Internet Game Advertising Industry: 2018 Outlook

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
Jee-hyun Moon
+822-3774-1640
jeehyun.moon@miraeasset.com
Market changes spurring shifts in business strategy
2018 Outlook
Internet/Game/Advertising

[Summary] 3
I. 2017 review 4
II. 2018 outlook 7
III. [Internet] Commerce, voice interface, cloud 12
- NAVER, Kakao, NHN Entertainment, Interpark
IV. [Game] Overseas revenue growth, new titles 101
- NCsoft, Netmarble Games, Com2uS, Pearl Abyss, Webzen
V. [Advertising] Inorganic growth, stable affiliate billings 144
- Cheil Worldwide, INNOCEAN Worldwide, Nasmedia
[Conclusion] 162
Contents

Mirae Asset Daewoo Research3 | 2018 Outlook [Internet/Game/Advertising]
Source: Mirae Asset Daewoo Research
Market changes call for strategic shifts; Only those that are able to adapt and create new markets will survive
[Summary] Shifts in business strategy coming into focus
[Internet] Online commerce [Game] New titles based on existing intellectual [Advertising] Strengthening ties
property (IP), global expansion with affiliates, M&As
Shifts in
strategy

80
100
120
140
160
180
200
220
1/17 3/17 5/17 7/17 9/17 11/17
(1/17=100)
NAVER Kakao
NCsoft Com2uS
Cheil Worldwide INNOCEAN Worldwide
Expectations reflected in 2017
- Game: Expectations for new
titles, IPO of Netmarble Games,
potential regulatory easing
- Kakao: Spin-offs; expectations for
advertising recovery
• In 2017, game stocks and Kakao delivered robust share performances among internet/game/advertising plays.
• Kakao: Recovery in ad revenue and expectations for expansion in the value of subsidiaries
• Game: Expectations for new titles (NCsoft), solid earnings and valuation merits (Com2uS), IPO (Netmarble Games)
In 2017, game stocks and
Kakao delivered robust
share performances
2017 share performance: Kakao and NCsoft outperformed peers
Source: Thomson Reuters, Mirae Asset Daewoo Research
I. 2017 review

The advertising business
represents a key revenue model
for internet firms.
- Advertising is a core revenue
model for internet firms.
- Tencent has seen performance-
based ad revenue exceed
traditional display ad revenue
since 3Q16.
• For Kakao, ad revenue fell around 10% YoY in 2016.
• In 2017, however, ad revenue resumed growth, boosting the stock.
• In November, the company rolled out new ad products, including Shopping Plus and Moment Circle, a
performance-based ad platform boasting superior targeting capabilities.
• In December, Kakao announced a plan to issue US$1bn worth of new shares/global depositary receipts (GDRs) in
2018.
Key shifts in Kakao’s
drivers
In 2017, shares of Kakao rebounded on an upturn in ad revenue
Source: Company data, Thomson Reuters, Mirae Asset Daewoo Research
I. 2017 review
4
5
6
8
9
10
-16
-8
0
8
16
24
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17F
(Wtr)(%, YoY)
Ad revenue growth (L)
Market cap (R)

Impact of the Netmarble Games
IPO on game stocks:
- Game stocks enjoyed a boost
following confirmation of the
upper bound of Netmarble’s
price range.
- Marketing for new titles drew
attention to the game sector.
- M&A possibilities shined a
spotlight on small/medium-
sized game stocks.
• Biggest event of 1H17: Netmarble Games IPO (KOSPI)
• Netmarble Games’ market cap stands at around W16tr. Globally, there are around 10 game stocks with market
caps of more than W10tr (e.g., Tencent, Activision Blizzard, Nintendo, NetEase, Electronic Arts, Take-Two
Interactive, NCsoft, Netmarble Games, Nexon).
• For most game companies, earnings remain solid amid increased new game momentum; valuation re-ratings
are well underway.
Game stocks displayed
strong rallies
Major game stocks have advanced since the beginning of the year
Note: For Netmarble Games and Pearl Abyss, 100 represents the IPO price.
I. 2017 review
60
80
100
120
140
160
180
200
220
1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17
(1/17=100)
NCsoft Com2uS NHN Entertainement
DoubleU Games Webzen Gamevil
Netmarble Games Pearl Abyss

Major variables and notable stocks for 2018
• In 2018, shifts in business strategy (aimed at achieving growth) and new revenue sources to enter the spotlight
• Internet: Details (e.g., monetization) regarding AI and global businesses to come to light; existing businesses
(e.g., commerce) to deliver additional growth
• Game: New title launches and overseas publishing to continue; expectations for M&As to pick up
• Advertising: Ad firms to enhance their stability via stronger links with affiliates, as well as experience growth
potential boosts
II. 2018 outlook
2018
Top picks and
other notable stocks
Internet
• In the internet platform segment, commerce/payment services should
garner greater attention than ads.
• In the global space, content platforms and cloud businesses should
come into focus.
• AI services have entered the actual implementation phase, with
launches of relevant devices underway.
• Top pick: NAVER
• Notable stocks: Kakao,
NHN Entertainment, Interpark
Game
• New mobile title launches (focused on mobile MMORPGs) are likely to
continue.
• Overseas publishing (e.g., Taiwan, China, North America) should
increase.
• M&A expectations and the possibility of regulatory easing (e.g., web
board games) in Korea are likely to take shape.
• Top pick: NCsoft
• Notable stocks: Netmarble Games,
Com2uS, Pearl Abyss, Webzen
Advertising
• Ad agencies: Affiliate billings should increase further.
• Global M&As (backed by ample cash holdings) are imminent.
• Digital marketing capabilities are now essential.
• Notable stocks: Cheil Worldwide,
INNOCEAN Worldwide, Nasmedia
Shifts in business
strategy to drive growth

II. 2018 outlook
Top picks and other notable stocks (Wbn, W, %)
Internet/Game/Advertising: Maintain Overweight
Sector Company Ticker
Market
cap
Rating TP CP Upside
Internet
NAVER 035420 KS 28,348 Buy: Top pick (Maintain) 1,200,000 (Maintain) 860,000 40
NHN Entertainment 181710 KS 1,356 Buy (Maintain) 83,000 (Maintain) 69,300 20
Kakao 035720 KS 9,132 Trading Buy (Maintain) 170,000 (Maintain) 134,500 26
Interpark 108790 KQ 313 Trading Buy (Downgrade) 11,000 (Maintain) 9,460 16
Game
NCsoft 036570 KS 10,366 Buy: Top pick (Maintain) 640,000 (Maintain) 472,500 35
Netmarble Games 251270 KS 16,197 Buy (Maintain) 230,000 (Maintain) 190,500 21
Com2uS 078340 KQ 1,696 Buy (Maintain) 160,000 (Raise) 131,800 21
Pearl Abyss 263750 KQ 2,611 Not Rated - 216,400 -
Webzen 069080 KQ 1,356 Not Rated - 38,400 -
Advertising
Cheil Worldwide 030000 KS 2,404 Buy (Maintain) 25,000 (Raise) 20,900 20
INNOCEAN
Worldwide
214320 KS 1,520 Buy (Maintain) 96,000 (Maintain) 76,000 26
Nasmedia 089600 KQ 604 Buy (Maintain) 83,000 (Raise) 69,000 20

Note: Online penetration data are based on the domestic market; Shopify is a North American online shopping solutions provider
Source: KOSTAT, Thomson Reuters, Mirae Asset Daewoo Research
Slower growth of internet ads  Ample upside to commerce market; In 2017, Amazon grabbed headlines
starting in January, with Shopify and PayPal (PYPL US/CP: US$75.3) displaying even greater share performances
Internet: Change in business focus: Ads  Commerce
II. 2018 outlook
60
100
140
180
220
260
300
1/17 3/17 5/17 7/17 9/17 11/17
(1/17=100)
Amazon
Shopify
PayPal
Alphabet
Facebook
0
10
20
30
40
07 08 09 10 11 12 13 14 15 16 17F 18F
(%)
Online penetration of retail market
Online penetration of ad market

Note: As of 2016
Source: Newzoo, Bloomberg, Mirae Asset Daewoo Research
Korea ranks third (in ARPU terms) among global markets; Korean firms need to advance further into China, NA, and Japan
Games: Change in business focus: Domestic  Overseas
II. 2018 outlook
Online game revenue
(US$mn)
Online population
(mn)
ARPU
(US$)
Online game spending as % of
per-capita GDP
China 27,547.0 801.6 34.36 0.42%
US 25,059.9 261.2 95.95 0.17%
Japan 12,545.7 119.8 104.70 0.27%
Germany 4,378.1 73.1 59.89 0.14%
UK 4,217.7 61.6 68.45 0.17%
Korea 4,187.7 46.9 89.34 0.32%
France 2,967.1 57.4 51.71 0.14%
Canada 1,947.4 33.5 58.21 0.14%
Spain 1,913.0 38.5 49.74 0.19%
Italy 1,874.6 43.1 43.45 0.14%

Note: Charts on the right side show share performance
Source: IOC, FIFA, Thomson Reuters, Mirae Asset Daewoo Research
Ad firms: Absence of major events, deteriorating business conditions in 2017 vs. boosts from international sporting events and
strengthening ties with affiliates in 2018
Advertising: Defense  Offense (e.g., M&As, strengthening ties with affiliates)
II. 2018 outlook
50
100
150
200
1/17 4/17 7/17 10/17
(1/17=100)
SEC
Cheil Worldwide
75
100
125
150
1/17 4/17 7/17 10/17
(1/17=100)
HMC
Kia
INNOCEAN Worldwide

• Shift in business focus: Ads  Commerce
• Issue 1: Introduction of voice interfaces
• Issue 2: Cloud in the AI era
Internet (Overweight)

Source: Thomson Reuters, Advertising Yearbook, Mirae Asset Daewoo Research
Korea internet index: Seeking growth through AI
• The domestic internet index has displayed three distinct growth stages:
1) 2007-12: The index gained 35%, in line with the expansion of the internet ad market from W1tr to W2tr.
2) 2013-16: The index advanced 70%, with the pickup in mobile revenue pushing up the value of the internet ad
market to W3tr.
3) 2017 and beyond: Internet ad revenue has caught up with TV ad revenue; companies are looking for new
growth opportunities via AI and penetration into retail market.
Current stage:
Looking for growth via AI
and commerce
III. [Internet] Commerce: The next online battleground
0
1
2
3
4
5
0
100
200
300
400
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18F
(Wtr)(P)
Korean internet ad market (R)
Korean internet sector index (L)
Korean TV ad market (R)
Mobile ad-driven growth
Rise of AI
commerce
Internet ad market growth period(W1tr → W2tr)
Financial
Crisis

