Earnings Review

August 6, 2010

Lock&Lock (115390)
BUY (Maintain)
TP: W35,000 (Maintain)
KOSPI (Aug 5) Stock price (Aug 5) Shares outstanding (mn) Market cap (USD mn) 52-Week Low/High (won) 6M avg. daily turnover (USD mn) Free float (%) Dividend yield (2010F, %) Foreign ownership (%) Major shareholders (%) Jun-Il Kim ChangHo Kim 2011F 19.3 4.5 11.4 1,706 7,363 1M (8.6) (15.1) 6M 33.3 19.5 1,784 33,000 50.0 1,414 21,200/39,850 9.8 25.4 0.5 10.1 54.5 16.1 2012F 15.3 3.8 8.9 2,159 8,624 12M 0.0 0.0

Above In line Below

Robust domestic sales offset China’s sluggish growth
What’s new: Strong domestic sales, no earning shock for OP/NP
On a consolidated basis, sales and operating profit came in at W96.0bn (25.8% YoY) and W20.7bn (0.3% YoY). Like our estimates, strong domestic demand (89.4% YoY) offset sluggish growth in China (-13.5% YoY) and led to overall sales growth. There were concerns over a possible drop in operating profit due to a decline in the portion of relatively profitable China sales (-14.2%p YoY); however, the improvement in the operating margin (3.7% YoY) helped the company surmount the decline. Related to FX forward contract which amounted to USD60mn (26% of 2010F total exports), there was a W3.4bn loss from derivative transactions due to a weak KRW in 2Q10. However, because of more net interest income coming from net cash holdings of more than W90.0bn after the IPO, EBT only declined 0.8%.

Valuation PER PBR EV/EBITDA EPS BPS Stock performance Absolute (%) Relative to KOSPI (%p)

2010F 25.1 5.2 14.5 1,315 6,308

Pros: Domestic revival based on sales of new products
Following 1Q10, robust sales creation from new products (W18.4bn, 80.1% YoY) such as Multi-lock (food container for freezers) and Living-box (storage box) led to domestic sales growth of 69%. The domestic demand market, which was on the road to decline, is recovering thanks to a turnaround in 2009 through portfolio diversification. Sales should grow more than 60% YoY due to anticipated strong growth in 3Q10.

Price chart
(2009.8.5=100) Lock&Lock KOSPI

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

190 170 150 130 110 90 70

Aug-09

Nov-09

Feb-10

May-10

Aug-10

Conclusion: Testing ground for 3Q earnings is China / Maintain BUY
As expectations ran high for the China market, 2Q10 earnings missed market expectations. However, we maintain our positive view considering 1) strong growth of domestic market, 2) a jump in China’s sales in 2H10. We raised our sales
(W bn, %)

Jung-In Lee
822-3276-6239 jilee@truefriend.com

(Parent) KIS est. Sales OP OP margin EBT NP 100 21 20.9 18 13

2Q10P Actual 96 21 21.6 18 15 Diff. 4.0 (1.0) 1.7 11.7 Consensus n/a n/a n/a n/a n/a

Change QoQ 20.6 27.1 3.6 14.7 YoY 25.8 0.3 (0.8) 0.2

2010F KIS Consensus 351 83 23.7 83 62 n/a n/a n/a n/a n/a

Minha Choi
822-3276-6260 mhchoi@truefriend.com

Note: Based on consolidated

0 20.0 6.6 17.6 n/a 8.1% reflecting larger-than-expected domestic market growth while trimming the OP margin 0.7 0. Korea Investment & Securities Domestic sales by product 1Q09 Food container Multi-lock Outdoor Other Livingbox Source: Company data (W bn) 2Q09 11.9 QoQ 45.44 1.6 20.0 5. As a result.1 34.6 6.94 0.9 8.07 39.3 27.3 4.4 4.9 13.8 69.4 7.0 3.0 QoQ 32.000.8 24.0 1.6 13.6 5.6 11.1 107.8 4.3 8.90 11.1 2Q10 20.1x. Korea Investment & Securities Quarterly earnings (consolidated) 1Q09 Sales Domestic China Overseas(ex-China) Operating profit EBT Net profit OP margin (%) 56.7 2.6 16.7 16.0 1.4 212.6 32.97 2.9 10.4 14.7 (W bn.62 0.68 1.2 3Q09 44.6 25.29 1.683.58 1.5 3.3 0.1 13.1 14.5 20.63 1.18 2Q10 1.14 4.98 2009 5.4 20.4 15.5 237.8 28. which equals a 2011F PER of 20.82 0.7 0.0 0.9 21.2 25.3 7.5 2Q10 62.5 19.6 QoQ YoY 20.6 15.4 24.6 Equity-method gains (non-consolidated) 2007 Weihai Hanacobi Weihai L&L Suzhou L&L Shanghai L&L Beijing L&L Shenzhen L&L L&L VINA L&L Inc Total Source: Company data (W bn) 2008 4.3 9.3 2Q09 43.3 4.3 22.2 YoY 79.0 3Q09 73.9 1Q10 15.9 27. as not completed for accounting auditing Source: Company data.17 2 .1 43.9 Note: Data can be changed possibly.7 49.8 3.3 14.1 17.6 12.9 8.2 11.9%p due to online channel expansion which has lower profitability than the discount store channel.8 27.0 14.1 20.26 4.9 11.6 30.6 14.7 3Q09 15.2 15.05 4.3 27.8) (13.4 58.6 7.3 5.8) (W bn.0 24.9 4Q09 73.3 0.0 23. Quarterly earnings (non-consolidated) 1Q09 Sales Gross profit Operating profit EBT Net profit OP margin (%) 29.44 8.88 6.9 11.03 9.5 14.4 (2.6 18.2 44.6 11. there is no change to our price target which we derived by the DCF method.15 1Q10 1.1 3.1 3.8 16.0 41. We maintain our price target of W35.30 10.5) 0.Lock&Lock (115390) estimate 9. %) KIS 100.1 23.7 18.6 (0.77 3.3 4Q09 46.2 7.6 21.2 Source: Company data.6 24.0 49.6 1.2 3.42 2.24 0.9 118.6 4Q09 18.4 15.30 0.9 14.4 22.9 12.2 14.4 2Q10 96.1 16.40 3.3 1Q10 79.9 24.18 2.0 27.2 0.6 15.75 15.5 7.3 0.3 17.3 2.5 92.3 13.90 0.4 2.2 1Q10 42.4 10.8 30.6 18.9 89.73 5.9 17.2 1.19 1.7 19.0 20.4 193. %) YoY 43.0 4.0 42.7 2Q09 76.4 8.49 0.

