_JPM-Korea Shipbuilding Sector-2010.8.26.pdfVIP

Asia Pacific Equity Research 26 August 2010 Korea Shipbuilding Demand recovery trade under way; still more upside • We upgrade Samsung Heavy (SHI), Daewoo Shipbuilding (DSME) to South Korea OW and Hyundai Heavy (HHI) to N: The sector has priced in an early Ship Building Repairs recovery cycle of shipbuilding as speculative demand on low-end vessels AC Jinmook Kim appears to have crossed the inflection point. However, we believe the (82-2) 758-5729 positive sentiment is now spreading into high-end containers, while the jinmook.kim@ market is still underestimating the potential upside in new orders. Although J.P. Morgan Securities (Far East) Ltd, Seoul ship financing is still not active, a recovery looks only a matter of time, in Branch our view. Thus, we raise our new order estimates for containers and tankers substantially (still 12%~18% of the peak cycle) and increase our target One-year share price performance multiples due to our higher ROE assumptions. 140 • But we expect near-term macro headwinds ahead: J.P. Morgan’s US 120 Economic research team recently cut its US GDP growth outlook to 1.5% 100 80 for 3Q10 (from 2.5%) and 2.0% for 4Q10 (from