Improve Korea Improving the Economy by Addressing the Korea Discount - PowerPoint PPT Presentation

Improve Korea Improving the Economy by Addressing the Korea Discount

IMPORTANT DISCLOSURES This presentation is published by Dalton Investments LLC solely for informational purposes and is not, and may not be construed as, investment, financial, legal, tax or other advice. This presentation has been compiled based on publicly available information (which has not been separately verified by Dalton Investments) and does not: (i) purport to be complete or comprehensive; (ii) constitute an agreement, offer, a solicitation of an offer, or any advice or recommendation to enter into or conclude any transaction or take or refrain from taking any other course of action (whether on the terms shown herein or otherwise); or (iii) constitute proxy solicitation or any other similar form of activity, or any advice or recommendation to take or refrain from taking any action or do or refrain from doing any act which would otherwise constitute proxy solicitation or any other similar form of activity. The market data contained in or utilized for the purposes of preparing this presentation is (unless otherwise specified) as at the end of trading hours on December 31, 2018. Changes may have occurred or may occur with respect to such market data and we are not under any obligation to provide any updated or additional information or to correct any inaccuracies in this presentation. The information herein contains “forward - looking statements.” Specific forward -looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as “may,” “will,” “expects,” “believes,” “submits,” “ ant icipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “seeks,” “could” or the negative of such terms or other variations on such terms or compa rable terminology. Similarly, statements that describe objectives, plans or goals are forward-looking. Any forward-looking statements are based on current intent, belief, expectations, estimates and projections. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to differ materially. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and actual results may vary materially from what is expressed in or indicated by the forward-looking statements. Many of the statements in this presentation are our beliefs, which are based on its own analysis of publicly available information. Any representation, statement or opinion expressed or implied in this presentation is provided in good faith but only on the basis that no reliance will be placed on any of the contents herein. You should obtain your own professional advice and conduct your own independent evaluation with respect to the subject matter herein. We expressly disclaim any responsibility or liability for any loss howsoever arising from any use of or reliance on this presentation or its contents as a whole or in part by any person, or otherwise howsoever arising in connection with this presentation. In respect of the information and materials which have been prepared by us and contained herein, in the event of any inconsistency between the English language version and the Korean language version, the meaning of the English language version shall prevail. Jan 2019 Page 1

IMPORTANT DISCLOSURES This document is provided for informational purposes only, and does not constitute a solicitation of any shares in any investment vehicle managed by Dalton Investments LLC. Such solicitations can only be made to qualified investors by means of the private placement memorandums, which describe, among other things, the risks of making an investment. Additionally, this presentation does not constitute investment advice of any kind. All of the information in this document relating to Dalton Investments LLC or its affiliates (collectively, “ Dalton ” or the “ Firm ”) is communicated solely by Dalton, 1601 Cloverfield Boulevard, Suite 5050 N, Santa Monica, CA 90404, regulated by the U.S. Securities and Exchange Commission (SEC). SEC registration does not imply SEC endorsement. No representation or warranty can be given with respect to the accuracy or completeness of the information, or with respect to the terms of any future offer of transactions conforming to the terms hereof. Certain assumptions may have been made in the analysis which resulted in any information and returns/results detailed herein. No representation is made that any results/returns indicated will be achieved or that all assumptions in achieving these returns have been considered or stated. Additional information is available on request. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on market conditions. Unless otherwise indicated, figures presented are preliminary, unaudited, subject to change and do not constitute Dalton’s standard books and records. Any estimates, projections or predictions (including in tabular form) given in this communication are intended to be forward-looking statements. Although Dalton believes that the expectations in such forward-looking statements are reasonable, it can give no assurance that any forward-looking statements will prove to be correct. Such estimates are subject to actual known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date of this communication. Dalton expressly disclaims any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in its expectations or any change in circumstances upon which such statement is based. Jan 2019 Page 2