1 5.9 5.0 23.8 1.637 Revised 486.9 1.4 22.1 86.1 87.1 112.3 23.1 1.1 4.7 87.Lock&Lock (115390) 2010-2011F earnings revisions 2010F Previous Sales Operating profit EBT Net profit OP margin (%) EPS 350.720 2010F 9. 2011F 8.4 115.1 5.326 2011F Previous 448.6 81.1 109.262 Revised 382.7 83.1 (W bn. won) Differ.1 Source: Korea Investment & Securities 3 .3 5.6 65.4 62.8 107.8 23.0 5.1 83.1 5.1 5.7 1.

0 28.0 27.5 24. (W bn) Sales Gross Profit SG&A Expense Operating Profit Non-OP.6 25.8 0.4 50 3.8 NM 65.3 26.1 27.3 85.0 18.5 3.2 NM NM NM 2.0 26.308 160 7. per share data (won) EPS BPS DPS SPS Growth (%) Sales growth OP growth NP growth EPS growth EBITDA growth Profitability (%) OP margin NP margin EBITDA margin ROA ROE Dividend yield Stability Net debt (W bn) Int.7 27.1 10.9 13 NM 42.1 25.1 (117) NM 0.361 NM 65.0 (124) NM 0.6 23.236 160 6.2 NM 62. in Equity Incr.2 4.9 20. (W bn) Current Assets Cash & Cash Equivalent Accounts Receivable Inventory Non-current Assets Investments Tangible Assets Intangible Assets Financial Business Assets Total Assets Current Liabilities Accounts Payable ST debt & bond Current prortion of LT debt Non-current Liabilities Debentures LT debt & Lease Financial Business Liabilities Total Liabilities Paid-in Capital Capital Surplus Capital Adjustments Retained Earnings Minority Interests Shareholders' Equity 2008A 2009A 115 45 31 30 105 12 86 1 0 221 78 6 51 5 7 0 2 0 85 16 38 0 54 0 136 142 49 27 48 112 4 100 3 0 254 69 13 37 4 13 0 4 0 82 20 34 0 102 0 172 2010F 226 114 39 54 138 6 122 3 0 364 35 13 0 0 12 0 0 0 46 25 186 (68) 159 0 318 2011F 263 121 50 68 166 7 147 3 0 429 44 16 0 0 15 0 0 0 59 25 186 (92) 236 0 371 2012F 331 152 62 86 176 9 153 3 0 508 55 20 0 0 19 0 0 0 74 25 186 (129) 336 0 434 Income statement FY-ending Dec.3 36.0 NM 22.363 160 9.192 4.997 1.698 1.4 29. coverage (x) D/E ratio (%) Valuation (x) PER PBR PSR EV/EBITDA NM NM NM 3.5 23.0 (157) NM 0.315 6.624 160 12. in W/C Others C/F from Investing CAPEX Decr.6 23. Korea Investment & Securities estimates Source: Company data.4 15. Korea Investment & Securities estimates Cash flow FY-ending Dec.6 26.2 17. (W bn) C/F from Operating Net Profit Depreciation Amortization Net incr.3 14.2 17. in Investment Others C/F from Financing Incr.8 58.4 35.8 0.706 7.7 33.4 11.5 23.5 44.8 2.0 26.7 8.0 26.6 35.0 14.8 (7) NM 26.5 19.0 36.9 69.5 62.7 26. Korea Investment & Securities estimates 4 .5 26. Expense Interest Expense FX Losses Equity Losses Earnings before tax Income Taxes Profit from Discontinued Net Profit Net Profit of Parent EBITDA 2008A 2009A 2010F 2011F 2012F 204 90 52 38 13 1 11 0 19 3 6 0 32 7 0 26 26 47 280 144 79 65 11 1 6 0 12 3 6 0 64 16 0 48 48 78 380 192 105 86 8 1 1 0 8 1 2 0 87 22 0 65 65 105 482 245 133 111 11 2 1 0 8 0 2 0 114 29 0 85 85 133 608 308 167 141 13 2 1 0 9 0 2 0 145 37 0 108 108 167 Source: Company data.1 17.5 0.645 2.Lock&Lock (115390) Balance sheet FY-ending Dec.159 8.6 NM 23. Profit Interest Income FX Gains Equity Gains Non-OP.3 4.3 3.153 2008A 2009A 2010F 2011F 2012F Source: Company data. Korea Investment & Securities estimates Source: Company data. in Debts Dividends Others C/F from Others Increase in Cash 2008A 2009A 26 26 8 1 (14) 5 (31) (27) 2 0 (0) (6) 28 0 29 (1) 0 7 30 53 48 11 2 (12) 4 (41) (38) 5 (2) (4) (2) (15) 0 (15) 0 (0) 3 4 2010F 73 65 17 2 (13) 2 (46) (40) 0 (1) (1) (4) 37 157 (45) (6) (68) 0 65 2011F 89 85 20 2 (20) 2 (51) (45) 0 (1) (1) (4) (31) 0 0 (8) (23) 0 7 2012F 111 108 24 2 (25) 2 (37) (30) 0 (1) (2) (4) (43) 0 0 (8) (35) 0 31 Key financial data FY-ending Dec.5 23.8 17. in Current Assets Incr.9 31.8 27. in Fixed Assets Net incr.6 21.1 31.3 27.1 5.8 12.466 1.8 21.