Source: KOSTAT, Mirae Asset Daewoo Research
Online commerce expansion to spur growth for both the ad and AI businesses
• For internet firms, it is time to shift focus from online ads to online commerce.
• Internet ad market growth has slowed to the single-digit range in 2017; in Korea, the online ad market now
accounts for 33% of the total ad market.
• Online shopping as a percentage of total Korean retail sales is expected to increase to 19% in 2017, which
suggests that there is room for further online retail market growth.
• Online commerce expansion to play a key role in boosting growth for both the existing ad and new AI
businesses
Commerce:
Next growth engine
0
10
20
30
40
07 08 09 10 11 12 13 14 15 16 17F 18F
(%)
Online penetration of retail market
Online penetration of ad market
Reinforcement of solutions for
payment and orders
Combining commerce and ads
AI curation engines
Introduction of voice interfaces

• A company that wants to maintain steady growth and become one of the industry leaders in the commerce space
should secure a “flywheel.”
• Most online shopping malls now offer a variety of products at low prices and fast delivery services.
• The success of the commerce business hinges on a company’s ability to provide a differentiated customer
experience and establish a sustainable cost structure.
Success of the commerce
business hinges on the
“flywheel”
Commerce firms’ success hinges on customer experience and cost structure
Source: Amazon, Mirae Asset Daewoo Research
Amazon’s “flywheel”
- A flywheel continuously provides
energy to engines. The system
requires enormous energy to
initiate movement. Once it spins
and picks up speed, however, it
should continue spinning on the
back of rotational inertia.
- Jeff Bezos, Amazon’s CEO, called
its Prime membership program
a “flywheel” that both facilitates
Amazon’s future businesses and
benefits customers at the same
time.
GrowthSellers
Customer [Customer experience]
Lower prices, fast delivery, convenience,
multi-functionality
[Lower cost structure]
Economies of scale, platform effects, partnerships
Lower prices
Traffic
Selection

Source: Google, Merkle Digital Marketing Report, Mirae Asset Daewoo Research
Contribution of Google PLAs to total number of click-throughs has been rising steadily
• To establish a sustainable structure, a commerce firm should improve profitability, as well as pursue top-line
growth.
• Ads are a major source of profitability for internet platforms.
• The eventual purpose of advertising is to maximize advertisers’ revenue by motivating customers to buy.
• At Google, the contribution of Google Product Listing Ads (PLAs) to total click-throughs has been on a steady rise.
Commerce + ads 
Google
0
20
40
60
80
1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17
(%)

Note: NAVER launched shopping search ads on November 25, 2016
Source: NAVER, Mirae Asset Daewoo Research
NAVER has linked shopping search ads with NAVER Pay
• In an effort to combine search ads and commerce, NAVER launched shopping search ads in November
2016.
• We believe that NAVER’s high-margin search ad business is offsetting marketing expenses related to its payment
business.
• Search ads could help sellers enhance conversion rates (compared to existing search ads) by providing direct
links to products at lower rates. NAVER awards NAVER Pay points for purchases initiated via shopping search ads,
which should appeal to buyers.
Commerce + ads 
NAVER
NAVER provides points to customers who click on shopping
search ads and purchase goods from NAVER Pay partner
stores.
Mobile

Note: Launched on November 7, 2017
Source: Kakao, Mirae Asset Daewoo Research
Kakao launched Shopping Plus in November
• Kakao launched Shopping Plus (i.e., shopping search ads featuring images) on its Daum Mobile app on
November 7, 2017.
• As results appear in the top two lines in the shopping category of search results, Shopping Plus is expected to
attract greater attention from users who are willing to buy products.
• The key features of Shopping Plus include an intuitive display, easier ad buying, and automatic keyword
matching.
Commerce + ads 
Kakao
General Image
Registration
Automatic
keyword matching
Product A
Price
Keyword A
Keyword B
Keyword C
Keyword Y
Keyword Z
Advertisers register
products and decide
prices through CLIX
System automatically
matches keywords
with products

NAVER’s Smart Lens and Shopping Lens to improve search accuracy and enhance conversion (image search  purchase)
• Search ads are evolving from text to image search.
• Conventional keyword searches based on text have limitations (e.g., in the event that a user lacks information).
• A single photo is estimated to have information equivalent to 1,000 words; the use of AI—including computer
vision and deep learning technologies—and big data should facilitate the proliferation of image search services.
• Commerce-focused image search functionality should enhance conversion (image search  purchase) and
boost search accuracy.
Commerce + ads 
Image search

Note: Popular video clips from NAVER TV’s Beauty TV
NAVER has been expanding its footprint in live-streaming, which could bolster commerce ecosystem growth
• Media content area is increasingly adopting commerce business models.
• US examples include BuzzFeed and the New York Times.  The two outlets have applied commerce models to
their cooking sections.
• In China, Alibaba is ushering in an era of video commerce, as the internet giant holds both Taobao (an online
shopping mall) and Youku Tudou (a video streaming site).
• NAVER, which has been expanding its footprint in live-streaming for non-celebrities, is likely to link beauty-related
videos to its online shopping services, including StoreFarm.
Commerce + content

Source: Nasmedia, Mirae Asset Daewoo Research
Flow of video commerce
• Video commerce aims to boost conversion rates via video-based brand marketing.
• Video product introductions could capture user attention (and deliver information on brands and products),
which could lead to higher conversion rates.
• Commerce platforms are actively adopting video commerce, primarily targeting users in their 20s and 30s (the
major consumers of video content).
• Currently, video commerce is concentrated in fashion and beauty products, but it will likely be embraced by a
wider range of segments going forward.
Commerce + content
20s and 30s
Growth in digital video
content consumption
Information +
entertainment
Short clips
Vicarious experience
Increase in the power
of influencers
Commerce (shopping)
Video
Social media
Video commerce
Brand awareness ↑
Conversion rates ↑
User Content Platform Purchase

Source: TechWeb.com.cn , Mirae Asset Daewoo Research
Alibaba integrates Alipay (payment) and Huabei (unsecured loans), providing a convenient commerce experience for young customers
• Data related to consumers’ online purchases/payments and small businesses owners’ online sales/purchases can
be utilized by financial services players.
• Ant Financial, a FinTech affiliate of Alibaba, connects the data of merchants on Alibaba’s commerce
platform to its loan services.
• Huabei, Alipay’s loan service (extending unsecured loans of RMB500-5,000), is growing rapidly, backed by Chinese
born in the 1990s.
• Out of 45mn Huabei loan applicants, 27% applied for unsecured loans.
Commerce + FinTech 
Alibaba
0
10
20
30
40
Born in 1990s Born in 1980-85 Born in 1986-89
% of Alipay users who set Huabei (Ant Check Later) as their primary payment method
(%)
Increase in usage
Infrastructure

Source: Amazon, secondhalfdreams.com, Mirae Asset Daewoo Research
Amazon offers Amazon Lending services (based on its commerce data) to Marketplace sellers
• Since 2011, Amazon has offered Amazon Lending services to its Marketplace sellers (minimum annual
interest rate of around 6%).
• Amazon sets interest rates based on its commerce data.
• Amazon could expand its commerce network by attracting sellers who cannot afford to create their own
platforms due to cost burden.
• As of 1H17, Amazon Lending’s cumulative loans are estimated at more than US$3bn.
Amazon

Note: Clearbanc is a Canadian FinTech firm
Source: Clearbanc, Mirae Asset Daewoo Research
Facebook offers the Chrged program, which allows small/medium-sized advertisers to pay advertising fees after booking profits
• Facebook also runs online marketplaces in North America and Europe.
• In February 2017, Facebook teamed up with the Canadian FinTech firm Clearbanc to launch the Chrged
program, which allows small/medium-sized advertisers on Facebook to pay advertising fees and
commissions (5-10%) to Clearbanc, not in advance, but after they make profits.
• Currently, around 1,000 companies use this program.
Facebook

Note: Online intermediaries include open market operators such as eBay Korea (Gmarket, Auction), 11th Street, Interpark, and Coupang; online malls by full-service retailers include malls operated by full-
service retailers (e.g., Emart, Shinsegae, AK Mall, Homeplus, Galleria Mall, Lotte.com, Lotte Mart Mall) and social commerce companies (e.g., WeMakePrice and TMON); online revenue surged YoY in
September 2017, as the Chuseok holiday (during which deliveries are suspended) fell in October rather than September.
Source: MOTIE, Mirae Asset Daewoo Research
Online shopping malls of full-service retailers on a rapid growth path since early 2017; Online channels to grow in importance
• In the highly competitive Korean online shopping market, no dominant player has emerged yet.
• Online malls by full-service retailers, such as Shinsegae (004170 KS/CP: W300,500) and Lotte Mart, have seen solid
online shopping revenue growth since early 2017.
• Industry restructuring likely: Many brick-and-mortar retailers face the risk of a slowdown, but are flush with
cash.
• In contrast, online shopping companies have high-traffic platforms and a lot of marketing know-how, but most of
them incur massive losses every year and suffer from dwindling cash reserves.
Possible restructuring of
the online shopping
industry
-10
0
10
20
30
40
50
1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17
(%, YoY) Overall retail market
Offline total
Online intermediary (open market)
Online mall by full-service retailer

619
484
63
44 28 14 15 11 10 3 1 0.3
0
200
400
600
800
Amazon Alibaba JD.com eBay NAVER Rakuten MercadoLibre Shopify Kakao Groupon NHN
Entertainment
Interpark
North America China China North America Korea Japan South America North America Korea North America Korea Korea
(Wtr)
Market cap
Note: As of December 15, 2017; NAVER, Kakao, and NHN Entertainment are included in the chart due to their e-commerce revenue streams
Source: Bloomberg, WSJ Activate, Mirae Asset Daewoo Research
Market caps of global online retailers: Amazon and Alibaba lead rivals by wide margins
• Amazon and Alibaba boast sizable market caps in the global online shopping market.
• In terms of global transaction value, Alibaba accounts for 27% (Taobao and Tmall combined) of the global online
shopping market, while Amazon controls 16%.
• JD.com and eBay currently rank third and fourth, respectively, in terms of both market cap and share.
The global online
shopping market is
dominated by China and
the US
Amazon
16%
JD.com 5%
eBay 4%
Suning 2%
Other 39%
Alibaba
Taobao
16%
Alibaba
Tmall
11%
2016 global transaction value market share

Note: Based on B2C transactions in 2016
Source: JETRO, Mirae Asset Daewoo Research
M/S of top-two online shopping sites in key regions
• Overseas online shopping markets are highly consolidated.
• In China, Germany, the US, and the UK, the second-largest players lag the market leaders by wide margins (over
10%p in terms of market share).
• In Japan, leading players Amazon and Rakuten are garnering over 10%p more market share than the third-largest
players.
• In Korea, eBay Korea, the operator of Gmarket and Auction, is believed to have emerged as the largest online
retailer, in terms of transaction value, followed by 11th Street and NAVER.
Overseas online
shopping markets are
already highly
consolidated
0
20
40
60
Alibaba JD.com Amazon eBay Flipkart Snapdeal Amazon Walmart Amazon eBay Amazon Rakuten
China Germany India US UK Japan
(%)

