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August 29, 2014

Samsung Securities (Korea) www.samsungpop.com



QUANTITATIVE RESEARCH
Samsung Quant Portfolio
September recommendations






















Sector long/short pairs for September
Sector Long Short Strategy combination Change
Energy SK Innovation S-Oil P/E +TP upside Long chg
Chemicals OCI Kolon Industries P/B +Operating profit momentum +TP upside New pair
Steel/non-ferrous metals Hyundai Hysco Korea Zinc Operating profit momentum +Institutional net buying Long chg
Construction Daewoo E&C GS E&C Returned portion of stock lending balance +TP upside New pair
Shipbuilding & machinery Doosan Infracore Hyundai Rotem P/B +Returned portion of stock lending balance Long chg
Industrial goods (other) Hyundai Glovis Asiana Airlines EPS 3-week momentum+Operating profit momentum+Earnings revision rate New pair
Autos Hyundai Mobis Hyundai Wia P/E +Earnings revision rate +TP upside Short chg
Retail CJ O Shopping Shinsegae Returned portion of stock lending balance +TP upside New pair
Consumer discretionary
(other)
Hotel Shilla Grand Korea Leisure EPS momentum +Operating profit 3-week momentum +TP upside New pair
Consumer staples Dongwon Industries Orion P/E +EPS growth
Healthcare Medytox Hanmi Pharmaceutical EPS momentum +Earnings revision rate Long chg
Bank/card DGB Financial Group Samsung Card TP upside
Securities brokers
Woori Investment &
Securities
Daewoo Securities P/E +P/B +Institutional net buying
IT LG Display NCsoft EPS growth +Institutional net buying Long chg
Telecom services KT SK Telecom P/B +TP upside Long chg
Utilities Kepco Korea District Heating EPS momentum +Operating profit momentum Long chg
Note: Insurance sector excluded due to M&A/restructuring issues and absence of adequate pair; recommendations based on consensus data and quantitative
analysis, and may differ from those of sector-based analysts
Source: Samsung Securities
August review
We have employed a quant-based pair-trading model as our main strategy in our
Samsung Quant Portfolio since June, replacing our dynamic model to reflect a
changing market environment. For September, we update the long/short strategy for
the industrial goods (other) sector.
Long/short pair recommendations by industry
For September, we maintain three long/short pairs, change one constituent in each of
eight pairs, and present five brand-new pairsall based on one-month changes in share
prices and fundamentals. The brand-new pairs are as follows (denoted by sector):
Chemicals: OCI/Kolon Industrieswhile industry conditions remain unfavorable, the
former shows better operating profit momentum (-1% vs -12%) and TP upside (57%
and 26%) than the latter.
Construction: Daewoo Engineering & Construction/GS Engineering & Construction
the returned portion of the securities lending balance (SLB) has dropped for the former
and surged for the latter.
Industrial goods (other): Hyundai Glovis/Asiana Airlinesthe logistics firm is enjoying
solid earnings momentum, while momentum at the airline is slowing.
Retail: CJ O Shopping/Shinsegaethe former has a better SLB and TP upside.
Consumer discretionary (other): Hotel Shilla/Grand Korea Leisurewe selected this
pair for their respective earnings momentum.
Dongyoung Kim, CFA
Analyst
dy76.kim@samsung.com
822 2020 7839
Hyein Ok
Research Associate
hyein.ok@samsung.com
822 2020 7795

Quantitative
Issue
August 29, 2014
Quantitative Issue

2

Model portfolio: Quant-based pair trading model
We have employed a quant-based pair-trading model as our main strategy in our
Samsung Quant Portfolio since June, replacing our dynamic model to reflect a changing
market environment. The new model uses different quant strategies for different
industries and selects just one pair of stock from each industry, an approach we believe
boosts returns. For more information, see our June 5 report Quant-based pair trading:
Changing model amid boom in long/short funds.
1. Long/short pair recommendations, by industry
The industrial goods (other) sector comprises all the industrial goods stocks that are not
assigned to the construction or shipbuilding & machinery industrieseg, transportation
companies, holding companies, trading firms, and commercial service providers. In this
sector, we removed Samsung SDI from the quant universe from July and Hyundai
Merchant Marine (HMM) from September.
Reflecting changes to stocks in the universe over the past three months, we backtested our
strategies for the sector, and found that quant strategies are not effective for shipping
companies, noting that: 1) shipping share prices are near bottom now and highly volatile
as a result of years-long industry recession; and 2) HMM shares are influenced more by
North Korea-related issues than by quant factorsrevealing in the relative ineffectiveness
of a quant-based approach. Thus, we eliminate shipping firms from the Samsung Quant
Universereasonable considering institutional investors now account for less than 10% of
the trading volume of such stocks. The table below shows the stocks still in our industrial
goods (other) list.
Industrial goods (other): Stock list
Code Company Code Company Code Company
A096770 LG Corporation A011170 CJ Korea Express A047050 Korean Air
A003600 Hyundai Glovis A010060 LS Corporation A012750 iMarketKorea
A010950 Daewoo International A009830 SK Networks A000150 LG International
A078930 S-1 A003550 Hanssem A000120 Asiana Airlines
A051910 Doosan Corporation A086280 LS Industrial Systems
Source: Samsung Securities
For our September portfolio, we backtested operating profit 3-week momentum and EPS
3-week momentum, because: 1) earnings momentum can be measured over shorter
periods of time than one month, as it can affect share prices for quite some time; and 2)
checking earnings momentum over shorter time frames is necessary, as information is
priced in quickly. Backtesting results reveal that these two quant factors outperformed
our previously recommended ones.

CONTENTS

Model portfolio macro dynamic
model
p2

Auxiliary portfolio
value/momentum model
p13

Appendix p20



August 29, 2014
Quantitative Issue

3

Strategy combination update: Industrial goods (other)
Industrial goods (other): Stock list
Code Stock Code Stock Code Stock
A096770 LG Corporation A011170 CJ Korea Express A047050 Korean Air
A003600 Hyundai Glovis A010060 LS Corporation A012750 iMarketKorea
A010950 Daewoo International A009830 SK Networks A000150 LG International
A078930 S-1 A003550 Hanssem A000120 Asiana Airlines
A051910 Doosan Corporation A086280 LS Industrial Systems
Source: Samsung Securities
Industrial goods (other): Performance
Factor Information coefficient (%)
EPS 3-week momentum 7.6
EPS momentum 7.5
Operating profit 3-week momentum 6.8
Earnings revision rate 6.7
Operating profit momentum 5.9
P/E 4.0
TP upside 2.7
Institutional net buying 1.9
P/B 1.5
P/S (2.9)
Returned portion of stock lending balance (3.6)
Note: Backtested from Dec 2006 to Jun 2014
Source: Samsung Securities
Industrial goods (other): Final strategy combinations and backtesting results
Results
Strategy combination EPS 3-week momentum +Operating profit momentum +ERR
Information coefficient (%) 9.6
Long/short return (annualized simple average) (%) 29.4
Long/short standard deviation (%) 30.5
Long/short Sharpe ratio 1.0
Maximum drawdown (%) 15.0
Note: Based on strategy of going long on top-performing quintile and shorting bottom quintile
Source: Samsung Securities

Industrial goods (other): Cumulative return from final strategy combination

Source: Samsung Securities



0
50
100
150
200
250
300
350
2007 2008 2009 2010 2011 2012 2013 2014
Long/short return
(Indexed, J an 2007 =100)
August 29, 2014
Quantitative Issue

