Hyundai Case Study

Asia Paci? c Business Review Vol. 12, No. 2, 131–147, April 2006 Globalization and Employment Relations in the Korean Auto Industry: The Case of the Hyundai Motor Company in Korea, Canada and India RUSSELL D. LANSBURY*, SEUNG-HO KWON** & CHUNGSOK SUH†  *University of Sydney, **School of International Business, University of New South Wales, †  University of New South Wales ABSTRACT Examination is made of the complex interactions between globalization and employment relations as re? ected in the operations of the Hyundai Motor Company (HMC) in Korea, Canada and India.After the closure of its short-lived attempt to manufacture cars for the North American market from Canada, the HMC ‘relaunched’ its globalization strategy in India in 1998. An examination of Hyundai’s experience in both countries suggests that employment relations is likely to continue to be an evolving blend of company-speci? c policies and locally-based practices. KEY WORDS : Global ization, management, unions, employment relations, production systems, Korea, Canada, India Introduction The effects of globalization on employee relations are widely debated.One view is that globalization has created pressures for convergence between different national settings, particularly as multinational enterprises extend their manufacturing and other operations across a variety of countries. Alternatively, it is argued that at national-level institutional arrangements play an important role in creating divergence between employment relations in different countries. As a consequence, globalization is not likely to lead to universal convergence of national patterns of employee relations.A third view rejects the simple convergence/divergence dichotomy and argues that there are complex interactions between global and national (or local) forces which shape the outcome of employee relations (Lansbury, 2002). The Korean automobile industry offers an opportunity to analyse this debat e as it pursues a strategy of globalization and begins the process of expanding production beyond Korea and building plants in other parts of the world. Correspondence Address: Professor Russell Lansbury, Faculty of Economics and Business, University of Sydney, NSW 2006, Australia.Email: r. [email  protected] usyd. edu. au 1360-2381 Print/1743-792X Online/06/020131-17 q 2006 Taylor & Francis DOI: 10. 1080/13602380500532180 132 R. D. Lansbury et al. Globalization of the Korean auto industry has occurred in a very short period of time. It began as a repair industry for vehicles released during and after the Korean War in the early 1950s. The ? rst assembly plant in 1955 had an annual capacity of 1,500 units. When the Korean government launched the ? st Five Year Economic Development Plan in 1962, it introduced the ‘Automobile Industry Protection Law’ and began to promote the auto sector as a key element in emerging Korean manufacturing industry. However, the ? edging Ko rean auto sector experienced uncertainty and ? uctuations during the 1960s. The Saenara Motor Company was established in 1962 under a technical alliance with Nissan, but due to shortage of foreign exchange went bankrupt and was taken over by the Shinjin Motor Company which was allied to Toyota.Shinjin assembled the Corona in a complete knock-down (CKD) form of production, whilst the Hyundai Motor Company began production of the Cortina in a technical alliance with Ford. The Korean government announced a ‘localization plan’ in 1970 under which the proportion of local content in passenger cars was supposed to increase from 38 per cent in 1970 to 100 per cent by 1972. However, the localization rate barely reached 50 per cent by 1972. A rapid period of growth occurred in the Korean auto industry during the period 1972– 82.The government announced ‘A Long Term Plan to Promote the Automobile Industry’ in 1974 which had three major targets: to achieve a loc alization rate of 85 per cent by 1975; a target of 80 per cent of domestic sales to be in the small car segments below engine capacity of 1500 cc; and an export target of 75,000 units by 1981. By the end of the 1970s, the Korean industry had three local producers: Hyundai, Kia (which had taken over Asia Motors) and Daewoo (which had absorbed Shinjin Motors).However, a global economic recession in late 1979 resulted in a severe excess capacity for manufactured vehicles and the Korean government announced a ‘Decree to consolidate the Automobile Industry’ in 1980. The plan required that small passenger cars would be produced solely by Hyundai and Daewoo; that Kia would concentrate on small to medium commercial vehicles; and that only buses and large trucks would be open to competition. This resulted in a substantial contraction of the industry and, by 1983, vehicle production had declined to the levels of 1979.However, production grew steadily again during the mid to late 1980s and expanded substantially in the 1990s (see Table 1). The 1980s and 1990s were a period of mass production as all three major companies built up their annual capacities and began aggressively to export Table 1. Korean automobile production and exports for selected years Production (000s) 1976 1981 1986 1991 1996 2001 Domestic Sales, % Exports, % 49 133 601 1,497 2,812 2,946 97. 5 81. 3 49. 1 73. 9 57. 0 49. 1 2. 5 18. 7 50. 9 26. 1 43. 0 50. 9Source: Korean Auto Manufacturers Association, Statistical Reports (various years). Globalization & Employment in Korea 133 Table 2. Comparison of production and sales by Korean and Japanese automotive companies for selected years (%) 1992 Korea Japan Overseas Production Domestic Production Domestic Sales Overseas Sales 3 97 Overseas Production Domestic Production Domestic Sales Overseas Sales 1995 4 96 25 75 73 27 61 39 35 65 55 45 64 36 Source: Li Song (1998) The Process of Globalization of the Korean Automobile Industry, Economics and Management Analysis, 18:1 utomobiles, particularly to North American and Europe. By the mid 1980s, more than 50 per cent of total production was exported. A comparison of production and sales by Korean and Japanese auto companies in the early to mid 1990s is shown in Table 2. In 1992, the size of the Japanese domestic market was ? ve times larger than that in Korea. During the early 1990s, however, the Japanese auto industry began to restructure in response to economic circumstances. By 1995, Japanese companies produced about 35 per cent of its global production through subsidiaries outside Japan.Their globalization strategy concentrated on expanding overseas production and coordinating components suppliers among various global production centres. In 1995, the proportion of exports to total domestic production in Korea was similar to that in Japan. Yet the globalization of the Korean auto industry focused mainly on exporting domestically produced vehicles until the mid 1990s. Altho ugh overseas production began to increase in the late 1990s, the proportion was still rather small and most production continued to take place in Korea.The duration of the globalization process among Korean auto companies has been shorter than their Japanese counterparts. The Korean auto sector adopted a similar strategy to the Japanese of entering foreign markets at the lower cost end and then moving upwards. However, in contrast to the Japanese who began by exporting to less developed countries, Korean auto companies exported ? rst to the developed economies of the European Union and North America and then to less developed countries in Asia. The Korean companies have encountered dif? ulties in developing extensive supply chains and global materials management required for a mature global production system, which have been hallmarks of the successful Japanese auto companies. Most of the important management decisions are still made in the head of? ce in Korea and relocation of com plete production systems overseas is still in the early stages. Furthermore, since the economic crisis of the late 1990s, Hyundai is the sole survivor of the three former major auto companies in Korea. Hence, the focus is on the experience of Hyundai as it seeks to ecome a global manufacturer with assembly plants in other countries. 134 R. D. Lansbury et al. Although there is an emerging literature about global automobile manufacturing by the USA, Japan and European companies, and their employee relations (see Boyer, 1998; Lewchuck et al. , 2001), little attention has been paid to Korean auto manufacturers which have also been seeking to establish an international presence (Hill and Lee, 1998; Kochan et al. , 1997; Kwon and O’Donnell, 2000). Examination is made of the experience of the Hyundai Motor Company (HMC) in establishing overseas plants, as part of its globalization strategy.It seeks to answer the question: ‘to what extent has the Hyundai Motor Company (HMC) app lied Korean approaches to employee relations, or adapted to local custom and practices in their overseas plants? ’ HMC provides an interesting case as it has embarked on a long-term strategy of becoming one of the world’s largest auto companies by expanding into new markets and establishing plants outside Korea. In order to achieve this goal, HMC has sought to develop effective and appropriate employee relations strategies for managing its employees in its overseas plants.HMC’s ? rst venture abroad was in the mid 1980s, when it established an assembly plant in Quebec, Canada. However, this was an unsuccessful operation and HMC closed the plant in 1993. HMC began operations in India in 1998 in an attempt to re-establish its credentials as a global automobile manufacturer. A major issue, which it has confronted, is the management of labour in India, where unions have been very active in seeking membership and bargaining rights in the auto industry, particularly wi th foreign-owned companies. MethodologyThe primary research approach used in this study was ethnographic, and utilized comparative case studies of employment relations policies and practices of the Hyundai Motor Company in Korea and India. Similar methodologies have been used by Frenkel (1983), Kalleberg (1990) and Oliver and Wilkinson (1989). The researchers undertook several ? eld trips to visit Hyundai’s assembly plants in Chennai (India) as well as in Seoul (Korea), over a three year period from 1999 to 2001. Interviews were conducted with managers and workers in these plants using a semi-structured interview schedule.Documentary material was also collected and analysed from the Hyundai Company in both countries in order to compare the of? cial company policies on employment relations with the prevailing practices at the plant level. Given the fact that Hyundai had closed its assembly plant in Quebec in 1993, the researchers had to rely on interviews with former employees and managers, now located elsewhere in the Hyundai Motor Company, as well as previously published accounts. Fortunately, an extensive study of the Quebec plant had been undertaken and published by Gregory Teal (1995).In his study, Teal noted that ‘while there was a managerial discourse of participation and diffusion of power [in the Quebec plant] the gap between this discourse and the real diffusion of power was such that a sizable minority of employees did not comply with managerial objectives’ (1995: p. 85). Teal’s ethnographic study of the Hyundai assembly plant in Quebec provided a rich source of comparative data for the study of the Hyundai plant in Chennai. Globalization & Employment in Korea 135 Background to the Hyundai Motor Company (HMC)The Hyundai business group is one of Korea’s oldest and most successful familyowned conglomerates known as ‘chaebol’ (Steers et al. , 1989). In 1997, the Hyundai business group had over 60 subsidiary companies, more than 200,000 employees and accounted for approximately 18 per cent of Korea’s Gross Domestic Product. In 2000, the Hyundai Motor Company (HMC) and its subsidiaries were forced to separate from the Hyundai group as a result of government policies designed to reduce the size and in? uence of the chaebols.The Hyundai conglomerate was established by its founder, Chung Ju-Yung, in 1946 as an auto repair shop. This small business expanded into a construction company in 1947 with the establishment of the Hyundai Engineering and Construction Company (HECC). During the Korean War (1950–53) with government support, the Hyundai business group expanded into a number of other areas of activity such as ship-building and heavy machinery. These are key industries which enabled Hyundai to diversify into related businesses, expand in size and maximize economies of scale and scope.The Hyundai Motor Company (HMC) began in 1968 as a complete knock down (CKD) assembler unde r an agreement with the Ford Motor Company. In 1976, HMC produced its ? rst originally-designed model, the Pony, using a low cost strategy with more than 90 per cent of its parts being sourced locally. Other new models followed and HMC entered the US market in 1986 with the competitively low-priced Excel. During the late 1980s, however, the international auto industry experienced considerable restructuring due to oversupply, excessive production capacity and intense global competition (see Womack et al. 1990). This gave rise to a number of strategic alliances between various auto companies