Materials / Korea 3 May 2011

Foosung
093370 KS

Target price: W7,400 W10,200 Up/downside: +22.6% Share price (2 May): W8,320

Refrigerants set to deliver surprise

Maintain 1 (Buy) for 23% upside to revised target price Continued surge in refrigerant prices could lead to earnings upside for Foosung 1Q11 results, CDM licence renewal, momentum in demand for electric vehicles serve as potential re-rating catalysts
How do we justify our view?

Yumi Kim

(82) 2 787 9838 yumi.kim@kr.daiwacm.com

What's new

We believe the continued strength of Foosungs refrigerant prices could be a catalyst for further earnings upside and an improvement in the companys share price over the next six months. As a result, we reiterate our 1 (Buy) rating on the stock, based on the 23% upside potential to our new target price of W10,200.
What's the impact

Foosungs margins to widen over the next six months. As such, we expect Foosungs refrigerant division to see stronger earnings-growth momentum in 2011 than we expected previously. We now forecast sales and operating profit for the division to amount to W167.3bn and W22.6bn, respectively, versus our previous forecasts of W117.1bn and W7.0bn. Our new target price is equivalent to a 2011 PER of 21.1x, based on the six-month average of the stocks comparable peer, adjusted for a market discount. Our revised EPS forecast for 2011 marks a 40% upward revision from our previous forecast, and indicates 602% YoY growth for 2011.
What we recommend

How we differ

We are the only foreign research house in a limited pool of brokers providing coverage on this stock.
Forecast revisions (%)
Year to 31 Dec Revenue change Net-profit change EPS change
Source: Daiwa forecasts

11E 21.5 40.0 40.0

12E 22.2 15.8 15.8

13E 25.9 11.2 11.2

Share price performance

12-month share-price performance Relative to KOSPI Index

In the year to the end of March 2011, the price of HCFC-22 refrigerant imported from China a benchmark indicator for Foosungs ASP had surged by 68% versus the 2010 average, following the 80% YoY increase last year. The import price of key raw material fluorspar, meanwhile, has risen by just 20% after the 11% increase in 2010. We believe the surge in refrigerant prices is likely to be sustained amid the continued tight supply-demand dynamics in China as well as the rest of the world, and we expect

12-month range Market cap (US$m) Average daily turnover (US$m) Shares outstanding (m) Major shareholder

2,965-8,740 658.62 29.18 85 Y.M. Kim (22.8%)

We believe investors should accumulate shares in Foosung on any short-term pullback in the share price especially ahead of the potential re-rating catalysts we see, including: 1) the 1Q11 earnings results, where operating profit should surpass last years full-year figure, 2) licence renewal for the companys carbon-credit business, and 3) momentum in demand for lithium-ion batteries (LiBs) and related materials alongside growth of the market for hybrid and allelectric vehicles.

Financial summary (W)

Year to 31 Dec Revenue (bn) Operating profit (bn) Net profit (bn) Core EPS EPS change (%) Daiwa vs Cons. EPS (%) PER (x) Dividend yield (%) DPS PBR (x) ROE (%) 11E 285 42 41 481 602.1 19.4 17.3 0.0 0.000 4.3 29.5 12E 349 48 33 387 (19.7) (11.1) 21.5 0.0 0.000 3.6 18.1 13E 393 54 40 466 20.5 n.a. 17.9 0.0 0.000 2.9 17.9

Source: Bloomberg, Daiwa forecasts

Important disclosures, including any required research certifications, are provided on the last two pages of this report.

Materials / Korea
093370 KS
3 May 2011

How do we justify our view?

Growth outlook Valuation Earnings revisions

Growth outlook
At the recurring earnings level (pre-tax profit minus gains from the companys carbon credit business), we forecast Foosung to record increases of 404% YoY, 18% YoY and 21% YoY for 2011-13, respectively. Growth for the company should result primarily from the cap-up effect for its LiB material LiPF6 for which the company is one of just four major producers worldwide as well as continued strength in refrigerant prices. In the longer term, we expect Foosung to emerge as the prime beneficiary of the fast-growing LiB market, thanks to its price advantage as well as its access to top LiB-makers like LG Chem (051910 KS, W540,000, 1) and Samsung SDI (006400 KS, W197,000, 2).

Foosung: earnings to ramp-up from 1Q11

(Wbn) 60 50 40 30 20 10 0 (10) (20) 2008 2009 2010 2011E 2012E 2013E

Pre-tax earnings

Recurring earnings

Source: Company, Daiwa forecasts Note: Recurring earnings based on pre-tax profit minus earnings from carbon-credit business

Valuation
We have used a 2011 PER of 21.1x to value Foosung. Our target multiple is based on the six-month average of its comparable peer, Stella Chemifa (4109 JP, 2,972, 2), with a market discount of 12%. Foosung trades currently at a 17.3x PER versus the average of 15.6x, based on the Bloomberg-consensus forecasts for its other major fluorochemical and electrolyte-material peers, but believe the premium is well-deserved in light of the company having the greatest revenue exposure to the fast-growing LiB market, the higher entry barriers associated with this LiB component group, and its high earnings growth.

Foosung: valuation comparison vs. other LiB players

Price (loc curr) Rating 8,320 2,972 627 324 61.23 1 2 NR NR NR EPS chg ROE (%) (%) 2011E 2011E 602.1 20.9 9.8 28.9 13.1 31.7 78.1 34.4 74.6 3.1 25.5 9.9 29.5 13.3 10.3 12.3 3.9 26.7 14.9 13.9 9.9 14.1 5.0 20.8

Ticker Foosung Electrolyte material Stella Chemifa Kanto Denka Kogyo Central Glass Honeywell International Electrolyte Separator Positive electrodes Negative electrodes Battery makers EV makers 093370 KS 4109 JP 4047 JP 4044 JP HON US

PER (x) 17.3 15.6 17.8 14.0 15.0 15.5 11.3 13.2 13.5 17.2 15.3 21.7 21.5 13.1 14.9 11.8 12.2 13.4 9.6 11.9 10.0 10.6 11.3 10.3

PBR (x) 4.3 2.0 1.8 1.6 0.6 3.8 1.9 1.7 1.1 1.1 1.9 2.2 3.6 1.7 1.6 1.5 0.6 3.2 1.6 1.5 1.0 1.5 1.7 1.7

2011E 2012E 2011E 2012E

Source: Company, Daiwa forecasts, Bloomberg-consensus forecasts for non-rated stocks Note: Figures for each grouping based on the average of the listed companies

Earnings revisions
We are the only foreign research house among a limited pool of brokers providing coverage of this stock. Our EPS forecast for 2011 is 19% above that of the consensus, though we are more conservative in our forecast for 2012. We have not reflected any gains related to the companys carbon credit business from 2012 on, given the uncertainty regarding the renewal of the companys licence.

