2bn in 2011 to W19.3bn in 2012. We are upbeat about continued AMOLED-related sales growth for 2H, as SMD continues to expand small-to-medium-AMOLED lines and AMOLED sales are expected to be robust. However, we assume 2Q AMOLED-related sales growth will be limited due to shrinking demand for some specialty gases as SEC boosts process efficiency.
Table 6. Earnings and forecasts
1Q11 Won/US$ Sales Semicon AMOLED Other Operating profit Pre-tax profit Net profit EPS (won) Operating margin (%) Pre-tax margin (%) Net margin (%) Source: TONGYANG Securities 1,120 17.9 13.3 1.4 3.2 4.0 n/a n/a n/a 22.3 n/a n/a 2Q11 1,083 24.7 13.9 1.7 9.1 4.7 n/a n/a n/a 19.5 n/a n/a 3Q11 1,080 22.6 14.6 2.1 5.9 5.2 n/a n/a n/a 23.4 n/a n/a 4Q11 1,160 24.8 15.6 3.1 6.1 5.9 n/a n/a n/a 24.2 n/a n/a 1Q12 1,140 25.0 15.0 4.4 6.4 5.9 6.4 5.0 868 23.6 25.7 20.1 2Q12E 1,100 25.9 14.9 4.9 8.6 5.4 5.5 4.2 708 20.7 21.2 16.1 3Q12E 1,070 28.5 15.5 5.8 10.3 6.1 6.2 4.7 805 21.5 21.9 16.6 4Q12E 1,040 31.6 15.5 5.8 9.7 7.1 7.2 5.5 933 22.4 22.9 17.4 2011 1,108 90.0 57.4 8.2 24.4 19.8 19.8 15.7 3,760 22.3 17.5 17.5

(Wbn, %)
2012E 1,088 110.9 61.5 19.3 30.1 24.4 25.4 19.4 3,302 22.0 22.9 17.5 2013E 973 137.6 64.4 34.2 39.1 30.4 31.5 23.9 4,062 22.1 22.9 17.4

Chart 13. Woniks quarterly sales

(Wbn) 3 5 .0 3 0 .0 2 5 .0 2 0 .0 1 5 .0 1 0 .0 5 .0 0 .0 1Q 11 3Q 11 1Q 12 3Q 12E 1 7 .9 2 4 .7 2 4 .8 2 5 .0 2 5 .9 2 8 .5 3 1 .6

Chart 14. Woniks quarterly operating margin

30% 25% 2 2 .3 % 20% 15% 10% 5% 0% 1Q 11 3Q 11 1Q 12 3Q 12E 1 9 .5 % 2 3 .4 % 2 4 .2 % 2 3 .6 % 2 2 .4 % 2 1 .5 %

2 2 .6

2 0 .7 %

Source: Company data, TONGYANG Securities

Source: Company data, TONGYANG Securities

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Wonik Materials (104830 KS)

Stronger ties with clients via customized service

Gearing up for mass-production of some items
Wonik makes about 100 specialty gases, but in small quantities. The business model of offering customized services to key clients allows for growth and profits in the early stages of business. However, a small-batch, diverse production system limits a company shifting to a mass-production system. Wonik will inevitably have to shift to a mass-production system for some specialty gases to meet customer demand. Thus, it is investing in a mass-production system and switching from a refining process to synthetic process. Also, Wonik built a GeH4 production line at the Jeonui plant in Korea (in partnership with Voltaix) to meet client demand for localization of production lines and Voltaixs desire to increase production in Korea. (Wonik does merchandise sales of Voltaix products, and will lease the new plant to Voltaix.)

