Earnings Review

August 6, 2010

Lock&Lock (115390)
Above

In line

Below

BUY (Maintain) Robust domestic sales offset China’s sluggish growth

TP: W35,000 (Maintain)
KOSPI (Aug 5) 1,784 What’s new: Strong domestic sales, no earning shock for OP/NP
Stock price (Aug 5) 33,000
On a consolidated basis, sales and operating profit came in at W96.0bn (25.8%
Shares outstanding (mn) 50.0
YoY) and W20.7bn (0.3% YoY). Like our estimates, strong domestic demand
Market cap (USD mn) 1,414
(89.4% YoY) offset sluggish growth in China (-13.5% YoY) and led to overall sales
52-Week Low/High (won) 21,200/39,850
growth. There were concerns over a possible drop in operating profit due to a
6M avg. daily turnover (USD mn) 9.8
decline in the portion of relatively profitable China sales (-14.2%p YoY); however,
Free float (%) 25.4
Dividend yield (2010F, %) 0.5
the improvement in the operating margin (3.7% YoY) helped the company
Foreign ownership (%) 10.1
surmount the decline. Related to FX forward contract which amounted to
Jun-Il USD60mn (26% of 2010F total exports), there was a W3.4bn loss from derivative
Major shareholders (%) 54.5
Kim transactions due to a weak KRW in 2Q10. However, because of more net interest
Chang-
16.1 income coming from net cash holdings of more than W90.0bn after the IPO, EBT
Ho Kim
Valuation 2010F 2011F 2012F only declined 0.8%.
PER 25.1 19.3 15.3
PBR 5.2 4.5 3.8 Pros: Domestic revival based on sales of new products
EV/EBITDA 14.5 11.4 8.9 Following 1Q10, robust sales creation from new products (W18.4bn, 80.1% YoY)
EPS 1,315 1,706 2,159 such as Multi-lock (food container for freezers) and Living-box (storage box) led to
BPS 6,308 7,363 8,624
domestic sales growth of 69%. The domestic demand market, which was on the
Stock
performance
1M 6M 12M road to decline, is recovering thanks to a turnaround in 2009 through portfolio
Absolute (%) (8.6) 33.3 0.0 diversification. Sales should grow more than 60% YoY due to anticipated strong
Relative to growth in 3Q10.
(15.1) 19.5 0.0
KOSPI (%p)

Price chart Cons: Sales slowdown only temporary due to strategic expansion
(2009.8.5=100)
The temporary slowdown in sales in China (-13.5% YoY on a KRW basis, 3.5%
190 Lock&Lock YoY on RMB basis) were well known in the market. As we mentioned in our
KOSPI
170
preview, the slower sales came from 1) the base effect of 2Q09, which recorded
150
far higher sales owing to one-off B2B promotion orders (W6.7bn) and 2) temporary
130
labor force vacancy in existing cities in order to set up new channels in tier-two and
110
-three cities. We believe B2B promotion sales will return to normal thanks to the
90
hiring of new employees in August. Sales in tier-two and -three cities should take
70
off from 2H10 as there are no obstacles standing in the way of the company
Aug-09 Nov-09 Feb-10 May-10 Aug-10
achieving its 2010F sales growth target of more than 30% in China.

Conclusion: Testing ground for 3Q earnings is China / Maintain BUY

As expectations ran high for the China market, 2Q10 earnings missed market
expectations. However, we maintain our positive view considering 1) strong growth
of domestic market, 2) a jump in China’s sales in 2H10. We raised our sales

(W bn, %)

Jung-In Lee (Parent) 2Q10P Change 2010F

822-3276-6239 KIS est. Actual Diff. Consensus QoQ YoY KIS Consensus
[email protected] Sales 100 96 4.0 n/a 20.6 25.8 351 n/a
OP 21 21 (1.0) n/a 27.1 0.3 83 n/a
Minha Choi OP margin 20.9 21.6 - n/a - - 23.7 n/a
822-3276-6260 EBT 18 18 1.7 n/a 3.6 (0.8) 83 n/a
[email protected]
NP 13 15 11.7 n/a 14.7 0.2 62 n/a
Note: Based on consolidated
 Lock&Lock (115390)

estimate 9.1% reflecting larger-than-expected domestic market growth while

trimming the OP margin 0.9%p due to online channel expansion which has lower
profitability than the discount store channel. As a result, there is no change to our
price target which we derived by the DCF method. We maintain our price target of
W35,000, which equals a 2011F PER of 20.1x.