Foosung: EPS forecasts, by broker

(W) 700 600 500 400 300 200 100 0 Daiwa 2011E
Source: FnGuide, Daiwa forecasts

Hyundai 2012E

E*Trade

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3 May 2011

Financial summary

Key assumptions
Year to 31 Dec LiB demand (MWh) LiPF6 production (t.p.a.) Foosung's LiPF6 capacity (t.p.a.) 2006 2007 11,472 2,200 200 2008 14,352 2,530 200 2009 15,989 2,780 220 2010 20,352 4,800 1,120 2011E 25,602 8,300 2,000 2012E 32,908 10,500 2,000 2013E 45,512 11,450 2,000

Profit and loss (Wbn)

Year to 31 Dec Refrigerant Gas Car Mat Others Total revenue Other income COGS SG&A Other op. expenses Operating profit Net-interest inc./(exp.) Assoc/forex/extraord./others Pre-tax profit Tax Min. int./pref. div./others Net profit (reported) Net profit (adjusted) EPS (reported) (W) EPS (adjusted) (W) EPS (adjusted fully-diluted) (W) DPS (W) EBIT EBITDA 2006 0 0 0 13 0 (13) (1) 0 0 0 2 1 0 0 1 1 9.754 9.754 9.754 0.000 0 0 2007 0 0 0 97 0 (87) (8) 0 2 (1) 12 13 (4) 0 9 9 118 118 118 25.000 2 2 2008 77 23 36 136 0 (114) (19) 0 3 (4) 19 19 (4) 0 15 15 192 192 192 0.000 3 16 2009 72 39 31 143 0 (119) (23) 0 1 (3) 9 7 0 0 7 7 86.545 86.545 86.545 0.000 1 16 2010 94 36 51 180 0 (145) (26) 0 9 (3) 1 7 (1) 0 6 6 68.576 68.576 68.576 0.000 9 26 2011E 167 40 78 285 0 (210) (33) 0 42 (8) 16 50 (9) 0 41 41 481 481 481 0.000 42 53 2012E 184 41 124 349 0 (264) (38) 0 48 (8) 0 40 (7) 0 33 33 387 387 387 0.000 48 61 2013E 202 42 148 393 0 (298) (40) 0 54 (6) 0 48 (9) 0 40 40 466 466 466 0.000 54 69

Cash flow (Wbn)

Year to 31 Dec Profit before tax Depreciation and amortisation Tax paid Change in working capital Other operational CF items Cash flow from operations Capex Net (acquisitions)/disposals Other investing CF items Cash flow from investing Change in debt Net share issues/(repurchases) Dividends paid Other financing CF items Cash flow from financing Forex effect/others Change in cash Free cash flow
Source: Company, Daiwa forecasts

2006 1 0 0 1 (1) 0 0 0 0 0 1 0 0 0 1 0 1 0

2007 13 1 (4) (2) (5) 1 (10) 1 0 (10) (3) 0 0 0 (3) 0 (12) (9)

2008 19 12 (4) (26) 3 4 (47) 0 0 (48) 36 0 0 (3) 33 0 (11) (43)

2009 7 15 0 (1) 1 23 (33) (1) (2) (36) 14 0 0 0 14 0 1 (10)

2010 7 18 (1) (10) 0 14 (40) 5 (3) (38) 26 0 0 0 26 0 1 (26)

2011E 50 12 (9) (12) 0 41 (55) (5) (5) (64) 14 0 0 11 25 0 2 (13)

2012E 40 13 (7) (3) 1 44 (24) (3) (4) (31) (10) 0 0 0 (10) 0 4 20

2013E 48 14 (9) (8) 1 48 (21) (2) (4) (27) (17) 0 0 5 (12) 0 9 26

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Financial summary continued

Balance sheet (Wbn)

As at 31 Dec Cash & short-term investment Inventory Accounts receivable Other current assets Total current assets Fixed assets Goodwill & intangibles Other non-current assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Other non-current liabilities Total liabilities Share capital Reserves/R.E./others Shareholders' equity Minority interests Total equity & liabilities Net debt/(cash) BVPS (W) 2006 2 8 29 1 41 8 0 23 73 16 19 1 35 0 1 36 36 1 37 0 73 14 509 2007 13 16 25 2 56 69 1 19 145 44 12 32 89 10 0 99 36 10 46 0 145 42 635 2008 2 25 20 4 50 104 1 20 176 35 12 13 59 40 1 100 38 37 75 0 176 73 985 2009 3 20 27 4 54 123 2 22 200 35 21 7 63 34 0 97 42 61 103 0 200 66 1,232 2010 9 20 43 3 76 145 2 16 239 41 24 10 76 51 1 127 42 70 112 0 239 82 1,325 2011E 13 29 58 4 104 188 3 22 318 40 34 12 87 66 1 153 42 122 165 0 318 92 1,940 2012E 19 32 63 5 120 199 4 26 349 47 39 15 101 49 1 151 42 155 198 0 349 76 2,333 2013E 31 38 69 6 144 206 5 29 384 70 46 15 131 9 2 141 42 201 243 0 384 48 2,864

Key ratios (%)

