Com2uS

(078340 KQ)

Expectations and share price have declined

Game
Results Comment
August 5, 2013

Three negatives depressed 2Q earnings

Com2uS reported 2Q revenue of W20.3bn (-7.8% YoY) and operating profit of W2bn (-69.4% YoY), failing to meet the consensus, which had been steadily revised down leading up to the earnings release. 1) Revenue from the role-playing games (RPG) Heroes War and Homerun King, developed in-house by Com2uS, and 2012s hit social network game (SNG) Tiny Farm declined sharply QoQ. The percentage of RPG revenue out of overall revenue slid to 25% in 2Q after rising to 34% in 1Q. 2) The company released only seven new titles (vs. Com2uS published four of its six new titles on KakaoTalk. The company also published Tiny Farm service LINE. The popularity of new games, including was weaker than expected in 2Q. 20 games planned) in 2Q. In 1Q, the mobile messenger platform overseas through the messenger the SNG Little Legends for Kakao,

(Maintain) Target Price (12M, W) Share Price (08/02/13, W) Expected Return

Buy 50,000 36,500 37%

18 22 12.8 17.5 16.0 9.5 551.76 368 10 74.2 11.4 0.56 31,100 76,000 1M 4.0 0.3
Share price

OP (13F, Wbn) Consensus OP (13F, Wbn) EPS Growth (13F, %) Market EPS Growth (13F, %) P/E (13F, x) Market P/E (13F, x) KOSDAQ Market Cap (Wbn) Shares Outstanding (mn) Free Float (%) Foreign Ownership (%) Beta (12M) 52-Week Low (W) 52-Week High (W) (%) Absolute Relative
180 160 140 120 100 80 60 7/12 11/12 3/13

3) Amid a slowdown in revenue, the percentage of revenue generated through intermediate platforms, including KakaoTalks Game Center, climbed to nearly 50%, and parent-based head count increased YoY to 492 in 2Q13 (from 381 in 2Q12). As a result, OP margin plunged to 9.9% in 2Q from 20.6% in 1Q.

Likely to diversify platforms and game genres in 2H

Com2uS plans to release ten new titles in 3Q. It has already launched four titles, including Kkokkoma Yulangdan for Kakao, Devils, and Galactic Heroes, in July. In August, the company is scheduled to introduce two in-house developed games (Idol Company and Fishing) and two licensed games (Kingdom Tactics and Block Tok Tok). In an effort to reduce its dependence on KakaoTalk (and to further expand its market), Com2uS launched Facebook-linked services in 2Q. The company also plans to release games via Chinas Weibo and Qihoo 360 in 3Q.

Maintain Buy; Lower TP to W50,000

Earnings expectations and valuation premiums for smartphone mobile game companies are on the decline primarily due to intensifying competition, which has led to: 1) delays to new game launches and shorter life cycles for games, 2) increasing marketing expenses, including commissions to intermediate platforms (KakaoTalk, LINE, Facebook, etc.), and 3) a steady rise in R&D expenses (for the hiring of game developers, M&As, etc.). We maintain our Buy call on Com2uS, but lower our target price from W60,000 to W50,000. In light of the weak 2Q results, we revised down our 2013 and 2014 EPS estimates by 24.5% and 40.3%, respectively. In deriving the new target price, we applied Gamelofts 2013F P/E of 22x to Com2uS 2013F EPS.
FY (Dec.)
Revenue (Wbn) OP (Wbn) OP Margin (%) NP (Wbn) EPS (W) ROE (%) P/E (x) P/B (x)

6M -1.8 0.0

12M -14.2 -17.1

KOSDAQ

7/13

Daewoo Securities Co., Ltd.

Internet/Game/Entertainment Chang-kwean Kim
+822-768-4321 changkwean.kim@dwsec.com

12/10
32 3 8.3 4 439 7.4 30.3 2.1

12/11
36 3 8.7 4 411 6.3 53.5 3.1

12/12
77 16 20.9 21 2,029 25.4 23.9 5.3

12/13F
97 18 18.9 23 2,289 22.5 16.0 3.2

12/14F
123 25 20.4 26 2,563 20.3 14.2 2.6

12/15F
144 32 21.9 33 3,315 21.2 11.0 2.1

Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS BEGINNING ON PAGE 4.