Our Thinking on Economic Democratization Korean corporations have been and continue to be strong, innovative and profitable. They create significant economic value. But this value seldom benefits minority shareholders. Koreans should share in the value created by Korean companies either directly as shareholders or indirectly through pension and saving plans. We at Dalton Investments LLC, a long-term value-oriented investment management firm with approximately four billion dollars of assets under management, believe stocks are appropriate means for economic democratization as they can be owned with minimal capital and affect a majority of Koreans, at least through the National Pension and retirement pensions. Jan 2019 Page 3

The Korean Stock Market Has Been One of the Worst Performing Markets for the Last 7 Years... Jan. 2012 to Dec. 2018 (7 years) Cumulative Total Shareholder Return Dividend Yields Price Change 180% 160% 140% 120% 100% 137% 133% 39% 80% 99% 53% 46% 60% 40% 71% 38% 62% 21% 40% 16% 72% 28% 10% 20% 41% 39% 39% 38% 12% 37% 33% 31% 30% 28% 25% 25% 26% 21% 13% 0% Source: Bloomberg; Assuming dividends reinvested in the indexes Jan 2019 Page 4

…Despite Rising Operating Profits of Korean Companies KOSPI 200 Operating Profit (KRW T) ₩ 200 ₩ 180 ₩ 160 ₩ 140 ₩ 120 ₩ 100 ₩ 80 ₩ 60 ₩ 40 ₩ 20 ₩ 0 '12 '13 '14 '15 '16 '17 '18E KOSPI 200 (ex. Semi) Semiconductor Sector Source: FN Guide; Kiwoom Securities Jan 2019 Page 5

Resulting in the “Korea Discount” - Korean Companies are Valued at Book Value (5-year average) 5 year average Price to Book Ratio (‘13 - ’17) by MSCI Indexes 3.0 2.5 P/B=1 implies that the underlying business is 2.0 expected to not create any “economic value added”* 1.5 1.0 0.5 0.0 Korea Japan China Europe Taiwan ASEAN World US Source: Bloomberg, MSCI (Morgan Stanley Capital International Index) *Economic Value Added = Capital x (Return on Capital – Cost of Capital) Jan 2019 Page 6

“Korea Discount” Has Grown Worse MSCI Korea Price to Book Ratio 1.5 1.4 1.3 Lower than levels seen during the Global Financial Crisis 1.2 1.1 1 0.9 0.8 Source: Bloomberg, MSCI Jan 2019 Page 7

Koreans Who Own Approx. 70% of the Korean Stock Market are Most Hurt by the Stock Market Underperformance Korean Stock Ownership Estimate* 100% 90% Foreigners 80% 70% Korean National Pension 7% 60% 10% Majority Shareholder & 50% Related Individuals 20% 40% Korean Firms (Limited to 67% ownership in subsidiaries 30% & affiliates) Korean Institutional & 20% Individual Investors 30% 10% 0% KOSPI & KOSDAQ Source: Korean Financial Investment Association - FreeSis; FN Guide – Company Guide; Korea National Pension Service. *Stock ownership analysis on 58 business groups (account for approx. 75% of Korean stock market) show that majority shareholder & related individuals account for approx. 10% and Korean firms (limiting to ownership in subsidiaries & affiliates) account for approx. 19% of Korean stock market. Jan 2019 Page 8

Korea National Pension Service ($570B*) Invests 17% of Its Assets in Korean Equities and is Therefore Directly Impacted $570B* Korea NPS Investment Returns 4% 12% 11% 10.4% 10.4% 10% 17% Others 8% 7.3% 7.0% Foreign Fixed Income 19% 6% 5.3% Alternative Investments 4.6% 4.8% 4.2% 4% Domestic Equities 2.3% 2% Foreign Equities 48% 0% Domestic Fixed Income -0.6% -2% Korea National Pension Fund Source: Korea National Pension Service Investment Management *As of Oct. 31, 2018 **Jan. 1, ‘18 to Oct. 31, ‘18 Jan 2019 Page 9