via mergers and business partnerships. These were initiated to achieve economies of scale and to enhance the enlarged companies’ competitive positions in the international auto market. This was one reason whey HMC formed a strategic alliance with Mitsubishi in Canada. Studies of the Korean chaebol have tended to describe them as having similar characteristics to the zaibatsu in pre Second W orld War Japan: large, diversi? ed, usually family-owned and managed conglomerates (Amsden, 1989).The Japanese colonization of Korea, which lasted from the early 1900s to the end of the Second World War, resulted in the establishment of a number of institutions and practices derived from Japan and which in? uenced the way in which companies were developed and managed. The chaebol, like the zaibatsu, have used a variety of means to foster worker identi? cation with and dependence on the company (Janelli & Yim, 1993). Hyundai, for example, used the dormitory system (originally established by Japanese enterprises in the textile industry) to allow close supervision and control over predominantly young workers (Cho, 1999).This was accompanied by hiring and training schemes as well as paternalistic welfare systems to foster dependency among the workers. Most chaebol also used the ‘moral persuasion’ of the founder to elicit worker compliance by promoting the concept that the g ood of the nation was based on the company’s performance. The founder of Hyundai, Chung Ju-Yung, regularly exhorted his employees to embrace the ‘Hyundai spirit’. Independent unions were not tolerated and were banned by the government until the late 1980s (Kearney, 1991).Yet worker dissatisfaction with both the paternalism of the chaebol and authoritarianism of the state gradually built up to breaking point and contributed 136 R. D. Lansbury et al. to major industrial disputes and civil unrest resulting in the ‘democratization’ of Korea in 1987 (Choi, 1989; Ogle, 1990). Development of employment relations policies and practices at HMC were strongly in? uenced by the business partnership with the Mitsubishi Motor Company (MMC) which involved not only technical cooperation but also management development. MMC was actively involved in the design of the ? st full automobile manufacturing systems at HMC. MMC made a strategic investment in HMC equal to 10 per cent of HMC’s total capitalization. MMC also entered into an enhanced technological cooperation agreement to supply various parts such as engines, axles and chassis components. The ? rst model which HMC developed was based on the Mitsubishi Lancer. Elements of MMC’s system of labour management approach were utilized by HMC in order to enhance productivity and reduce production costs. These included quality control techniques and job design which sought to more effectively utilize workers.Professional engineers became central to the control of production operations and supervisors were given strict control over workers on the assembly-line. The human resource policies practised by HMC during its formative stage comprised two basic characteristics. First, a strict dual labour market created a division between managerial and production workers. HMC applied different selection criteria for each of these groups of employees. Second, a seniority system of promotion was d eveloped in order to strengthen the hierarchical structure of the internal labour market and to educe short-term labour turnover. Years of service was an important criteria for wage increases and promotion. As HMC expanded its production and hired more employees, however, it adopted what was termed an ‘Open Recruitment System’ (ORS) in an attempt to attract more university graduates and develop a professional management hierarchy. The ORS was also used to introduce more formal systems of recruitment for production workers which would enhance the quality of recruits to the production area. However, the dual labour market system remained and was even strengthened within HMC.Table 3 summarizes the criteria by which management and production employees were recruited. However, HMC argued that their approach to recruitment was transformed from one which relied on personal contracts or connections to one which was based on objective selection criteria. As Kwon and O’Don nell (1999; 2000) have shown, workers in HMC appeared to be more compliant than those in other parts of the Hyundai group until the mid 1980s. Part of the explanation may be the relatively secure employment conditions Table 3. Recruitment practices at the Hyundai Motor Company during the 1990s Management employeesResponsibility Target Groups Assessment Process Production employees Group planning of? ce University graduates Written exam (e. g. language skills) University degree Interviews by senior management and personnel management Personnel department at plant level High School leavers Test for relevant skills High School results Interviews by department head and personnel staff Globalization & Employment in Korea 137 at HMC, although some have argued that HMC workers witnessed the failure of strikes elsewhere and were more acquiescent about their conditions of employment (Bae, 1987).Furthermore, management in HMC and the Hyundai Heavy Industry group also used various means to opp ose the rise of an independent union movement, including physical violence, intimidation and the establishment of complaint in company unions. However, following reforms to labour legislation in the 1990s, HMC was forced to negotiate with unions over wages and conditions. The HMC trade union also became a central force in the formation of the KCTU as the national peak council for the independent trade union movement.One of the main policy responses by HMC to the emergence of a more militant workforce and trade union movement during the 1980s was the implementation of an extensive welfare system. Welfare expenditure by HMC increased from 286 billion won in 1986 to 857 billion won in 1990. Welfare bene? ts which had been limited to management were extended to production workers in the late 1980s. Various cultural programmes were organized in conjunction with training programmes and other activities in an attempt to build a ‘unitarist’ philosophy of loyalty to the ? m and reduce the anti-management sentiments of many workers. Unions made the improvement of welfare systems a major bargaining issue, particularly in the context of an inadequate state welfare system in Korea. The unions achieved the establishment of joint project teams with management to oversee a range of welfare programmes, such as the Employee Housing Construction Implementation Committee to build houses for workers. Scholarships were also obtained for children of workers by the unions in negotiation with management. Wages were the subject of vigorous negotiation between unions and management rom the late 1980s onwards. Wages at HMC increased by 20 per cent in 1987, 30 per cent in 1988 and 28 per cent in 1989 compared with only 6 per cent between 1982 and 1986. It was not only the amount of wages which were the subject of bargaining with the unions but also the wage structure at HMC. As shown in Table 4, the unions achieved increased allowances, bonuses and superannuation paid by HMC to its members. Hence unions were able to broaden the range of issues for negotiation with HMC from the late1980s and made considerable gains during the 1990s.In terms of the broad range of human resource policies and practices, however, HMC has continued to use various means in an effort to promote a convergence Table 4. The structure of remuneration at the Hyundai Motor Company during the 1990s Types of Remuneration Components Monthly wages Normal ? xed wage Other ? xed and variable allowances Performance-based pay Productivity-related pay Bonuses Superannuation Value-added remuneration Other forms of remuneration 138 R. D. Lansbury et al. Table 5. Comparison between employment relations practices adopted by the Hyundai Motor Company in the three plants in Korea, Canada and IndiaHuman resource policies and practices Korea Canada India Selection of employees based on performance-related criteria Training programmes which reinforce company norms such as loyalty and team spirit Emplo yee involvement in some aspects of decision-making at plant level Industrial relations Successful avoidance of collective agreements with unions Flexible wages system linked to productivity and/or performance criteria Internal Labour Market Arrangements High status differentiation between workers and managers at plant level Opportunities for promotion from the shop ? or to higher level positions within the plant Yes Yes Yes Yes No Yes No Yes No No No Yes No Yes Yes Yes No Yes No Yes No of interests between employees and management, while seeking to maintain control and authority over the workforce. The HMC union has been able to resist some of the management’s initiatives to change wages and working conditions, but HMC continues to control the basis on which selection and training of employees is conducted and there is still a strong degree of status differentiation between management and workforce. This is re? cted in large differences between wages, bene? ts and conditions of work between HMC employees at the shop ? oor level compared with those in the ranks of management. Some key employment relations practices are set out in Table 5 and a comparison is made between those that prevail in Korea compared with plants in Canada and India. Hyundai’s Experience in Canada In cooperation with Mitsubishi, HMC opened its ? rst overseas plant in Quebec, Canada, in 1985, in order to assemble the medium-sized front wheel drive Sonata model. The objective was to pro? from HMC’s initial success in Canada in 1984, with the Pony, when HMC became the largest auto importer in the country. Sales to Canada accounted for 30 per cent of HMC’s total production that year. By establishing a presence in North America, HMC sought to boost its sales and avoid the imposition of import quotas. HMC acquired a 400 acre green? eld site near the Canadian town of Bromont in Quebec for the token payment of one Canadian dollar and received $Canadian 110 million in gr ants from the Canadian federal and provincial governments as part of HMC’s total investment of $Canadian 325 million.In addition, the Quebec Department of Labour gave a $Canadian 7. 3 million grant to HMC to assist with training the workforce over a three year period. HMC built both a paint and a press shop to increase North American content (an important criterion for exporting to the USA) as well as because of problems in gaining components from Korea due to labour problems Globalization & Employment in Korea 139 and strikes at HMC’s Ulsan plant. Yet, when the plant was ? ally closed in 1993, one of the major contributing factors was ascribed to HMC’s failure to manage successfully relations with its Canadian managers and employees (Teal, 1995). An analysis of HMC’s experience in Canada offers some useful insights into the way in which the company sought to manage its workforce in North America. This is examined in regard to two key areas: human resourc e and industrial relations policies and practices. The data on which the account Hyundai’s experience in Canada is based is from a study of the Quebec plant by Teal (1995).More information was collected from HMC employees who had worked in the Canadian plant. Human Resource Policies and Practices The hiring policy of HMC in Canada was based on selecting employees who would identify with the company and its objectives. The selection process was lengthy and complex, with candidates spending four days being interviewed, tested for hand– eye coordination and subjected to personality tests. The key selection criteria for prospective employees were that they would be willing and able to do repetitive, monotonous work on an assembly line, as well as work in a team.The company explicitly sought younger workers, around 22 years of age, with little or no experience in the auto industry. Hyundai sought to socialize new employees in a way that promoted identi? cation with the comp any. All production workers were called ‘technicians’ and each employee was referred to as a ‘member’. All company employees wore the same uniform, irrespective of whether they were managers or shop-? oor workers. There was one cafeteria and one parking lot for all Hyundai employees.There was a wide range of sports and leisure activities designed to build team spirit and company ethic among all employees. The training programmes for new employees emphasized loyalty, motivation and team spirit. Some employees were sent to Hyundai’s production centre in Ulsan, South Korea. However, the organization of team work in the Quebec plant was different from Ulsan. The work teams in Canada were less hierarchical and authoritarian than in Korea, team members were encouraged to discuss any problems and there appeared to be greater job rotation within the teams.There was also a ‘Direct Communication System’ in the Quebec plant which was not present in Ulsan. Each team elected its own representative to a departmental committee. Team representatives from each department met regularly, with management playing an observer role at most meetings. There was also a health and safety committee to