New domestic orders stagnate and export orders contract; outputindex
grew fractionally

The miners are pricing in a slowdown in growth, but not further
downside

Hansae—operating profit beats consensus: Hansae’s consolidated sales
andoperating profit in 3Q jumped a respective 19% and 29.3% y-y to
KRW496.8b andKRW35.1b, the latter—which grew for the first time in six
quarters—met our expectationsand beat consensus by 14%. The OEM division
saw dollar-based sales grow 2.7% y-y toextend growth seen in 2Q, while
won-based ones climbed 3.8% y-y as the KRW/USD raterose 1% y-y.
Operating profit in the division jumped 29.3% y-y, rising for the first
time insix quarters, as orders recovered and margins normalized.
Subsidiary Hansae MK sawsales grow 2.4% y-y, but it turned to an
operating loss due to a hike in the discountproduct portion of sales and
openings of new NBA Kids stores in China.

    Input prices grew but manufactures raised prices to protect
profitmargins

    In our recent China field trip, we visited downstream metal
consumersincluding property developers, infrastructure constructors and
heavy dutyequipment manufacturers. Our key takeaway is that the near
term demandpicture remains solid. The expectation for H2’17and beyond is
however morecautious, with tightening credit conditions; a high
H2’16base and a raft ofcooling measures in the property market all being
cited for the cautionary view.After the recent price correction, we
think the miners are already pricing in asecond half slowdown, but
certainly not further commodity price declines.

    Youngone—misses expectations: Youngone Corp’s consolidated sales and
operatingprofit in 3Q reached KRW551.3b and KRW52.9b, respectively, the
former growing0.7% but the latter staying flat y-y and missing the
consensus by 11%. Dollar-based OEMsales rose 3.9% y-y, while won-based
ones grew 5% y-y. Operating profit for the divisionclimbed 4.5% y-y. The
company’s brand distribution unit (including subsidiary ScottSports,
whose sales fell 0.8% y-y) saw sales fall 0.2% y-y and incurred an
operating loss ofKRW4.4b, weighed on by a hike in discount product
portion of sales and a lack of visiblesynergies among acquired firms. In
particular, Scott Sports recorded a net loss of aroundKRW11.7b due to a
forex translation loss of KRW4b and interest expenses of KRW2.8b.

    The RBI is likely to keep the repo rate on hold at 6%, with faint
risksof a 25bps cut towards the end of fiscal year

    A voracious appetite for property, tempered by tightening measures

    Youngone’s SG&A costs-to-sales ratio rose 1.8%pts y-y to 16.9%, due
to KRW2.5b in aircharge fees caused by efforts to meet a delivery
deadline.

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