Introduces synthetic process to Jeonui #2 to brace for demand spike

Wonik used to produce specialty gas based on a refining process, in which low-purity materials are refined into high-purity materials. Refining requires small investment, but long production times, and offers smaller margins than synthetic process. The small-batch, diverse production system limits a companys ability to meet rising customer demand. For some specialty gases like GeH4, NO, and N2O, Wonik added new lines at the Jeonui plant as demand from downstream industries was expected to rise. Also, it introduced a synthetic process at Jeonui plant number two. Wonik purchased 1,388,429m2 of land for the Jeonui plant in Mar 2010 and is on track to expand its NO, N2O, and GeH4 lines. Of these, an NO line with a capacity of 10tpa (tonnes per annum) was completed in Jun 2011, and is currently undergoing quality testing by customers and preparing for mass-production. An N2O line (1,500tpa) is due to be completed in Dec 2012, and is likely to supply products from 2H13. A GeH4 line (25tpa) should be complete in Jul 2012, but will likely generate sales by end-1H13, as it usually takes about 6 months~1 year for prep work for mass production. Meanwhile, Voltaix still holds patents on GeH4, and we note that Wonik will still be doing merchandise sales of the products coming out of the Jeonui plant. On the upside, localization of a GeH4 line should help stabilize supply of GeH4 to clients and reduce miscellaneous expenses.

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Positives vs risks
Wonik generates stable earnings based on its small-batch, diverse production system and has close ties with clients. Specialty gases are a key material that can affect an end products production yield and functionality, and Wonik faces relatively little pricing pressure, as the portion of such gases in clients COGs is quite small. In addition, Wonik enjoys stable partnerships with clients, as clients avoid switching material suppliers due to the risk of reduced production yields. Woniks competitive edges include the high entry barriers of the specialty gas industry, and its close ties with SEC and SMD, which are investing the heaviest in semicon and AMOLED. Meanwhile, we believe Wonik faces three risks. First, specialty gas operations are always exposed to the risk of accidents. Wonik makes efforts to prevent accidents, but given that most of its products are explosive, the potential for accidents is always present. Second, Wonik relies heavily on Samsung affiliates. If its relationships with SEC or SMD sour, this will inevitably hurt sales. However, so far, we see little likelihood of its relationships suffering. Third, a one-year lock-up on a 67.7% stake in Wonik, including 49%p held by the largest shareholder Wonik IPS, will end Dec 27, 2012. The largest shareholders significant ownership could also adversely impact supply/demand dynamics for shares.

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Wonik Materials (104830 KS)

Wonik Materials (104830 KS) pro forma financial statements (K-IFRS, consolidated)
Statement of financial position
FY to Dec (Wbn) Non-current assets Investment in affiliate LT financial assets Tangible assets Other non-current Current assets Cash & equivalent ST financial assets Accts rec & other Inventory Other current Total assets Non-current liabilities LT financial liabilities Other non-current liab Current liabilities Accts payable & other ST financial liabilities Other current Total liabilities Equity for controlling int Paid-in capital Capital surplus Retained earnings Equity for non-control int Total equity Net debt 2010 43 0 0 40 3 29 9 3 7 10 0 72 5 0 5 18 8 8 2 23 49 2 13 33 0 49 -4 2011 54 0 2 41 9 78 11 45 9 12 1 132 5 0 5 18 10 5 3 23 109 3 56 48 0 109 -51 2012E 72 0 2 54 14 75 5 43 12 16 1 147 5 0 5 14 10 0 4 19 128 3 56 68 0 128 -48 2013E 75 0 2 54 17 99 22 43 14 19 1 175 5 0 5 18 13 0 5 22 152 3 56 92 0 152 -65 2014E 79 0 2 54 21 128 43 43 17 23 1 207 5 0 5 21 15 0 6 26 181 3 56 120 0 181 -86