Year to 31 Dec Sales (YoY) EBITDA (YoY) Operating profit (YoY) Net profit (YoY) EPS (YoY) Gross-profit margin EBITDA margin Operating-profit margin ROAE ROAA ROCE ROIC Net debt to equity Effective tax rate Accounts receivable (days) Payables (days) Net interest cover (x) Net dividend payout
Source: Company, Daiwa forecasts

2006 n.a. n.a. n.a. n.a. n.a. 5.2 n.a. n.a. 3.8 1.9 n.a. n.a. 37.6 33.8 406.0 255.6 n.a. 0.0

2007 630.7 n.a. n.a. n.m. n.m. 10.1 2.3 1.8 20.7 7.9 2.2 1.7 90.1 32.5 102.3 58.1 1.5 21.2

2008 41.0 589.9 98.5 69.4 62.9 16.2 11.5 2.5 23.9 9.0 2.7 2.2 97.5 23.3 59.6 31.9 0.9 0.0

2009 4.7 3.8 (74.0) (50.2) (55.0) 16.4 11.4 0.6 8.1 3.8 0.5 0.6 63.6 n.a. 59.6 41.1 0.3 0.0

2010 26.3 62.4 890.4 (20.0) (20.8) 19.4 14.6 4.8 5.4 2.6 4.6 4.1 73.2 13.6 70.7 45.2 2.5 0.0

2011E 58.0 102.9 379.3 605.2 602.1 26.2 18.8 14.6 29.5 14.7 17.5 15.1 56.0 18.0 64.5 37.4 5.2 0.0

2012E 22.8 14.3 15.0 (19.7) (19.7) 24.4 17.5 13.7 18.1 9.8 17.0 14.8 38.5 18.0 63.1 38.5 5.9 0.0

2013E 12.4 12.1 13.4 20.5 20.5 24.0 17.5 13.8 17.9 10.8 17.6 15.7 19.7 18.0 61.6 39.6 8.6 0.0

Company profile
Foosung is mainly a fluorochemical company, producing refrigerant gases. However, in more recent years it has expanded its portfolio of fluorine-based products to include semiconductor gases as well as the electrolyte material for secondary lithium-ion batteries. The company also produces car mats, and its pre-tax earnings include gains from carbon credits.

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Foosung: breakdown of refrigerant products

HCFC-4060 17.3%

Refrigerants to deliver earnings surprise

We reiterate our 1 (Buy) rating, as we expect further upside for Foosungs refrigerant earnings, as well as impending re-rating catalysts.
HFC-32 36.5%

HCFC-22 28.8%

HFC-410a 17.3%

Source: Company Note: Figures based on production capacity; HFC-410a and HFC-32 are replacements for HCFC-22; HCFC-4060 is a mixture of HCFC-142b and HCFC-22 and is a replacement for CFC-12; HFO-1234YF, a replacement for HFC-134a, is currently under development and scheduled for pilot production from 2H11 or 1H12, and mass production from 2013

Refrigerants offer upside potential

Refrigerant prices in Korea surged further in March, outstripping the rise in key raw-material costs indicating further upside for Foosungs earnings.

Korea: prices of imports from China

(US$/tonne) 10,000 8,000 6,000 4,000 2,000 0 Jan-08 Jan-09 Jan-10 Jan-11 Jul-07 Jul-08 Jul-09 Jan-07 Jul-10 HFC-134a HCFC-22: 80% YoY increase in 2010 68% YoY increase in 2011 YTD

Further surge in refrigerant prices

Year-to-date up to the end of March, the price of Chinese imports of HCFC-22 (a hydrochlorofluorocarbon refrigerant), a benchmark indicator for Foosungs ASP, had surged by 68% versus the 2010 average. Our data indicates that the rise in prices has been accelerating, with January, February and March prices up 46%, 63%, and 82%, respectively, from the 2010 average. Foosung mainly produces HCFC-22 the most commonly used type of refrigerant gas in developing nations as well as its replacements and derivative mixtures. Aside from a marginal amount distributed to customers in China through its local subsidiary, Foosungs refrigerants are marketed only in Korea, given that these substances are banned in developed countries due to their high global warming potential. While Foosung is one of just two refrigerant producers in Korea and accounts for the dominant 72% share of the domestic market, the price of Chinese imports to Korea has served as the key determinant of the companys selling price, given that China now accounts for the worlds largest and cheapest supply of refrigerants. The price of HCFC-22 imported from China remained largely unchanged throughout 2009, but the average figure rose by 80% YoY in 2010 driving up Foosungs ASP by 67% YoY as at the end of 3Q10. -5-

HCFC-22

HFC-410a

Source: Korea Customs Office, Compiled by Daiwa Note: 2011 YTD figures based on Jan-Mar 2011 data

Foosung: ASP growth

(W/kg) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Price of Chinese imports Price of Foosung's refrigerants

Source: Korea Customs Office, Company, Compiled by Daiwa Note: Price of Chinese imports based on figures for HCFC-22 and quarterly-average exchange rates. Price of Foosungs refrigerants based on average selling price (sales divided by shipment). Figure for 1Q11 based on Jan-Mar 2011 data

Prices likely to remain strong

We attribute the recent surge in refrigerant prices mainly to the series of policies set forth by the PRC Government since 2010 in an effort to protect its resources of key raw-material acid-grade fluorspar fluorite powder with a purity of greater than 97%

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calcium fluoride (CaF2) and to promote sustainable development of its downstream industries. Until as recently as 2008-09, the abundance of fluorite resources and ever-increasing demand for refrigerants had driven blind capacity expansion among producers in downstream industries and overexploitation of the mineral, as well as runaway environmental damage (ie, dust released in processing fluorite into powder form, by-products emitted from the manufacturing of refrigerants). Players thereby adopted low-price and low-margin strategies to survive, and cheap Chinese imports served to apply downward pricing pressure on Foosungs products in Korea. Since 2010, however, the PRC Government has helped to promote an improved pricing environment by placing restrictions on fluorite production (ie, a 2011 cap of 4.5m tonnes, a resource tax of 15% from March 2010, a temporary ban on new licences) and by introducing legislation raising the admittance threshold for downstream players as of December 2010. In the longer term, we believe the surge in prices may decelerate, but we think the downside risk is likely to be limited, in light of the continued tight supplydemand dynamics in Korea, China, as well as the rest of the world. Refrigerant demand is highly correlated with the general health of the economy, in our view, and is therefore on a recovery trend with demand increasing the fastest in developing countries. At the same time, supply has continued to come under increasing restrictions pursuant to environmental regulations and international response to climate change. The Montreal Protocol on Substances that Deplete the Ozone Layer (1987), for instance, calls for the freezing of HCFC production volumes at 1989 and 2009-10 levels for developed and developing countries, respectively, and a 90% and 10% target reduction from these baselines by the end of 2014.