which workers elected their own representatives. During 1991 there were more than 50 meetings of Direct Communication committees at which more than 400 topics were discussed. Yet management found it dif? ult to satisfy the demands and expectations among employees. In 1991 there were nearly 160 complaints by workers concerning health and safety issues, of which only 100 were resolved. Industrial Relations A major concern of HMC was to avoid unionization of the plant in Quebec. The Canadian Auto Workers Union (CAWU) devoted considerable organizational 140 R. D. Lansbury et al. and ? nancial resources to attempting to organize the plant, without success, although by the time the plant closed in 1993, the union claimed to have achieved a growing lev el of support among the workforce.While much of the emphasis by Hyundai management was on more subtle means of union avoidance, by developing strong identi? cation of workers with the company, a number of employees who were thought to be sympathetic to or organizing on behalf of the union were suspended, transferred or dismissed. The union brought cases of alleged unfair dismissal before the Quebec Government Labour Commission and was successful in achieving an out-of-court settlement for a worker who had been dismissed in 1990.However, the union did not succeed in gaining a collective bargaining agreement to cover workers at the site. One of the devices used to prevent unionization of the plant was the formation of a pro-company, anti-union committee among the employees called ‘the Silent Majority’. It was formed in 1991 to dissuade employees from joining the union. The committee distributed pamphlets which alleged that if the plant became unionized, workers would lose money in union dues and their jobs would be insecure.The committee claimed that while workers were being laid off in other Canadian plants, which were unionized, Hyundai had hired new employees, opened a press shop and provided a high degree of job security. It also charged that the union was more concerned with protecting the jobs of workers in the ‘big three’ auto plants in Ontario where it had a large membership, rather than at the Hyundai plant. But faced with the depressed economic climate in Quebec and the disappointing sales of the Hyundai Sonata in Canada and the USA, Hyundai introduced a reduced work week for all employees and ? ally shut the plant in September 1993. Internal Labour Market Arrangements Distinctions between managerial and production workers were minimized in terms of status differentials within the plant (such as dining facilities), and workers were encouraged to participate in decision-making at the level of team or work group. Yet the work it self remained organized along Taylorist principles, with a strong division of tasks and demarcations between various job functions. Workers complained that even though they were supposed to be involved in a team-based approach to management, they were subject to ‘speed-up’ and work intensi? ation without consultation. They also claimed that Hyundai actively discouraged union membership by workers and refused to engage in collective bargaining. Hence, employee involvement in decision-making was highly restricted and had little impact on the internal labour market arrangements. Yet there existed greater opportunities for promotion of workers in production and other functions to higher level positions in the Canadian plant compared with similar plants in Korea and India. Experience of Hyundai Motor Company in IndiaIn 1996, ? ve years after the closure of the Quebec plant, HMC established a 100 per cent owned subsidiary, the Hyundai Motor Company of India (HMI), Globalizati on & Employment in Korea 141 to manufacture cars in India. It represented an investment of more than US$ 450 million. Construction of a plant with the capacity to produce 120,000 passenger cars per year was completed in Chennai, Southern India, in 1999. By May 2000, the Chennai plant was producing 100,000 vehicles a year and had captured 14 per cent of the Indian market.HMI produced two models in Chennai: Santro (999 cc) and Accent (1,499 cc), both of which achieved approximately one quarter of their respective market segments during the ? rst four months of 2000. HMI began its operation in Chennai with a workforce of 1,400 operating in a one shift production system in October 1998. By January 2001, the workforce had increased to 3,000 workers and a three-shift operation. It had become one of the fastest growing auto manufacturers in India and shared the lead with Ford of India in its respective market segments. It is dif? ult to make a direct comparison between Chennai and the Queb ec plant as Chennai was larger and produced two models instead of one. Nevertheless, HMI followed some policies similar to both the Korean and Canadian plants and also implemented HR policies and practices which emphasized selection procedures and training programmes designed to ensure that new employees are strongly integrated with the organization. However, due to lower labour costs in India, there was more reliance on labour-intensive methods and less use of automation than in Canada or Korean plants.Given the lower levels of education and skill among the Indian workforce, compared with Korea or Canada, there was a much greater presence of Korean managers and technical advisers in Chennai, particularly during the ? rst year of operation. The lines of demarcation between different segments of the workforce were also greater in the Indian plant and there was a more hierarchical structure in the Indian company. Some of these practices re? ected local norms in Indian work culture and industry.The experience of the Hyundai Motor Company in India is analysed with regard to three areas: human resource policies and practices, industrial relations and the internal labour market arrangements. Human Resource Policies and Practices HMI used a variety of HR policies and procedures to align the attitudes of its employees with the corporate culture. Training programmes within HMI re? ected the paternalistic nature within the company and emphasized the development of a strong work ethic among the employees. New recruits were given two-day basic orientation training before being allocated to a speci? c department.Most of the initial work skills are taught on the production line. There followed a job rotation programme which exposed workers to other parts of the plant operations. As Chennai is a mass production plant, most of the jobs were fragmented into relatively simple, repetitive tasks and there was a highly detailed division of labour. Much of the training beyond basic skills development was used to promote employee loyalty and develop harmony at the workplace in order to avoid internal con? ict. Workers were also encouraged to participate in productivity campaigns, employee suggestion schemes and quality control systems.There was a Supervisor Development Programme to enhance the skills of ? rst line managers. At executive level, there was a Management Development Programme to improve 142 R. D. Lansbury et al. the capacity of managers to think strategically, manage their time effectively and improve work methods and quality. The majority of workers at the Chennai plant were employed at trainee level for the ? rst three years and it was anticipated that some of these would leave the company after three years (when the traineeship ended) in search of better wages and conditions.By maintaining high turnover at this level, HMI could keep wages down and retain a group of low-paid trainees who were not permitted to join unions and could provide a †˜buffer’ should demand fall and the workforce need to be quickly reduced. In effect, the trainee position was a de facto short-term contract job, although some workers did receive promotion at the end of the trainee period. Nevertheless, promotion procedures were slow and were aimed at cost minimization, although employees with exceptional performance could receive rapid promotion.In general, it could take up to 20 years or more for production workers to rise to the highest level in their employment structure. There was a system of performance appraisal which varied according to the level of the position. When applied to the non-executive groups the emphasis of the appraisal system was on behavioural criteria such as discipline, attitudes to work, cooperation, punctuality and attendance. The system led to some con? icts between production workers and management, although it was supposed to enhance competition between workers to achieve the highest performance ratings.Wages p olicy was the most critical factor in enabling HMI to achieve a ‘cost effective’ approach to labour management. HMI’s goal was to minimize labour costs while providing management with considerable ? exibility to link allowances to productivity improvements. The total wage package comprised four key elements: a base level amount, a cost of living component, house rental allowance, a ? exibility allowance and a mixture of sundry other minor components (including travel, children’s education, provident fund etc. ).There was considerable variation in the ratio of different components depending on an individual’s position in the hierarchy. Hence, the base component of total salary varied from 60 per cent for managers to 30 per cent for production workers. According to HMI, this system helped to promote employee loyalty to the company. The wages of HMI employees were adjusted annually through increments paid in April and the wage structure was reviewed ev ery three years. During 2000, HMI came under pressure from its workforce to increase wages, and a 20 per cent increase was granted to trainees and junior technicians.The wage levels for trainees and junior technical employees at HMI compared favourably with other multinational auto companies in the same area, but were superior to Indian companies in the auto components sector. However, by having the vast majority of their employees at trainee level, HMI was able to contain its wage costs. The wages and salaries differentials between executive and non-executive employees remained fairly constant over the ? rst few years of HMI’s operation in Chennai, with executives receiving approximately six times that of production workers. However, it was dif? ult to gain accurate information about senior executive salaries paid by HMI. Anecdotal evidence from HMI and other automobile producers in India suggested that the foreign-owned companies shared information about wage Globalization & Employment in Korea 143 levels and generally maintained comparability so that they were not competing against each other in this regard. Hence, the variations between multinational auto companies operating within the Chennai area were minimal. However, there were signi? cant wage differences between the component suppliers (mainly local Indian ? ms) and the foreign-owned assembly companies. Furthermore, wage levels in the Chennai area were generally lower than those in the northern industrial zones of India as they had been industrialized for less time and were still ‘catching up’ to their northern counterparts. Industrial Relations HMI has been strongly in? uenced by the experience of HMC in Korea. From the mid 1980s, with the emergence of militant unionism, HMC experienced considerable industrial con? ict at its plants in Korea. There was a great deal of external intervention in an attempt to resolve con? cts at HMC, with varying degrees of success. Experience in Ko rea conditioned attitudes among the senior managers at HMI. One of the principal reasons why HMC chose to locate its plants near Chennai in the south of India, was that unions were not as well organized as in some other parts of India. The trade union movement is well established in India and is closely linked with socialist politics. The Indian Industrial Relations Act provides a range of rights for workers and unions. The Act guarantees freedom of association and allows for multiple unions in workplaces.It also seeks to facilitate third party intervention in the workplace to resolve industrial disputes. In 2000, trade unions were organized in 24 of the 28 major car manufacturers in India, although not in foreign-owned or joint ventures, including Ford, Volvo, Toyota and HMI. There were two major strikes in the auto sector during the late 1990s. One was a strike over wages and compensation issues at the Ascot-Faridabad plant and lasted 70 days. The other was at Hindustan Motors ove r factory conditions and wages and was 30 days in duration (Bhaktavatsala, 1992). During the ? st two years of HMI’s operations in India, there were no successful organizing efforts by unions or industrial disputes at the Chennai plant. Yet, as the plant became more established and HMI’s market share and pro? tability increased, production workers increasingly raised complaints about labour intensi? cation, low wages and limited opportunities for promotion. However, as the trainee workers comprise half of the workforce at HMI, and were not permitted to join a union or participate in industrial disputes, HMI management was able to resist union pressures.Another source of tension within the Chennai plant occurred between Korean managers dispatched to India from HMC in Korea, and local Indian management. An important contributing factor related to the management style displayed by some of the Koreans which the Indians felt was unsympathetic to prevailing customs and pract ices in India. They complained that their Korean counterparts frequently communicated with each other in the Korean language which excluded Indians from the decision-making process.For their part, a number of Korean managers claimed that the Indians lacked a strong work ethic and therefore had to be more strictly supervised in order to achieve the required levels of productivity. 