August 5, 2013

Com2uS

Table 1. 2Q13P results

2Q12 Revenue Operating profit OP margin Pretax profit Net profit 22.0 6.5 29.7 7.0 6.0 1Q13 24.9 5.1 20.5 10.5 8.6 2Q13P Preliminary 20.3 2.0 9.9 2.9 3.3 KDB Daewoo 22.0 3.5 15.9 4.2 2.5 Consensus 22.9 3.7 16.4 4.3 3.9

(Wbn, %, %p)
Growth YoY -7.8 -69.4 -19.8 -58.5 -45.4 QoQ -18.5 -60.8 -10.6 -72.4 -61.6

Note: All figures are based on consolidated K-IFRS Source: Company data, FnGuide, KDB Daewoo Securities Research estimates

Table 2. Quarterly and annual earnings

1Q12 Revenue Overseas Domestic Other % of revenue Overseas Domestic Other Operating profit OP margin Net profit Net margin YoY growth Revenue Overseas Domestic Other Operating profit Net profit QoQ growth Revenue Overseas Domestic Other Operating profit Net profit 0 -1.2 4.2 -12.2 -72.1 215.8 95.7 37 175 21.7 1,891.40 55.1 2 8.8 2.4 -45.8 -15.4 24.1 -5.4 -17.7 -0.7 45.7 -34.1 -59.7 17.1 -17.7 33.7 19.8 40.6 183.9 -18.1 27.7 -33.8 15.4 -60.6 -62 16.5 4.9 23.9 9.6 140.5 27 19.6 26.6 17.2 8.6 31.6 72 53.6 115.5 13.8 85.9 -28.5 548.9 157.9 86.6 244.7 73.7 585.3 489.6 146 48.9 368.6 -19.8 928 482.8 88.7 21.1 191.7 -15.6 209.6 144.8 121.1 0.9 274.3 15.1 1,461.70 120 -7.6 -5.9 -9.9 9.1 -69.1 -46.1 5.6 -9.3 9 120.8 -12.2 -44.8 33.6 39.6 28.6 64.5 75.4 135.6 19.4 0.2 414.8 393.6 17.2 -16.1 101.2 112.4 163.7 58.2 47.9 43.5 8.6 0 2.9 4 34.7 33.6 61.1 5.3 7 29.7 6 27.5 35.8 61.4 2.8 6 24.7 8 33.4 31.1 64.5 4.4 4 17.2 3 14.2 21.9 73.7 4.5 5 20.6 9 34.5 34.1 59.6 6.3 2 9.9 3 16 30.7 63.4 5.9 5 20.5 4 17.5 32.5 62.1 5.4 6 22.6 7 25.1 3 8.6 4 11.4 16 20.9 20 26.6 51.4 48.6 63.8 36.2 11 5 5 1 2Q12 22 7 13 1 3Q12 22 8 14 1 4Q12 21 7 14 1 1Q13 25 5 18 1 2Q13P 20 7 12 1 3Q13F 24 7 15 1 4Q13F 28 9 18 2 2011 36 19 18 0 2012 77 49 28 0

(Wbn, %)
2013F 97 61 36 0 62.8 37.2 18 18.9 23 23.7 26.4 24.4 30 14.7 12.8

Note: All figures are based on consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research estimates

Table 3. Earnings forecast revisions

Previous 2013F Revenue Operating profit Pretax profit Net profit EPS (W) OP margin Net margin 113 29 38 31 3,029 25.5 27.0 2014F 143 40 49 43 4,294 28.1 30.4 Revised 2013F 97 18 28 23 2,289 18.9 23.7 2014F 123 25 31 26 2,563 20.4 21.0

(Wbn, W, %, %p)
% chg. 2013F -14.1 -36.3 -24.5 -24.5 -24.5 -6.6 -3.3 2014F -13.8 -37.4 -38.1 -40.4 -40.3 -7.7 -9.4

Note: All figures are based on consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research

August 5, 2013

Com2uS

Com2uS (078340 KQ/Buy/TP: W50,000)

Comprehensive Income Statement (Summarized)
(Wbn) Revenue Cost of Sales Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/12 12/13F 12/14F 12/15F 77 21 56 40 16 16 8 -1 0 24 3 21 0 21 21 0 21 21 0 18 10 24.0 20.9 26.6 97 35 63 44 18 18 10 -1 0 28 5 23 0 23 23 0 24 24 0 21 16 21.1 18.9 23.7 123 42 81 56 25 25 6 -2 0 31 5 26 0 26 26 0 26 26 0 27 19 21.9 20.4 21.0 144 49 95 63 32 32 6 -2 0 38 4 33 0 33 33 0 34 34 0 33 26 22.9 21.9 23.3