Statement of comprehensive income

FY to Dec (Wbn) Sales Cost of sales Gross profit SG&A Reported op prof Adjusted op prof Other op prof/loss Non-operating prof Interest income Interest expense Forex gain/loss Equity-meth gain/loss Other Pre-tax from cont op Income tax Net profit NP for controlling int Total comprehensive inc TCI for controlling int 2010 67 43 24 9 15 15 0 -1 0 1 -1 0 0 14 3 11 11 11 11 18 2 2,758 11,901 0 4,375 2011 90 61 29 9 20 20 0 0 1 0 0 0 0 20 4 16 16 16 16 24 -5 3,760 18,757 0 5,730 2012E 111 76 36 11 24 24 0 1 1 0 0 0 0 25 6 19 19 19 19 30 -5 3,302 21,700 0 5,066 2013E 138 94 44 13 30 30 0 1 1 0 0 0 0 32 8 24 24 24 24 37 17 4,062 25,746 0 6,246 2014E 165 113 52 16 37 37 0 1 1 0 0 0 0 38 9 29 29 29 29 43 21 4,883 30,608 0 7,323

EBITDA
Free cash flow EPS Book value/share Dividend/share EBITDA/share

Cash flow statement

FY to Dec (Wbn) Operating cash flow Net profit Depreciation & amortization Forex translation gain/loss Affiliate invest gain/loss Inc (dec) in net working cap Other Investing cash flow Disp (acq) of tangible asst Inc (dec) in intang asst Inc (dec) in ST/LT finl asst Other Financing cash flow Inc (dec) in ST/LT finl liab Inc (dec) in equity Dividend payout Others Inc (dec) in cash & eq Beginning cash & equiv Ending cash & equiv 2010 15 11 3 1 0 -2 0 -9 -12 0 2 1 -2 -2 0 0 0 5 4 9 2011 20 16 4 0 0 -3 -1 -58 -14 -1 -43 0 40 -4 44 0 0 2 9 11 2012E 15 19 5 0 0 -10 -4 -17 -19 -1 2 1 -5 -5 0 0 0 -6 11 5 2013E 23 24 6 0 0 -6 -2 -6 -6 -1 0 1 0 0 0 0 0 17 5 22 2014E 27 29 7 0 0 -7 -2 -6 -6 -1 0 1 0 0 0 0 0 22 22 43

Valuation
FY to Dec Gross margin (%) Operating margin (%) Net margin (%) EBITDA margin (%) Sales (% y-y) Operating profit (% y-y) Net profit (% y-y) EPS (% y-y) EBITDA (% y-y) ROE (%) ROA (%) Accts rec turnover (x) Inventory turnover (x) P/E (x) P/B (x) EV/EBITDA (x) Div yield (com shr, %) Debt-to-equity (%) Net debt-to-equity (%) Net fin cost/sales (%) OP/financing cost (x) 45.7 -8.5 0.2 29.8 2010 36.0 22.6 17.1 27.1 12.0 25.3 9.4 9.4 25.7 26.5 18.3 12.7 7.8 0.0 0.0 0.0 2011 31.8 22.3 17.5 26.6 35.2 33.1 38.0 36.3 32.6 19.9 15.5 15.5 8.1 10.2 2.1 7.3 0.0 21.1 -47.0 -0.4 90.1 2012E 32.0 22.0 17.5 26.9 23.2 21.6 23.5 -12.2 24.3 16.4 13.9 14.7 8.0 12.9 2.0 7.0 0.0 14.8 -37.0 -0.7 147.6 2013E 31.6 22.1 17.4 26.7 24.1 25.0 23.0 23.0 23.3 17.0 14.9 14.7 7.9 10.5 1.7 5.2 0.0 14.7 -42.6 -0.6 2014E 31.6 22.1 17.4 26.1 20.0 20.0 20.2 20.2 17.2 17.3 15.1 14.5 7.8 8.7 1.4 3.9 0.0 14.3 -47.8 -0.6

Note: EPS, BPS, P/E and P/B are based on controlling interest For valuation metrics such as P/E, historical figures are based on annual averages, estimates on current price For ROA or ROE, assets and equity are averages of end-of-year figures for given year and year prior Data to 2010 based on K-GAAP and from 2011, K-IFRS Source: TONGYANG Securities 14 TONGYANG Securities Inc.