4

EPS 3-week momentum recorded the highest information coefficient (IC) score in the
industrial goods (other) sector. We note that EPS momentum outperformed operating
profit momentum because: 1) net profit of the sector constituents is fairly volatile due to
their high foreign-currency-denominated portion of assets and liabilities; and 2) a
comparison of operating profits is meaningless, as the firms belong to different sub-
sectorswhich also explains the low scores for the valuation and TP upside factors. In this
sector, EPS 3-week momentum, operating profit momentum, and earnings revision rate
performed well and we recommend using a combination of all three. Our September
recommendations for quant-based pair trading follow.
Quant-based pair trading: Different quant strategies used for different sectors
Sector Strategy combination
Energy P/E +TP upside
Chemicals P/B +Operating profit momentum +TP upside
Steel/Non-ferrous metals Operating profit momentum +Institutional net buying
Construction Returned portion of stock lending balance +TP upside
Shipbuilding & machinery* P/B +Returned portion of stock lending balance
Industrial goods (other)*
EPS 3-week momentum +Operating profit momentum +Earnings
revision rate
Autos P/E +Earnings revision rate +TP upside
Retail Returned portion of stock lending balance +TP upside
Consumer discretionary (other)* EPS momentum +Operating profit 3-week momentum +TP upside
Consumer staples P/E +EPS growth
Health care EPS momentum +Earnings revision rate
Banking/card TP upside
Securities brokers P/E +P/B +Institutional net buying
Insurance P/S +TP upside
IT EPS growth +Institutional net buying
Telecom services P/B +TP upside
Utilities EPS momentum +Operating profit momentum
Note: * Strategy combination has changed from June portfolio
Source: Samsung Securities
Quant strategies applied to model (factor list)
Name Indicator Description Category
P/E Fwd P/E (x) Low 12-month forward P/E Valuation
P/B Fwd P/B (x) Low 12-month forward P/B Valuation
P/S FY1 P/S (x) Low 12-month forward P/S Valuation
EPS growth FY2 EPS growth (%) High EPS y-y growth rate Growth
EPS momentum FY1 EPS 1-month change (%) High FY1 EPS 1-month change
Earnings
momentum
Operating profit momentum FY1 operating profit 1-month change (%) High FY1 operating profit 1-month change
Earnings
momentum
Earnings revision rate FY1 1-month earnings revision rate (%) High FY1 1-month earnings revision rate (ERR)*
Earnings
momentum
Institutional net buying 1-month institutional portion of net buying (%)
High 1-month institutional net buying relative to market cap
(Institutional net buying/market cap)
Supply/demand
Returned portion of SLB 1-month stock lending returned (%) High 1-month SLB returned (change in SLB /listed shares) Supply/demand
TP upside TP upside (%)
High upside to target price
(based on consensus target price from past month)
Sentiment
Note: * ERR= (number of increases - number of decreases)/number of total estimates
Source: Samsung Securities

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Quantitative Issue

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The following are our recommendations based on one-month changes in share prices and
fundamentals.
Current short-term long/short pairs, by industry
Long Short
Energy SK Innovation P/E : 11.8x TP upside: 39.8% S-Oil P/E : 15.1x TP upside: 26.9%
Chemicals OCI P/B: 1.2x Operating profit
momentum:
(1.2%)
TP upside:
56.5%
Kolon Industries P/B: 0.8x Operating profit
momentum:
(12.0%)
TP upside:
26.5%
Steel/non-
ferrous metals
Hyundai Hysco Operating profit
momentum:
13.0%
Institutional net
buying: 2.9%
Korea Zinc Operating profit
momentum:
(0.8%)
Institutional net
buying: (0.1%)
Construction Daewoo E&C Returned portion
of SLB: (1.2%)
TP upside: 30.0% GS E&C Returned portion
of SLB: 9.5%
TP upside: 14.2%
Shipbuilding &
machinery
Doosan Infracore P/B: 0.8x Returned portion
of SLB: (1.2%)
Hyundai Rotem P/B: 0.9x Returned portion of
SLB: 0.8%
Industrial goods
(other)
Hyundai Glovis EPS 3-week
momentum:
1.9%
Operating profit
momentum:
(0.6%)
ERR: 91.7% Asiana Airlines EPS 3-week
momentum:
(90.9%)
Operating profit
momentum:
(17.9%)
ERR: (54.5%)
Autos Hyundai Mobis P/E : 7.3x ERR: 12.0% TP upside:
25.9%
Hyundai Wia P/E : 11.8x ERR: (5.0%) TP upside:
14.3%
Retail CJ O Shopping Returned portion
of SLB: (0.3%)
TP upside: 25.7% Shinsegae Returned portion
of SLB: 1.8%
TP upside: 8.5%
Consumer
discretionary
(other)
Hotel Shilla EPS momentum:
12.0%
Operating profit
3-week
momentum: 5.2%
TP upside:
25.5%
Grand Korea
Leisure
EPS momentum:
(10.2%)
Operating profit 3-
week momentum:
(9.3%)
TP upside:
14.5%
Consumer
staples
Dongwon
Industries
P/E : 14.1x EPS growth:
36.8%
Orion P/E : 29.9x EPS growth: 15.5%
Healthcare Medytox EPS momentum:
18.8%
ERR: 25.0% Hanmi
Pharmaceutical
EPS momentum:
(20.9%)
ERR: (90.9%)
Banking/card DGB Financial
Group
TP upside:
17.6%
Samsung Card TP upside: (1.4%)
Securities
brokers
Woori Investment
& Securities
P/E : 19.2x P/B: 0.7x Institutional net
buying: 0.2%
Daewoo
Securities
P/E : 24.5x P/B: 0.9x Institutional net
buying: 0.1%
IT LG Display EPS growth:
28.2%
Institutional net
buying: 0.6%
NCsoft EPS growth:
12.6%
Institutional net
buying: (2.7%)
Telecom
services
KT P/B: 0.7x TP upside: 13.4% SK Telecom P/B: 1.3x TP upside: 11.8%
Utilities Kepco EPS momentum:
10.7%
Operating profit
momentum: 8.4%
Korea District
Heating
EPS momentum:
(22.9%)
Operating profit
momentum:
(11.4%)
Note: Long/short pair based on 1-3 month investment horizon; recommendations based on consensus data and quantitative analysis, and therefore may differ from
those of sector-based analysts; insurance sector is excluded due to M&A/restructuring issue and absence of adequate pair
Source: Samsung Securities

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Quantitative Issue

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Sector long/short pairs for September
Sector Long Short Strategy combination Change
Energy SK Innovation S-Oil P/E +TP upside Long chg
Chemicals OCI Kolon Industries P/B +Operating profit momentum +TP upside New pair
Steel/non-ferrous metals Hyundai Hysco Korea Zinc Operating profit momentum +Institutional net buying Long chg
Construction Daewoo E&C GS E&C Returned portion of stock lending balance +TP upside New pair
Shipbuilding & machinery Doosan Infracore Hyundai Rotem P/B +Returned portion of stock lending balance Long chg
Industrial goods (other) Hyundai Glovis Asiana Airlines
EPS 3-week momentum +Operating profit momentum
+Earnings revision rate
New pair
Autos Hyundai Mobis Hyundai Wia P/E +Earnings revision rate +TP upside Short chg
Retail CJ O Shopping Shinsegae Returned portion of stock lending balance +TP upside New pair
Consumer discretionary (other) Hotel Shilla Grand Korea Leisure
EPS momentum +Operating profit 3-week momentum
+TP upside
New pair
Consumer staples Dongwon Industries Orion P/E +EPS growth
Healthcare Medy-Tox Hanmi Pharmaceutical EPS momentum +Earnings revision rate Long chg
Bank/card DGB Financial Group Samsung Card TP upside

Securities brokers Woori Investment & Securities Daewoo Securities P/E +P/B +Institutional net buying

IT LG Display NCsoft EPS growth +Institutional net buying
Long chg
Telecom services KT SK Telecom P/B +TP upside Long chg
Utilities Kepco Korea District Heating EPS momentum +Operating profit momentum Long chg
Note: Insurance sector excluded due to M&A/restructuring issues and absence of adequate pair; recommendations based on consensus data and quantitative
analysis, and may differ from those of sector-based analysts
Source: Samsung Securities
For September, we maintain three long/short pairs, change one constituent in each of
eight pairs, and present five brand-new pairsall based on one-month changes in share
prices and fundamentals. The brand-new pairs are as follows (denoted by sector):
Chemicals: OCI/Kolon Industrieswhile industry conditions remain unfavorable, the
former shows better operating profit momentum (-1% vs -12%) and TP upside (57%
and 26%) than the latter.
Construction: Daewoo Engineering & Construction/GS Engineering & Construction
the returned portion of the securities lending balance (SLB) has dropped for the former
and surged for the latter.
Industrial goods (other): Hyundai Glovis/Asiana Airlinesthe logistics firm is enjoying
solid earnings momentum, while momentum at the airline is slowing.
Retail: CJ O Shopping/Shinsegaethe former has a better SLB and TP upside.
Consumer discretionary (other): Hotel Shilla/Grand Korea Leisurewe selected this
pair for their respective earnings momentum.