Quarterly earnings (non-consolidated) (W bn, %)

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 QoQ YoY

Sales 29.0 43.3 44.1 46.7 42.6 62.1 45.7 43.4
Gross profit 0.0 14.8 43.0 0.0 15.7 23.5 49.4 58.1
Operating profit 3.3 3.6 4.6 6.6 2.4 7.4 212.4 107.5
EBT 9.4 15.0 18.6 11.3 15.1 15.5 2.9 3.3
Net profit 8.2 14.9 16.9 7.6 13.0 14.9 14.7 0.2
OP margin (%) 11.3 8.2 10.3 14.2 5.5 11.9
Source: Company data, Korea Investment & Securities

Quarterly earnings (consolidated) (W bn, %)

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 QoQ YoY KIS

Sales 56.9 76.3 73.4 73.3 79.6 96.0 20.6 25.8 100.0
Domestic 12.0 22.1 24.3 27.8 24.6 41.8 69.9 89.4 42.6
China 27.1 34.7 27.6 28.7 30.9 30.0 (2.8) (13.5) 32.8
Overseas(ex-China) 17.9 19.5 21.5 16.8 24.1 24.1 0.0 23.8 24.6
Operating profit 8.9 20.6 19.0 16.3 16.3 20.7 27.1 0.3 20.9
EBT 11.3 18.4 20.6 13.6 17.6 18.2 3.6 (0.8) 17.9
Net profit 8.2 14.9 17.2 7.4 13.0 14.9 14.7 0.2 13.4
OP margin (%) 15.7 27.0 25.9 22.3 20.4 21.6 20.9
Note: Data can be changed possibly, as not completed for accounting auditing
Source: Company data, Korea Investment & Securities

Domestic sales by product (W bn)

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 QoQ YoY

Food container 8.2 11.3 15.0 18.6 15.3 20.2 32.2 79.0
Multi-lock 0.3 0.4 1.3 1.4 5.1 7.4 44.4 1,683.0
Outdoor 2.2 7.1 4.8 4.3 3.6 10.6 193.5 49.5
Other 1.6 3.7 4.6 4.9 6.6 12.6 92.9 237.6
Livingbox 5.1 11.0 118.2 n/a
Source: Company data

Equity-method gains (non-consolidated) (W bn)

2007 2008 2009 1Q10 2Q10

Weihai Hanacobi 4.49 4.18 5.88 1.19 1.68
Weihai L&L 2.77 6.44 1.97 1.29
Suzhou L&L 3.98 8.30 2.58 1.42
Shanghai L&L 0.26 4.14 10.73 1.44 2.30
Beijing L&L 5.40 1.24 0.62
Shenzhen L&L 3.15 0.94 0.90
L&L VINA 0.63 0.82
L&L Inc 1.18 0.03
Total 4.75 15.07 39.90 11.17 9.05
Source: Company data

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 Lock&Lock (115390)

2010-2011F earnings revisions (W bn, won)

2010F 2011F Differ.