Note: The number of monthly net visitors to commerce sites via PC and mobile (Android) devices; open markets includes 11th Street, Gmarket, Auction, and Interpark; social commerce includes Coupang,
WeMakePrice, and TMON; malls include the online websites of Shinsegae, Homeplus, AK Mall, Lotte Mall, Lotte Mart, Galleria, and Emart; data for portal commerce is the combined number of visitors to
commerce/payment-related subdomains of NAVER, Daum, and Kakao
Source: Nielson KoreanClick, Mirae Asset Daewoo Research
Traffic to internet portal-related commerce sites has leveled up since 2H16
• Amid the overall expansion of the domestic online shopping market, traffic to e-commerce services linked
to internet portals is displaying marked growth.
• Notably, traffic on social commerce sites has shown a sharp downtrend this year, but major domestic portals,
including NAVER, Kakao, and Daum, have seen user increases at their shopping and payment services.
• In our view, portals’ introduction of easy payment solutions and diversification of commerce services have
attracted traffic.
Traffic to internet portal-
related commerce sites
growing markedly
10
20
30
40
50
60
70
2013 2014 2015 2016 2017
(mn) Open market Social commerce Malls Portal commerce

Note: Number of monthly net visitors to commerce sites via PC and mobile (Android) devices; data for NAVER and Daum/Kakao are based on the combined number of visitors to commerce/payment-
related subdomains; as KakaoPay is embedded in the KakaoTalk app, traffic to Kakao’s commerce service is based on estimated number of monthly active users of KakaoTalk on Android
Source: Nielson KoreanClick, Mirae Asset Daewoo Research
NAVER displaying marked growth in commerce traffic
• Among internet portals, NAVER is seeing especially impressive traffic growth to its commerce services.
• In addition to its existing shopping services, namely Knowledge Shopping, the company has launched StoreFarm
and NAVER Pay, which have led to user base expansion.
• StoreFarm and NAVER Pay allow users to buy products from even small/mid-sized online shopping malls.
• Furthermore, the company has also embraced offline retailers with its shopping platform by launching Shopping
Window services.
• For NAVER and Kakao, the product recommendation functionality of their AI-enabled speakers (launched in 2017)
should further boost commerce traffic.
Traffic to internet portal-
related commerce
services growing
markedly
0
10
20
30
40
2013 2014 2015 2016 2017
(mn) NAVER commerce Kakao/Daum commerce 11th Street
Gmarket Auction WeMakePrice
Coupang TMON Interpark

Source: KOSTAT, Mirae Asset Daewoo Research
Fierce competition among online shopping malls appears to
have contributed to a slowdown in consumer price growth rate
Online malls’ transaction value growth picked up speed in 2013-16,
while the product price index growth rate stayed negative
Note: The three social commerce companies are Coupang, WeMakePrice, and TMON
Source: KOSTAT, company data, Media, Mirae Asset Daewoo Research
• A key impact of online shopping is downward pressure on inflation.
• In the US, the Amazon effect has emerged, suggesting that the spread of online shopping could depress inflation.
• In Korea, the growth of online shopping malls’ transaction value picked up speed in 2013-16, while the product
price index growth rate remained in negative territory and consumer price growth rate fell below the 2012 level.
• We believe that the negative product price index growth rate and the decline in the consumer price growth rate
are attributable to intense marketing competition among social commerce companies.
The Amazon effect
-1,500
-1,200
-900
-600
-300
0
0.0
0.5
1.0
1.5
2.0
2.5
2012 2013 2014 2015 2016
(Wbn)(%) Consumer price growth rate (L)
Operating losses of 11th Street and 3 social commerce companies (R)
10
13
16
19
22
25
-8
-6
-4
-2
0
2
2012 2013 2014 2015 2016
(%)(%) Product price index growth rate (L)
Online shopping mall transaction growth (R)

Mobile card purchases have been climbing steadily
Easy payments: Simplification of the payment process to two
or three steps
Source: BOK, Mirae Asset Daewoo Research
• Internet firms’ shopping solutions are boosting consumer market growth and small merchants’ revenue.
• From the perspective of the consumer, the introduction of easy payment services has been driving
consumption growth.
• Mobile transactions as a percentage of online shopping malls’ total transaction value has been rising, backed by:
1) broad mobile accessibility; and 2) the proliferation of easy payment services.
Shopping solutions,
especially easy payment
services, are driving
consumption growth
Consumer
VAN
PG
PG
fee
Merchant fee
Fee
Fee
Easy payment
solution
Card
company
Merchant
0
1
2
3
4
0
20
40
60
80
1H15 2H15 1H16 2H16 1H17
(%)(Wbn)
Daily average mobile card transaction value (L)
Mobile contribution to total credit card transaction value (R)

Source: Shopify, Mirae Asset Daewoo Research
Combined transaction value of shopping malls adopting
Cafe24 solutions rising steadily
Searches for Shopify are increasing sharply
Source: Cafe24, Mirae Asset Daewoo Research
• From the perspective of merchants, revenue is being boosted by a wide array of solutions, such as
login/booking via major portal IDs, chatbots, and easy payments.
• Software and hosting platform firms that help small merchants build online shopping malls (e.g., Shopify and
Cafe24) also deserve attention.
• Shopify, a Canadian online shopping platform firm, ranks third in transaction value in the US e-commerce market.
• In Korea, the percentage of shopping malls adopting Cafe24’s solutions in NAVER’s Knowledge Shopping is
estimated at around 60%.
Convenient shopping
solutions boosting
merchants’ revenue
0
400
800
1,200
1,600
1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16
(Wbn)
Cafe24 transaction value

Note: NAVER’s business platform revenue includes search ads and shopping revenue
Kakao’s share price has risen in line with growth in ad revenue
NAVER’s search ad and shopping revenue highly correlated
with its OP
Source: Kakao, Thomson Reuters, Mirae Asset Daewoo Research
• Among the internet firms operating in the commerce space, companies enjoying growth based on positive
customer experiences and a sustainable profit structure should fare better.
• NAVER is believed to have successfully established a sustainable profit structure by combining its high-margin
search ad business with its commerce and payment services.
• In November 2017, Kakao launched Shopping Plus and Moment Circle (a new ad platform designed to better
funnel traffic into commerce services), which are expected to provide a further boost to the company’s ad
revenue.
Investment strategy:
Pursuit of both growth
and profitability
200
250
300
350
400
400
450
500
550
600
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17F
(Wbn)(Wbn)
NAVER business platform revenue (L)
NAVER operating profit (R)
4
6
7
9
10
-20
-10
0
10
20
30
1Q16 3Q16 1Q17 3Q17
(Wtr)(%, YoY)
Ad revenue growth (L)
Market cap (R)

Note: NAVER’s IT platform revenue includes NAVER Pay revenue; business platform revenue
includes search ad/shopping revenues
NHN Entertainment: PAYCO monthly usage vs. other revenue
Concurrent uptrends in NAVER’s IT platform and business
platform revenue
Note: Consolidated basis; PAYCO was launched in August 2015; PAYCO app monthly usage is
based on Android mobile data
Source: NHN Entertainment, Nielson KoreanClick, Mirae Asset Daewoo Research
• We believe that companies set to expand their footholds in the retail space via enhanced commerce
solutions (e.g., easy payments, shopping sites) deserve attention.
• Notably, the development of commerce solutions should contribute to expansion of the online market as a
whole.
• Relevant players could deploy targeted marketing for corporate customers that use their commerce solutions
and expand into relevant businesses (e.g., financial services).
• With regard to easy payment solutions, NAVER (NAVER Pay) and NHN Entertainment (PAYCO) deserve attention.
Investment strategy:
Commerce solutions to
boost growth
340
400
460
520
580
0
20
40
60
80
1Q16 3Q16 1Q17 3Q17
(Wbn)(Wbn)
NAVER business platform revenue (R)
NAVER IT platform revenue (L)
0
10
20
30
40
40
60
80
100
120
3Q15 1Q16 3Q16 1Q17 3Q17
(mn times)(Wbn)
NHN Entertainment other revenue (L)
PAYCO monthly usage (R)

• Previously, internet firms focused on websites and mobile apps.
• Voice recognition and audio features could help internet firms expand the influence of their platforms.
• They are now turning their eyes to unclaimed areas—living rooms and cars—with the development of voice-
activated speakers, car infotainment, and autonomous driving systems.
Voice interface adoption
helps internet firms
expand the influence of
their platforms
Media consumption breakdown: Transportation audio consumption is extremely high
Note: Based on 2016 data
Source: KISDI, Mirae Asset Daewoo Research
III. [Internet] The voice interface age
0
20
40
60
80
100
Home/company/school Recreational/service/other Transportation
(%)
Exhibition space media
Gaming devices
Video devices
Audio devices
Recording devices
Phones
Computers
TV
Print media

Use of smartphones while
driving is cumbersome and
illegal
• Voice recognition AI technologies could facilitate further penetration by internet firms into cars.
• Cars account for a large share of audio consumption and offer a number of potential applications for voice
recognition.
• Notably, NAVER has been developing car infotainment and autonomous driving systems based on AI technology.
Internet firms to make
inroads into cars over
the medium to long term
Proportion of audio consumption in transportation has expanded markedly
Note: Based on survey of Korean users
Source: KISDI, Mirae Asset Daewoo Research
0
10
20
30
40
50
60
Home/company/school Recreational/service/other Transportation
(%)
2010 audio
2016 audio
2010 mobile
2016 mobile

NMT outperforms SMT.
Source: Google
• NAVER has developed a translation and interpretation application called Papago that relies on a deep learning
model known as neural machine translation (NMT).
• The NMT model is more advanced than the phrase-based approach of statistical machine translation (SMT).
• The NMT model interprets sentences in their entirety.
Translation and
interpretation apps
developed by internet
firms
NAVER’s Papago interpretation/translation app
Facilitating more
comfortable
conversations with
foreigners
Translating by taking
and dragging photos
Displaying images to
clarify words/phrases

Google’s Pixel Buds are capable
of translating 40 languages
Source: Google
NAVER’s MARS translates 10
languages
Source: NAVER
• Translation and interpretation apps utilize a combination of AI recognition, translation, and expression
technologies.
• Translation and interpretation technologies can add value to other services.
• If related technologies are integrated into wearable devices, robots, autonomous taxis, and VR devices, new
markets could take shape.
Value-added translation/
interpretation
technology
Three technologies needed for interpretation and translation: Recognition, machine translation,
voice synthesis
1. Recognition technology 3. Descriptive technology
Text recognition: OCR
Writing recognition: HWR
Voice recognition: ASR Machine translation: MT Voice synthesis: TTS
2. Translation technology