144 R. D. Lansbury et al. The Koreans also argued that the caste system interfered with the ef? cient operation of the plant because some Indian workers were appointed by Indian managers to positions in accordance with their caste position rather than on the basis of merit. The Indian management system was regarded as unduly paternalistic by some of the Korean managers.HMI established a Works Committee, with the objective of resolving con? icts and differences at the workplace without involving unions. The works committee comprised equal representation from both management and production workers. The Commit tee met monthly and provided a forum in which disagreements over wages and conditions could be discussed and resolved. However, in the absence of a trade union, employees had little bargaining power in regard to management and the Committee had no means of enforcing its decisions. HMI management tended to use the Committee as a means for disseminating its policies among the workforce.The Committee did not have any jurisdiction to set wages or working conditions. While HMI has remained union-free and had not experienced any major industrial dispute, strikes occurred among component suppliers which were Korean joint ventures with HMI, including Donghee, Pyungbuang, Hwasung and Samrib. The disputes concerned wages, job security and welfare issues. The strikes had adverse effects on HMI’s production ef? ciency as many of the companies had a monopoly supplier relationship with HMI. The resolution of these disputes often required direct intervention by HMI. Internal Labour Market A rrangementsFrom the initial establishment of the Chennai plant, HMI adopted a dual internal labour market, which differentiated between managerial and production employees in relation to wages, promotion and welfare facilities. Initially, there were two classes of employees: executive and non-executive. In the executive group there were 11 categories while in the non-executive group there were 14 positions. Within the ? rst year of production, however, the total number of employees increased from 1,503 to 2,320 and there was pressure from the workforce to provide greater wage differentials based on quali? ations. Accordingly, the number of categories in the non-executive ranks was increased from 14 to 18 and two new classi? cations of junior engineer were introduced. The expansion in the number of layers within the non-executive group reduced some of the discontent about the limited status differentials in the organizational hierarchy. However, HMI placed restrictions on the number of promotions of workers to higher level categories. This is an important factor in the management of labour within the plant because, as mentioned previously, trainees have only temporary employment status for the ? st three years and are not permitted to join unions. Hence, their opportunities to gain advancement are limited. During the ? rst year of operation, almost all senior decision-making positions at HMI were held by Koreans dispatched from HMC. The Korean managers not only were heads of division, with responsibility for all key activities in HMI, but also some were placed at operational level to provide support and advice to middle level Indian managers and to coordinate management activities.As the number Globalization & Employment in Korea 145 of total employees increased during the ? rst two years of operation, the ratio of Koreans to Indians in the plant changed from 1:19 to 1:46. However, most key roles remained under the control of Koreans. In the production division , the ratio of Koreans to Indians underwent more signi? cant change, from a ratio of 1:26 in 1998 to 1:172 in 2000. This was in keeping with HMI’s policy of becoming less reliant on Korean managers at plant level. DiscussionThe comparison of HMC’s operations in three countries demonstrates that there are complex interactions between globalization pressures towards a uniform approach to employment relations across various countries and divergent tendencies at the local level in each country. Although HMC sought to carefully select employers at its plant in Canada who would identify with the company’s objectives and follow its procedures, the Canadian workers were willing to challenge management decisions and to exercise their rights on issues such as health and safety.This was despite the fact that the Canadian Auto Workers Union was unsuccessful in gaining collective bargaining coverage of the Bromont plant. Although HMC were able to remain non-union, they had a divided workforce and were not able to implement the full range of Hyundai-style human resource policies and practices as planned. Although the closure of the Canadian operation was primarily due to disappointing sales of the Sonata model, poor employee relations were also a contributing factor to Hyundai’s failure in Canada.The Indian operations marked an important attempt by Hyundai to relaunch its globalization strategy and demonstrate that it could successfully manufacture and sell overseas-made Hyundai vehicles outside Korea. The employee relations practices which Hyundai implemented in India were more like ‘traditional’ Korean approaches and appeared to represent a ‘retreat’ from some of the more ‘progressive’ ideas which were attempted in Canada – such as a ? atter hierarchical structure and greater employee participation in decision-making (albeit limited in scope).But the Indian plant was more labour intensive and had lo wer labour costs, which is similar to the earlier stages of auto production in Korea. Unlike the current situation in Korea, where HMC is required to negotiate with the union movement (due to both its organizational strength and changes in legislation), Hyundai has so far been able to avoid unionization in India. It remains to be seen whether the widespread nature of unionization in the Indian auto industry and political pressures in India may force Hyundai to abandon its policy of union avoidance.An alternative strategy, pursued by some other foreign auto companies in India has been to recognize or foster enterprise unions, which may be more cooperative than industry-wide unions. Implications As has been noted in other studies of auto companies, which established transplants outside their home country, there is a strong tendency towards ‘hybridization’ both in terms of production methods as well as employment relations. This has been observed in the case of Japanese co mpanies which have 146 R. D. Lansbury et al. established plants in the United States (see Cutcher-Gershenfeld et al. 1998), but it has also occurred with US auto companies in Canada (Lewchuck et al. , 2001) and European auto companies which have opened plants in other parts of the world (see Boyer et al. , 1998). It would appear, from the current study, that a similar tendency is occurring within the Hyundai Motor Company as they seek to re-start their overseas production activities in India. A more diversi? ed employee relations strategy, which takes into account the demands of local employees and their unions, may be required if Hyundai is to continue to develop an effective global production system.For its global ambitions to be realized, Hyundai will require a much greater proportion of its manufacturing to be undertaken outside Korea, the development of global supply chains and global coordination of production, marketing and technology development. The experience of Hyundai in Canada and India suggests that employee relations are likely to be an evolving blend of company-speci? c policies and locally-based practices, depending on the context in which Hyundai is operating. ConclusionsThe experience of the Hyundai Motor Company in India illustrates the complexity of the impact of globalization strategies on employment relations. It supports the hypothesis that there are dynamic interactions between global and local forces, which shape employment relations when a multinational enterprise establishes a production facility in a country outside its home base. Hyundai has applied some of its human resources policies from Korea to India, such as training programmes to reinforce employee loyalty to the company, but it has provided fewer opportunities for employees to be promoted from the shop ? or to higher-level positions within the plant. This has caused resentment among some of the Indian employees who feel that they have limited career prospects in the compan y. Hyundai has also successfully avoided unionization despite the fact that unions have collective agreements with most local automobile producers in India. It remains to be seen whether the Indian unions will be able to apply pressure successfully to the company to bargain collectively or persuade the government to require Hyundai to negotiate with the union over the wages and conditions of its employees.Acknowledgements The authors wish to acknowledge the Australian Research Council (ARC) for their award of an ARC Discovery Grant for this research project and the helpful comments of the reviewers and editors. References Amsden, A. (1989) Asia’s Next Giant: South Korea and Late Industrialization (New York: Oxford University Press). Bae, K. H. (1987) Automobile Workers in Korea (Seoul: Seoul National University Press). Bhaktavatsala, R. C. (1992) The Indian automobile industry: patterns of expansion, entry and performance, Management, Journal, 5(2), pp. 7– 111. Globali zation & Employment in Korea 147 Boyer, R. (1998) Hybridization and models of production: Geography, history and theory, in: R. Boyer, E. Cherron, U. Jurgens & S. Tolliday (Eds) Between Imitation and Innovation: The Transfer and Hybridization of Production Models in the International Automobile Industry (Oxford: Oxford University Press). Cho, H. J. (1999) The employment adjustment of Hyundai Motor Company: a research focus on corporate-level labour relations, Korean Journal of Labour Studies, 5(1), pp. 63–96 (in Korean). Choi, J. 1989) Labour and the Authoritarian State: Labour Unions in South Korean Manufacturing Industries (Seoul: Korea University Press). Cutcher-Gershenfeld, J. et al. (1998) Knowledge-Driven Work: Unexpected Lessons from Japanese and United States Work Practices (New York: Oxford University Press). Frenkel, S. (1993) Workplace relations in the global corporation, in: S. Frenkel & J. Harrod (Eds) Industrialization and Labour Relations, pp. 37–63 (Ith aca, NY: Cornell ILR Press). Hill, R. C. & Lee, Y. C. (1998) Japanese multinationals in East Asian development: the case of the auto industry, in: L.Sklair (Ed. ) Capitalism and Development (London: Routledge). Janelli, R. & Yim, D. (1993) Making Capitalism: the Social and Cultural Construction of a Korean Conglomerate (Palo Alto: Stanford University Press). Kalleberg, A. (1990) The comparative study of business organizations and their employees, in: C. Calhoun (Ed. ) Comparative Social Research: A Research Annual, pp. 153– 175 (Greenwich, CT: JAI Press). Kearney, R. P. (1991) Warrior Worker: History and Challenge of South Korea’s Economic Miracle (New York: Henry Holt & Coy). Kochan, T. A. , Lansbury, R. D. & MacDuf? e, J. P. 1997) After Lean Production: Evolving Employment Relations in the World Auto Industry (Ithaca, NY: Cornell University Press). Kwon, S. H. & O’Donnell, M. (1999) Repression and Struggle: the State, the Chaebol and the Independent Trade Unio ns in South Korea, Journal of Industrial Relations, 41(2), pp. 272– 293. Kwon, S. H. & O’Donnell, M. (2000) The Chaebol and Labour in Korea (London: Routledge). Lansbury, R. D. (2002) The impact of globalization on employment relations: the automobile and banking industries in Australia and Korea, The Bulletin of Comparative Labour Relations, 45, pp. –16. Lewchuck, W. , Stewart, P. & Yates, C. (2001) Quality of worklife in the automobile industry: A Canada–UK comparative study, New Technology, Work and Employment, 16(2), pp. 72– 87. Ogle, G. E. (1990) South Korea: Dissent within the Economic Miracle (London: Zed Books). Oliver, N. & Wilkinson, B. (1989) Japanese manufacturing techniques and personnel and industrial relations practices in Britain: Evidence and implications, British Journal of Industrial Relations, 27(1), pp. 73– 91. Song, L. 1998) The process of globalization of the Korean automobile industry, Economic and Management Analysis , 18(1), pp. 20–35. Steers, R. M. , Shin, Y. K. & Ungson, R. (1989) The Chaebol: Korea’s New Industrial Relations Might (New York: Harper & Row). Teal, G. (1995) Korean management, corporate culture and systems of labour control between South Korea and North America, Culture, 15(2), pp. 85–103. Womack, J. P. , Jones, D. T. & Roos, D. (1990) The Machine that Changed the World (New York: Macmillan).

