* Until concerns over Mangalia fade…

- What’s new? OP satisfactory, non-OP remains a question

4Q09 OP came in 21% above consensus. We believe this implies the company had executed most of its shipbuilding as planned. However, net non-op recorded a W82bn loss, most likely due to an allowance for bad debt. The company issued 2010F OP guidance of W1trn, which we see as a bit aggressive compared to our estimate of W686bn.

- Positives: OPM exceeded our expectation

2009F OPM came in at 5.5%, above our estimate of 5.3%. We bump up our 2010F OP margin estimate 0.2%p to reflect this. We also raise our 2010F sales estimate to W12.1trn from W11.1trn on the back of faster-than-expected shipbuilding progress. As a result, we adjust up our 2010F OP forecast to W686bn from W572bn.

- Negatives: Uncertainty related to Mangalia shipyard lingers

Uncertainty related to the Mangalia shipyard in Romania (51% owned by DSME) still lingers (impaired capital approximately W200bn as of 3Q09). We view the current efforts of the Romanian government to normalize operations as positive. However, we believe there is possibility of shareholder value eroding in the process, as DSME’s support as a major shareholder is inevitable.

- Conclusion: Sit tight

We revise up our price target from W18,000 to W20,000 (2011F, PBR 1.2x) due to the higher OP estimate. However, we maintain Hold. We believe there is insufficient earnings visibility given 1) non-shipbuilding revenue makes up only 33% of total revenue as of 2009 year-end and 2) overseas subsidiary concerns remain. Moreover, we are taking into consideration the possibility that the recent budget deficit problem in the EU may spread, creating concerns in the shipbuilding finance market.