August 29, 2014
Quantitative Issue

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2. Review of August performances, by industry
August pair performances, by sector
Long Short Long/short
Stock Performance (%) Stock Performance (%) performance (%)
Consumer staples Dongwon Industries 18.5 Orion (4.0) 22.5
Consumer discretionary (other) Youngone Corporation 26.7 Cheil Worldwide 8.8 17.9
Energy SK Holdings (5.3) S-Oil (14.5) 9.2
Telecom services LG Uplus 21.8 SK Telecom 14.5 7.3
Utilities Kogas (0.4) Korea District Heating (7.4) 7.1
Construction Daelim Industrial (4.4) Samsung Engineering (11.4) 7.0
Retail Lotte Himart 13.7 Lotte Shopping 7.5 6.3
Shipbuilding & Machinery Hyundai Heavy Industries (18.1) Hyundai Rotem (17.6) (0.5)
Bank/card DGB Financial Group 8.4 Samsung Card 11.0 (2.6)
Steel/non-ferrous metals Hyundai Steel (2.7) Korea Zinc 0.1 (2.8)
Healthcare Green Cross (2.5) Hanmi Pharmaceutical 1.0 (3.4)
IT Samsung Electro-Mechanics (13.5) NCsoft (8.9) (4.6)
Chemicals Hanwha Chemical (11.5) LG Chem (5.8) (5.7)
Autos Hyundai Mobis (2.7) Halla Visteon Climate Control 3.0 (5.8)
Securities brokers Woori Investment & Securities 10.1 Daewoo Securities 17.2 (7.1)
Industrials (other) Daewoo International (2.4) Hyundai Merchant Marine 24.8 (27.1)
Average 1.1
Note: Sorted by long/short performance; As of Aug 28
Source: Samsung Securities
Our quant-based pair-trading model generated average long/short returns of 1.1% in 16
sectors in August. The consumer staples pairDongwon Industries (long)/Orion
(short)returned 22.5%, with the former advancing 18.5% and the latter retreating 4%.
In the consumer discretionary (other) sector, the Youngone Corporation/Cheil
Worldwide pair performed well, posting a 17.9% return.



August 29, 2014
Quantitative Issue

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3. Quant-based pair-trading model
Our quant portfolio follows a two-step procedure: 1) weight each industry as it is in the
indexie, market-neutral; and 2) rank stocks in an industry based on long/short pair
scoring, and then choose a weight for each stock based on this scoring.
Step 1: Determining market-neutral weights for industries
We weight each of 17 sectors (based on WiseFn industry classification standards)
according to its index weighting.
WiseFn sector (WICS): Quant sector mapping
WICS sector code WICS sector Quant sector
G110 KSE Energy

Energy
G1151010 KSE Chemicals Chemicals
G1151030 KSE Containers & Packaging Chemicals
G1151040 KSE Nonferrous Metals Steel/non-ferrous metals
G1151050 KSE Steel Steel/non-ferrous metals
G1151060 KSE Paper & Forest Products Steel/non-ferrous metals
G1201010 KSE Aerospace & Defense Shipbuilding & Machinery
G1201020 KSE Building Products Construction
G1201025 KSE Construction Materials Construction
G1201030 KSE Construction & Engineering Construction
G1201035 KSE Furnishing Industrial goods (others)
G1201040 KSE Electrical Equipment Industrial goods (others)
G1201050 KSE Industrial Conglomerates Industrial goods (others)
G1201060 KSE Machinery Shipbuilding & Machinery
G1201065 KSE Shipbuilding Shipbuilding & Machinery
G1201070 KSE Trading Companies & Distributors Industrial goods (others)
G12020 KSE Commercial Services & Supplies Industrial goods (others)
G12030 KSE Transportation Industrial goods (others)
G12510 KSE Automobiles & Components Autos
G12520 KSE Consumer Durables & Apparel Consumer discretionary (others)
G12530 KSE Consumer Services Consumer discretionary (others)
G12540 KSE Media Consumer discretionary (others)
G12550 KSE Retailing Retail
G12560 KSE Education Services Consumer discretionary (others)
G130 KSE Consumer Staples Consumer staples
G135 KSE Health Care Healthcare
G14010 KSE Banks Bank/card
G14020 KSE Securities Securities brokers
G14030 KSE Diversified Financials Bank/card
G14040 KSE Insurance Insurance
G14050 KSE Real Estate Bank/card
G14055 KSE Other Financial Services Bank/card
G145 KSE Information Technology IT
G150 KSE Telecommunication Services Telecom services
G155 KSE Utilities Utilities
Source: WiseFn, Samsung Securities

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As our model is designed to seek only the effects of stock picking (not industry allocation),
we use the weightings below to determine the final weightings in our portfolio.
Kospi weightings, by sector
Sector Market cap (KRWb) Weight (%)
Energy 27,200 2.3
Chemicals 58,149 4.9
Steel/non-ferrous metals 63,011 5.3
Construction 53,047 4.4
Shipbuilding & machinery 42,912 3.6
Industrials (other) 65,068 5.4
Autos 140,560 11.8
Retail 32,386 2.7
Consumer discretionary (other) 74,136 6.2
Consumer staples 66,942 5.6
Healthcare 17,007 1.4
Bank/card 89,691 7.5
Securities brokers 23,760 2.0
Insurance 56,884 4.8
IT 304,489 25.4
Telecom services 35,972 3.0
Utilities 43,655 3.7
Note: As of Aug 27
Source: Samsung Securities
Step 2: Assigning weights to stocks in an industry
Our model next determines the stocks to go long or short in each of the 17 industries and
ranks them based on long/short pair scoring. We overweight the top-two stocks (the
former being the target of a long position), and underweight the bottom two.
On the other hand, it is hard to set a negative weight (short position), so we adopt a
heuristic approach.

