Organizational Behavior of Megastudy

MegaStudy Co. Ltd.

Price Objective Change

BUY

Equity | Republic of Korea | Education & Training Services 29 May 2009

Golden standard of education gaining growth momentum

Elli Lee >> +82 2 3707 0572

Higher earnings visibility: PO up to W280,000 (25% upside)

We are raising our price objective from W190,000 to W280,000. Our confidence levels on MegaStudy’s earnings visibility is now higher given solid growth in the middle-school online business, and demand shift from “off-line” to “online” in the high-school segment. Our price objective is equivalent to 21x P/E 10E, 30% premium to its global education peers. High growth (13% YoY) in 09 in the number of 12th graders is a positive in terms of re-taker demand in 10E, and should support growth in the high-school online business.

Research Analyst Merrill Lynch (Seoul) elli_lee@ml.com

Young-Ah Han >>

Research Analyst Merrill Lynch (Seoul) youngah_han@ml.com

+822 3707 0534

Stock Data

Price Price Objective Date Established Investment Opinion Volatility Risk 52-Week Range Mrkt Val / Shares Out (mn) Average Daily Volume ML Symbol / Exchange Bloomberg / Reuters ROE (2009E) Net Dbt to Eqty (Dec-2008A) Est. 5-Yr EPS / DPS Growth Free Float W223,600 W190,000 to W280,000 29-May-2009 C-1-7 HIGH W113,800-W360,000 US$1,128 / 6.3 43,619 MEDYF / KOE 072870 KS / 072870.KQ 34.2% -36.8% 26.0% / 26.0% 64.0%

Middle-school momentum kicking in; EPS raised 6% / 15%

We have raised our EPS estimates – by 6% for 2009 and 15% for 2010 – (1) We see higher YoY growth in middle-school online (2009E: 19% to 28%; 2010E: 17% to 24%), given faster-than-expected penetration in this area, along with rising importance of GPAs, and (2) we raise high-school online growth in 2009E to 23.5% from 18.5% and to 14.8% from 8% in 2010E, as demand is shifting from offline to online amid this downturn. However, rising contribution from online will enhance EBIT margin by 1.8ppt in 09E and 2.3ppt in 10E. With earnings visibility in...