NAVER’s Friends, AI speakers with LINE Friends designs
NAVER’s Wave, the first AI speaker introduced by a Korean
internet firm
• Voice-activated speakers are spearheading internet firms’ efforts to expand AI-based platform-based
businesses.
• Sales of hardware equipped with voice recognition AI should increase; membership and exclusive service
offerings are essential to retain customers and generate replacement demand. Commerce revenue is expected
to expand; NAVER has introduced various commerce solutions, including NAVER Shopping Window, NAVER
Reservation and NAVER Pay.
• NAVER invested W35bn in Woowa Brothers, the operator of Korea’s leading food delivery app Baedal Minjok, in
October 2017; commerce should serve as a major application of voice-activated speakers.
Release of AI speakers:
NAVER

AI-enabled speakers are focusing on music services for nowKakao’s AI speaker Kakao Mini
• Kakao released Kakao Mini, an AI voice-activated speaker.
• In the early stages, Kakao has focused on music subscription and streaming services in partnership with
Melon.
• Kakao plans to combine its AI speaker with voice commerce (e.g., grocery shopping services).
• Kakao is rapidly to widening its pool of partners to include the likes of SEC (005930 KS/Buy/TP: W3,400,000/CP:
W2,560,000).
Release of AI speakers:
Kakao
Hey Kakao,
Recommend some music to me.
Kakao and Melon will recommend music that fits your tastes.
Music
We will recommend music that fits your tastes and play
your playlist.

US podcast listeners and ad revenue to expand by 11% and
22% annually over the next five years
NAVER launched Audio Clip using voice technology
• In 2018, the penetration of AI speakers will likely drive content market expansion beyond video to audio.
• NAVER has been investing in audio content; examples include: 1) the release of Audio Clip using voice technology;
2) a partnership with YG Entertainment (122870 KS/Buy/TP: W39,000/CP: W30,300); and 3) equity investments in
Devialet and Sound Hound.
• Apple (AAPL US/CP: US$176.4) acquired music recognition app Shazam, while Tencent Music invested in Spotify.
• In the US, podcast audiences and ad revenue are expected to increase at respective annual rates of 11% and 22%
over the next five years.
Increasing investments
in audio content
Audio stories that
have the power to
transport you to
new worlds
Voice synthesis
nVoice
0
100
200
300
400
500
600
700
0
20
40
60
80
100
120
14 15 16 17F 18F 19F 20F 21F
(US$mn)(mn)
Podcast listeners (L)
Podcast ad revenue (R)
Source: WSJ Activate, Mirae Asset Daewoo Research

Amazon’s Alexa Skills are also based on cloud technologyNAVER’s AI platform Clova operates based on cloud technology
• For AI, cloud services are critical to data acquisition, continuous machine learning, and functional
expansion.
• NAVER’s AI-platform Clova operates based on cloud technology.
• Amazon’s cloud business has expanded rapidly since the releases of Alexa and Echo in November 2014.
• Companies that want to build cloud-based services for Alexa must use AWS Lambda, Amazon’s pay-as-you-go
cloud service.
AI-driven business
model: Cloud revenue
Cloud AI Platform, Clova

• Easy payment services have already been introduced via mobile visual interfaces.
• Voice-activated features can further simplify payment procedures.
• According to research conducted in 2017, 8% of US adults have encountered voice payment services—and this
percentage is projected to climb to around 30% in 2022.
• Voice interfaces are currently providing the greatest value to users of virtual assistant applications.
Era of voice commerce
Order placements and payment via AI voice-activated speakers will likely proliferate
Note: Based on US adults
Source: BI Intelligence, Mirae Asset Daewoo Research
0
10
20
30
40
0
20
40
60
80
100
2017 2018F 2019F 2020F 2021F 2022F
(%)(mn)
No. of voice payment users (L)
% of voice payment users (R)

Request an Uber
Shop on Amazon
Shopping list
Control lights
Play a song
Set a timer
(%)
Alexa Voice Service
• Cloud-based service
• Analyzing patterns
based on voice data
Alexa Skills Kit
• Establishing an open
ecosystem
• Anyone can add a
newly developed skill
Earning
commissions
for providing online
shopping services
Subscription
services
for music and
media content
Providing
payment services
Expanding
partnerships
Amazon Echo business modelAmazon Echo ecosystem
AI speakers and voice commerce
- The global AI speaker market is
estimated to reach US$2.1bn in
2020.
- Amazon offers shopping data
through Echo and voice
commerce using AI technology
(Alexa).
• Commerce functionality will take on the highest importance for AI voice-activated devices.
• Voice commerce creates a subscription-based sustainable revenue source on a significant scale.
• Commerce that involves tangible products is expected to generate higher revenue than intangible services.
• Amazon’s Echo is expected to facilitate the proliferation of voice commerce.
Voice recognition
speakers and shopping
Long-term goal of AI devices, including Amazon’s Echo: Proliferation of voice commerce

About Stitch Fix
Katrina Lake founded Stitch Fix at
the age of 28. The company went
public six years later. Stitch Fix
works with AI technology and has
over 3,400 stylists and 1,500
fulfillment staff to offer
personalized services. The firm
ships a “Fix” of five items from
more than 700 brands to its 2.2mn
customers every month. The
average price per item is US$55.
• During the initial stages of voice commerce development, daily necessities—for which personal preferences
are of little significance—will make up the largest market. Going forward, however, the fashion market, which
is concerned with personal preferences, will start to grow.
• Eric Colson, the Chief Algorithms Officer (CAO) at Stitch Fix (SFIX US/CP: US$23.9), is a former VP of data science at
Netflix (NFLX US/CP: US$190.4).
• Orders can be placed with a simple voice command (e.g., “Can you send me an outfit for my best friend’s wedding
next week?”).
• Body
Personalized voice
commerce
Stitch Fix, an AI-based fashion retailer, is profitable, a rare case for a start-up
Source: Stitch Fix, Mirae Asset Daewoo Research
-250
0
250
500
750
1,000
2014 2015 2016 2017
(US$mn)
Revenue
Operating profit

Google also designs and
produces apparel.
Project Muse (September 2016):
In partnership with German e-
commerce company Zalando,
Google unveiled a virtual fashion
design engine, Project Muse,
powered by Google’s machine
learning framework TensorFlow.
Data Dress (February 2017):
Through collaboration with H&M
Group's digital fashion house,
Ivyrevel, Google launched Data
Dress, which designs personalized
dresses by tracking a user’s
lifestyle data through a
smartphone app.
• Amazon is developing an algorithm that can design clothing.
• The algorithm analyzes a series of images to identify style trends and then applies them to new items generated
from scratch.
• The application of machine learning technology to the fashion industry should allow Amazon to transcend
its roots as a retailer and become a trendsetting fashion creator.
• Amazon is emerging as a partner as well as a competitor in the fashion realm by enhancing its planning,
production, and distribution capabilities.
Personalized voice
commerce
Amazon is developing a fashion design algorithm using deep learning technology
(generative adversarial network)
Source: Amazon, Atlas Review, Mirae Asset Daewoo Research

Search ad mechanisms and
challenges
Advertisers pay for higher
positions on the search engine
results page.
Unlike visual interfaces, voice
interfaces cannot generate
countless search results on
command, limiting ad impressions;
nevertheless, voice commerce
functions (e.g., purchase and
payment services) will gain
attention.
• The application of AI technology to voice interfaces should also lead to changes in engine algorithms for the
commerce business.
• Traditional commerce engines have been driven by search/display-based mechanisms leveraging statistical data.
• Engines for voice interfaces are backed by AI-powered recommendations and curation.
• The emergence of AI-based recommendation engines could pose a threat to the search ad market; however,
voice interfaces offer a limited number of ad slots.
Internet engines shifting
from search to
recommendation
Importance of AI curation engines to grow amid proliferation of voice recognition and AI
<Input>
Text
Image
Audio
Natural
language
voice
Conversation
system
Search
Answering/
curation
engine
<Output>
Text
Image
Voice
Audio
Video
AI area
Information
Communication
Commerce

NAVER’s AiTEMS
AiTEMS was first applied to NAVER
Mobile Shopping. Based on deep
learning, AiTEMS automatically
analyzes purchase history and
metadata to make personalized
product recommendations. Less-
popular shopping malls and
products can be included in the
recommendation list.
• The voice interface age will enable different ad models to complement one another.
• Voice interfaces, which have limited ad slots, should complement visual interfaces.
• Advertisers are likely to vie for the limited number of ad slots provided by voice recommendation services,
driving up ad rates.
• The rise of voice interfaces should further widen service quality gaps between internet companies, as the
sophistication of AI engines should gain greater importance for user experience going forward.
Commerce engines
shifting from search to
recommendation
NAVER’s AI product recommendation algorithm AiTEMS
User profile information
Product metadata
Customized curation
User info
Product info
Curation
list
Curation
model
based on
ANN

• Over the medium to long term, the adoption of voice interfaces should enable internet companies to expand into
the automotive market.
• In-car voice recognition technologies are growing in importance.
• Internet companies are approaching the automotive market from a “post-smartphone” perspective.
• Kakao has integrated its key transportation services, including taxi hailing, chauffeur, and navigation services into
a single app called Kakao T.
Cars as a new internet
service platform
Kakao new integrated mobility app Kakao T
Hello,
this is Kakao T
Kakao T: Mobility for everyone
Taxis, designated drivers, parking, and
navigation

Development of autonomous
driving in urban areas
Source: F. Dudenhoffer
• Autonomous car technologies are enabling people to become users rather than drivers.
• Demand for integrated transportation services will likely increase when fully autonomous cars are
available.
• The Finnish company MaaS Global has recently launched an all-in mobility app called Whim, which gives users
access to a huge range of mobility options for a monthly subscription fee.
• Going forward, MaaS is likely to be integrated into an “autonomous vehicle network.”
Autonomous driving
prompts a shift from
drivers to users
MaaS Global’s (Finland) mobility app Whim
Source: MaaS Global, Mobile Trends 2018, Mirae Asset Daewoo Research
Imagine if all modes of
transportation were
integrated on one platform…
…and available at your fingertips
for one monthly fixed fee
Taxi
Present
Car Car
Autonomous
driving vehicle
network
Ride sharing
intermediary
Ride sharing
carpool center
Car sharing
(traditional)
Car sharing
(free floating)
Ride sharing
(neighborhood)
Future