Assigning stock weightings in each industry
1. Conduct long/short pair scoring.
2. Overweight the most attractive long candidate 1.5-2% relative to its Kospi weighting.
3. Overweight the second most attractive long candidate 1-1.5%.
4. Underweight the two best short candidates by a respective 1.5-2% and 1-1.5%.
5. Adjust the combined weight of the stocks to the same as the industry weight.
August 29, 2014
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Our September quant portfolio derived from a quant-based pair-trading model follows.
September model portfolio
Sector Weight Stock composition
(%) Code Stock Kospi weight (%) Final weight (%)
Energy 2.3
A096770 SK Innovation 0.7 2.3
Chemicals 4.9
A010060 OCI 0.3 2.2
A009830 Hanwha Chemical 0.2 1.0
A004800 Hyosung 0.2 1.7
Steel/non-ferrous metals 5.3
A005490 Posco 2.4 1.8
A010520 Hyundai Hysco 0.2 2.0
A001430 Seah Besteel 0.1 1.5
Construction 4.4
A000720 Hyundai E&C 0.6 1.9
A047040 Daewoo E&C 0.3 2.5
Shipbuilding & Machinery 3.6
A010620 Hyundai Mipo Dockyard 0.2 1.5
A042670 Doosan Infracore 0.2 2.1
Industrials (other) 5.4
A003550 LG Corporation 1.0 1.5
A086280 Hyundai Glovis 1.0 2.5
A000120 CJ Korea Express 0.3 1.4
Autos 11.8
A005380 Hyundai Motor 4.2 4.2
A012330 Hyundai Mobis 2.3 4.0
A000270 Kia Motors 2.0 3.6
Retail 2.7
A035760 CJ O Shopping 0.0 1.5
A028150 GS Home Shopping 0.0 1.2
Consumer discretionary
(other)
6.2
A090430 Amorepacific 1.1 2.7
A008770 Hotel Shilla 0.4 2.5
A130960 CJ E&M 0.0 1.0
Consumer staples 5.6
A097950 CJ CheilJ edang 0.4 2.0
A005440 Hyundai Green Food 0.2 1.5
A006040 Dongwon Industries 0.1 2.1
Healthcare 1.4
A086900 Medytox 0.0 1.4
Note: Recommendations based on consensus data and quantitative analysis, may differ from those of sector-
based analysts, and are sorted with Kosdaq stocks having no Kospi weight
Source: Samsung Securities

August 29, 2014
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September model portfolio (continued)
Sector Weight Stock composition
(%) Code Name Kospi weight (%) Final weight (%)
Bank/card 7.5
A105560 KB Financial Group 1.4 2.7
A086790 Hana Financial Group 1.0 2.6
A139130 DGB Financial Group 0.2 2.2
Securities brokers 2
A005940 Woori Investment & Securities 0.2 2.0
Insurance 4.8
A032830 Samsung Life Insurance 1.8 1.6
A000810 Samsung Fire & Marine 1.1 1.0
A002550 LIG Insurance 0.2 2.2
IT 25.4
A005930 Samsung Electronics 15.2 13.5
A000660 SK Hynix 2.7 1.5
A035420 Naver 2.2 3.9
A066570 LG Electronics 1.0 2.0
A034220 LG Display 1.1 3.0
A009150 Samsung Electro-Mechanics 0.3 1.5
Telecom services 3
A017670 SK Telecom 1.9 1.5
A030200 KT 0.8 1.5
Utilities 3.7
A015760 Kepco 2.3 3.7
Total 100.0 42 stocks 100.0
Note: Recommendations based on consensus data and quantitative analysis, may differ from those of sector-
based analysts, and are sorted with Kosdaq stocks having no Kospi weight
Source: Samsung Securities

August 29, 2014
Quantitative Issue

12

August portfolio review

August performance

Note: As of Aug 28
Source: Samsung Securities
Our quant-based pair-trading model recorded an absolute return of 0.1% in August,
underperforming the Kospis 0.7% return. While the long/short pairs performed well, our
quant model portfolio recorded lackluster results due to disappointing picks in the
industrial goods (other) sectorthe portfolio did not include transportation stocks, which
performed strongly last month on expectations of earnings turning around.


(2.5)
(2.0)
(1.5)
(1.0)
(0.5)
0.0
0.5
1.0
1.5
J ul 29 Aug 4 Aug 8 Aug 14 Aug 21 Aug 27
Relative performance Quant Model portfolio Kospi
Performance (daily cumulative, %, %pts)
August 29, 2014
Quantitative Issue

13


Auxiliary portfolio: Macro dynamic model
We shall continue to offer our macro dynamic modelwhich was the basic strategy of our
previous quant portfolioas auxiliary data.
Dynamic model
Our dynamic model recognizes previous periods with similar macroeconomic conditions
and identifies factors that performed well during such periods. The model then generates
a portfolio by choosing factors and weights. (See our Jul 24, 2013 report for more details.)

Dynamic model
Source: Samsung Securities

Phase recognition:
Identify historic
periods with
similar macro
-economic
conditions
Factor
identification:
Identify factors
that performed
well in identified
period(s)
Portfolio creation:
Choosefactors
and weights
Macr o phase
r ecogni ti on
model
Factor
model
Performance measurement
CONTENTS

Model portfolio macro dynamic
model
p2

Auxiliary portfolio
value/momentum model
p13

Appendix p20



August 29, 2014
Quantitative Issue

14

Step 1: Identifying macroeconomic phases
Our dynamic quant model first calculates correlation-adjusted distances to identify
similarities in different time periods to find those with macroeconomic conditions similar
to the present environment.

Correlation-adjusted distance between each point and Aug 28

Note: The shorter the correlation-adjusted distance, the more similarity between points
Source: Samsung Securities
Periods most similar with the present (as of Aug 28)
Date Macro correlation-adjusted distance
Apr 2012 1.4
Oct 2012 1.4
Feb 2013 1.4
Mar 2013 1.4
Apr 2013 1.3
Aug 2013 1.3
Sep 2013 1.3
Oct 2013 1.1
Nov 2013 1.2
Dec 2013 1.2
Mar 2014 1.4
Apr 2014 1.4
Source: Samsung Securities
The table above shows periods most similar with the present, with 12 periods identified by
a regime-switching model as of end-August.