Previous Revised Previous Revised 2010F 2011F
Sales 350.7 382.7 448.8 486.1 9.1 8.3
Operating profit 83.1 87.1 107.1 112.4 4.9 5.0
EBT 83.4 87.6 109.6 115.1 5.1 5.1
Net profit 62.3 65.4 81.8 86.0 5.1 5.1
OP margin (%) 23.7 22.8 23.9 23.1 - -
EPS 1,262 1,326 1,637 1,720 5.1 5.1
Source: Korea Investment & Securities

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 Lock&Lock (115390)

Balance sheet Income statement

FY-ending Dec. (W bn) 2008A 2009A 2010F 2011F 2012F FY-ending Dec. (W bn) 2008A 2009A 2010F 2011F 2012F
Current Assets 115 142 226 263 331 Sales 204 280 380 482 608
Cash & Cash Equivalent 45 49 114 121 152
Gross Profit 90 144 192 245 308
Accounts Receivable 31 27 39 50 62
Inventory 30 48 54 68 86 SG&A Expense 52 79 105 133 167
Non-current Assets 105 112 138 166 176
Operating Profit 38 65 86 111 141
Investments 12 4 6 7 9
Tangible Assets 86 100 122 147 153 Non-OP. Profit 13 11 8 11 13
Intangible Assets 1 3 3 3 3 Interest Income 1 1 1 2 2
Financial Business Assets 0 0 0 0 0
FX Gains 11 6 1 1 1
Total Assets 221 254 364 429 508
Current Liabilities 78 69 35 44 55 Equity Gains 0 0 0 0 0
Accounts Payable 6 13 13 16 20 Non-OP. Expense 19 12 8 8 9
ST debt & bond 51 37 0 0 0
Interest Expense 3 3 1 0 0
Current prortion of LT debt 5 4 0 0 0
Non-current Liabilities 7 13 12 15 19 FX Losses 6 6 2 2 2
Debentures 0 0 0 0 0
Equity Losses 0 0 0 0 0
LT debt & Lease 2 4 0 0 0
Financial Business Liabilities 0 0 0 0 0 Earnings before tax 32 64 87 114 145
Total Liabilities 85 82 46 59 74 Income Taxes 7 16 22 29 37
Paid-in Capital 16 20 25 25 25
Profit from Discontinued 0 0 0 0 0
Capital Surplus 38 34 186 186 186
Capital Adjustments 0 0 (68) (92) (129) Net Profit 26 48 65 85 108
Retained Earnings 54 102 159 236 336 Net Profit of Parent 26 48 65 85 108
Minority Interests 0 0 0 0 0
Shareholders' Equity EBITDA
136 172 318 371 434 47 78 105 133 167
Source: Company data, Korea Investment & Securities estimates Source: Company data, Korea Investment & Securities estimates

Cash flow Key financial data

FY-ending Dec. (W bn) 2008A 2009A 2010F 2011F 2012F FY-ending Dec. 2008A 2009A 2010F 2011F 2012F

C/F from Operating 26 53 73 89 111 per share data (won)

EPS 50 1,192 1,315 1,706 2,159
Net Profit 26 48 65 85 108
BPS 3,361 4,236 6,308 7,363 8,624
Depreciation 8 11 17 20 24 DPS NM 160 160 160 160
SPS 65,466 6,997 7,698 9,645 12,153
Amortization 1 2 2 2 2
Growth (%)
Net incr. in W/C (14) (12) (13) (20) (25) Sales growth 44.5 36.9 35.7 27.0 26.0
OP growth 62.8 69.3 33.3 28.9 26.5
Others 5 4 2 2 2
NP growth 58.2 85.8 36.1 31.4 26.6
C/F from Investing (31) (41) (46) (51) (37) EPS growth NM NM 10.4 29.7 26.6
CAPEX (27) (38) (40) (45) (30) EBITDA growth 62.0 65.6 35.3 26.3 25.4
Profitability (%)
Decr. in Fixed Assets 2 5 0 0 0
OP margin 18.8 23.2 22.8 23.1 23.2
Net incr. in Current Assets 0 (2) (1) (1) (1) NP margin 12.6 17.0 17.1 17.7 17.8
EBITDA margin 23.0 27.9 27.8 27.6 27.5
Incr. in Investment (0) (4) (1) (1) (2)
ROA 14.6 20.1 21.0 21.5 23.0
Others (6) (2) (4) (4) (4) ROE 23.6 31.0 26.5 24.8 26.8