Connected Car Commerce
Service
- The service began on November
7th at 100 locations within the
Seoul capital area (e.g.,
Gangnam-gu, Seocho-gu,
Songpa-gu, Seongnam).
- GS Caltex’s directly-run gas
stations, restaurants, flower
shops, desert cafes, dining
places, cafes
- A car becomes a credit card
terminal with the Car ID device,
which can be plugged into the
cigarette lighter socket.
- Bluetooth data range of up to
150 meters
• Connected Car Commerce makes the car a payment terminal for e-commerce services.
• In Korea, OWiN, an IoT-based commerce platform startup, is working on the Connected Car Commerce service in
partnership with LG Uplus (032640 KS/Buy/TP: W19,000/CP: W14,450), GS Caltex, and Shinhan Card.
• Connected car credit card payments will offer various services and greater convenience than the Hi-pass card,
encompassing payments at toll plazas, gas stations, restaurants, and drive-through facilities.
Autonomous driving
prompts a shift from
drivers to users
Connected Car Commerce: Cars as payment terminals
Source: Connected Car Commerce, Mirae Asset Daewoo Research
Search
for shops
en route
Choose
menu items
Order
and pay
Confirmation Navigation
Share information
about vehicle location

NAVER Labs’ AWAY
- AWAY offers destination search
capabilities backed by voice-
activated location search,
natural language recognition,
and nationwide location
information.
- In-car services (personalized
content, NAVER Music, Audio
Clip, NAVER Sports) are already
available; AWAY’s favorites list is
synchronized with NAVER Map.
- AWAY is deployed in Green Car,
a car sharing service.
• Although various in-car services are already available, behind-the-wheel cellphone use is cumbersome and
strictly regulated.
• The development of voice-activated automotive infotainment systems has been increasing; NAVER is set to
release its AWAY infotainment system in the automotive aftermarket.
• The current infotainment system provides audio content and voice-activated location search.
• As autonomous cars can calculate routes and travel times, they can make relevant restaurant/product
recommendations and display targeted ads en route to a destination.
Voice-activated
infotainment
NAVER Labs’ automotive infotainment system AWAY

NAVER’s investments in the
automotive sector
Mar. 2017: Epipolar (3D mapping)
Aug. 2017: Dabeeo (multi-language
map)
Sep. 2017: Innoviz Technologies
(LiDAR sensor company in Israel)
Oct. 2017: Poolus (car pooling)
• In the age of autonomous driving, cars can be more than a means of transportation; they can also be smart
payment terminals, personal spaces, and showrooms.
• Fully autonomous vehicles will free drivers from the task of driving, creating time for non-driving tasks
• The time previously spent on driving can give rise to opportunities for new revenue for internet
companies.
• Internet firms are researching autonomous driving technologies to generate new revenue opportunities.
Expansion of the car
concept
NAVER Labs’ autonomous test vehicle

• In the age of AI, cloud is going beyond storage and evolving into a supercomputing solution.
• Through stored data, cloud provides the framework that enables AI to learn on its own and produce better
functions and results.
• The big question in 2018 will be, who will successively tap into cloud and its supercomputing capabilities?
Cloud evolving into a
supercomputing solution
Cloud evolving into a supercomputing solution
Source: IT Insight, Mirae Asset Daewoo Research
III. [Internet] Cloud in the AI era

Source: Deep Mind, Mirae Asset Daewoo Research
Google used AlphaGo to promote its machine learning chip
cloud TPU
AlphaGo, Google’s AI Go player
Source: Google, Mirae Asset Daewoo Research
• AlphaGo, Google’s artificially intelligent Go player, sent shockwaves across the world by beating Lee Se-dol.
• Enabled by cloud computing, AlphaGo has the computing power of a supercomputer (ranked around 300th
among the world’s fastest supercomputers).
• AlphaGo raised Google’s profile as the global leader in AI and cloud.
Cloud becoming a bigger
presence in our lives

• Huawei (002502 CH/CP: RMB8.86) predicts that 90% of users will benefit from AI services on their
smartphones by 2025.
• The Chinese company announced its entry into cloud computing in September 2016.
• At its “Growth with Cloud” conference held in September 2017, the company unveiled a number of cloud
solutions.
• Huawei sold 39.1mn smartphones in 3Q17, holding the third-largest market share (10.5%) after SEC and Apple.
In 2018, cloud will be
essential to mobile
services
Huawei’s cloud solution structure
Source: Huawei, Mirae Asset Daewoo Research

• The IT market has continued to expand with the arrival of cloud.
• The PC market is estimated at US$25bn, while the client/server market is estimated at US$250bn.
• The mobile/cloud market is forecast to grow to US$2.5tr, while the intelligent cloud market is expected to grow to
US$4.5tr.
Cloud is also driving
growth in the IT market
The IT market is growing along with cloud
Source: Microsoft, Mirae Asset Daewoo Research
IT market size

Source: KDI, Company data, Mirae Asset Daewoo Research
2016 cloud service M/S breakdownTypes of cloud services
Source: IDC, Mirae Asset Daewoo Research
• Cloud forms the basis of “Service as a Service.” There are three primary types of cloud services: Infrastructure as a
Service (IaaS), Platforms as a Service (PaaS), and Software as a Service (SaaS).
• These three types of services differ in terms of how much control the user has.
Cloud forms the basis of
“Service as a Service”
Software
Data
Middleware
OS
Server
Networking
IaaS
Software
Data
Middleware
OS
Server
Networking
PaaS
Software
Data
Middleware
OS
Server
Networking
SaaS
Deliveredbytheserviceprovider
19%
13%
68%
US$98.7bn
(as of 2016)
IaaS PaaS Saas

Paradigm shift in the cloud industry
• Reasons for adopting cloud: Cost savings  Business model innovation  Intelligent value addition
• The accelerating integration of AI and cloud has been a key driver behind this paradigm shift.
• Cloud is increasingly being viewed from a value-added perspective, rather than a cost-savings perspective.
Paradigm shift in cloud
Cost
savings
Business
model
innovation
Adding
intelligent
value

Source: Google, NAVER, Dropbox, SK Telecom, Mirae Asset Daewoo Research
Corporations/governments primarily use cloud to save costsIndividual users primarily use cloud for storage purposes
Source: Oracle, Mirae Asset Daewoo Research
• Individual users: 1) extended battery life; 2) better processing power and more storage space; 3) enhanced
reliability
• Corporate/government users: 1) cost savings; 2) increased competitiveness; 3) eco-friendliness
Advantages of cloud:
Cost savings
Easy backup Easy management
Reduction by
over 33%
0
20
40
60
80
100
120
Current Cloud
(cents/hour)
Development costs
Maintenance costs
(salaries)
Licensing costs
Software costs
Hardware costs
Equipment costs

• Rolls-Royce (RR LN/CP: GBP855.5) is engaged in the manufacture of commercial/defense aircraft engines; its
customers include over 500 airline companies and over 100 military clients.
• With regard to aircraft engine manufacturing, even one failure or mistake can cost hundreds of millions of dollars
and human lives. As such, close monitoring is essential.
• The firm has its own data storage/processing capabilities based on a dedicated cloud platform.  Revenue from
aftermarket services will be generated (TotalCare business model).
New business model
Rolls-Royce is expanding revenue with cloud-based service revenue
Note: OE refers to original equipment
Source: Rolls-Royce, Mirae Asset Daewoo Research

Source: Amazon, NAVER, LINE, Google, Mirae Asset Daewoo Research
Major internet firms are promoting their cloud businesses via AI services
• AI services are operating based on cloud technology.
• Global internet firms are promoting their cloud businesses through AI services: Amazon (Alexa), Google
(TensorFlow), NAVER (Clova).
Potential to take
advantage of AI

Source: Company materials, Mirae Asset Daewoo Research
Global cloud market is now highly fragmented
• Global infrastructure (IaaS/PaaS) M/S breakdown (2Q17): Amazon (34%), Microsoft (MSFT US/CP: US$86.4; 11%),
IBM (IBM US/CP: US$153.3; 8%)
• Global cloud PaaS M/S breakdown (2016) : Microsoft (18%), Amazon (11%), Salesforce.com (CRM US/US$105.1;
11%), Google (6%)
• Asian cloud firms (e.g., Alibaba, Tencent, NAVER) are also growing at a rapid pace.
Global cloud markets are
currently highly
fragmented

Quarterly revenue and operating profit from Amazon’s cloud business (AWS)
• Cloud computing addresses the fact that computing resources can be idle and unused at certain points
(i.e., off-peak season/times).
• For server computing resources, which are usually underutilized, demand grows over 10-fold during the Black
Friday/Cyber Monday shopping season for Amazon.
• In 3Q17, Amazon’s AWS revenue and operating profit grew 42% YoY and 36% YoY, respectively.
Amazon Web Services
cloud (AWS)

For Amazon, cloud-related operating profit exceeds company’s total operating profit
• For internet firms, AI-driven voice recognition should be viewed as a service/interface rather than a true revenue
source.
• Cloud services are the primary generator of revenue related to AI technology.
• Amazon’s cloud revenue has been expanding at an accelerated pace since the launch of Alexa in November 2014;
the OP margin for its cloud services currently stands at 25%.
Cloud services are the
actual generator of
revenue related to AI
services
0
1
2
3
4
5
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
(US$bn)
Cloud revenue
Cloud operating profit
Total operating profit

Note: As of 3Q17; Tencent’s cloud revenue growth is based on the results of the company’s other businesses
Source: Company data, Mirae Asset Daewoo Research
Amazon, Microsoft, Alibaba, and Tencent are all displaying strong cloud growth
• For Amazon, growth in e-commerce (mainstay business) revenue is in the 20% range, but top-line growth
for the cloud business is far greater, at the 40% level.
• Microsoft’s cloud products, including Office 365 (SaaS) and Azure (PaaS), are delivering strong revenue growth.
• Chinese internet firms Alibaba and Tencent have also seen rapid growth in their cloud revenue.
Overseas internet firms
delivering strong cloud-
related revenue growth
아마존 마이크로소프트 알리바바 텐센트
Revenue
growth
(YoY, %)
+42% +97% +99% +143%
Revenue
contribution
(%)
10% - 5% -

Source: Gartner, Bloomberg, Mirae Asset Daewoo Research
Among cloud services, IaaS will likely grow the most rapidly
• IDC expects the global cloud market to grow at a CAGR of 22% through 2020.
• The competitive environment is shifting from price discounts to regional expansion and functional
enhancements: both quantitative and qualitative growth are underway.
• Among cloud services, IaaS will likely grow more rapidly than SaaS. AWS is representative of IaaS.
Competition facilitates
growth
0
10
20
30
40
50
60
70
80
2016 2017 2018F 2019F 2020F
(US$bn)
PaaS IaaS SaaS