0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
D
e
c

0
2
M
a
y

0
3
O
c
t

0
3
M
a
r

0
4
A
u
g

0
4
J
a
n

0
5
J
u
n

0
5
N
o
v

0
5
A
p
r

0
6
S
e
p

0
6
F
e
b

0
7
J
u
l

0
7
D
e
c

0
7
M
a
y

0
8
O
c
t

0
8
M
a
r

0
9
A
u
g

0
9
J
a
n

1
0
J
u
n

1
0
N
o
v

1
0
A
p
r

1
1
S
e
p

1
1
F
e
b

1
2
J
u
l

1
2
D
e
c

1
2
M
a
y

1
3
O
c
t

1
3
M
a
r

1
4
Correlation-adjusted distance
(pts)
August 29, 2014
Quantitative Issue

15

Step 2: Formulating factor strategy
Our dynamic quant model next identifies factors that performed well in historic periods
with macroeconomic conditions on par with the current environment and applies higher
weightings to such factors.
We utilize a pool of over 100 factors to select our monthly strategy, calculating the
information coefficient (IC) from historic periods identified as being similar to the present,
average the ICs, and weight the factors according to the average IC.
Strategy universe
Factor Description
V10Q: FQ0 P/E Low FQ0 P/E
V16T: Time-adjusted forward P/E Low 12-month-forward P/E (time adjusted)
V20Q: FQ0 P/B Low FQ0 P/B
V16R: Relative P/E Low 12-month-forward P/E relative to sector average
B61: FY1 P/E one-month decline FY1 forward P/E one-month decline
E12: FY2 EPS growth High FY2 EPS growth rate (y-y)
C14: FY1/FY2 EPS one-month change Combining high FY1 EPS one-month change and high FY2 EPS one-month change
C98: One-month/three-month FY1 earnings revision rate Combining high one-month FY1 ERR and high three-month FY1 ERR
C61: FQ1 EPS one-month change High FQ1 EPS one-month change
D19: Supply/demand composite index
High composite index
=[(change in institutional holding of stock +change in foreigner holdings on industry level) / 2]
P19: Price composite index High composite index =[(price change of industry x 2) (price change of stock)]
S13: Target-price upside (one-month consensus) High upside to target price (one-month consensus)
Note: FY1 = current year; FQ1 = current quarter, FQ0 = latest quarter with earnings released; time-adjusted forward P/E = adjusted P/E to compensate for weakness
of existing low P/E strategy; EPS 1 - month change = (current EPS estimate/estimated EPS of 1-month prior) -1; earnings revision ratio [ERR] = (number of
upward EPS revisions number of downward EPS revisions) / total number of EPS forecasts
Source: Samsung Securities
Factors utilized in September strategy
IC V10Q V16T V20Q V16R B61 E12 C14 C98 C61 D19 P19 S13
Apr 2012 0.05 0.09 (0.12) 0.13 0.17 0.00 (0.02) (0.04) (0.02) (0.07) 0.11 0.07
Oct 2012 0.12 0.09 (0.08) 0.02 0.23 0.05 0.04 0.09 0.02 (0.06) 0.16 0.17
Feb 2013 (0.06) (0.14) (0.20) (0.18) (0.13) 0.10 0.03 (0.01) (0.00) 0.06 0.18 0.12
Mar 2013 (0.28) (0.25) (0.28) (0.34) (0.19) 0.01 0.21 0.26 0.18 0.25 0.06 (0.34)
Apr 2013 0.16 0.28 0.15 0.08 0.30 (0.04) (0.11) (0.05) (0.13) (0.22) (0.01) 0.36
Aug 2013 (0.02) 0.01 0.16 0.11 0.12 (0.05) 0.06 (0.04) 0.10 (0.08) 0.12 0.22
Sep 2013 0.23 0.28 0.08 0.10 0.02 0.06 0.04 (0.00) 0.09 0.13 (0.11) 0.06
Oct 2013 0.18 0.16 (0.22) 0.15 (0.03) (0.00) 0.09 0.21 (0.11) (0.05) (0.10) 0.13
Nov 2013 (0.00) 0.05 0.11 0.03 0.03 (0.07) 0.06 (0.03) (0.06) 0.04 0.01 (0.10)
Dec 2013 (0.35) (0.31) (0.12) (0.15) (0.05) (0.09) (0.03) (0.09) (0.10) 0.00 (0.16) (0.01)
Mar 2014 (0.06) (0.02) (0.04) 0.01 0.09 0.05 0.20 0.08 0.10 (0.02) 0.04 (0.05)
Apr 2014 0.15 (0.06) (0.14) 0.02 0.05 (0.31) 0.15 0.20 0.08 0.22 (0.01) (0.27)
IC average 0.01 0.02 (0.06) (0.00) 0.05 (0.03) 0.06 0.05 0.01 0.02 0.02 0.03
Portion (%) 5.0 5.0 5.0 5.0 15.6 5.0 18.1 14.5 5.0 5.0 7.1 9.7
Source: Samsung Securities


August 29, 2014
Quantitative Issue

16

Step 3: Select top picks
The followings are the top picks derived from our macro dynamic model for September.
Macro dynamic model: Data used to select top picks
Code Name Sector Market
cap
(KRWt)


Valuation Growth Earnings momentum (%) Suppl y/demand (%)

FQ0
P/E
(x)
Time-
adjusted
P/E
(x)
FQ0
P/B
(x)
Relative
P/E
(%)
P/E
1-mo
chg
(%)
FY2
EPS
growth
(%)
FY1
EPS
1-mo
chg
FY2
EPS
1-mo
chg
FY1
1M
ERR
FY1
3M
ERR
FQ1
EPS
1-mo
chg
Suppl y-
demand
comp
index
Price
comp
index
Target-
price
upside
A004020 Hyundai Steel Materials 9.0 7.8 10.2 0.7 (17.8) (5.1) 8.5 1.7 1.8 12.5 26.3 0.0 (0.8) 1.9 17.4
A010520 Hyundai Hysco Materials 1.9 2.7 9.6 2.3 (21.5) (12.9) (11.4) 12.4 18.8 78.6 61.1 17.6 3.0 3.9 24.4
A028050 Samsung Engineering Industrials 2.5 (6.5) 12.4 2.0 (0.4) (13.8) 50.0 (7.2) (0.4) 0.0 (21.4) 31.0 (0.9) 10.7 49.0
A000150 Doosan Corporation Industrials 2.5 84.0 16.1 1.4 10.5 (6.2) 32.8 (3.8) 1.5 0.0 12.5 (0.9) (0.1) 17.9 39.3
A042670 Doosan Infracore Industrials 2.4 30.0 13.7 0.8 (14.7) (13.7) 37.3 4.5 (0.3) 66.7 43.8 (1.0) (3.9) (7.5) 41.2
A010140
Samsung Heavy
Industries
Industrials 6.2 124.2 15.0 1.0 (9.6) (10.9) 50.0 7.6 (1.0) 47.1 52.6 5.3 (1.2) (21.0) 32.5
A000270 Kia Motors
Consumer
Discretionary
24.2 6.5 6.4 1.1 (31.5) (2.3) 5.8 0.2 (0.0) 3.8 (3.6) 0.3 0.6 (1.8) 21.6
A012330 Hyundai Mobis
Consumer
Discretionary
28.0 7.8 7.3 1.3 (22.0) (7.4) 8.0 (0.0) (0.2) 12.0 3.4 (0.1) (0.6) 1.4 25.9
A005380 Hyundai Motor
Consumer
Discretionary
50.2 7.8 7.5 1.2 (19.7) (7.6) 6.1 (0.0) (0.0) (33.3) (40.0) (0.3) (1.0) 3.3 30.1
A008770 Hotel Shilla
Consumer
Discretionary
4.7 112.1 30.7 6.9 228.7 (7.7) 50.0 4.4 13.7 71.4 50.0 1.8 (1.7) 9.8 25.5
A035760 CJ O Shopping
Consumer
Discretionary
2.2 16.2 16.7 2.8 79.0 (12.3) 11.3 2.4 2.9 (13.3) (11.8) 0.5 (0.8) 23.0 25.7
A033780 KT&G
Consumer
Staples
13.3 24.1 15.3 2.4 (26.5) (4.0) 9.1 0.2 0.4 50.0 (21.1) 0.0 0.1 10.7 15.4
A105560 KB Financial Group Financials 16.2 13.3 10.1 0.6 (14.0) 3.3 11.4 0.4 0.2 5.3 (4.8) 1.1 0.0 8.9 13.4
A055550 Shinhan Financial Group Financials 24.6 12.6 11.2 0.9 (4.7) 0.2 7.5 0.8 0.4 20.0 38.1 1.4 (0.1) 13.6 9.4
A086790 Hana Financial Group Financials 12.5 14.9 9.8 0.6 (14.3) 1.6 15.9 0.7 0.0 10.0 9.5 1.1 (0.5) 13.8 16.2
A032830 Samsung Life Insurance Financials 21.9 17.7 19.2 1.0 62.5 (5.5) (12.2) 22.8 3.9 50.0 28.6 6.6 0.3 13.0 13.4
A000810 Samsung Fire & Marine Financials 13.6 18.0 15.0 1.5 28.2 (2.9) 12.7 2.9 4.1 18.2 7.1 10.2 0.2 11.4 11.3
A003690 Korean Re Financials 1.4 10.2 8.2 1.0 (29.1) 2.4 12.5 5.0 (0.1) 33.3 16.7 4.2 (0.8) 8.1 20.4
A088350 Hanwha Life Financials 6.1 13.7 12.3 0.8 4.4 2.2 9.9 2.3 (1.4) 25.0 0.0 15.1 (0.3) 13.7 18.4
A037620 Mirae Asset Securities Financials 2.1 18.1 12.1 0.9 1.8 (1.4) 9.4 5.8 4.1 71.4 70.0 (2.9) 0.1 16.6 12.1
A071050
Korea Investment
Holdings
Financials 2.8 20.9 15.7 1.1 33.4 (2.3) 5.1 16.2 6.7 0.0 0.0 10.2 0.5 10.9 12.9
A078340 Com2us IT 1.3 57.9 14.5 10.4 58.1 (16.4) 28.5 62.5 57.6 86.7 88.2 65.4 0.4 (28.2) 32.0
A000660 SK Hynix IT 32.8 10.0 8.5 2.2 (11.0) (2.2) 10.6 0.4 1.6 (17.6) (25.9) (1.4) (0.1) (1.3) 33.9
A066570 LG Electronics IT 12.2 29.0 11.8 1.1 17.1 (5.7) 35.0 1.4 0.1 50.0 67.9 3.5 0.5 (1.4) 27.8
A015760 Kepco Utilities 26.9 12.1 9.5 0.5 (6.7) (8.8) 18.7 9.2 5.5 42.1 42.1 4.1 0.0 5.4 23.1
Note: Recommendations based on consensus and quantitative analyses, which may differ from the recommendations of covering analysts; in order of sector and code;
the level of holdings companies FY0 P/E, time-adjusted P/E, FY0 P/B, relative P/E received a 30% premium; EPS growth indicator limited to 50%
Source: FnGuide, Samsung Securities