Figures up to the end of March indicate that the price differential between refrigerants and acid-grade fluorspar increased from 4.3x in 2008-09 to 7.6x in 2010, and has climbed further to as high as 10.6x so far in 2011. Margins should stabilise in the longer term, however, as the gap between fluorspar prices and downstream products narrows. The PRC Government continues to place restrictions on new exploration and mining, and we also see the risk of a reinstatement of the export quota system progressive reductions in export volume as well as further hikes in export tariffs (ie, raised from 10% to 15% in June 2007).
Foosung: key raw materials for its fluorochemical products
Lithium carbonate, Li2CO3 (extracted from brine or from minerals) Lithium fluoride, LiF Lithium-ion battery electrolyte material (ie, lithium hexafluorophosphate, LiPF6) Anhydrous hydrogen fluoride, AHF Semiconductor gases (ie, hydrofluoric acid)

Acid-grade fluorite, or fluorspar (contains 97% or more calcium fluoride, CaF2)

+ sulfuric acid

+ water

Materials sourced through imports Materials produced by Foosung + chlorine

Refrigerants (ie, hydrochlorofluorocarbons, HCFC)

Source: Compiled by Daiwa Note: Information for fluorochemical products only; excludes the companys car-mat business

Refrigerant prices versus key raw-material costs

(US$/tonne) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Jan-07

Selling prices outstripping raw-material costs

Meanwhile, the actual rise in fluorspar prices has so far not been as remarkable as that of its downstream products. The average price of acid-grade fluorspar imports from China, home to the worlds third-largest fluorite reserves, rose by only 11% last year and is up just 20% this year up to March. As a result, Foosung is likely to see a rise in profit margins over the next six months, especially as the company sources fluorspar in bulk through affiliate trading company Foosung HDS (Not listed) and produces hydrogen fluoride (the feedstock to fluorochemical products like refrigerants) internally. -6-

Jan-08 Price of refrigerant (HCFC-22) Price of hydrogen fluoride

Jan-09

Jan-10 Price of fluorspar

Jan-11

Source: Korea Customs Office, Company, Compiled by Daiwa Note: Prices based on Chinese imports

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Price differential between refrigerants and raw materials

(US$/tonne) 5,000 4,000 3,000 2,000 1,000 0 2005 2006 2007 2008 2009 2010 2011E Price of refrigerant (LHS) Price differential (RHS) Price of raw material (LHS) (x) 12 10 8 6 4 2 0

Battery-material cap-up effect should materialise from 1Q11

In our view, the better-than-expected outlook for the refrigerant division, combined with the cap-up effect for LiB material, should materialise starting with the companys 1Q11 results. The company had completed a 400 tpa capacity increase for essential electrolyte material lithium hexafluorophosphate (LiPF6) at the end of December 2010. The operational rate, which had been 100% previously, fell temporarily on the added capacity to the 90-99% level for January to February, but is now reportedly at full operation as of March. The quarterlyaverage figures for our 2011 annual sales and operating profit forecasts for the division indicate 82% QoQ and 147% QoQ increases versus 4Q10 (from W7.1bn and W1.7bn to W12.9bn and W4.2bn, respectively). Overall, our current forecasts call for the quarterlyaverage operating profit to rise by 379% QoQ to W10.4bn for 2011 surpassing last years full-year total.
Foosung: earnings to ramp-up from 1Q11
(Wbn) 60 50 40 30 20 10 0 (10) (20) 2008 2009 2010 2011E 2012E 2013E

Source: Korea Customs Office, compiled by Daiwa Note: 2011E based on Jan-Mar 2011 figures; refrigerant and raw-material prices based on Chinese imports of HCFC-22 and fluorspar

Revising up earnings forecasts, target price

We have revised up our 2011 and 2012 EPS forecasts for Foosung by 40% and 16%, respectively, to reflect the further upside we see for the companys refrigerant business. We now forecast refrigerant sales to increase by 79% YoY and 10% YoY for 2011 and 2012, respectively, with volume remaining capped at 2010 levels pursuant to the Montreal Protocol, and operating margins of 13.5% and 8.0% for those years. Previously, we had forecast sales growth of 25% YoY and 3% YoY, and an operating margin of 6% for both years. Accordingly, we have also raised our six-month target price to W10,200, based on our new 2011 EPS forecast of W481 and target PER of 21.1x the six-month average PER of comparable peer Stella Chemifa adjusted for a 12% market discount.
Foosung: Daiwa earnings-forecast revisions (Wbn)
Sales Refrigerants Operating profit Refrigerants Operating margin (%) Net profit EPS (W) 2011E 234.3 117.1 26.1 7.0 11.1 29.2 344 Previous 2012E 285.9 120.6 40.6 7.2 14.2 28.3 334 2013E 311.9 121.8 47.4 7.9 15.2 35.6 419 2011E 284.6 167.3 41.6 22.6 14.6 40.8 481 Revised 2012E 349.4 184.0 47.8 14.7 13.7 32.8 387 2013E 392.6 202.5 54.2 15.2 13.8 39.5 466 Change (%) 2011E 2012E 2013E 21.5 22.2 25.9 42.9 52.6 66.2 59.2 17.6 14.4 221.5 103.5 91.8 3.5pp (0.5)pp (1.4)pp 40.0 15.8 11.2 40.0 15.8 11.2