Company Report

Wonik Materials (104830 KS) ratings and target price history

(won) 6 0 ,0 0 0 5 0 ,0 0 0 4 0 ,0 0 0 3 0 ,0 0 0 2 0 ,0 0 0 1 0 ,0 0 0 0 D ec 2 0 1 1 M ay 2 0 1 2 C urrent pric e T arget pric e

Date 2012/06/26

Rating BUY

TP (won) 55,000

Source: TONGYANG Securities

Disclosures & disclaimers

This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an offer to buy or sell any securities or other financial instruments. The information and data contained in this report have been obtained from sources we consider reliable; however, we make no representation that the information provided in this report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in any manner without the prior written consent of TONGYANG Securities Inc. As of the publication date of this report, TONGYANG Securities Inc. does not own a stake in excess of 1%, nor does it have any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by TONGYANG Securities Inc. to any institutional investors or third parties prior to its publication. As of the date of publication of this report Tong Yang Securities Co., Ltd. has a stake(served as the lead manager for the initial listing of the financial investment company in the Stock Market) in the subject company. The analyst (s) of this report or the analyst (s) spouse does not have any financial interest in the securities of the subject company (ies) mentioned herein, nor financial interest of any nature related to the subject company (ies) (including without limitation, whether it consists of any option, right, warrant, future, long or short position), as of the publication date of this report.

Analyst certification
I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this report accurately reflect my/our personal views about the subject securities discussed in this report.

Stock and sector ratings

Stock ratings include an Investment Rating (Buy, Hold, Sell) as well as a Volatility Risk Rating (High, Low) that are based on the expected absolute return of a stock over the next 6 -12 months. - Buy: Low Risk if a stock is expected to return 10% or more; High Risk if a stock is expected to return 20% or more - Hold: Low Risk if a stock is expected to return between -10 and +10%; High Risk if a stock is expected to return between -20 and +20% - Sell: Low Risk if a stock is expected to decline by 10% or more; High Risk if a stock is expected to fall by 20% or more Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market capitalization weighting. - Overweight: Investment weighting is higher than the market capitalization weighting - Neutral: Investment weighting is equal to the market capitalization weighting - Underweight: Investment weighting is lower than the market capitalization weighting

TONGYANG Securities Inc. 15

Wonik Materials (104830 KS)

TONGYANG Securities International Network

Seoul
Head Office TONGYANG Securities Building Euljiro 76 Jung-gu Seoul, Korea 100-845 Tel: +822-3770-3454 Corporate website: www.tys.co.kr/english Research Center TONGYANG Securities Building #32 Gookjegeumyoongro 2-gil Youngdeungpo-gu, Seoul, Korea Tel: +822-3770-3436

Hong Kong
TONGYANG Securities Hong Kong Limited Unit 3208-09, 32/F, Alexandra House 18 Chater Road, Central, Hong Kong Tel: +852-3980-6000

New York
150 East 52nd Street 25th Floor New York NY 10022, U.S.A. Tel: +1-212-415-1008

Tokyo
803-3-4-1, Shin-Kokusai Building Maronouchi, Chiyoda-ku Tokyo, Japan 100-0005 Tel: +81-3-6269-9720

Ho Chi Minh
Suite 2905, Saigon Trade Center 37 Ton Dou Thang Street District 1, Ho Chi Minh City, Vietnam Tel: +84-8-910-6711

Manila
TONGYANG Savings Bank Ground Floor, Chantham House 116 Valero Corner, Herrera Street Salcedo Village, Makati City Metro Manila, Philippines Tel: +63-2-845-3838

Phnom Penh
#138, Norodom Boulevard Sangkat Tonle Bassac Khan Chamkarmorn Phnom Penh, Cambodia Tel: +855-23-224-125

16 TONGYANG Securities Inc.