Drug Addiction History, Laws, And Treatment Essay

Drug Addiction, History, Laws, and Treatment Drug Addiction itself affects almost  ­Ã¢â‚¬ Twenty-three million Americans are currently addicted to alcohol and/or other drugs. Only one in 10 percent of them (2.6 million) receives the treatment they need. The result: a treatment gap of more than 20 million Americans†(Writer, B. J. 2010). Drug Addiction is it truly a disease or a choice? Many state authority figures say it s a choice not a disease much of science says it s a choice disease, both in a sense are correct, this paper will outline both aspect and possibly give new insight to you, the reader however, it may possibly back up what the reader believes to be true in the first place. The history of drug use is almost as old as mankind itself. The history of drug use can be traced back to the beings of mankind itself human beings have always taken in part in some kind of drug use many spiritual and religious rites or religious ceremonies.Throughout history of Native Amer ican ceremonies and tribal histories worldwide have used some kind of now know drug in preparation of their ceremonies North America, Mexico, and South America had many ceremonies for visions. Many of these tribes also used herbs to dull pain of rituals . They use herbs to help make warriors stronger and pain resistant at times of war, and other herbs to suppress hunger and to relax warriors after battle.the history of these plants are well known (F. 2003, January). 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Biology Enzymes Coursework Essay - 569 Words

Biology Enzymes Coursework Prediction: I think that the enzyme will work best at 45.c to 50.c I think this because that optimum temperature for most natural enzymes is 40.c but his is a chemical enzyme so it will work best a little higher. If this temp is exceeded then I think that it will take longer to work because it will not be at the optimum temp, or it will not work at all because it has become denatured. An enzyme cannot recover from this state. Below this temperature I think it will be slowed down but will not denature because it cant at low temperatures only at high ones. These will not be to reliable so I may have to use a different set of measurements when I do†¦show more content†¦(Better explained in my picture) Key when joined the reaction starts, Active site (lock) This reaction will not work because the Key lock doesnt fit the key. This will never work again. Active site (lock denatured) As you can see as soon as the lock gets denatured it wll no longer work. 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The Two Sides Essay - 1379 Words

The Two Sides The views we have are what shapes us, sometimes we have vast knowledge of ideas. Other times we are limited in what we can understand. We are given the choice of seeking out more of said idea or choosing to remain as is. Cathedral by Raymond Carver is a story that gives us a look into what it is like to have our views challenged through experiencing them first hand. We are introduced to the story by narration and we are given a brief summary of how his wife and the blind man had met from the narrrator. We learn that the blind man is named Robert, he is the only character that is named and described in the story. After the exchange of greetings and very detailed description of the dinner they all enjoyed Robert and†¦show more content†¦Like the way the Naratator speaks of the blind man’s marriage. He makes assumptions on how â€Å"pitiful† it must have been for his wife to never know the feeling of being complemented for ones appearance by her husband. 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Only the Strong Survive Free Essays

string(48) " flow and share performance \(Wbn\) 10,000 Avg\." January 17, 2013 Industry Report Shipbuilding (Neutral) Only the strong survive Offshore orders to drive growth The shipbuilding industry is in a situation similar to that of 2002. In 2013, plunging order volume and weak new building prices are fueling intensifying competition. In 2002, shipbuilding shares rose because of an increase in orders, but then quickly fell on concerns over weak new building prices, which caused earnings to stagnate. We will write a custom essay sample on Only the Strong Survive or any similar topic only for you Order Now For a period in 2002, shipbuilders went into red. There is a big difference between the shipbuilding market of 2002 and 2013, however. In 2013, a few, major shipbuilders with an edge in the construction of offshore plants are expanding order backlogs due to growing demand for offshore plants. We anticipate investments in offshore EP projects will continue to rise, as we expect oil prices will remain high. We anticipate major shipbuilders will offset sluggishness in the commercial vessels market with their offshore-plant businesses. Daewoo Securities Co. , Ltd. Ki-jong Sung +822-768-3263 kijong. sung@dwsec. com Ryan Kang +822-768-3065 ryan. kang@dwsec. om Three major catalysts in 2013 1) Increase in new orders despite depressed market conditions. 2) Improved cash flow and balance sheets. 3) Growing competitive gap between shipbuilders due to accelerated restructuring. Historic low P/B presents attractive valuations We expect Korean shipbuilders will be able to maintain their competitive edge regardless of the depressed shipbuilding market. Although shipbuilding shares currently trade at a P/B of 1. 0x, we believe the y have the potential trade at a P/B of 1. 2x. We recommend Hyundai Heavy Industries (009540 KS/Buy/TP: W280,000), and Samsung Heavy Industries (010140 KS/Buy/TP: W46,200) out of the large shipbuilders. We find Hyundai Mipo Dockyard (010620 KS/Buy/TP: W148,000) to be the best among shipbuilders that focus on mid-to-small vessels. We raise our target price on Samsung Heavy Industries by 5% to W46,200 to reflect its stable earnings and solid order flow; however, we downgrade our rating of Hanjin Heavy IC (097230 KS/Hold) from Trading Buy to Hold. Three major domestic shipbuildersE cash flow and share performance (Wbn) 10,000 Avg. You read "Only the Strong Survive" in category "Papers" ash flow of major shipbuilders (L) Avg. share price of major shipbuilders (R) (1/31/2005=100) 1,000 6,000 800 600 2,000 400 -2,000 200 -6,000 05 06 07 08 09 10 11 12 13F 13 14 14F 0 Source: KDB Daewoo Securities Research Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U. S . January 17, 2013 Shipbuilding Figure 1. New orders and newbuilding price for commercial vessels (mnCGT) 100 New orders (L) Newbuilding price (R) 80 180 160 60 140 40 120 20 100 80 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F (1988=100) 200 Source: Clarkson, KDB Daewoo Securities Research Figure 2. Three major domestic shipbuildersE order trend and forecast (Wbn) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 01 02 03 04 05 06 07 08 09 10 11 12 13F Shipbuilding Non-shipbuilding Source: Company data, KDB Daewoo Securities Research Figure 3. KOSPI and shipbuilding stock index trend (1/1999=100) 1,000 KOSPI Shipbuilding stock index 800 600 400 200 0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 13 14F 14 Source: KDB Daewoo Securities Research KDB Daewoo Securities Research 2 January 17, 2013 Shipbuilding Three major catalysts in 2013 1. New orders for major Korean shipbuilders to increase sharply In 2013, we expect major Korean shipbuilders will see sharp increases in new orders. Despite intensifying competition, these companies have demonstrated competitive advantages in the construction of large commercial vessels and offshore plants. We expect demand for LNG carriers will remain sound, and anticipate orders for mega-containerships will also increase. We expect the latter to be driven by small- and mid-sized shipping companies improving their competitiveness through greater efficiency. We also expect shipbuilders will be forced to take new orders at lower-than-normal prices because of the dearth of order backlogs for commercial vessels. We forecast the number of bids and orders for large offshore-plant construction projects to increase for each company in 2013. In particular, we expect orders for certain high-priced vessels, including FPSO and LNG FPSO, to increase. 2. Improved cashflow and balance sheets Since 2009, shipbuilders have taken out more loans for more orders as the proportion of heavy-tail payments (characterized by small advance payments) has increased. On a positive note, however, we expect shipbuilder loans to decrease (thus improving cashflow) as these contracts are paid off toward late 2013. We believe share prices will improve (despite concerns about lower-priced orders) thanks to increasing orders, and improved cashflow. Share prices for shipbuilders will be influenced by cashflow. Despite intensifying market competition, we anticipate Hyundai Mipo Dockyard will take an increasing amount of orders, even though some will be lower-priced. 3. Second phase of restructuring to further consolidate industry We anticipate the shipbuilding market will remain weak due to the global economic downturn, and the tightening of ship financing. We project the current, still-surviving shipbuilding companies will aggressively seek new orders to strengthen backlogs. We believe the winners of this second phase of restructuring will benefit significantly when the market recovers. Amid the current drop in vessel construction, the percentage of bulk carriers and tankers (out of total orders) has decreased significantly, while the percentage of megacontainerships and LNG carriers has increased. We expect these trends will continue in 2013. We also anticipate major Korean shipbuilders will be able to develop new types of vessels boasting improved efficiency, which will strengthen these companiesE competitiveness. Risk factors Earnings at shipbuilders will not recover easily, due to orders at lower-than-normal prices and won appreciation. In order to secure backlogs, hipbuilders will need to take low price orders. Another risk factor is won appreciation, but at current levels, we believe risks are limited, thanks to Korean shipbuildersE technological edge, and dollar denominated payment for raw materials, which accounts for 40% of total raw material purchase. KDB Daewoo Securities Research 3 January 17, 2013 Shipbuilding Figure 4. Three major domestic shipbuilders E cash flow and share performance (Wbn) 10,000 Avg. cash flow of major shipbuilders (L) Avg. share price of major shipbuilders (R) (1/31/2005=100) 1,000 6,000 800 600 2,000 400 -2,000 00 -6,000 05 06 07 08 09 10 11 12 13F 13 14 14F 0 Source: Company data, KDB Daewoo Securities Research Figure 5. Korean and Chinese shipbuildersE restructuring (No. of shipuilders) 200 Korea China 160 197 120 -88. 