• Existing hardware/infrastructure-based cloud service providers, including IBM and Oracle (ORCL US/CP: US$47.7),
are losing ground.
• Meanwhile, new services/AI-based players, such as Amazon, Microsoft, and Google, are emerging.
• Global cloud infrastructure market share: 34% for Amazon, 11% for Microsoft, 8% for IBM
Cloud market:
Existing players vs.
new players
Expected gains/losses over next three years among major IT vendors (based on survey of CIOs)
Note: As of July 2017
Source: Alphawise, Business Insider, Mirae Asset Daewoo Research

Shares of SEC and NVIDIA have advanced 42% and 75%, respectively, since the beginning of 2017
• Competition for cloud data center expansion is underway globally.
• Cloud data center expansion has been driven by global IT firms based in the US; since 2017, internet-based Asian
cloud companies have also jumped on the bandwagon.
• Amazon, Google, IBM, Alibaba, and NAVER are currently expanding their cloud data center capacities..
• SEC and NVIDIA (NVDA US/CP: US$197.9) are benefiting from the growth of data center-use semiconductor
demand.
Intense capex
competition
50
75
100
125
150
175
200
225
1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17
(1/17=100)
SEC
NVIDIA

Source: NBP, Mirae Asset Daewoo Research
Bluehole’s PUBG: Utilizing multiple cloud vendors (AWS, Azure)NCsoft’s Lineage M: Initial downloads are available via cloud
Source: Inven, Bluehole, Mirae Asset Daewoo Research
• Zynga (ZNGA US/CP: US$4.1): Based on AWS; cloud-based gameplay tracking; data-based decision making
• NCsoft’s Lineage M: Based on NAVER’s cloud platform; game downloads via CDN infrastructure
• Bluehole’s PlayerUnknown’s Battlegrounds (PUBG): AWS was adopted during its release; recently, Microsoft’s
Azure was also adopted
Cloud-driven changes:
Game
Initial downloads were
stable thanks to NAVER’s
cloud platform
In addition to AWS, Microsoft’s Azure has recently been
adopted to ensure server stability.

Source: AWS, Netflix, Mirae Asset Daewoo Research
For Netflix, non-North American subscribers outnumber
North American subscribers
Netflix has adopted AWS
Source: Netflix, Mirae Asset Daewoo Research
• In 2016, Netflix completely shifted from internal data center operations to Amazon’s cloud services.
• This move is designed to reduce costs and content download times, and to facilitate the development of original
content using big data.
• Since 3Q17, the number of non-North American subscribers has exceeded that of North American subscribers.
Media content
0
10
20
30
40
50
60
1Q12 1Q13 1Q14 1Q15 1Q16 1Q17
(mn)
North America
Ex-North America

Source: Dow Jones, AWS, Mirae Asset Daewoo Research
NH Bank adopted cloud services to support FinTech firmsDow Jones is running its Asia traffic through AWS
Source: NH Bank, Mirae Asset Daewoo Research
• Dow Jones is running all of its Asia traffic through AWS. The use of Amazon’s cloud computing services has
helped the company reduce costs by 25% compared to the costs of leasing a data center.
• NH Bank is providing application programming interfaces (APIs) for its cloud computing services to domestic
FinTech firms and cloud-based cash management systems (CMS) to corporate customers.  Demand from
small/mid-sized firms should increase sharply.
Financial industry
API
introduction
Utilization Service
enrollment
Enrollment
procedure
NH FinTech open platform
NH FinTech open platform

Source: University of Arizona, Mirae Asset Daewoo Research
Transport for London uses Oyster card data to plan servicesUS adopted cloud computing for border protection: AVATAR
Source: Alexandrine Press, Mirae Asset Daewoo Research
• The US and UK governments have already adopted cloud computing, primarily targeting cost reductions.
• The US government has adopted cloud computing since 1995, and has actively employed cloud-based big data
analytics for border protection since the 9/11 terrorist attacks.
• The UK government started discussions on adopting cloud computing technology in 2009 in pursuit of greater
cost efficiency. Currently, Transport for London is widely adopting cloud computing for big data analysis.
Government usage

Source: NIRS, Mirae Asset Daewoo Research
Government’s road map for cloud computing technologyKorean government’s utilization of cloud computing
Source: NIRS, Mobile Trends 2018, Mirae Asset Daewoo Research
• In Korea, cloud computing is only in the nascent stages.  The government should play a critical role in spurring
the growth of cloud computing technology.
• The government designated cloud computing one of the four major technologies to drive the Fourth Industrial
Revolution, along with IoT, big data, and mobile.
• In 2017, the government spent W438.5bn on supporting cloud computing technology (out of the total IT budget
of W5.2tr). The government plans to open a new cloud service center in 2019.
Korean government
Backup centers SDDC
- Data backup
between centers
- Active/active
architecture
- Intelligent data
centers
- Cloud
connections
between centers
- AaaS, PaaS, SaaS
- 60% of tasks
conducted via
cloud
New cloud
service centers
Cloud platforms
Sophistication of
cloud technology
Statistics Korea Ministry of Education
E-Census system Korean history exam system
• Population and housing
census
• Agriculture/fishery census
Services
• Access via PC/mobile
• Application, issuance of test ID slips,
test venue selection, sample
questions, etc.
• Convenience
• To be used for other purposes
after the completion of census
Details
• Surge in traffic during application
and the announcement of successful
applicants
• Explosive growth in applicants
• Previously operated by a private IDC
• Total: More than 30% of the
population
• Concurrent users: 38,000
User base
• Total: 1,185,223
• Concurrent users: Up to 5,000
• Verification of G-Cloud stability
in facilitating massive user
access
• Cost reductions via
repurposing of resources after
the completion of census
Key issues
• Verification of G-Cloud stability in
facilitating massive user access
• Efficient resource utilization via the
swift expansion and recovery of
resources

Source: Google Trends, Mirae Asset Daewoo Research
Searches for AI-based cloud technology on Google have increased markedly over the past five years
• AI-based cloud computing technology is expected to take off starting in 2018.
• Currently, cloud computing technology is most widely used for data storage; the technology will likely develop
into a supercomputing solution in the upcoming AI era.
• In particular, AI cloud computing, which could generate added value via AI as a Service (AaaS) should be adopted
in wide-ranging areas.
Era of AI cloud
computing on the
horizon
AI Cloud AWS Alexa

Source: Atomia, NBP, Alibaba, Mirae Asset Daewoo Research
Global cloud data center map
• The number of companies operating in-house data centers should decline sharply going forward.
• Companies are now using cloud computing services based on pay-as-you-go schemes.
• In our view, only a handful of global cloud data center players will enjoy greater business opportunities
(based on steady cash flow and big data analytics).
Cloud computing
businesses to be treated
like utilities in the future

• Top pick: NAVER
• Other notable stocks: Kakao,
NHN Entertainment, Interpark
Internet (Overweight)

E-commerce (domestic) and FinTech (overseas) businesses to gain traction
Investment points
• E-commerce (domestic): NAVER is about to complete its retail value chain, encompassing shopping, logistics,
marketing, and data management.
• FinTech (overseas): LINE Pay (Korea) is outperforming NAVER Pay (overseas) in terms of both transaction
volume and subscriber base. It ranks relatively high in the Japanese and Taiwanese easy payment solution
markets.
• AI: The firm is expanding the dominance of its internet platform via launches of robotics and machine
learning-based hardware products, thus driving up its cloud revenue.
Risk factors
• Regulatory risks could emerge amid growing domestic revenue.
• Expenses related new businesses (e.g., AI, FinTech) could mount.
• Relatively slow monetization of global businesses
NAVER (035420 KS)Top pick
(Maintain)
Target Price (12M, W)
Share Price (12/18/17, W)
1,215
EPS Growth (17F, %)
Market EPS Growth (17F, %)
P/E (17F, x)
Market P/E (17F, x)
KOSPI
Market Cap (Wbn) FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F
Shares Outstanding (mn) Revenue (Wbn) 2,758 3,254 4,023 4,712 5,486 6,266
Free Float (%) OP (Wbn) 758 830 1,102 1,253 1,585 1,852
Foreign Ownership (%) OP margin (%) 27.5 25.5 27.4 26.6 28.9 29.6
Beta (12M) NP (Wbn) 454 519 749 841 1,115 1,297
52-Week Low EPS (W) 13,787 15,737 22,732 25,515 33,838 39,348
52-Week High ROE (%) 27.8 26.5 26.2 19.9 20.7 19.8
(%) 1M 6M 12M P/E (x) 51.6 41.8 34.1 33.7 25.4 21.9
Absolute 6.8 -3.6 6.7 P/B (x) 8.7 6.8 5.2 4.7 4.0 3.4
Relative 9.1 -8.3 -12.2 Div.Yield (%) 0.1 0.2 0.1 0.1 0.2 0.2
Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests
Source: NAVER, Mirae Asset Daewoo Research estimates
59.6
0.72
720,000
960,000
33.7
10.2
2,481.88
28,348
33
78.7
OP (17F, Wbn) 1,253
Consensus OP (17F, Wbn)
12.2
45.6
Buy
1,200,000
860,000
Expected Return 40%
80
85
90
95
100
105
110
115
120
125
130
16.12 17.4 17.8 17.12
NAVER
KOSPI

Completion of retail value chain
NAVER’s e-commerce business structure and ecosystem
Source:, Mirae Asset Daewoo Research

Living room Large indoor space Outdoors
Industrial
facilities
On the road
NAVER is taking advantage of AI to expand the dominance of its internet platforms
Source: NAVER, NAVER Lab, Mirae Asset Daewoo Research
NAVER is expanding the competitiveness of its platforms by leveraging AI

Integration of the AI business with cloud to positively affect IT platform revenue
Full-fledged expansion of AI-based cloud businesses
Source: NAVER Cloud Platform, Mirae Asset Daewoo Research

Source: LINE, Mirae Asset Daewoo Research
LINE’s game business: Establishment of LINE Games,
new game releases
LINE’s ad business is expanding to include webtoon, blog, and
vertical video ads
Note: Destiny Child (top) was developed by NextFloor (acquired by LINE); LINE Pokopang (bottom)
was released on December 14, 2017.
LINE is expanding its advertising (cash cow) and game businesses

LINE Pay: No. of global subscribers topped 40mn; Monthly transaction value exceeded W500bn
LINE Pay is emerging as a global FinTech platform