Pre-tax earnings

Recurring earnings

Source: Company, Daiwa forecasts Note: Recurring earnings based on pre-tax profit minus earnings from carbon-credit business

Regulatory approval to renew CDM licence

We also expect approval for licence renewal for Foosungs carbon-credit business to be a re-rating catalyst. Foosung became the first Korean company in 2005 to receive authentication in accordance with the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) for its CDM, which works to reduce greenhouse gas emissions at the companys refrigerant plant in Ulsan. Its licence for the permitted seven-year period expired at the end of 2009 however, and the company has been awaiting approval for its renewal application since submission in 2010. While the decision-making process by the CDM Executive Board has been delayed since, and uncertainty exists from the lack of precedence in -7-

Source: Daiwa forecasts

Reiterate Buy ahead of potential catalysts

We reiterate our 1 (Buy) rating for Foosung given the near-term rerating catalysts we expect, including: 1) a considerable ramp-up in earnings, which should begin to materialise from 1Q11, as well as 2) regulatory approval for the renewal of the companys carboncredit licence.

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licence renewal for a registered CDM participant, as well as the absence of a successor or extension agreement to the Kyoto Protocol which is set to expire at the end of 2012, licence renewal would mean an additional W10-30bn in annual pre-tax gains for the company through the end of 2016. We note that the possibility for licence renewal continues to arise once every two months following review by the Executive Board (ie, 30 May-3 June).

2) any changes to longer-term supply and demand dynamics for fluorspar and fluorine-based refrigerant products including competition between fluorochemical refrigerants and not-in-kind systems (ie, ammonia, carbon dioxide, hydrocarbons), changes in the regulatory environment, especially in China, as well as a downturn in the global economy, 3) delays in production growth among makers of LiBs used in automotive applications as eco-friendly cars take longer than expected to gain traction, and 4) any longer-term fluctuations in the W/ currency rates, which would affect Foosungs price advantage over its rivals in Japan with regard to its LiB material products. We see limited risk of oversupply for the companys LiPF6 despite the additional cap-up of 1,000tpa to 2,000tpa by the end of 3Q11 especially in light of the fact that the companys key customers have been carrying out known aggressive capacity-expansion plans of their own. In our simulation analysis, we found that even our most conservative estimates and assumptions indicate a demand surplus for Foosung of 54 tonnes in 2011, and more than 1,000 tonnes and 2,000 tonnes in 2012 and 2013, respectively.
Simulation analysis: risk of oversupply limited for Foosung
2010 Production capacity at Foosung's customers* LG Chem - LiB (m cells pa) Increase (% YoY) Technosemichem - electrolytes (tpa) Increase (% YoY) Panax E-tec - electrolytes (tpa) Increase (% YoY) LiPF6 demand among Foosung's customers** LG Chem (tpa) Foosung's share of customer's orders (%) Technosemichem (tpa) Foosung's share of customer's orders (%) Panax E-tec (tpa) Foosung's share of customer's orders (%) Customers overseas (tpa) Foosung's share of customer's orders (%) LiPF6 supplied by Foosung to customers*** LiPF6 supplied to LG Chem (tpa) LiPF6 supplied to Technosemichem (tpa) LiPF6 supplied to Panax E-tec (tpa) LiPF6 supplied to customers overseas (tpa) Demand for Foosung's LiPF6 (tpa) Foosung's production capacity (tpa) Supply in excess of demand (tpa) Implied average operational rate (%) 8.4 5,400 4,000 667 60 702 43 520 48 400 300 250 50 1,000 1,000 0 100 2011E 17.4 107.1 5,400 0.0 14,000 250.0 1,381 60 702 43 1,820 48 829 300 875 50 2,054 2,000 (54) 103 2012E 38.4 120.7 5,400 0.0 14,000 0.0 3,048 60 702 43 1,820 48 1,829 300 875 50 3,054 2,000 (1,054) 153 2013E 61.0 58.9 5,400 0.0 14,000 0.0 4,841 60 702 43 1,820 48 2,905 300 875 50 4,130 2,000 (2,130) 206

Momentum in anticipated LiB demand among automotive applications

While Daiwas Pan Asia team forecasts global LiB demand to rise at a CAGR of 30.8% from 2010-13 (see Daiwas report, Rubber meets the road for EV, battery markets, published on 17 December 2010), we believe growth in demand may accelerate as the market for hybrid and all-electric vehicles gains traction.
Capacity expansion plans among Foosung's major customers
Electrolyte producers LG Chem (Produces electrolytes for in-house use in the production of lithium-ion batteries. See note below.) Technosemichem US subsidiary TSC Michigan to begin production from 2Q11 and supply to US battery makers, including A123 Systems (news published on 14 March 2011). Panax E-tec Construction of a Nonsan plant production capacity increase of 10,000 tonnes to be completed in 3Q11 (25 February 2011). Novolyte Technologies Awarded a US$20.6mn grant by the Department of Energy under the Recovery Act, Electric Drive Vehicle Battery and Component Manufacturing Initiative for expanded production in 2009. Formed a joint venture with Foosung to produce LiB electrolytes for the US market (1 September 2010). China Capchem n.a. Guotai n.a. Lithium-ion battery makers* LG Chem To achieve annual production capacity of 20m by 2013 upon completion of its US plant (10 July 2010). To raise production capacity at its Ohchang plant from 8.4m cells to 61m by 2013 (14 November 2010). Samsung SDI Invested W100bn in a new LiB plant in Cheonan (10 June 2009). SB LiMotive To expand production capacity for new plants in Ulsan, Europe, China, and the US from the equivalent of 50,000 EVs (60Ah/EV) to 400,000 in 2013, 2.8m by 2015, 11.2m by 2020 (11 April 2011). SK Energy LiB plant under construction, with production capacity for 500MWh in battery capacity to be achieved by 2012 equivalent of about 350,000-500,000 HEVs or 25,000 EVs (9 November 2010). Signed MOU with Formosa in Taiwan for joint-development of LiB (28 December 2010). A123 Systems Developing battery pack for new EV from Shanghai Automotive Industry Corporation (9 November 2010). Johnson Controls-Saft Supplying Ford with a complete battery system for its first series production of PHEVs, to be introduced in 2012 (31 December 2009).
Source: Compiled by Daiwa Note: *With the exception of LG Chem, Foosungs LiPF6 product supplied indirectly via electrolyte producers