3% 80 40 24 23 -66. 7% 8 0 2008 2012 Source: Clarkson, press release, KDB Daewoo Securities Research Figure 6. Comparison of currency rates (10/2/2012=100) 105 US$/W JPY100/W EUR/W RMB/W 100 95 90 85 80 10/12 11/12 12/12 1/13 Source: KOSTAT, KDB Daewoo Securities Research KDB Daewoo Securities Research 4 January 17, 2013 Shipbuilding Investment strategy valuation We believe the P/B of KoreaEs top 3 shipbuilders, which is trading at around 1. 0x, should rebound to 1. 2x, a level seen historically as the low, thanks to the aforementioned three major catalysts. In addition, the ROE of shipbuildersE is projected to improve to 19%. And as most new orders are expected in 1H, shares are likely to show strong performance in the same period. The relative share performance of global shipbuilders has changed. Thanks to the rising proportion of offshore orders, Korean shipbuilders and Hyundai Mipo Dockyard are now grouped together with Keppl Corp. nd Sembcorp Marine (Singapore companies specialized in offshore plant). In light of the ongoing eurozone crisis and unstable global economy, shipbuilding shares are expected to trade between a P/B of 1. 0x~1. 3x. Although we believe the shares have bottomed, we do not expect a long term recovery until new building prices rebound in earnest. We suggest accumulating the shares near a P/B of 1. 0x. Shipbuilding sh ares will likely begin to recover full-swing from 2014, when the market starts to turnaround, along with increased orders for commercial vessels, improved cashflow, and earnings recovery. Figure 7. Major shipbuildersE ROE, P/B trends (Market cap, Wtr) 4. 0x (%) 50 3. 0x 40 90 60 2. 0x 30 20 30 1. 0x 10 0 05 07 09 11 13 13F 0 Source: Bloomberg, KDB Daewoo Securities Research Figure 8. Relative share performances of major shipbuilders (-1Y=100) 150 140 130 120 110 100 90 80 70 60 1/12 2/12 3/12 4/12 5/12 6/12 7/12 8/12 9/12 10/12 11/12 12/12 1/13 HHI DSME HMD Guangzhou Shipyard Keppel Corp. SHI STX Offshore Shipbuilding Rongsheng Heavy Sembcorp Marine Source: Bloomberg, KDB Daewoo Securities Research KDB Daewoo Securities Research 5 January 17, 2013 Shipbuilding Figure 9. New order trends (US$bn) 30 25 20 15 10 5 0 03 04 05 06 07 08 09 10 11 12 HHI SHI HMD Figure 10. Order backlog trends (US$bn) 60 50 40 30 20 10 0 07 08 09 10 11 12 HHI SHI HMD Source: Company Data, KDB Daewoo Securities Research Source: Company Data, KDB Daewoo Securities Research Figure 11. Sales breakdown by business unit (Wtr) 70 60 50 40 30 20 10 0 10 HHI 11 10 SHI 11 Construction Other Refinery Finance Green energy Electro electric systems Construction equipment Engine machinery Industrial plant engineering Offshore engineering Shipbuilding Figure 12. Hyundai Heavy IndustriesE P/B trend Market cap,Wbn) 42,000 35,000 28,000 21,000 14,000 7,000 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 13 3. 0x 2. 5x 2. 0x 1. 5x 1. 0x Source: Company Data, KDB Daewoo Securities Research Source: KDB Daewoo Securities Research Figure 13. Samsung Heavy IndustriesE P/B trend (Market cap,Wbn) 14,000 12,000 10,000 8,000 1. 0x 6,000 4,000 2,000 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 13F 2. 0x 6. 0x 4. 0x Figure 14. Hyundai Mipo DockyardEs P/B trend (Market cap,Wbn) 10,000 2. 5x 8,000 1. 5x 6,000 2. 0x 1. 5x 4,000 1. 0x 2,000 0. 5x 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 13F Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research KDB Daewoo Securities Research 6 January 17, 2013 Shipbuilding Figure 15. Global new orders by vessel type (mnCGT) 25 LPG carrier LNG carrier Containership 20 Bulker Tanker 15 Figure 16. Newbuilding prices by vessel type (US$’000/TEU) 30 Containership (L) Tanker (R) Gas carrier (R) Bulker (R) (US$’000/DWT) 3 20 2 10 10 5 1 0 03 04 05 06 07 08 09 10 11 12 0 04 05 06 07 08 09 10 11 12F 12 13F 13 0 Source: Clarkson, KDB Daewoo Securities Research Source: Clarkson, KDB Daewoo Securities Research Figure 17. ROE-P/B comparison (P/B ,x) 3. 0 Figure 18. EPS growth-P/E comparison (P/E, x) 20 Keppel 2. 0 Sembcorp Mitsubishi HHI 1. 0 Guangzhou Sumitomo Mitsui (ROE, %) 0. 0 0 5 10 15 20 HMD S HI 15 Keppel 10 S HI Sumitomo Sembcorp HHI 5 (EPS growth, %) 0 -40 -30 -20 -10 0 10 20 30 40 Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Figure 19. Global shipbuildersE share performances (-1Y=100) 160 HHI Mitsui SHI Guangzhou HMD Sembcorp CSSC Keppel Figure 20. KOSPI and shipbuilding stock index (index) 8,000 Shipbuilding stock index KOSPI 140 6,000 120 4,000 100 2,000 80 60 1/12 3/12 5/12 7/12 9/12 11/12 1/13 05 06 07 08 09 10 11 12 Source: Thomson Reuters, KDB Daewoo Securities Research Source: KDB Daewoo Securities Research KDB Daewoo Securities Research 7 January 17, 2013 Shipbuilding Hyundai Heavy Industries (009540 KS) Buy (Maintain) Target Price (12M, W) 280,000 Share Price (01/16/13, W) 227,500 Expected Return (%) 23. 1 EPS Growth (13F, %) 17. 6 Market EPS Growth (13F, %) 19. 1 P/E (1 3F, x) 8. 5 Market P/E (13F, x) 9. 0 KOSPI 1,977. 45 Market Cap (Wbn) 17,290 Shares Outstanding (mn) 76 Avg Trading Volume (60D, ‘000) 229 Avg Trading Value (60D, Wbn) 51 Dividend Yield (13F, %) 1. Free Float (%) 59. 3 52-Week Low (W) 193,500 52-Week High (W) 346,500 Beta (12M, Daily Rate of Return) 1. 46 Price Return Volatility (12M Daily, %, SD) 2. 1 Foreign Ownership (%) 19. 6 Major Shareholder(s) Mong-Jun Jung et al. (21. 31%) Treasury shares (19. 36%) NPS (5. 08%) Price Performance (%) 1M 6M 12M Absolute -1. 7 -3. 8 -20. 7 Relative -0. 9 -12. 6 -27. 1 One step back for two steps forward ? ? ? Targeting orders of US$29. 7bn and revenues of W26. 9tr (non-consolidated) in 2013 Implemented a self-rescue plan for the first time in 40 years. Maintain Buy with TP of W280,000 Maintain Buy with TP of W280,000 We maintain our Buy call on Hyundai Heavy Industries (HHI) with a target price of W280,000. HHI displayed weak share performance due to poor earnings and orders in 2012. However, we expect the company to record robust orders in 2013, boosted by a pickup in the offshore/onshore plant market. The companyEs earnings are anticipated to turn around in 2H13, while its cash flow should improve on massive orders and an increase in heavy-tail payments. HHIEs shares are trading at a 2013F P/E of 8. 5x and a P/B of 1. 0x, the lowest levels in the companyEs peer group. This tepid performance signals that weak 2012 orders and earnings results have been fully reflected. However, HHI has strong investment merits in 2013, as it is projected to win massive orders. Investment summary 1) The company exhibited poor orders across all business units last year, posting disappointing earnings results. In 2013, however, the company will be able to achieve its order target of US$29. 7bn in light of its strong determination to revamp its business structure. 2) The company is anticipated to receive massive offshore/onshore plant orders. In particular, the company will likely win orders for the Egina project (US$2. 5bn) and the Brass LNG project (US$3. 5bn) in 1Q. In addition, HHI is expected to bid for additional projects worth US$1-4bn; indeed, we believe the company will be aggressive in its order-taking efforts. 3) Orders for merchant ships, including mega containerships, LNG carriers, and LNG FSRU, will likely increase markedly in light of their superior competitiveness. 4) Exports of construction equipment and ultra-high voltage transformers should also increase on recoveries in the US and Chinese economies. ) The company has recently implemented a self-rescue plan for the first time in 40 years. While the number of applications for HHIEs early retirement plan (pushed through at end-2012) missed expectations, the company has subsequently carried out structural reform measures. We expect the companyEs long-term restructuring efforts to positively affect earnings going forward. Share price 130 120 110 100 90 80 7 0 60 1/12 5/12 9/12 1/13 KOSPI Earnings Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenue (Wbn) 37,342 53,712 54,741 58,433 63,025 OP OP Margin (Wbn) (%) 5,532 14. 8 4,536 8. 4 2,485 4. 5 3,331 5. 7 3,782 6. NP (Wbn) 4,154 2,559 1,729 2,033 2,449 EPS EBITDA FCF ROE P/E (Won) (Wbn) (Wbn) (%) (x) 54,652 6,326 88 34. 5 8. 1 33,671 5,473 -504 16. 7 7. 6 22,750 3,469 -2,260 10. 2 10. 6 26,750 4,320 2,005 11. 1 8. 5 32,218 4,768 2,297 12. 2 7. 1 P/B (x) 2. 5 1. 3 1. 1 1. 0 0. 9 EV/EBITDA (x) 6. 5 5. 3 8. 5 6. 2 5. 2 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 Daewoo Securities Research 8 January 17, 2013 Shipbuilding Hyundai Heavy Industries (009540 KS/Buy/TP: W280,000) Comprehensive Income Statement (Summarized) Wbn) Revenues Cost of Sales Gross Profit SG Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Incom e 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 (%) 12/11 53,712 46,784 6,927 2,392 4,536 4,536 -659 52 -148 3,876 1,133 2,743 0 2,743 2,559 184 2,617 2,498 118 5,473 -504 10. 8. 4 4. 8 12/12F 54,741 49,759 4,981 2,496 2,485 2,485 110 233 -240 2,595 766 1,829 0 1,829 1,729 100 1,568 1,458 110 3,469 -2,260 6. 3 4. 5 3. 2 12/13F 58,433 52,473 5,960 2,630 3,331 3,331 -448 248 -200 2,882 749 2,133 0 2,133 2,033 100 1,872 1,762 110 4,320 2,005 7. 4 5. 7 3. 5 12/14F 63,025 56,408 6,618 2,836 3,782 3,782 -338 188 -150 3,444 895 2,549 0 2,549 2,449 100 2,288 2,178 110 4,768 2,297 7. 6 6. 0 3. 9 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 12/11 23,076 1,610 9,525 6,478 2,359 25,924 973 15,565 2,324 49,001 25,491 14,339 8,903 2,249 5,334 3,224 1,954 30,824 16,379 380 1,100 15,399 1,797 18,177 12/12F 25,628 1,888 10,237 6,897 2,737 24,553 916 15,706 2,290 50,181 23,183 11,605 9,060 2,518 7,460 5,550 1,755 30,643 17,624 380 1,100 16,894 1,915 19,538 12/13F 28,538 3,517 10,927 7,304 2,922 24,365 716 15,703 2,264 52,903 24,136 12,388 9,060 2,688 7,602 5,550 1,896 31,737 19,141 380 1,100 18,682 2,025 21,166 12/14F 30,153 3,469 11,786 7,878 3,151 24, 277 566 15,700 2,240 54,430 24,320 13,361 8,060 2,899 6,901 4,550 2,195 31,221 21,074 380 1,100 20,885 2,135 23,208 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 PPE 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 12/11 276 2,743 3,078 853 85 -860 -4,072 -178 -1,442 -364 -1,474 -888 -1,583 -67 -34 796 347 1,206 0 -411 -448 -269 1,879 1,610 12/12F -1,972 1,829 1,907 899 85 107 -4,572 -512 -453 -3,197 -1,136 -544 -1,074 -60 406 184 2,806 3,484 0 -245 -444 278 1,610 1,888 12/13F 3,082 2,133 2,187 903 86 50 -489 -691 -407 783 -749 -770 -900 -60 0 190 -683 0 0 -245 -438 1,628 1,888 3,517 12/14F 3,345 2,549 2,220 903 84 50 -528 -859 -574 973 -895 -738 -900 -60 0 222 -2,654 -2,000 0 -245 -409 -48 3,517 3,469 Forecasts/Valuations (Summarized) 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) 12/11 12/12F 12/13F 12/14F 7. 