do hereby certify that the views expressed in this research report accurately reflect my/our personal views about the subject securities and issuers discussed in this report.. does not own over 1% of Lock&Lock shares as of August 5. or its affiliates known at the time of publication of the research report or at the time of the public appearance. Prepared by: Jung-In Lee..Lock&Lock (115390) Changes to recommendation and price target Company (Code) Lock&Lock(115390) Date 05-11-10 Recommendation BUY 45.. Korea Investment & Securities Co. is. and is provided for information purposes only.. Ltd. The final investment decision is based on the client’s judgment. Minha Choi This report was written by Korea Investment & Securities Co.000 0 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Price target W35. sector ratings for the next 12 months Overweight: Recommend increasing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. or its affiliates does not expect to receive or intends to seek compensation for investment banking services from Lock&Lock in the next 3 months.000 5.. or will be directly or indirectly related to the specific recommendations or views contained in this research report. or its affiliates was not making a market in Lock&Lock’s securities at the time that the research report was published.000 15.. 2010. Korea Investment & Securities Co.. has not provided this report to various third parties. Neutral: Recommend maintaining the sector’s weighting in the portfolio in line with its respective weighting in the Kospi (Kosdaq) based on market capitalization. Ltd.000 30..000 40.. There is no actual. Ltd.. Ltd. The company accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. is a broker for share buyback (including trust) of Lock&Lock. Ltd. Analyst Certification I/We.000 ■ Guide to Korea Investment & Securities Co.000 35.000 25. as the research analyst/analysts who prepared this report. Under no circumstances is it to be used or considered as an offer to sell.. or its affiliates does not own 1% or more of any class of common equity securities of Lock&Lock.. 2010. Underweight: Recommend reducing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. material conflict of interest of the research analyst or Korea Investment & Securities Co. Korea Investment & Securities Co.. Ltd. Neither the analysts covering these companies nor their associates own any shares of as of August 5.000 10..000 20. We make no representation as to its accuracy or completeness and it should not be relied upon as such. This material is copyrighted and may not be copied. to help its clients invest in securities.. Ltd.. or its affiliates has not received compensation for investment banking services from Lock&Lock in the past 12 months. Ltd. ■ ■ ■ Important Disclosures As of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent month if the publication date is less than 10 calendar days after the end of the most recent month).. Ltd.. Ltd. Korea Investment & Securities Co. I/We do hereby also certify that no part of my/our compensation was. Korea Investment & Securities Co. Korea Investment & Securities Co. Ltd. and this report cannot be used as evidence in any legal dispute related to investment decisions. 5 . This report has been prepared by Korea Investment & Securities Co. Ltd. or a solicitation of any offer to buy. or its affiliates has not managed or co-managed a public offering of securities for Lock&Lock in the past 12 months. stock ratings based on absolute 12-month forward share price performance BUY: Expected to give a return of +15% or more Hold: Expected to give a return between -15% and 15% Underweight: Expected to give a return of +15% or less Guide to Korea Investment & Securities Co. Ltd. redistributed. Korea Investment & Securities Co.. forwarded or altered in any way without the consent of Korea Investment & Securities Co. Ltd.. Korea Investment & Securities Co.