Key downside risks

On the other hand, we see the key downside risks to our target price and rating as: 1) further measures by the PRC Government to substantially restrict the supply of key raw-material fluorspar (ie, export bans and taxes),

Source: Companies, Daiwa forecasts Note: *2011-12 figures for LG Chem's LiB production capacity based on Daiwa estimates; **Assume each ton of electrolyte produced by Foosungs customer requires 130kg of LiPF6; **Assume growth in LiPF6 demand among Foosung's customers at the rate of production capacity increase by customer, as announced, with the exception of customers overseas, where 0% growth has been assumed; **Assume Foosungs share of orders for each customer at end-2010 constant (ie, 60% LG Chem, 43% Technosemichem, 48% Panax Etec); ***Amount of LiPF6 supplied by Foosung to customers based on sales breakdown as at end-2010 approximations (ie, 40% LG Chem, 30% Technosemichem, 25% Panax E-tec, 5% exports)

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Materials / Korea
093370 KS
3 May 2011

Foosung: share prices and Daiwa recommendation trends

Date Target price Rating
12,000 10,000 7,400 8,000 6,000 4,000 2,000 0 May-09 May-10 Aug-10 Sep-10 Nov-10 Dec-10 Feb-11 Apr-10 Aug-09 Sep-09 Nov-09 Dec-09 Feb-10 Mar-10 Jan-10 Jun-10 Jun-09 Oct-09 Mar-11 Jan-11 Apr-09 Oct-10 Apr-11 Jul-09 Jul-10

5/3/2011 10,200 1

3/11/2011 7,400 1
10,200

Target price (W)

Source: Daiwa

Closing price (W)

LG Chemical: share price and Daiwa recommendation trend

Date Target price Rating Date Target price Rating 600,000 500,000 400,000 300,000 200,000 ` 100,000 0 Apr-10 Oct-09 Mar-10 Oct-10 Aug-09 Sep-09 Nov-09 Dec-09 Aug-10 Sep-10 Nov-10 Dec-10 May-09 May-10 Mar-11 Feb-10 Feb-11 Jun-09 Jan-10 Jun-10 Jan-11 Apr-11 Apr-09 Jul-09 Jul-10 225,000 252,000 280,000 352,000 306,000 375,000 375,000 430,000 4/19/2011 527,000 1 4/12/2010 280,000 2 3/9/2011 480,000 1 12/14/2009 252,000 2 1/28/2011 430,000 3 11/5/2009 225,000 2 527,000 480,000 12/9/2010 375,000 3 8/30/2010 375,000 2 7/20/2010 352,000 2 6/1/2010 306,000 2

Target price (W)

Source: Daiwa

Closing price (W)

-9-

Materials / Korea
093370 KS
3 May 2011

Samsung SDI: share prices and Daiwa recommendation trends.

Date Target price Rating Date Target price Rating
250,000 200,000 200,000 150,000 100,000 95,000 50,000 0 May-09 May-10 Aug-10 Sep-10 Nov-10 Dec-10 Feb-11 Apr-10 Aug-09 Sep-09 Nov-09 Dec-09 Feb-10 Mar-10 Jan-10 Jun-10 Jun-09 Oct-09 Mar-11 Jan-11 Apr-09 Oct-10 Jul-09 Jul-10 130,000 135,000 170,000 185,000 210,000

4/28/2011 230,000 2 7/22/2009 95,000 3

3/7/2011 210,000 2

1/27/2011 185,000 2

6/30/2010 200,000 2

3/23/2010 170,000 2

2010-1-26 135,000 3

10/20/2009 130,000 3

230,000

Target price (W)

Source: Daiwa

Closing price (W)

- 10 -

Daiwas Asia Pacific Research Directory

Hong Kong Regional Research Head; Pan Asia Research Regional Research Co-head Head of Product Management Product Management Head of China Research; Chief Economist (Greater China) Macro Economy (Hong Kong, China) Strategy (Regional) Strategy (Regional) Property Developers (Hong Kong) Nagahisa MIYABE Christopher LOBELLO John HETHERINGTON Tathagata Guha ROY Mingchun SUN Kevin LAI Colin BRADBURY (Regional Chief Strategist) Mun Hon THAM Jonas KAN (Head of Hong Kong Research; Regional Property Co-ordinator; Co-head of Hong Kong and China Property) Grace WU (Head of Hong Kong and China Banking) Sophia HUO Queenie POON Jennifer LAW Ole HUI Peter CHU Nicolas WANG Gavin HO Pranab Kumar SARMAH (Regional Head of IT/Electronics) Eric CHEN (Co-head of Regional IT/Electronics) Joseph HO Calvin HUANG Ashley CHUNG Alexander LATZER (Regional Head of Materials) Felix LAM Hongxia ZHU Kenji SERIZAWA Danny BAO (Head of Hong Kong and China Property) Yannis KUO Mark CHANG (Regional Head of Small/Medium Cap) John CHOI Marvin LO (Regional Head of Telecommunications) Jimmy LAM Kelvin LAU Edwin LEE Dave DAI Justin LAU (Head of Custom Products Group) Philip LO Jibo MA (852) 2848 4971 (852) 2848 4916 (852) 2773 8787 (852) 2773 8731 (852) 2773 8751 (852) 2848 4926 (852) 2848 4983 (852) 2848 4426 (852) 2848 4439 nagahisa.miyabe@hk.daiwacm.com christopher.lobello@hk.daiwacm.com john.hetherington@hk.daiwacm.com tathagata.guharoy@hk.daiwacm.com mingchun.sun@hk.daiwacm.com kevin.lai@hk.daiwacm.com colin.bradbury@hk.daiwacm.com munhon.tham@hk.daiwacm.com jonas.kan@hk.daiwacm.com