6 10. 6 8. 5 7. 1 5. 6 6. 8 5. 7 5. 0 1. 3 1. 1 1. 0 0. 9 5. 3 8. 5 6. 2 5. 2 33,671 22,750 26,750 32,218 46,009 35,699 39,772 45,203 203,367 220,183 240,492 266,237 4,000 0 4,000 4,000 9. 6 0. 0 12. 1 10. 0 1. 6 0. 0 1. 8 1. 8 43. 8 1. 9 6. 7. 9 -13. 5 -36. 6 24. 5 10. 4 -18. 0 -45. 2 34. 0 13. 5 -38. 4 -32. 4 17. 6 20. 4 5. 9 6. 0 6. 1 6. 1 9. 3 8. 2 8. 2 8. 3 4. 1 4. 8 5. 7 5. 8 5. 7 3. 7 4. 1 4. 8 16. 7 10. 2 11. 1 12. 2 17. 3 7. 8 10. 0 11. 2 169. 6 156. 8 150. 0 134. 5 90. 5 110. 6 118. 2 124. 0 40. 8 45. 3 34. 1 22. 7 15. 7 6. 0 7. 6 9. 2 Source: Comp any data, KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 9 January 17, 2013 Shipbuilding Samsung Heavy Industries (010140 KS) Buy (Maintain) Target Price (12M, W) 46,200 Share Price (01/16/13, W) 37,850 Expected Return (%) 22. 1 EPS Growth (13F, %) 0. 6 Market EPS Growth (13F, %) 19. 1 P/E (13F, x) 9. Market P/E (13F, x) 9. 0 KOSPI 1,977. 45 Market Cap (Wbn) 8,739 Shares Outstanding (mn) 231 Avg Trading Volume (60D, ‘000) 938 Avg Trading Value (60D, Wbn) 34 Dividend Yield (13F, %) 0. 0 Free Float (%) 69. 5 52-Week Low (W) 31,650 52-Week High (W) 42,350 Beta (12M, Daily Rate of Return) 1. 57 Price Return Volatility (12M Daily, %, SD) 2. 3 Foreign Ownership (%) 32. 0 Major Shareholder(s) Samsung Electronics et al. (24. 42%) Treasury shares (6. 13%) Mirae Asset Global Investment (5. 05%) Price Performance (%) 1M 6M 12M Absolute -2. 7 4. 3 12. 3 Relative -1. 8 -4. 5 6. 0 Reliable again in 2013 ? ? ? 2013 orders and revenues forecast at US$14. 2bn and W14. tr Stable business operations and earnings to remain intact in 2013 Raise TP by 5% to W46,200; Maintain Buy Raise TP by 5% to W46,200; Maintain Buy We maintain our Buy call on Samsung Heavy Industries (SHI) and raise our target price 5% to W46,200. In deriving our target price, we applied a 5% premium to the companyEs lowest P/B level since 2005 (1. 3x). We believe that the 5% premium is undemanding, as the company is expected to win solid orders and display stable earnings in 2013. We expect SHI to win massive orders of US$14. 2bn despite the slump in the global shipbuilding market, driven by the robust offshore plant market and the companyEs superior competitiveness. SHIEs shares are trading at a 2013F P/E of 9. 4x and a P/B of 1. 3x. We think that SHI has strong investment merits in light of its competitive edge, stable earnings, robust growth potential, and cash flow improvement. Investment summary 1) Domestic institutions are most optimistic on SHI among the three largest domestic shipbuilders. SHI has proven its superior competitiveness in the offshore plant business, including FLNG and drillships. As such, the company has solid earnings relative to its competitors. 2) SHI is expanding into the subsea business, and we believe that the company will be able to bolster its competitiveness in the segment rapidly. ) The commercial vessel unit, which exhibited a tepid performance last year, is likely to recover in 2013 thanks to: 1) rising mega containership orders and 2) steady orders for LNG carriers and LNG FSRU. 4) SHI is expected to display the fastest cash flow improvement in its peer group this year, backed by: 1) a rise in orders for both o ffshore plants and commercial vessels and 2) an increase in heavy-tail payments. As such, the company will be able to repay its debt and strengthen its financial structure. 5) SHIEs earnings should gradually increase on rising revenue contributions from the offshore plant unit. Share price 150 140 130 120 110 100 90 80 1/12 5/12 9/12 1/13 KOSPI Earnings Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenue (Wbn) 13,146 13,392 14,875 14,980 15,751 OP OP Margin NP (Wbn) (%) (Wbn) 1,433 10. 1,000 1,160 8. 7 851 1,226 8. 2 929 1,198 8. 0 934 1,355 8. 6 1,015 EPS EBITDA FCF ROE (Won) (Wbn) (Wbn) (%) 4,330 1,504 598 28. 7 3,685 1,455 1,556 19. 4 4,021 1,551 282 18. 4 4,044 1,514 931 15. 8 4,396 1,667 978 14. 9 P/E (x) 9. 5 7. 6 9. 6 9. 4 8. 6 P/B (x) 2. 1 1. 2 1. 5 1. 3 1. 1 EV/EBITDA (x) 8. 2 5. 4 6. 1 5. 5 4. 5 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 e stimates Daewoo Securities Research 10 January 17, 2013 Shipbuilding Samsung Heavy Industries (010140 KS/Buy/TP: W46,200) Comprehensive Income Statement (Summarized) Wbn) Revenues Cost of Sales Gross Profit SG 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 (%) 12/11 13,392 11,628 1,763 681 1,083 1,160 -10 -25 -32 1,150 299 851 0 851 851 0 616 616 0 1,455 1,556 10. 9 8. 7 6. 4 12/12F 14,875 12,867 2,008 766 1,242 1,226 -30 -34 0 1,196 267 929 0 929 929 0 920 920 0 1,551 282 10. 4 8. 2 6. 2 12/13F 14,980 13,017 1,962 764 1,198 1,198 4 -44 0 1,202 268 934 0 934 934 0 925 925 0 1,514 931 10. 1 8. 0 6. 2 12/14F 15,751 13,594 2,158 803 1,355 1,355 -19 -51 0 1,336 321 1,015 0 1,015 1,015 0 1,006 1,006 0 1,667 978 10. 6 8. 6 6. 5 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 12/11 9,617 806 4,132 540 1,905 6,797 0 5,408 86 16,414 10,539 4,425 3,232 2,883 1,231 1,004 88 11,770 4,644 1,155 423 3,610 0 4,644 12/12F 9,112 1,115 3,793 550 1,711 6,316 5 5,434 38 15,428 7,758 3,882 1,570 2,306 2,213 1,881 138 9,971 5,457 1,155 423 4,430 0 5,457 12/13F 9,229 1,264 3,820 554 1,648 6,372 5 5,506 21 15,601 7,301 3,910 1,070 2,322 1,918 1,481 188 9,219 6,382 1,155 423 5,364 0 6,382 12/14F 9,720 1,445 4,017 583 1,733 6,439 5 5,573 13 16,159 7,223 4,111 670 2,442 1,656 1,081 271 8,878 7,280 1,155 423 6,272 0 7,281 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 PPE 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 12/11 1,341 1,150 189 294 78 75 549 1,284 150 164 -548 332 -242 -1 309 265 -1,306 -1,090 1 -108 -109 359 447 806 12/12F 351 1,131 558 297 11 -268 -1,061 34 39 -541 -276 -274 -368 -1 3 92 240 416 1 -108 -68 309 806 1,115 12/13F 1,376 934 580 299 17 -50 130 -27 -4 27 -268 -310 -370 -1 0 61 -917 -900 0 -108 -17 149 1,115 1,264 12/14F 1,408 1,015 651 302 10 -50 62 -197 -29 201 -321 -307 -370 -1 0 64 -921 -800 0 -108 -13 181 1,264 1,445 Forecasts/Valuations (Summarized) 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) 12/11 7. 6 5. 3 1. 2 5. 4 3,685 5,296 22,582 500 12. 7 1. 8 1. 9 -3. 3 -19. 0 -14. 9 2. 8 23. 3 3. 2 4. 8 19. 4 15. 5 253. 4 91. 3 25. 8 57. 5 12/12F 9. 6 7. 2 1. 5 6. 1 4,021 5,358 26,307 0 0. 0 0. 0 11. 1 6. 6 5. 7 9. 1 3. 8 27. 3 3. 7 5. 8 18. 4 18. 9 182. 7 117. 5 7. 2 57. 9 12/13F 9. 7. 0 1. 3 5. 5 4,044 5,410 30,381 0 11. 6 0. 0 0. 7 -2. 4 -2. 2 0. 6 4. 0 27. 1 4. 0 6. 0 15. 8 16. 9 144. 5 126. 4 -10. 3 69. 5 12/14F 8. 6 6. 6 1. 1 4. 5 4,396 5,747 34,309 0 0. 0 0. 0 5. 2 10. 1 13. 0 8. 7 4. 1 27. 7 4. 1 6. 4 14. 9 19. 1 121. 9 134. 6 -22. 5 106. 2 Source: Company data, KDB Daewoo S ecurities Research estimates KDB Daewoo Securities Research 11 January 17, 2013 Shipbuilding Hyundai Mipo Dockyard (010620 KS) Buy (Maintain) Target Price (12M, W) 148,000 Share Price (01/16/13, W) 125,000 Expected Return (%) 18. 4 EPS Growth (13F, %) 45. 2 Market EPS Growth (13F, %) 19. 1 P/E (13F, x) 13. 1 Market P/E (13F, x) 9. 0 KOSPI 1,977. 5 Market Cap (Wbn) 2,500 Shares Outstanding (mn) 20 Avg Trading Volume (60D, ‘000) 121 Avg Trading Value (60D, Wbn) 14 Dividend Yield (13F, %) 1. 6 Free Float (%) 51. 6 52-Week Low (W) 102,500 52-Week High (W) 167,000 Beta (12M, Daily Rate of Return) 1. 58 Price Return Volatility (12M Daily, %, SD) 2. 4 Foreign Ownership (%) 18. 1 Major Shareholder(s) Hyundai Samho Heavy Industries et al. (46. 4%) NPS (7. 38%) Price Performance (%) Absolute Relative Shining in the dark ? ? ? 2013 target: US$3. 2bn in orders and W3. 6tr in revenues Stands to benefit most from industry restructuring Maintain Buy and TP of W148,000 Maintain Buy and TP of W148,000 We maintain our Buy recommendation on Hyundai Mipo Dockyard (HMD) and our target price of W148,000. We expect HMD to maintain stable growth in orders and earnings, despite the global economic slowdown and eurozone fiscal crisis. Indeed, among small- to mid-sized shipbuilders, HMD is the company most favored by shipowners. Amid an expected further slowdown in the shipbuilding market, the company is anticipated to display distinguished share performance in 2013. Given HMDEs cash holdings of W450bn and the value of its stake in Hyundai Heavy Industries (W1. 4tr; 8. 0% of outstanding shares), we believe that the companiesE shares are currently undervalued (trading at a 2013F P/E of 13. 1x and a P/B of 0. 9x). Investment points ) We believe HMD will continue to display outstanding performance among small- to mid-sized Korean shipbuilders in 2013. Even amid intensifying competition due to limited orders and low ship prices, the company is expected to enjoy stable orders, earnings, and cash flow this year. 2) HMDEs competitiveness comes from its productivity, financing capability, and the quality of its products. It also boasts strong cost competitiveness as the company purchases raw materials at relatively lower prices from the Hyundai Heavy Industries Group. 3) In the small- to mid-sized merchant ship market, the product carrier (P/C) segment, in which HMD has the strongest competitive edge, is expected to be relatively robust in 2013. ) If the shipbuilding market remains in a slump for a protracted period of time, HMD should be able to widen its gap with its peers. The company stands to benefit most from a second industry restructuring that is expected to end sometime in 2014. 1M 2. 5 3. 3 6M 6. 4 -2. 4 12M 11. 6 5. 3 Share price 160 150 140 130 120 110 100 90 80 1/12 5/12 9/12 1/13 KOSPI Earnings Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenue OP OP Margin NP EPS EBITDA FCF ROE P/E (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) 4,138 683 16. 5 493 24,629 741 431 14. 7 9. 1 4,624 378 8. 2 200 9,992 441 -633 5. 5 11. 2 4,404 126 2. 9 131 6,556 192 -563 4. 3 19. 4 4,624 191 4. 1 190 9,518 256 397 6. 4 13. 1 4,855 230 4. 235 11,770 293 416 7. 4 10. 6 P/B EV/EBITDA (x) (x) 1. 2 4. 4 0. 8 4. 2 1. 0 13. 8 0. 9 8. 6 0. 8 6. 0 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 Daewoo Securities Research 12 January 17, 2013 Shipbuilding Hyundai Mipo Dockyard (010620 KS/Buy/TP: W148,000) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Sales Gross Profit SG 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 (%) 12/11 4,624 3,975 649 272 378 378 -63 -24 0 315 112 202 0 202 200 3 -821 -823 2 441 -633 9. 