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 4,023 4,712 5,486 6,266 Current Assets 4,200 5,628 7,077 8,685 P/E (x) 34.1 33.7 25.4 21.9
Cost of Sales 0 0 0 0 Cash and Cash Equivalents 1,726 2,667 3,654 4,776 P/CF (x) 18.5 19.5 16.3 14.4
Gross Profit 4,023 4,712 5,486 6,266 AR & Other Receivables 694 831 942 1,076 P/B (x) 5.2 4.7 4.0 3.4
SG&A Expenses 2,921 3,459 3,901 4,415 Inventories 10 12 14 16 EV/EBITDA (x) 18.2 17.2 13.4 11.0
Operating Profit (Adj) 1,102 1,253 1,585 1,852 Other Current Assets 1,770 2,118 2,467 2,817 EPS (W) 22,732 25,515 33,838 39,348
Operating Profit 1,102 1,253 1,585 1,852 Non-Current Assets 2,171 2,338 2,342 2,370 CFPS (W) 41,966 44,151 52,764 59,800
Non-Operating Profit 30 52 53 53 Investments in Associates 182 218 254 290 BPS (W) 150,192 182,529 215,297 253,487
Net Financial Income 30 35 47 59 Property, Plant and Equipment 863 901 763 647 DPS (W) 1,131 1,200 1,300 1,400
Net Gain from Inv in Associates -9 -2 0 0 Intangible Assets 112 139 124 111 Payout ratio (%) 4.3 4.2 3.4 3.2
Pretax Profit 1,132 1,305 1,638 1,905 Total Assets 6,371 7,967 9,420 11,056 Dividend Yield (%) 0.1 0.1 0.2 0.2
Income Tax 361 455 516 600 Current Liabilities 1,804 2,091 2,401 2,713 Revenue Growth (%) 23.6 17.1 16.4 14.2
Profit from Continuing Operations 771 851 1,122 1,305 AP & Other Payables 425 509 592 676 EBITDA Growth (%) 28.3 13.2 21.3 14.0
Profit from Discontinued Operations -12 -3 0 0 Short-Term Financial Liabilities 227 203 203 203 Operating Profit Growth (%) 32.8 13.7 26.5 16.8
Net Profit 759 848 1,122 1,305 Other Current Liabilities 1,152 1,379 1,606 1,834 EPS Growth (%) 44.4 12.2 32.6 16.3
Controlling Interests 749 841 1,115 1,297 Non-Current Liabilities 437 494 550 607 Accounts Receivable Turnover (x) 9.1 9.0 8.9 8.8
Non-Controlling Interests 10 7 7 8 Long-Term Financial Liabilities 150 150 150 150 Inventory Turnover (x) 311.2 414.5 409.3 405.6
Total Comprehensive Profit 724 864 1,122 1,305 Other Non-Current Liabilities 287 344 400 457 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0
Controlling Interests 733 842 1,094 1,273 Total Liabilities 2,241 2,585 2,951 3,320 ROA (%) 14.1 11.8 12.9 12.7
Non-Controlling Interests -9 21 28 32 Controlling Interests 3,595 4,845 5,925 7,183 ROE (%) 26.2 19.9 20.7 19.8
EBITDA 1,265 1,432 1,737 1,981 Capital Stock 16 16 16 16 ROIC (%) 169.2 251.1 857.8 -741.7
FCF (Free Cash Flow) 1,010 1,051 1,508 1,648 Capital Surplus 1,217 1,448 1,448 1,448 Liability to Equity Ratio (%) 54.3 48.0 45.6 42.9
EBITDA Margin (%) 31.4 30.4 31.7 31.6 Retained Earnings 3,810 4,587 5,667 6,925 Current Ratio (%) 232.8 269.2 294.8 320.1
Operating Profit Margin (%) 27.4 26.6 28.9 29.6 Non-Controlling Interests 535 537 544 552 Net Debt to Equity Ratio (%) -73.1 -80.1 -87.0 -91.5
Net Profit Margin (%) 18.6 17.8 20.3 20.7 Stockholders' Equity 4,130 5,382 6,469 7,735 Interest Coverage Ratio (x) 181.5 2,823.0 3,694.6 4,317.1
Source: NAVER, Mirae Asset Daewoo Research estimates

(Maintain)
185
EPS Growth (17F, %)
P/E (17F, x)
Market P/E (17F, x)
KOSPI
Shares Outstanding (mn) Revenue (Wbn) 499 932 1,464 1,961 2,244 2,382
Free Float (%) OP (Wbn) 176 89 116 177 236 257
Beta (12M) NP (Wbn) 150 76 58 123 139 152
52-Week Low EPS (W) 6,116 1,269 874 1,818 2,040 2,241
52-Week High ROE (%) 11.4 3.0 1.9 3.3 3.4 3.6
(%) 1M 6M 12M P/E (x) 20.2 91.2 88.1 74.0 65.9 60.0
Absolute -14.6 30.7 73.5 P/B (x) 2.9 2.7 1.5 2.3 2.2 2.1
Relative -12.8 24.4 42.8 Div.Yield (%) 0.1 0.1 0.2 0.1 0.2 0.2
Source: Kakao Corp., Mirae Asset Daewoo Research estimates
22.5
0.84
74,800
161,000
74.0
10.2
2,481.88
9,132
68
59.9
OP (17F, Wbn) 177
108.1
45.5
Trading Buy
170,000
134,500
Expected Return 26%
80
100
120
140
160
180
200
220
16.12 17.4 17.8 17.12
Kakao Corp.
KOSPI
Investments for the future to expand
Investment points
• Domestic businesses: Kakao has been working to expand the commerce/advertising capabilities of its
KakaoTalk platform.
• Business value: The value of subsidiaries will likely come to the fore, as the company is pursuing a 2018 IPO
for Kakao Games and considering an IPO for Podotree.
• Increasing investments: On December 15th
, Kakao announced its decision to issue US$1bn worth of new
shares/GDRs; the company is likely to purse growth via global content/platform/AI investments.
Risk factors
• Share dilution arising from new share issue
• Uncertainties regarding the use of the funds and synergy effects
• Low profitability and high valuation relative to peers
Kakao (035720 KS)

Kakao’s commerce business structure and ecosystem
Kakao is enhancing the features of its KakaoTalk platform
Kakao (035720 KS)
KakaoTalk
Ordering Shopping
Shopping
How
Kakao Friends
AD Plus Friend Shopping Plus
Kakao Cloud Computing
Core services
Payment/financing services
Logistics partnerships
Marketing services/
data management platforms
Cloud computing
Gifts
Emart delivers orders placed via
KakaoTalk
Commerce services

Note: Kakao owns a 57.6% stake
Source: Podotree, Mirae Asset Daewoo Research
Kakao Mobility, officially established in August 2017, released
Kakao T in October 2017
Kakao Games, officially launched in November 2017, is
expected to go public next summer
Note: Kakao owns a 60.9% stake in KakaoPay and 10% stake in Kakao Bank
Source: KakaoPay, Mirae Asset Daewoo Research
Subsidiary value to come to the fore
KakaoPay to expand its user base on the back of its Alipay
partnership and linkage with Kakao Bank
Podotree could also come into focus following the successful
IPO of Tencent’s subsidiary, China Literature
Note: Kakao owns an 80% stake
Source: Kakao Games, Mirae Asset Daewoo Research
Note: Kakao owns a 69.3% stake; Kakao T integrates taxi, designated driver, parking, and
navigation services; Source: Kakao Mobility, Mirae Asset Daewoo Research
Kakao (035720 KS)

Source: Kakao, FSS, Mirae Asset Daewoo Research
Purpose of the issuance of new shares and GDRs
Kakao has decided to issue new shares and GDRs to increase capital for future investments
Value Notes
M&As and investments in mobile-focused global content and platform companies
Global content
Companies with superior content, such as
games, video content, webtoons, etc., and those
with outstanding development capabilities
900
- Target year: 2018 (subject to change, depending on
available M&A targets)
- Regions: Japan, China, and North America
- M&A decisions to be made in consideration of
profitability, growth potential, synergies, and
shareholder value maximizationGlobal platforms
Platform companies that display steady
subscriber growth
Investments in Fourth Industrial Revolution-related companies and technologies (AI, etc.)
AI-related companies and
technologies
Source technologies and talent related to
reinforcement learning, unsupervised
learning, and neural network learning
100
- Target year: 2018-19 (subject to change)
- Regions: Korea, China, and North America
Other Fourth Industrial
Revolution-related
companies and technologies
IoT, robots, and autonomous driving
Total 1,000 Unit: US$mn
Kakao (035720 KS)

Revenue 1,464 1,961 2,244 2,382 Current Assets 1,217 2,084 2,430 2,732 P/E (x) 88.1 74.0 65.9 60.0
Cost of Sales 0 0 0 0 Cash and Cash Equivalents 642 1,407 1,664 1,919 P/CF (x) 23.1 29.0 27.6 26.7
Gross Profit 1,464 1,961 2,244 2,382 AR & Other Receivables 251 295 330 350 P/B (x) 1.5 2.3 2.2 2.1
SG&A Expenses 1,348 1,784 2,007 2,124 Inventories 13 15 17 18 EV/EBITDA (x) 24.3 29.4 24.6 23.2
Operating Profit (Adj) 116 177 236 257 Other Current Assets 311 367 419 445 EPS (W) 874 1,818 2,040 2,241
Operating Profit 116 177 236 257 Non-Current Assets 4,267 4,268 4,198 4,117 CFPS (W) 3,339 4,643 4,877 5,041
Non-Operating Profit -16 -16 -17 -17 Investments in Associates 117 138 157 167 BPS (W) 50,777 58,982 60,823 62,824
Net Financial Income -5 0 0 0 Property, Plant and Equipment 254 250 202 163 DPS (W) 148 200 240 260
Net Gain from Inv in Associates -10 -8 0 0 Intangible Assets 3,733 3,687 3,622 3,559 Payout ratio (%) 15.3 9.7 10.4 10.2
Pretax Profit 100 161 219 240 Total Assets 5,484 6,351 6,628 6,849 Dividend Yield (%) 0.2 0.1 0.2 0.2
Income Tax 35 21 61 67 Current Liabilities 806 868 970 1,020 Revenue Growth (%) 57.1 33.9 14.4 6.1
Profit from Continuing Operations 65 140 157 173 AP & Other Payables 263 309 354 376 EBITDA Growth (%) 40.2 31.3 15.6 3.2
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 211 168 170 171 Operating Profit Growth (%) 30.3 52.6 33.3 8.9
Net Profit 65 140 157 173 Other Current Liabilities 332 391 446 473 EPS Growth (%) -31.1 108.0 12.2 9.9
Controlling Interests 58 123 139 152 Non-Current Liabilities 975 1,006 1,036 1,051 Accounts Receivable Turnover (x) 11.1 10.4 10.2 9.9
Non-Controlling Interests 8 17 19 21 Long-Term Financial Liabilities 796 795 795 795 Inventory Turnover (x) 163.5 143.6 141.8 136.8
Total Comprehensive Profit 65 147 157 173 Other Non-Current Liabilities 179 211 241 256 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0
Controlling Interests 58 132 141 155 Total Liabilities 1,781 1,873 2,006 2,071 ROA (%) 1.5 2.4 2.4 2.6
Non-Controlling Interests 7 15 16 18 Controlling Interests 3,433 4,004 4,129 4,265 ROE (%) 1.9 3.3 3.4 3.6
EBITDA 230 302 349 360 Capital Stock 34 34 34 34 ROIC (%) 2.6 4.2 5.5 5.8
FCF (Free Cash Flow) 236 156 353 313 Capital Surplus 3,105 3,553 3,553 3,553 Liability to Equity Ratio (%) 48.1 41.8 43.4 43.3
EBITDA Margin (%) 15.7 15.4 15.6 15.1 Retained Earnings 304 417 542 678 Current Ratio (%) 151.0 240.2 250.6 268.0
Operating Profit Margin (%) 7.9 9.0 10.5 10.8 Non-Controlling Interests 270 474 493 514 Net Debt to Equity Ratio (%) 3.3 -16.3 -22.2 -27.3
Net Profit Margin (%) 4.0 6.3 6.2 6.4 Stockholders' Equity 3,703 4,478 4,622 4,779 Interest Coverage Ratio (x) 8.1 0.0 0.0 0.0
Source: Kakao Corp., Mirae Asset Daewoo Research estimates
Kakao (035720 KS)