Banking (Hong Kong, China) Banking (Hong Kong, China) Banking (Hong Kong, China) Insurance Capital Goods Electrical Equipment and Machinery (China) Consumer/Retail (Hong Kong, China) Consumer/Retail (China) Hotels, Restaurants and Leisure Casinos and Gaming (Hong Kong); Capital Goods Conglomerate (Hong Kong) IT/Electronics Semiconductor and Solar (Regional, Taiwan, Singapore, Hong Kong and China) IT/Electronics Semiconductor/IC Design (Regional) IT/Electronics Tech IT Services (Hong Kong, China) IT/Technology Hardware PC Hardware (Taiwan) IT/Electronics - Semiconductor/IC Design (Taiwan) Materials/Energy (Regional) Materials (China)
Pan Asia Research, Consumer, Pharmaceuticals and Healthcare (China)

(852) 2532 4383 (852) 2532 4380 (852) 2532 4381 (852) 2773 8745 (852) 2848 4468 (852) 2848 4430 (852) 2848 4963 (852) 2532 4384 (852) 2848 4441 (852) 2773 8702 (852) 2848 4443 (852) 2773 8782 (852) 2848 4431 (852) 2848 4463 (852) 2532 4341 (852) 2848 4460 (852) 2532 4159 (852) 2773 8715 (852) 2773 8735 (852) 2773 8729 (852) 2773 8730 (852) 2848 4465 (852) 2848 4024 (852) 2848 4467 (852) 2532 4349 (852) 2848 4068 (852) 2773 8741 (852) 2773 8714 (852) 2848 4489

grace.wu@hk.daiwacm.com sophia.huo@hk.daiwacm.com queenie.poon@hk.daiwacm.com jennifer.law@hk.daiwacm.com ole.hui@hk.daiwacm.com peter.chu@hk.daiwacm.com nicolas.wang@hk.daiwacm.com gavin.ho@hk.daiwacm.com pranab.sarmah@hk.daiwacm.com eric.chen@hk.daiwacm.com joseph.ho@hk.daiwacm.com calvin.huang@hk.daiwacm.com ashley.chung@hk.daiwacm.com alexander.latzer@hk.daiwacm.com felix.lam@hk.daiwacm.com hongxia.zhu@hk.daiwacm.com kenji.serizawa@hk.daiwacm.com danny.bao@hk.daiwacm.com yannis.kuo@hk.daiwacm.com mark.chang@hk.daiwacm.com john.choi@hk.daiwacm.com marvin.lo@hk.daiwacm.com jimmy.lam@hk.daiwacm.com kelvin.lau@hk.daiwacm.com edwin.lee@hk.daiwacm.com dave.dai@hk.daiwacm.com justin.lau@hk.daiwacm.com philip.lo@hk.daiwacm.com jibo.ma@hk.daiwacm.com

Pan Asia Research Property Developers (Hong Kong, China) Property (Hong Kong, China) Small/Medium Cap (Regional) Small/Medium Cap (Regional) Telecommunications (Regional, Greater China); Software (China) Transportation Land/Marine (Regional); Capital Goods Infrastructure Construction (China) Transportation Aviation and Expressway (Hong Kong, China, Singapore) Transportation (Hong Kong, China) Utilities; Power Equipment; Renewables (Hong Kong/China) Custom Products Group Custom Products Group Custom Products Group

South Korea Strategy; Banking/Finance Automobiles; Shipbuilding; Steel Banking/Finance Capital Goods (Construction and Machinery) Consumer/Retail IT/Electronics (Tech Hardware and Memory Chips) IT Electronics (Tech Hardware) Materials (Chemicals) Pan Asia Research; Small/Medium Caps Telecommunications; Software (Internet/Online Games) Chang H LEE (Head of Research) Sung Yop CHUNG Anderson CHA Mike OH Sang Hee PARK Jae H LEE Steve OH Daniel LEE Yumi KIM Thomas Y KWON (82) 2 787 9177 (82) 2 787 9157 (82) 2 787 9185 (82) 2 787 9179 (82) 2 787 9165 (82) 2 787 9173 (82) 2 787 9195 (82) 2 787 9121 (82) 2 787 9838 (82) 2 787 9181 chlee@kr.daiwacm.com sychung@kr.daiwacm.com anderson.cha@kr.daiwacm.com mike.oh@kr.daiwacm.com sanghee.park@kr.daiwacm.com jhlee@kr.daiwacm.com steve.oh@kr.daiwacm.com daniel.lee@kr.daiwacm.com yumi.kim@kr.daiwacm.com yskwon@kr.daiwacm.com

- 11 -

Taiwan Head of Taiwan Research; Pan Asia Research Co-head of Research; Strategy Banking/Diversified Financials Consumer/Retail IT/Technology Hardware (Communications Equipment); Software; Small/Medium Caps IT/Technology Hardware (Handsets and Components) IT/Technology Hardware (PC Hardware - Panels) IT/Technology Hardware (PC Components) Materials; Conglomerates Hirokazu Mitsuda Alex YANG Ling TANG Yoshihiko KAWASHIMA Christine WANG Alex CHANG Chris LIN Jenny SHIH Albert HSU (886) 2 2758 8754 (886) 2 2345 3660 (886) 2 8789 5158 (886) 2 8780 5987 (886) 2 8788 1531 (886) 2 8788 1584 (886) 2 8788 1614 (886) 2 8780 1326 (886) 2 8786 2212 h.mitsuda@daiwacm-cathay.com.tw alex.yang@daiwacm-cathay.com.tw ling.tang@daiwacm-cathay.com.tw y.kawashima@daiwacm-cathay.com.tw christine.wang@daiwacm-cathay.com.tw alex.chang@daiwacm-cathay.com.tw chris.lin@daiwacm-cathay.com.tw jenny.shih@daiwacm-cathay.com.tw albert.hsu@daiwacm-cathay.com.tw