5 8. 2 4. 3 12/12F 4,404 4,002 402 276 126 126 41 -8 -2 167 41 126 0 126 131 -5 -274 -265 -9 192 -563 4. 4 2. 9 3. 0 12/13F 4,624 4,143 481 290 191 191 52 -9 -2 243 58 185 0 185 190 -5 185 194 -9 256 397 5. 5 4. 1 4. 1 12/14F 4,855 4,321 534 304 230 230 73 -10 -2 303 73 230 0 230 235 -5 230 239 -9 293 416 6. 0 4. 7 4. 9 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 Fina ncial 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 12/11 4,134 564 975 283 427 3,691 34 889 340 7,825 3,914 1,774 1,779 361 502 56 420 4,416 3,217 100 91 2,081 191 3,409 12/12F 4,994 418 1,814 231 352 3,632 35 928 341 8,626 4,499 1,850 2,253 396 999 191 781 5,498 2,912 100 90 2,172 215 3,127 12/13F 4,919 468 1,568 243 462 3,675 33 964 344 8,593 4,274 1,905 1,953 416 1,046 141 878 5,320 3,067 100 90 2,323 206 3,273 12/14F 4,878 532 1,427 255 486 3,650 31 933 347 8,527 4,071 1,991 1,643 437 993 101 865 5,063 3,267 100 90 2,519 197 3,464 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 PPE 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 12/11 -697 202 311 62 1 -213 -1,075 -190 -54 -593 -135 441 -100 -4 400 145 93 245 0 -93 -59 -168 732 564 12/12F -816 126 78 65 2 -12 -969 -220 52 66 -50 150 -112 -4 79 186 516 601 0 -39 -46 -146 564 418 12/13F 489 185 71 64 1 10 291 247 -12 56 -58 -47 -100 -4 0 57 -392 -350 0 -39 -2 50 418 468 12/14F 432 230 62 62 1 30 212 140 -12 86 -73 23 -30 -4 0 57 -391 -350 0 -39 -2 64 468 532 Forecasts/Valuations (Summarized) 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) 12/11 12/12F 12/13F 12/14F 11. 2 19. 4 13. 1 10. 6 8. 5 12. 9 9. 8 8. 4 0. 8 1. 0 0. 9 0. 8 4. 2 13. 8 8. 6 6. 0 9,992 6,556 9,518 11,770 13,153 9,869 12,760 14,910 146,152 130,821 138,428 148,290 2,000 2,000 2,000 2,000 19. 6 29. 9 20. 6 16. 6 1. 8 1. 6 1. 6 1. 6 11. 7 -4. 8 5. 0 5. 0 -40. 5 -56. 5 33. 4 14. 3 -44. 7 -66. 8 52. 2 20. 3 -59. 4 -34. 4 45. 2 23. 7 6. 1 4. 2 3. 9 5. 0 18. 1 17. 1 19. 5 19. 5 2. 5 3. 2 3. 8 3. 8 2. 3 1. 5 2. 2 2. 7 5. 5 4. 3 6. 4 7. 4 53. 8 8. 1 10. 7 15. 6 129. 6 175. 8 162. 5 146. 2 105. 6 111. 0 115. 1 119. 8 -18. 0 -4. 9 -16. 9 -27. 9 689. 5 45. 6 78. 1 109. 7 Source: Company data, KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 13 January 17, 2013 Shipbuilding Hanjin Heavy IC (097230 KS) Hold (Downgrade) Target Price (12M, W) Share Price (01/16/13, W) 10,000 Expected Return (%) 0. 0 EPS Growth (13F, %) RR Market EPS Growth (13F, %) 19. 1 P/E (13F, x) Market P/E (13F, x) 9. 0 KOSPI 1,977. 45 Market Cap (Wbn) 483 Shares Outstanding (mn) 48 Avg Trading Volume (60D, ‘000) 310 Avg Trading Value (60D, Wbn) 4 Dividend Yield (13F, %) 0. 0 Free Float (%) 62. 6 52-Week Low (W) 10,000 52-Week High (W) 23,850 Beta (12M, Daily Rate of Return) 1. 43 Price Return Volatility (12M Daily, %, SD) 2. 7 Foreign Ownership (%) 9. Major Shareholder(s) Hanjin Heavy I Holdings et al (37. 38%) KB Asset Management (5. 13%) Price Performance (%) 1M Absolute -23. 4 Relative -22. 5 Unlikely to weather market slump ? ? ? Earnings unlikely to recover due to shipbuilding market slump and protracted strike Cash flow to deteriorate due to exces sive debt and weak orders Downgrade to Hold Downgrade to Hold We lower our rating on Hanjin Heavy I (HHIC) to Hold from Trading Buy. We believe that the companyEs earnings and cash flow will not improve for the time being, given its tepid order performance amid the sluggish commercial vessel market, and the suspension of its Youngdo shipyard due to a strike. Although the company has recently embarked on the development of an industrial site near the Incheon port, the project is unlikely to boost operating profit markedly due to high capital requirements and increased interest expenses. As such, the companyEs shares are unlikely to recover in the near term, in our view Although the companyEs shares are trading at a 2013F P/B of just 0. 4x, we believe that their investment merits are low. Indeed, efforts to dispose of property amid a lackluster real estate market should meet with difficulty, and continued net losses and excessive interest expenses should leave cash flow from operations uncertain. Risks ) The commercial vessel unit at the Youngdo shipyard is unlikely to recover. The slump in the global commercial vessel market is leading to a fall in orders, while intensifying competition among shipbuilders are prompting shipowners to demand discounts on ship prices. . 2) There is a growing possibility that the Subic shipyard will take new orders, as it possesses strong price competitiveness. However, as it is difficult to build highend vessels at the Subic shipyard, the companyEs earnings are unlikely to recover in the near future. 3) There are many labor-management issues yet to be resolved, including one related to employees who are currently on leave due to a lack of work. ) Although HHIC is meeting its short-term capital needs through real estate disposal, the company will likely find it difficult to sell large-scale real estate assets due to the real estate market slump. Indeed, the company needs more capital to engage in the development project near the Incheon port. Given that the project is not progressing rapidly, uncertainties over the companyEs cash flow will likely persist in the long term. 5) HHIC holds massive debt (W2. 8tr). Proceeds from the companyEs planned rights offering (estimated to at W180bn) should be only equivalent to its annual interest expenses. 6M -26. 7 -35. 5 12M -47. 9 -54. 3 Share pri ce 120 110 100 90 80 70 60 50 40 1/12 5/12 9/12 1/13 KOSPI Earnings Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenue OP OP Margin NP (Wbn) (Wbn) (%) (Wbn) 3,168 120 3. 8 -72 2,892 108 3. 7 -97 2,547 63 2. 5 -103 2,795 76 2. 7 -10 3,071 83 2. 7 -32 EPS EBITDA FCF ROE (Won) (Wbn) (Wbn) (%) -1,496 312 487 -3. 6 -2,006 200 -224 -5. 1 -2,123 148 243 -5. 7 -158 195 182 -0. 6 -466 184 146 -1. 8 P/E (x) P/B (x) 1. 0 0. 5 0. 4 0. 4 0. 4 EV/EBITDA (x) 14. 5 19. 9 24. 0 16. 9 18. 0 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 Daewoo Securities Research 14 January 17, 2013 Shipbuilding Hanjin Heavy I (097230 KS/Hold) Comprehensive Income Statement (Summarized) Wbn) Revenues Cost of Sales Gross Profit SG 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 Controll ing 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 (%) 12/11 2,892 2,665 227 140 87 108 -190 171 -2 -82 15 -97 0 -97 -97 0 -90 -90 0 200 -224 6. 9 3. 7 -3. 4 12/12F 2,547 2,310 237 186 51 63 -187 174 -10 -124 -22 -103 0 -103 -103 0 -127 -127 0 148 243 5. 8 2. 5 -4. 0 12/13F 2,795 2,516 280 204 76 76 -89 159 -5 -13 -3 -11 0 -11 -10 0 -35 -34 0 195 182 7. 0 2. 7 -0. 4 12/14F 3,071 2,764 307 224 83 83 -125 150 0 -42 -9 -33 0 -33 -32 0 -57 -56 0 184 146 6. 0 2. 7 -1. 1 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 Liabilit ies Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders’ Equity 12/11 2,392 854 917 361 237 4,645 66 3,144 89 7,037 2,483 811 1,603 69 2,687 2,317 329 5,170 1,864 241 644 814 2 1,867 12/12F 2,058 686 868 280 209 4,535 81 2,980 89 6,592 2,286 802 1,421 63 2,566 2,177 336 4,852 1,738 241 644 712 2 1,740 12/13F 2,077 617 925 294 228 4,487 76 2,871 89 6,564 2,384 895 1,421 69 2,369 1,977 338 4,753 1,809 346 644 701 2 1,810 12/14F 2,025 422 1,016 322 250 4,412 76 2,780 89 6,437 2,479 983 1,421 76 2,204 1,777 373 4,683 1,752 346 644 669 2 1,754 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 PPE Chg in Intangible Asse ts 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 12/11 -228 -97 246 113 0 44 -379 -192 -42 -150 2 68 -15 0 -43 126 -106 91 1 0 -198 -262 1,116 854 12/12F 316 -103 265 97 0 16 131 23 77 33 22 9 -21 0 -14 44 -488 -297 0 0 -192 -168 854 686 12/13F 194 -11 206 120 0 25 -4 -57 -13 92 3 11 -10 0 0 21 -275 -200 105 0 -180 -70 686 617 12/14F 165 -33 216 101 0 25 -28 -91 -29 88 9 10 -10 0 0 20 -370 -200 0 0 -170 -194 617 422 Forecasts/Valuations (Summarized) 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) 12/11 57. 4 0. 5 19. 9 -2,006 323 36,806 0 0. 0 0. 0 -8. 7 -35. 9 -9. 8 RR 3. 3 8. 9 3. 2 -1. 3 -5. 1 2. 4 276. 9 96. 3 163. 0 0. 5 12/12F -112. 3 0. 4 24. 0 -2,123 -111 34,182 0 0. 0 0. 0 -11. 9 -25. 9 -41. 8 RR 3. 3 8. 0 3. 9 -1. 5 -5. 7 1. 4 278. 9 90. 0 166. 5 0. 3 12/13F 5. 9 0. 4 16. 9 -158 1,691 24,843 0 0. 0 0. 0 9. 8 31. 8 20. 1 RR 3. 6 9. 8 4. 1 -0. 2 -0. 6 2. 1 262. 6 87. 1 152. 8 0. 4 12/14F 10. 1 0. 4 18. 0 -466 989 24,030 0 0. 0 0. 0 9. 9 -5. 8 9. 9 RR 3. 6 10. 0 4. 0 -0. 5 -1. 8 2. 4 267. 0 81. 7 157. 4 0. 5 Source: Company data, KDB Daewoo Securities Research estimates KD B Daewoo Securities Research 15 January 17, 2013 Shipbuilding Important Disclosures Disclaimers Disclosures As of the publication date, Daewoo Securities Co. , Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of Hyundai Heavy Industries and Samsung Heavy Industries as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. As of the publication date, Daewoo Securities Co. , Ltd. has been acting as a financial advisor to Hyundai Mipo Dockyard for its treasury stock trust, and other than this, Daewoo Securities has no other special interests in the companies covered in this report. As of the publication date, Daewoo Securities Co. , Ltd. issued equity-linked warrants with Hyundai Heavy Industries and Samsung Heavy Industries as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. 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 analystEs 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. W) 800,000 600,000 400,000 200,000 0 1/11 7/11 1/12 7/12 1/13 Hyundai Heavy Industries (W) 60,000 50,000 40,000 30,000 20,000 10,000 0 1/11 7/11 1/12 7/12 1/13 Samsung Heavy Industries (W) 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 1/11 7/11 1/12 7/12 1/13 Hyundai Mipo Dockyard (W) 50,000 40,000 30,000 20,000 10,000 0 1/11 7/11 1/12 7/12 1/13 Hanjin Heavy IC Analyst Certification The research analysts who prepared this report (the „Analysts†°) are registered with the Korea Financial Investment Association and are subject to Korean securiti es 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 AnalystEs 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. 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Daewoo Securities Research 16 January 17, 2013 Shipbuilding Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. n 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 communicate d, 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. 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