Statement of Financial Condition (Summarized)

(Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property, Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/12 12/13F 12/14F 12/15F 46 8 10 0 3 54 0 4 2 100 8 0 0 8 1 0 1 9 91 5 27 58 0 91 70 28 13 0 4 56 0 3 2 126 10 0 0 10 1 0 1 11 114 5 27 82 0 114 94 48 16 0 4 61 0 2 2 155 13 0 0 13 1 0 1 14 141 5 27 107 0 141 125 76 19 0 5 66 0 1 2 191 15 0 0 15 1 0 1 17 175 5 27 141 0 175

Cash Flows (Summarized)

(Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/12 12/13F 12/14F 12/15F 18 21 -2 2 1 -1 2 -2 0 0 -4 -13 -2 -1 21 -31 0 0 0 0 0 5 3 8 23 23 -2 2 1 4 6 3 0 -6 -4 -2 -1 -1 -1 1 -2 0 0 0 -1 20 8 28 19 26 1 1 1 4 -3 -3 0 0 -5 1 0 -1 0 2 0 0 0 0 0 20 28 48 26 33 -1 1 1 4 -2 -3 0 0 -4 2 0 -1 0 2 0 0 0 0 0 28 48 76

Forecasts/Valuations (Summarized)
12/12 12/13F 12/14F 12/15F P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 23.3 25.4 93.9 10.2 567.9 20.4 22.5 91.9 9.9 670.4 18.4 20.3 120.1 10.2 718.1 19.3 21.2 146.8 9.6 820.6 23.9 21.4 5.3 24.7 2,029 2,263 9,225 0 0.0 0.0 112.4 306.1 412.8 393.5 10.4 16.0 14.6 3.2 15.3 2,289 2,497 11,548 0 0.0 0.0 26.4 11.4 14.7 12.8 10.2 14.2 13.3 2.6 11.0 2,563 2,741 14,140 0 0.0 0.0 26.4 30.9 36.0 12.0 10.2 11.0 10.6 2.1 8.1 3,315 3,451 17,487 0 0.0 0.0 16.8 22.3 25.6 29.4 9.8

Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research

August 5, 2013

Com2uS

Important Disclosures & Disclaimers

Disclosures As of the publication date, Daewoo Securities Co., Ltd and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.
(W) 100,000 80,000 60,000 40,000 20,000 0 8/11 2/12 8/12 1/13 7/13 Com2uS

Stock Ratings Buy Trading Buy Hold Sell Relative performance of 20% or greater Relative performance of 10% or greater, but with volatility Relative performance of -10% and 10% Relative performance of -10%

Industry Ratings Overweight Neutral Underweight Fundamentals are favorable or improving Fundamentals are steady without any material changes Fundamentals are unfavorable or worsening

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

KDB Daewoo Securities Research

August 5, 2013

Com2uS

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

KDB Daewoo Securities International Network

Daewoo Securities Co. Ltd. (Seoul) Head Office 34-3 Yeouido-dong, Yeongdeungpo-gu Seoul 150-716 Korea Tel: 82-2-768-3026 Daewoo Securities (Europe) Ltd. Tower 42, Level 41 25 Old Broad Street London EC2N 1HQ United Kingdom Tel: 44-20-7982-8016 Beijing Representative Office Suite 2602, Twin Towers (East) B-12 Jianguomenwai Avenue Chaoyang District, Beijing 100022 China Tel: 86-10-6567-9699 Daewoo Securities (Hong Kong) Ltd. Two International Finance Centre Suites 2005-2012 8 Finance Street, Central Hong Kong Tel: 85-2-2514-1304 Daewoo Securities (Singapore) Pte. Ltd. 6 Battery Road, #11-01 Singapore, 049909 Daewoo Securities (America) Inc. 320 Park Avenue, 31st Fl. New York, NY 10022 United States Tel: 1-212-407-1000 Tokyo Representative Office 7th Floor, Yusen Building 2-3-2 Marunouchi, Chiyoda-ku Tokyo 100-0005 Japan Tel: 81-3- 3211-5511 Ho Chi Minh Representative Office Centec Tower 72-74 Nguyen Thi Minh Khai Street Ward 6, District 3, Ho Chi Minh City Vietnam Tel: 84-8-3910-6000

Tel: 65-6671-9845 Shanghai Representative Office Unit 13, 28th Floor, Hang Seng Bank Tower 1000 Lujiazui Ring Road Pudong New Area, Shanghai 200120 China Tel: 86-21-5013-6392

KDB Daewoo Securities Research