(Maintain)
41
EPS Growth (17F, %)
P/E (17F, x)
Market P/E (17F, x)
KOSPI
Shares Outstanding (mn) Revenue (Wbn) 557 645 856 911 1,028 1,097
Free Float (%) OP (Wbn) 12 -54 26 42 66 75
Foreign Ownership (%) OP margin (%) 2.2 -8.4 3.0 4.6 6.4 6.8
Beta (12M) NP (Wbn) 51 164 13 56 85 93
52-Week Low EPS (W) 3,236 8,836 639 2,842 4,323 4,730
52-Week High ROE (%) 5.0 13.4 0.9 3.7 5.4 5.6
(%) 1M 6M 12M P/E (x) 26.1 6.4 78.7 24.4 16.0 14.7
Absolute -2.8 -10.9 44.5 P/B (x) 1.3 0.8 0.7 0.9 0.8 0.8
Relative -0.8 -15.2 18.9 Div.Yield (%) 0.0 0.0 0.0 0.0 0.0 0.0
Source: NHN Entertainment, Mirae Asset Daewoo Research estimates
13.1
0.98
47,700
84,000
24.4
10.2
2,481.88
1,356
20
50.4
OP (17F, Wbn) 42
344.5
45.5
Buy
83,000
69,300
Expected Return 20%
80
90
100
110
120
130
140
150
160
170
180
16.12 17.4 17.8 17.12
NHNEntertainment
KOSPI
Easy payment solutions expected to evolve into a platform
Investment points
• E-commerce: NHN Entertainment has created an ecosystem encompassing payments, shopping mall sites,
commerce solutions, marketing, data management, and cloud infrastructure.
• NHN PAYCO: The subsidiary is currently focusing on its easy payment service PAYCO. The service is expected
to develop into a broader platform for financial and shopping services.
• Game: New title launches are expected to pick up; the business environment is likely to improve.
Risk factors
• Low profitability due to costs related to new businesses
• A potential increase in competition in the easy payment and mobile game markets
• Uncertainties over the releases of new games
NHN Entertainment (181710 KS)

NHN Entertainment’s commerce business and ecosystem
Commerce business structure is nearing completion

Note: As of 1H17; Incross was merged on November 30th
Source: NHN Entertainment, Mirae Asset Daewoo Research
NHN Entertainment’s ownership structure
To improve profitability by combining advertising with commerce business models

Source: Game industry white paper, Mirae Asset Daewoo Research
Regulations on web board games: To be reviewed in March 2018
Game regulations will likely be eased
Details
Effective from February 2014
through February 2016
Subparagraph 8 of Table 2, which outlines matters to be addressed by game-providing business entities that offer game
products that resemble betting, such as card/Go-Stop games, through information and communications networks:
① The payment limit for game users is set at W300,000 per month.
② The betting limit is W30,000 per play.
③ If a player loses over W100,000 in a single day, he/she is blocked from accessing the game for 24 hours.
④ A player is prohibited from choosing his/her opponent.
⑤ Automatic betting is not allowed.
⑥ A player is required to undergo authentication every quarter.
 The enforcement decree is valid through February 23, 2016 (Paragraph 2 of Article 25).
Amended in March 2016;
abolition and review
scheduled for March 2018
The amendment entered into force on March 22, 2016.
① The monthly payment limit for game users was increased to W500,000.
② The betting limit was raised to W50,000 per play.
③ If a player loses over W100,000 in a single day, he/she is blocked from accessing the game for 24 hours.
④ A player is prohibited from choosing his/her opponent.
⑤ Automatic betting is not allowed.
⑥ A player is required to undergo authentication every year
The Ministry of Culture, Sports and Tourism shall examine the appropriateness of subparagraph
8 of Table 2 and take measures, such as making improvements, biennially from March 15, 2016.

Revenue 856 911 1,028 1,097 Current Assets 750 785 839 922 P/E (x) 78.7 24.4 16.0 14.7
Cost of Sales 0 0 0 0 Cash and Cash Equivalents 301 334 330 379 P/CF (x) 13.7 14.8 11.4 11.1
Gross Profit 856 911 1,028 1,097 AR & Other Receivables 181 182 205 219 P/B (x) 0.7 0.9 0.8 0.8
SG&A Expenses 830 868 962 1,022 Inventories 22 22 25 26 EV/EBITDA (x) 9.3 12.4 9.7 8.5
Operating Profit (Adj) 26 42 66 75 Other Current Assets 246 247 279 298 EPS (W) 639 2,842 4,323 4,730
Operating Profit 26 42 66 75 Non-Current Assets 1,089 1,111 1,150 1,169 CFPS (W) 3,682 4,668 6,075 6,235
Non-Operating Profit 0 39 39 40 Investments in Associates 187 188 212 226 BPS (W) 76,086 78,884 83,207 87,936
Net Financial Income 19 9 10 11 Property, Plant and Equipment 114 146 130 118 DPS (W) 0 0 0 0
Net Gain from Inv in Associates -13 -5 0 0 Intangible Assets 323 317 308 301 Payout ratio (%) 0.0 0.0 0.0 0.0
Pretax Profit 26 81 105 115 Total Assets 1,838 1,896 1,989 2,090 Dividend Yield (%) 0.0 0.0 0.0 0.0
Income Tax 19 34 32 36 Current Liabilities 268 266 279 298 Revenue Growth (%) 32.7 6.4 12.8 6.7
Profit from Continuing Operations 7 47 72 79 AP & Other Payables 92 93 105 112 EBITDA Growth (%) - 19.0 21.3 3.3
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 23 20 2 2 Operating Profit Growth (%) - 61.5 57.1 13.6
Net Profit 7 47 72 79 Other Current Liabilities 153 153 172 184 EPS Growth (%) -92.8 344.8 52.1 9.4
Controlling Interests 13 56 85 93 Non-Current Liabilities 60 62 68 72 Accounts Receivable Turnover (x) 8.0 8.0 8.5 8.3
Non-Controlling Interests -5 -9 -12 -13 Long-Term Financial Liabilities 10 11 11 11 Inventory Turnover (x) 78.3 41.5 43.9 42.7
Total Comprehensive Profit 53 43 72 79 Other Non-Current Liabilities 50 51 57 61 Accounts Payable Turnover (x) 0.0 0.0 0.0 0.0
Controlling Interests 59 51 85 93 Total Liabilities 328 327 348 370 ROA (%) 0.4 2.5 3.7 3.9
Non-Controlling Interests -6 -7 -13 -14 Controlling Interests 1,462 1,518 1,602 1,694 ROE (%) 0.9 3.7 5.4 5.6
EBITDA 63 75 91 94 Capital Stock 10 10 10 10 ROIC (%) 1.3 4.1 7.8 9.1
FCF (Free Cash Flow) 48 -47 100 100 Capital Surplus 1,238 1,238 1,238 1,238 Liability to Equity Ratio (%) 21.7 20.9 21.2 21.5
EBITDA Margin (%) 7.4 8.2 8.9 8.6 Retained Earnings 263 318 403 495 Current Ratio (%) 280.1 295.6 300.4 309.4
Operating Profit Margin (%) 3.0 4.6 6.4 6.8 Non-Controlling Interests 48 51 39 26 Net Debt to Equity Ratio (%) -29.4 -30.6 -31.5 -33.7
Net Profit Margin (%) 1.5 6.1 8.3 8.5 Stockholders' Equity 1,510 1,569 1,641 1,720 Interest Coverage Ratio (x) 13.2 162.1 369.5 712.7
Source: NHN Entertainment, Mirae Asset Daewoo Research estimates

Leader in the vertical commerce space; Gradually overcoming weaknesses
Investment points
• E-commerce: Leader in the vertical commerce space (e.g., tour, concert tickets)
• The acquisition of Song-in Books should boost the book division’s top-line growth; the shopping unit should
improve its cost efficiency.
• Profit-focused management: The tour division is strengthening its package tour sales while cutting
promotional spending; the open market shopping unit should focus on launching specialized shopping sites
while improving its mobile competitiveness.
Risk factors
• The firm’s margin recovery in 2017 is mostly priced in.
• Risk of being left behind by formidable competitors (i.e., large open market sites and major portals)
• The shopping and book divisions could remain in the red.
Interpark (108790 KQ)
(Downgrade)
24
EPS Growth (17F, %)
P/E (17F, x)
Market P/E (17F, x)
KOSDAQ
Shares Outstanding (mn) Revenue (Wbn) 407 402 466 485 528 545
Free Float (%) OP (Wbn) 17 23 9 28 31 33
Beta (12M) NP (Wbn) 11 17 2 15 17 19
52-Week Low EPS (W) 335 516 71 447 518 563
52-Week High ROE (%) 8.5 10.5 1.4 8.7 9.4 9.6
(%) 1M 6M 12M P/E (x) 68.6 44.3 144.3 21.2 18.3 16.8
Absolute 1.4 -18.4 -9.9 P/B (x) 4.8 4.4 2.0 1.8 1.7 1.6
Relative 2.1 -29.0 -27.3 Div.Yield (%) 0.4 1.1 1.0 1.6 1.6 1.6
Source: Interpark, Mirae Asset Daewoo Research estimates
13.0
0.55
8,100
13,350
21.2
10.2
770.50
313
33
30.9
OP (17F, Wbn) 28
532.8
45.6
Trading Buy
11,000
9,460
Expected Return 16%
80
90
100
110
120
130
140
150
160
16.12 17.4 17.8 17.12
Interpark
KOSDAQ

Interpark’s e-commerce business overview
Interpark’s business structure
Interpark (108790 KQ)

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