India Head of India Equities Strategy Strategy; Banking/Finance All Industries; Pan Asia Research Automobiles Capital Goods; Utilities Materials Oil & Gas; Construction; Small/Medium Caps Pharmaceuticals and Healthcare; Consumer Real Estate Software (Tech IT Services) Jaideep GOSWAMI Punit SRIVASTAVA (Deputy Head of Research) Fumio YOKOMICHI Ambrish MISHRA Jonas BHUTTA Vishal CHANDAK Atul RASTOGI Kartik A. MEHTA Amit AGARWAL R. RAVI (91) 22 6622 1010 (91) 22 6622 1013 (91) 22 6622 1003 (91) 22 6622 1060 (91) 22 6622 1008 (91) 22 6622 1006 (91) 22 6622 1020 (91) 22 6622 1012 (91) 22 6622 1063 (91) 22 6622 1014 jaideep.goswami@in.daiwacm.com punit.srivastava@in.daiwacm.com fumio.yokomichi@in.daiwacm.com ambrish.mishra@in.daiwacm.com jonas.bhutta@in.daiwacm.com vishal.chandak@in.daiwacm.com atul.rastogi@in.daiwacm.com kartik.mehta@in.daiwacm.com amit.agarwal@in.daiwacm.com ravi.r@in.daiwacm.com

Singapore Head of Research; Pan Asia Research Macro Economy (Regional) Quantitative Research Quantitative Research Quantitative Research Banking; Property and REITs Banking (Southeast Asia) Conglomerates; Soft Commodities; Energy; Small/Medium Caps Oil and Gas; Utilities (Southeast Asia) Small/Medium Cap Telecommunications (Southeast Asia & India) Tatsuya TORIKOSHI Prasenjit K BASU (Chief Economist, Asia Ex-JP) Deep KAPUR (Global Director of Quantitative Research) Josh CHERIAN Suzanne HO David LUM (Regional Head of Banking/Finance) Srikanth VADLAMANI Chris SANDA Adrian LOH Pyari MENON Ramakrishna MARUVADA (Head of SE Asia & India Telecommunications) (65) 6321 3050 (65) 6321 3069 (65) 6321 3079 (65) 6499 6549 (65) 6499 6545 (65) 6329 2102 (65) 6499 6570 (65) 6321 3085 (65) 6499 6548 (65) 6499 6566 (65) 6499 6543 tatsuya.torikoshi@sg.daiwacm.com p-k.basu@sg.daiwacm.com deep.kapur@sg.daiwacm.com josh.cherian@sg.daiwacm.com suzanne.ho@sg.daiwacm.com david.lum@sg.daiwacm.com srikanth.vadlamani@sg.daiwacm.com chris.sanda@sg.daiwacm.com adrian.loh@sg.daiwacm.com pyari.menon@sg.daiwacm.com ramakrishna.maruvada@sg.daiwacm.com

Australia Resources/Mining/Petroleum David BRENNAN (61) 3 9916 1323 david.brennan@au.daiwacm.com

Japan Industrials (Regional); Pan Asia Research Industrials (Regional); Pan Asia Research Taiki KAJI Daijiro HATA (81) 3 5555 7174 (81) 3 5555 7178 taiki.kaji@jp.daiwacm.com daijiro.hata@jp.daiwacm.com

- 12 -

Daiwas Office
Office / Branch / Affiliate DAIWA SECURITIES GROUP INC HEAD OFFICE Daiwa Securities Trust Company Daiwa Securities Trust and Banking (Europe) PLC (Head Office) Daiwa Securities Trust and Banking (Europe) PLC (Dublin Branch) Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. 5 King William Street, London EC4N 7JB, United Kingdom Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (1) 201 333 7300 (81) 3 5555 0661 (1) 201 333 7726 Address Tel Fax

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- 13 -

Disclaimer
This publication is produced by Daiwa Securities Capital Markets Co. Ltd. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Capital Markets Co. Ltd. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Capital Markets Co. 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- 14 -

United Kingdom This research report is produced by Daiwa Securities Capital Markets Co., Ltd and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Services Authority (FSA) and is a member of the London Stock Exchange, Chi-X, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the Securities), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. 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Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-and-regulatory. Regulatory disclosures of investment banking relationships are available at www2.us.daiwacm.com/report_disclosure.html. Germany This document has been approved by Daiwa Capital Markets Europe Limited and is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany. Dubai This document has been distributed by Daiwa Capital Markets Europe Limited, Dubai Branch. Related financial products or services are intended only for professional clients and no other person should act upon it. Daiwa Capital Markets Europe Limited is duly licensed and regulated by the Dubai Financial Services Authority. United States This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparers views at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMAs views at any time. Neither DCMA nor the preparer has any obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of DCMAs non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S. entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000). Ownership of Securities For Ownership of Securities information please visit BlueMatrix disclosure Link at http://www2.us.daiwacm.com/report_disclosure.html. Investment Banking Relationships For Investment Banking Relationships please visit BlueMatrix disclosure link at http://www2.us.daiwacm.com/report_disclosure.html. DCMA Market Making For DCMA Market Making please visit BlueMatrix disclosure link at http://www2.us.daiwacm.com/report_disclosure.html. Research Analyst Conflicts For updates on Research Analyst Conflicts please visit BlueMatrix disclosure link at http://www2.us.daiwacm.com/report_disclosure.html. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions. Research Analyst Certification For updates on Research Analyst Certification and Rating System please visit BlueMatrix disclosure link at http://www2.us.daiwacm.com/report_disclosure.html. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. The following explains the rating system in the report as compared to relevant local indices, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next six months. "2": the security is expected to outperform the local index by 5-15% over the next six months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next six months. "4": the security is expected to underperform the local index by 5-15% over the next six months. "5": the security could underperform the local index by more than 15% over the next six months. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Capital Markets Co. Ltd.) If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. In some cases, we may also charge a maximum of 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc. When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us. Corporate Name: Daiwa Securities Capital Markets Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.109 Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan Japan Securities Investment Advisers Association

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