August 29, 2014
Quantitative Issue

17

Step 4: Finalizing portfolio
Our quant portfolio adds a construction process between stock picking and finalization to
systematically create the product while maintaining an efficient risk-return profile. We
utilize a 50:50 methodology, with the first 50% given to large caps to manage risk, while
the remainder is chosen based on a quant strategy, as detailed below.

Portfolio construction: 50:50 methodology
1. Half of our portfolio is initially determined by market cap. Starting with the largest
cap (SEC) and working downward until the combined market cap reaches 50% of
the KSE, each stock is given the same weighting in our portfolio as its index
weightingeg, 17.5% for SEC and 6% for HMC.
2. All other stocks are given a temporary weighting of zero.
3. The portfolio weightings for the bottom 25 stocks based on quantitative strategies
(among large caps with an initial weighting of above zero) are decreased by 2%pts
and the void in the portfolio is filled with the next largest stocks.
4. The portfolio weightings for 25 stockschosen using quantitative methods from
the top 150 KSE stocks (by market cap)are then increased by 2%pts, equating to
the other 50% of our portfolio.
5. Adding the initial weightings and changes gives our final portfolio weightings
(totaling 100%).
6. This methodology offers half the excess return (above that of the Kospi) and half
the tracking error found in an equally weighted Value/Momentum+ Portfolioie,
an annualized relative return of 13.5% and tracking error of 4.5%but the same
IR (3.0).
In other words, a 50:50 methodology limits exposure to ultra-large caps, while
offering a similar IR to that provided by existing quant strategy.

See our report, Portfolio construction, new supply-demand factor, non-linear combination with
quantitative strategy (Apr 27, 2012) for more details.



August 29, 2014
Quantitative Issue

18

The following is our final portfolio derived from macro dynamic model-based stock
recommendations and a 50:50 methodology.
March quant model portfolio (macro dynamic model)
Code

Name

Sector

Kospi weight
(%, A)
Final weight
(%, B)
Difference
(%pts, B - A)
A005930 Samsung Electronics IT 15.2 15.2 0.0
A005380 Hyundai Motor Consumer Discretionary 4.2 6.2 2.0
A000660 SK Hynix IT 2.7 4.7 2.0
A012330 Hyundai Mobis Consumer Discretionary 2.3 4.3 2.0
A015760 Kepco Utilities 2.3 4.3 2.0
A055550 Shinhan Financial Group Financials 2.1 4.1 2.0
A000270 Kia Motors Consumer Discretionary 2.0 4.0 2.0
A032830 Samsung Life Insurance Financials 1.8 3.8 2.0
A105560 KB Financial Group Financials 1.4 3.4 2.0
A000810 Samsung Fire & Marine Financials 1.1 3.1 2.0
A033780 KT&G Consumer Staples 1.1 3.1 2.0
A066570 LG Electronics IT 1.0 3.0 2.0
A086790 Hana Financial Group Financials 1.0 3.0 2.0
A005490 Posco Materials 2.4 2.4 0.0
A035420 Naver IT 2.2 2.2 0.0
A004020 Hyundai Steel Materials 0.8 2.0 1.2
A010140 Samsung Heavy Industries Industrials 0.5 2.0 1.5
A088350 Hanwha Life Financials 0.5 2.0 1.5
A008770 Hotel Shilla Consumer Discretionary 0.4 2.0 1.6
A000150 Doosan Corporation Industrials 0.2 2.0 1.8
A010520 Hyundai Hysco Materials 0.2 2.0 1.8
A028050 Samsung Engineering Industrials 0.2 2.0 1.8
A037620 Mirae Asset Securities Financials 0.2 2.0 1.8
A042670 Doosan Infracore Industrials 0.2 2.0 1.8
A071050 Korea Investment Holdings Financials 0.2 2.0 1.8
A003690 Korean Re Financials 0.1 2.0 1.9
A035760 CJ O Shopping Consumer Discretionary 0.0 2.0 2.0
A078340 Com2us IT 0.0 2.0 2.0
A017670 SK Telecom Telecom Services 1.9 1.9 0.0
A051910 LG Chem Materials 1.5 1.5 0.0
A034220 LG Display IT 1.1 1.1 0.0
A090430 Amorepacific Consumer Staples 1.1 1.1 0.0
A003550 LG Corporation Industrials 1.0 1.0 0.0
A086280 Hyundai Glovis Industrials 1.0 0.6 (0.4)
Total 100.0
Note: Recommendations based on consensus and quantitative analyses, which may differ from the recommendations of covering analysts, and it is sorted with
Kosdaq stocks having no Kospi weight
Source: Samsung Securities

August 29, 2014
Quantitative Issue

19

August review
Our dynamic model gained 0.8% in absolute terms during the month, outperforming the
Kospi (which gained 0.7%). Prices of some of our top picksLG Uplus and Paradise
jumped during the month, increasing the portfolios performance. Our dynamic model
has outperformed the Kospi in each of the past three months.

August performance of macro dynamic model

Note: As of Aug 28
Source: Samsung Securities

(2.0)
(1.5)
(1.0)
(0.5)
0.0
0.5
1.0
1.5
(0.5)
(0.4)
(0.3)
(0.2)
(0.1)
0.0
0.1
0.2
0.3
0.4
J ul 29 Aug 4 Aug 8 Aug 14 Aug 21 Aug 27
Relative performance (LHS) Quant model portfolio (RHS) Kospi (RHS)
Performance (daily cumulative, %pts) Performance (daily cumulative, %)
August 29, 2014
Quantitative Issue