C/F from Financing 28 (15) 37 (31) (43) Dividend yield NM NM 0.5 0.5 0.5
Stability
Incr. in Equity 0 0 157 0 0 Net debt (W bn) 13 (7) (117) (124) (157)
Incr. in Debts 29 (15) (45) 0 0 Int. coverage (x) NM NM NM NM NM
D/E ratio (%) 42.8 26.1 0.0 0.0 0.0
Dividends (1) 0 (6) (8) (8)
Valuation (x)
Others 0 (0) (68) (23) (35) PER NM NM 25.1 19.3 15.3
PBR NM NM 5.2 4.5 3.8
C/F from Others 7 3 0 0 0
PSR NM NM 4.3 3.4 2.7
Increase in Cash 30 4 65 7 31 EV/EBITDA 3.2 2.1 14.5 11.4 8.9
Source: Company data, Korea Investment & Securities estimates Source: Company data, Korea Investment & Securities estimates

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 Lock&Lock (115390)

Changes to recommendation and price target

Company (Code) Date Recommendation Price target
Lock&Lock(115390) 05-11-10 BUY W35,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0
Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10

■ Guide to Korea Investment & Securities Co., Ltd. stock ratings based on absolute 12-month forward share price performance
z BUY: Expected to give a return of +15% or more
z Hold: Expected to give a return between -15% and 15%
z Underweight: Expected to give a return of +15% or less

■ Guide to Korea Investment & Securities Co., Ltd. sector ratings for the next 12 months
z Overweight: Recommend increasing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market
capitalization.
z Neutral: Recommend maintaining the sector’s weighting in the portfolio in line with its respective weighting in the Kospi (Kosdaq) based on market capitalization.
z Underweight: Recommend reducing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market

capitalization.

■ Analyst Certification
I/We, as the research analyst/analysts who prepared this report, do hereby certify that the views expressed in this research report accurately reflect my/our personal
views about the subject securities and issuers discussed in this report. I/We do hereby also certify that no part of my/our compensation was, is, or will be directly or
indirectly related to the specific recommendations or views contained in this research report.

■ Important Disclosures
As of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent
month if the publication date is less than 10 calendar days after the end of the most recent month), Korea Investment & Securities Co., Ltd., or its affiliates does
not own 1% or more of any class of common equity securities of Lock&Lock.

There is no actual, material conflict of interest of the research analyst or Korea Investment & Securities Co., Ltd., or its affiliates known at the time of publication
of the research report or at the time of the public appearance.

Korea Investment & Securities Co., Ltd., or its affiliates has not managed or co-managed a public offering of securities for Lock&Lock in the past 12 months;

Korea Investment & Securities Co., Ltd., or its affiliates has not received compensation for investment banking services from Lock&Lock in the past 12 months;
Korea Investment & Securities Co., Ltd., or its affiliates does not expect to receive or intends to seek compensation for investment banking services from
Lock&Lock in the next 3 months.

Korea Investment & Securities Co., Ltd., or its affiliates was not making a market in Lock&Lock’s securities at the time that the research report was published.

Korea Investment & Securities Co., Ltd. does not own over 1% of Lock&Lock shares as of August 5, 2010.
Korea Investment & Securities Co., Ltd. has not provided this report to various third parties.
Neither the analysts covering these companies nor their associates own any shares of as of August 5, 2010.
Korea Investment & Securities Co., Ltd. is a broker for share buyback (including trust) of Lock&Lock.

Prepared by: Jung-In Lee, Minha Choi

This report was written by Korea Investment & Securities Co., Ltd. to help its clients invest in securities. This material is copyrighted and may not be copied,
redistributed, forwarded or altered in any way without the consent of Korea Investment & Securities Co., Ltd. This report has been prepared by Korea Investment &
Securities Co., Ltd. and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to
buy. We make no representation as to its accuracy or completeness and it should not be relied upon as such. The company accepts no liability whatsoever for any direct
or consequential loss arising from any use of this report or its contents. The final investment decision is based on the client’s judgment, and this report cannot be used
as evidence in any legal dispute related to investment decisions.