Thomas Yi

Equity Bottom-Up

After company visit to <a href="https://www.smartkarma.com/entities/5093" target="_blank" data-smartkarma-citation="entities:5093:1">Zeus Co Ltd (079370 KS)</a>, we feel the company offers three positives and three negatives, in our view.Positives: (1) Highly likely to enjoy second straight year of double-digit growth in 2018/ (2) To benefit from capex at Korean companies through 2019 and Chinese firms from 2020/ (3) Subsidiary IPO on Tokyo Stock Exchange’s Mothers market in processNegatives: (1) Rapid increases in inventory eroded free cash flow in 2017 and 1Q18/ (2) Zeus’ core product segments (cleaning and etching equipment) do not require a high level of technology, so barriers to entry are low/ (3) Korea semiconductor and FPD equipment makers tend to be undervalued on a P/E basisOther than client capex plans, Zeus has two attractive points: likely double-digit growth in 2018 and a pending IPO of its core affiliate. We believe investors are watching these, even as increasing inventories weigh on the firm’s cash flowStock Information: Share price(18/06/15) KRW 19,650/ Market Cap(18/06/15) KRW 204 bn/ Trading Volume (@60days) 39,935 shares/ Historical price(52 weeks; Highest/Lowest) KRW 20,000/KRW 14,150/ Absolute Return (52 weeks) 13.26%/ Major shareholders - Jong W. Lee and others 49.6%, Korea Investment Management 5.0%

After company visit to Zeus Co Ltd (079370 KS), we feel the company offers three positives and three negatives, in our view.Positives: (1) Highly likely to enjoy second straight year of double-digit growth in 2018/ (2) To benefit from capex at Korean companies through 2019 and Chinese firms from 2020/ (3) Subsidiary IPO on Tokyo Stock Exchange’s Mothers market in processNegatives: (1) Rapid increases in inventory eroded free cash flow in 2017 and 1Q18/ (2) Zeus’ core product segments (cleaning and etching equipment) do not require a high level of technology, so barriers to entry are low/ (3) Korea semiconductor and FPD equipment makers tend to be undervalued on a P/E basisOther than client capex plans, Zeus has two attractive points: likely double-digit growth in 2018 and a pending IPO of its core affiliate. We believe investors are watching these, even as increasing inventories weigh on the firm’s cash flowStock Information: Share price(18/06/15) KRW 19,650/ Market Cap(18/06/15) KRW 204 bn/ Trading Volume (@60days) 39,935 shares/ Historical price(52 weeks; Highest/Lowest) KRW 20,000/KRW 14,150/ Absolute Return (52 weeks) 13.26%/ Major shareholders - Jong W. Lee and others 49.6%, Korea Investment Management 5.0%

Zeus (079370 KS) "The Other Two Things to Keep an Eye On"