20

Appendix
Universe for pair trading (152 stocks)
Stock Code Name Stock Code Name Stock Code Name
Energy A096770 SK Innovation Industrial goods A122900 iMarketKorea Healthcare A006280 Green Cross
A003600 SK Holdings (others) A001120 LG International A085660 Chabiotech
A010950 S-Oil A020560 Asiana Airlines A128940 Hanmi Pharmaceutical
A078930 GS Holdings Autos A005380 Hyundai Motor A096530 Seegene
Chemicals A051910 LG Chem A012330 Hyundai Mobis A086900 Medytox
A011170 Lotte Chemical A000270 Kia Motors Bank/card A055550 Shinhan Financial Group
A010060 OCI A161390 Hankook Tire A105560 KB Financial Group
A009830 Hanwha Chemical A018880 Halla Visteon Climate Control A086790 Hana Financial Group
A011780
Korea Kumho
Petrochemical
A011210 Hyundai Wia A053000 Woori Finance Holdings
A004800 Hyosung A060980 Mando A024110 Industrial Bank of Korea
A000880 Hanwha Corporation A000240 Hankook Tire Worldwide A029780 Samsung Card
A120110 Kolon Industries A073240 Kumho Tire A138930 BS Financial Group
A003240 Taekwang Industrial A002350 Nexen Tire A139130 DGB Financial Group
A006120 SK Chemicals A003620 Ssangyong Motor Securities A016360 Samsung Securities
A011790 SKC A900140 Kolao Holdings brokers A006800 Daewoo Securities
Steel/ A005490 Posco Retail A023530 Lotte Shopping A071050
Korea Investment
Holdings
non-ferrous A004020 Hyundai Steel A139480 E-mart A037620 Mirae Asset Securities
metals A010130 Korea Zinc A069960 Hyundai Department Store A005940
Woori Investment
& Securities
A000670 Youngpoong A035760 CJ O Shopping A003450 Hyundai Securities
A010520 Hyundai Hysco A004170 Shinsegae Insurance A032830 Samsung Life Insurance
A001430 Seah Besteel A007070 GS Retail A000810 Samsung Fire & Marine
Construction A000830 Samsung C&T A057050 Hyundai Home Shopping A088350 Hanwha Life
A000720 Hyundai E&C A071840 Lotte Himart A005830 Dongbu Insurance
A002380 KCC A028150 GS Home Shopping A001450 Hyundai Marine & Fire
A047040 Daewoo E&C A027410 BGF Retail A002550 LIG Insurance
A028050 Samsung Engineering Consumer A090430 Amorepacific A000060 Meritz Fire & Marine
A000210 Daelim Industrial Discretionary A021240 Coway A003690 Korean Re
A006360 GS E&C (others) A035250 Kangwon Land IT A005930 Samsung Electronics
A012630 Hyundai Development A002790 AmoreG A000660 SK Hynix
A108670 LG Hausys A034230 Paradise A035420 Naver
A022100 Posco ICT A008770 Hotel Shilla A066570 LG Electronics
Shipbuilding A009540 Hyundai Heavy Industries A030000 Cheil Worldwide A034220 LG Display
& Machinery A010140 Samsung Heavy Industries A114090 Grand Korea Leisure A034730 SK C&C
A042660 DSME A130960 CJ E&M A006400 Samsung SDI
A034020 DHIC A111770 Youngone Corporation A009150
Samsung Electro-
Mechanics
A010620 Hyundai Mipo Dockyard A037560 CJ HelloVision A036570 NCsoft
A047810 Korea Aerospace Industries A053210 KT Skylife A011070 LG Innotek
A012450 Samsung Techwin Consumer A033780 KT&G A046890 Seoul Semiconductor
A042670 Doosan Infracore Staples A051900 LG H&H A181710 NHN Entertainment
A064350 Hyundai Rotem A001800 Orion Telecom A017670 SK Telecom
Industrial A003550 LG Corporation A097950 CJ CheilJ edang Services A030200 KT
goods A086280 Hyundai Glovis A001040 CJ Corporation A032640 LG Uplus
(others) A047050 Daewoo International A004990 Lotte Confectionery A033630 SK Broadband
A012750 S-1 A005300 Lotte Chilsung Utilities A015760 Kepco
A000150 Doosan Corporation A004370 Nong Shim A036460 Kogas
A000120 CJ Korea Express A005440 Hyundai Green Food A051600 Kepco KPS
A006260 LS Corporation A000080 Hite J inro A052690 Kepco E&C
A001740 SK Networks A026960 Dongsuh A071320 Korea District Heating
A009240 Hanssem A007310 Ottogi
A010120 LS Industrial Systems A001680 Daesang
A003490 Korean Air A006040 Dongwon Industries
A011200 Hyundai Merchant Marine Healthcare A000100 Yuhan
Note: Cheil Industries excluded due to the merger with Samsung SDI
Source: Samsung Securities

August 29, 2014
Quantitative Issue

21

Portfolio simulation methodology
Stocks
Our investment universe comprises the top-150 KSE stocks by market cap at a specified time each month. Delisted or merged
stocks are also included in the universe to remove survivorship bias.
Portfolio selection
Stocks are given scores based on each factor. The top 20% are allocated to the 1st quintile portfolio, the next 20% to the 2nd
quintile portfolio, and so on. Cumulative returns for the five quintile groups are calculated to determine each factors influence
on share price and its usefulness as an investment indicator.
Simulation period
From Jan 2003 to the last day of the previous month.
Bull and bear markets
A bull market is defined as one in which absolute monthly returns of the Kospi are positive for at least three months, and a bear
market as one in which such returns are negative for at least three months. Bull markets occurred in 2001, 2003, late-2004
through 2007, and from 2009 to date, while bear markets were seen in 2002, early 2004, and 2008.
Portfolio returns
Based on an equally-weighted portfolio indexed to Jan 2003.
Portfolio rebalancing
For back testing, our portfolio is rebalanced on the last trading day of the month, and remains unchanged until the end of the
following month.
Consensus data
Based on FnGuide. For certain factors that cover short periods or involve other data-processing difficulties we use Thomson
Reuters I/B/E/S dataeg, comparisons with average valuations, PBRs, and PCRs.
Performance indicators
Performance indicators for long-only and long/short strategies differ. For long-only strategies, we check relative return and
information ratio (IR). For long-short strategies, we check long-short returns and information coefficient (IC).
[Terms used]
Relative return: Return of portfolio relative to benchmark [R-Rb].
Tracking error: Standard deviation of relative return (R-Rb).
Information ratio (IR): Relative return/relative risk. Excess return of portfolio over benchmark divided by tracking error.
Portfolios which continue outperforming the benchmark should have high IRs.
Information coefficient (IC): Correlation coefficient between portfolios estimated and actual returnsa high IC means
investment success. In real life, the Spearman rank correlation between a stocks factor and yield rankings is used.
Hit rate (%): Portion of 1st quintile outperforming the benchmark.
Maximum drawdown (%): Loss from peak to next trough; investors potential maximum loss.
Fwd: Estimates for the next 12 monthseg, for May, forecasts for the remaining 7 months of the year are added to those for 5
months of the following year.
FY0: Forecast year 0, the last year for which earnings have been releasedeg, 2010 if we are in May 2011.
FY1: Forecast year 1, the next year for which earnings will be releasedeg, 2011 if we are in May 2011.
FY2: Forecast year 2, the next-but-one year for which earnings will be releasedeg, 2012 if we are in May 2011.
FQ1: Forecast quarter 1, the next quarter for which earnings will be releasedeg, 2Q11 if we are in May 2011.
FQ2: Forecast quarter 2, the next-but-one quarter for which earnings will be releasedeg, 3Q11 if we are in May 2011.
August 29, 2014
Quantitative Issue

22

Samsung Factor List
Strategy code Strategy name Description
V10 FY0 P/E Low FY0 P/E
V10Q FQ0 P/E Low FQ0 P/E
V11 FY1 P/E Low FY1 P/E
V12 FY2 P/E FY2 P/E
V13 FY3 P/E Low FY3 P/E
V15 Trailing P/E Low 12-month trailing P/E
V16 Forward P/E Low 12-month-forward P/E
V16R Relative P/E Low 12-month-forward P/E relative to sector average
V16S Forward P/E (1-month consensus) Low 12-month-forward P/E (one-month consensus basis)
V16T Time-adjusted forward P/E Low 12-month-forward P/E (time adjusted)
V20 FY0 P/B Low FY0 P/B
V20Q FQ0 P/B Low FQ0 P/B
V21 FY1 P/B (since 2005) Low FY1 P/B
V21B FY1 P/B (IBES) Low FY1 P/B
V22 FY2 P/B (since 2005) Low FY2 P/B
V22B FY2 P/B (IBES) Low FY2 P/B
V30 FY0 PCR Low FY0 PCR
V31B FY1 PCR (IBES) Low FY1 PCR
V41 FY1 dividend yield (since 2005) High FY1 dividend yield
V41B FY1 dividend yield (IBES) High FY1 dividend yield
V50 FY0 EV/EBITDA Low FY0 EV/EBITDA
V51 FY1 EV/EBITDA (since 2005) Low FY1 EV/EBITDA
V61 FY1 PEG Low FY1 PEG
V62 FY2 PEG Low FY2 PEG
V71 FY1 P/S Low FY1 P/S
R16 P/E relative to sector P/E Low 12-month-forward P/E relative to sectors P/E
B16 Forward P/E relative to historic (2-year) P/E Low 12-month-forward P/E relative to history (two years)
B21 FY1 P/B relative to historic (2-year) P/B Low FY1 P/B relative to history (two years)
B61 FY1 P/E one-month decline FY1 forward P/E one month decline
B62 (FY1 EPS one-month chg) (price 1-month change) High (FY1 EPS 1 month change - price change)
B63 FY1 earnings yield one-month change High growth rate of FY1 earnings yield (one month)
E10 FY0 EPS growth High FY0 EPS growth rate (y-y)
E11 FY1 EPS growth High FY1 EPS growth rate (y-y)
E12 FY2 EPS growth High FY2 EPS growth rate (y-y)
E13 FY3 EPS growth High FY3 EPS growth rate (y-y)
E14 FY2 EPS 2Y CAGR High FY2 EPS 2Y CAGR (y-y)
E16 Forward EPS growth High 12-month-forward EPS growth rate (y-y)
E21 FY1 sales growth High FY1 sales growth rate (y-y)
E31 FY1 Operating profit growth High FY1 Operating profit growth rate (y-y)
E60 FQ0 EPS growth (y-y) High FQ0 EPS growth rate (y-y)
E61 FQ1 EPS growth (y-y) High FQ1 EPS growth rate (y-y)
E62 FQ2 EPS growth (y-y) High FQ2 EPS growth rate (y-y)
E65 FQ0 EPS growth (q-q) High FQ0 EPS growth rate (q-q)
E81 FQ1 Operating profit growth (y-y) High FQ1 Operating profit growth rate (y-y)
E82 FQ2 Operating profit growth (y-y) High FQ2 Operating profit growth rate (y-y)
C11 FY1 EPS one-month change High FY1 EPS one-month change
C12 FY2 EPS one-month change High FY2 EPS one-month change
C14 FY1/FY2 EPS one-month change Combining high FY1 EPS 1-month change and high FY2 EPS 1-month change
C16 FY1 EPS three-month change High FY1 EPS three-month change
C21 FY1 sales one-month change High FY1 Sales one-month change
C31 FY1 Operating profit one-month change High FY1 Operating profit one-month change
C41 FY1 ROE one-month change (since 2005) High FY1 ROE one-month change since 2005
C61 FQ1 EPS one-month change High FQ1 EPS one-month change
C81 FQ1 Operating profit one-month change High FQ1 Operating profit one-month change
C91 FY1 earnings revision rate (1-month) High FY1 earnings revision rate (one month)
C96 FY1 earnings revision rate (3-month) High FY1 earnings revision rate (three months)
(Continued on next page)

August 29, 2014
Quantitative Issue

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Strategy code Strategy name Description
C97 FY2 earnings revision rate (3-month) High FY2 earnings revision rate (three months)
C98 1-mo/3-mo FY1 earnings revision rate Combining high one-month FY1 ERR and high three-month FY1 ERR
CC2 Earnings Momentum Composite Combining high FY1/FY2 EPS one-month change and high one-month/three-month FY1 ERR
D10 Foreign ownership one-month change High growth rate of foreign ownership (one month)
D11 1-mo cumulative net buying by foreign investors High foreign cumulative net buying relative to market cap (one month)
D12 1-mo cumulative net buying by institutions High institutional cumulative net buying relative to market cap (one month)
D13 1-mo cumulative net buying by retail investors High retail cumulative net buying relative to market cap (one month)
D16 4-week institutional net buying momentum High linear trend of four-week net buying by institutions
D17 1-mo cumulative gross buying by institutions High institutional cumulative gross buying
D19 Supply/demand composite index
High composite index =[(change in institutional holding of stock +change in foreign investor
holdings on industry level)/2]
D31 Stock lending portion (since 2005) Low stock lending portion since 2005
D32 Stock lending return portion (since 2005) High pay back stock lending (one month)
D33 Short selling volume (1-month, since mid-2008) Low short selling volume compared to market cap (one month)
P11 1-month price reversion Low rate of return (one month)
P12 3-month price momentum High rate of return (three months)
P13 6-month price momentum High rate of return (six months)
P16 Price momentum (13months ago to 1month ago) High rate of return (thirteen months prior to one month prior)
P17 1-month price reversion relative to sector Low rate of return relative to sector
P19 Price composite index High composite index =[(price change of industry x 2) (price change of stock)]
P21 Market cap Large market cap
P22 Stock price High stock price
P23 Low beta (daily, 1yr) Low beta stock
P24 Low volatility (weekly, 2yr) Low volatility stock
Q11 FY1 ROE (since 2005) High FY1 ROE since 2005
Q11B FY1 ROE (IBES) High FY1 ROE (IBES)
Q21 FY1 ROA (since 2005) High FY1 ROA since 2005
Q21B FY1 ROA (IBES) High FY1 ROA (IBES)
Q31 FY1 Operating margin High FY1 Operating margin
Q40 Accrual Low accrual [ (NI t - OCF t) / B t]
Q51 FY1 EPS coefficient of variation Low FY1 EPS coefficient of variation
S11 Recommendation score High recommendation score
S12 Target price upside High upside to target price
S13 Target price upside (1-month consensus) High upside to target price (one-month consensus target price basis)
S61 Recommendation 1-month change High recommendation scores one-month change
S62 Target price 1-month change High target price 1-month change
MM1 P/E & Earning Momentum Composite (sector tilted) Combining FY2 P/E and FY1 EPS one-month change by sector tilted weight
MM2 Compact Model Compact model
MM6 Value/Momentum+Model Value/momentum +model
Z11 (Supposition) Real FY1 P/E (Supposition) low P/E assuming advanced knowledge of FY1 EPS
Z12 (Supposition) Real FY1 P/B (Supposition) low P/B assuming advanced knowledge of FY1 BPS
Z21 (Supposition) Real FY1 EPS growth (Supposition) high growth rate of FY1 EPS assuming advanced knowledge of FY1 EPS
Z23
(Supposition) FY1 EPS 1-month change one month
later
(Supposition) high FY1 EPS one-month change assuming advanced knowledge of FY1 EPS
over the next month
Z40
(Supposition) Change in foreign ownership
(1-month)
(Supposition) high growth rate of foreign ownership (one month) assuming advanced
knowledge of foreign ownership over the next month
Z41
(Supposition) next 1-month cumulative net buying
by foreign investors
(Supposition) high foreign cumulative net buying assuming advanced knowledge of foreign
net buying over the next month
Z42
(Supposition) next 1-month cumulative net buying
by institutions
(Supposition) high institute cumulative net buying assuming advanced knowledge of
institutional net buying over the next month
Z43
(Supposition) next 1-month cumulative net buying
by retail investors
(Supposition) high retail cumulative net buying assuming advanced knowledge of retail net
buying over the next month
Source: Samsung Securities


August 29, 2014
Quantitative Issue

24

Compliance Notice
- This report is independently based on quantitative analysis, so it may differ from those by sector-based analysts.
- This report has been prepared using data based on past performances, which are not an indicator of future performance.
- As of Aug 28, 2014, Samsung Securities shared group affiliation with Hotel Shilla, Samsung Card and S-1.
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covered in this report.
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converted, exceed 1% of the outstanding shares.
- As of Aug 28, 2014, the covering analyst(s) did not own any shares, or debt instruments convertible into shares, of any company covered in this report.
- This material has not been distributed to institutional investors or other third parties prior to its publication.
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affiliates of Samsung Securities are also based upon publicly available information and do not necessarily represent the views of management at such affiliates.


August 29, 2014
Quantitative Issue

25

Global Disclosures & Disclaimers
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