Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!

"#$%&

SAMS'() ELECT*+(,CS ,( THA,LA(-

.inal Case

Chun Tao Anthony Park Kunihiko Mikuriya Matthe/ Kostiak Lu0s Hidalgo

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& Executive Summary This case 1ocuses on the aluing Samsung Electronics, /hich is a ma2or /orld/ide manu1acturer o1 consumer electronics, and its ongoing 3ro2ect aimed at ca3turing %45 o1 Thailand6s mo7ile 3hone market8 ,t /ill ask students to study a collection o1 Thailand6s country data, ranging 1rom macroeconomic to cultural, as /ell as other related materials such as industrial data and the com3any6s .inancials8 The selection o1 the case6s 7ackground in1ormation /as 7ased on se eral engaging 1actors in ol ed8 .irst o11, Thailand is o1 a 3articular interest e en among other Southeast Asian emerging markets8 As you /ill see /ithin the case document, Thailand contains se eral 1actors that not only magni1ies its 3olitical"economic risk, 7ut also make its risk 3ro1ile more di11icult to measure8 Secondly, Thailand6s mo7ile 3hone market is a 1airly com3licated one /hen com3ared /ith those o1 its regional neigh7ors, /ith an intricate mixture o1 o33ortunities and o7stacles8 The com7ination o1 these 1actors creates a 1a ora7le case en ironment to 3ursue our main learning o72ecti es 1or the case, /hich is as 1ollo/s8 Learning Objectives of the Case: %8 Retrieval of relevant/significant data9This case /ill gi e students some 1irst9hand ex3erience in 3ro1essional le el data screening8 They /ill ha e to see3 through the considera7le amount o1 case documents and exhi7its gi en /ithin the case to retrie e the 1e/ rele ant data that /ill 7e used to assess the 3ro2ect as /ell as the com3any8 A considera7le amount o1 the in1ormation may 3ro e to 7e redundant, de3ending on the student6s a33roach8 #8 Multi-tiered measurement of risk9The com3lexity o1 Thailand6s risk 3ro1ile, as /ell as the s3ecial conditions associated /ith the nation6s mo7ile 3hone market, /ill make risk assessment more com3lex than the standard text97ook case scenarios8 Students /ill ha e to use their o/n intuition to yield relia7le measurements o1 risk, such as the country6s 7eta, and 7e a7le to 2usti1y them i1 they are to recei e 1ull credit 1or the su7se:uent aluation models8 !8 Valuation of a specific project9The case asks students to alue not only Samsung Electronics, 7ut its ongoing 3ro2ect in the Thai mo7ile 3hone market8 Students /ill ha e to aggregate their results 1rom the 3receding t/o case o72ecti es to alue the com3any and the 3ro2ect8 ,n doing so, the student /ill also ha e to make se eral key 2udgments8 They /ill ha e to select the a33ro3riate model that 7est utili;es the a aila7le rele ant in1o, and is most 1it to retrie e the re:uired num7ers8 Also, students /ill ha e to make key assum3tions to 2usti1y the use o1 the aluation model, as /ell as the num7ers that /ill 7e used to com3lete the calculation, due to the inherent unkno/ns 3resent in the case 7ackground8 <.or exam3le, the 1act that the 3ro2ect is an ongoing one and not a concluded one /ith com3lete results=

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& Note to the Professor +ur goal in /riting this case is not 2ust to do a aluation o1 a 1irm, 7ut to get across the 3oint that analy;ing the 7usiness, 1inancial, and country risks in ol ed /hen dealing /ith emerging markets is considera7ly di11erent 1rom /hat /e are accustomed to in aluing '8S8 1irms8 The di11erences in culture, 7usiness 3ractices, and risks among the arious countries o1 the /orld signi1icantly change the /ay a 1irm does 7usiness in each country8 >hile /riting this case, /e tried to kee3 in mind the risks in ol ed and only acce3ted realistic data8 .or emerging markets, the credi7ility o1 data is extremely crucial 1or trying to e aluate /hether or not a 3ro2ect is a /ise in estment8 >e ho3e that a1ter reading our Samsung Electronics case, the reader can get a 1eel o1 ho/ one should go a7out considering an international 3ro2ect 1rom 7eginning to end8 This kind o1 analysis is ery im3ortant to any 7usinessman /ho /ishes to ex3and a7road8 Project Overview The current and 1uture outlooks concerning the mo7ile 3hone market in Thailand 3ro ide Samsung Electronics an excellent o33ortunity to increase re enues and market share8 The Thai youth market is ery so3histicated, yet susce3ti7le to the strategy o1 identity 7randing8 Samsung, as one o1 the most recogni;a7le 7rand names in Thailand <Exhi7it %=, there1ore 1inds itsel1 in an ideal s3ot8 The 1irm ie/ed Thailand as an integral 3art o1 their o erall glo7al strategy /ay 7ack in %?@@, /hen they entered the Thai market 7y creating a 2oint enture /ith Saha Pathana ,nter9 Holding Co8, Ltd8 Thai Samsung <as the 2oint enture is called= is a crucial 3art o1 Samsung6s glo7al ision as Thailand has 7ecome a ma2or manu1acturing hu7 1or ex3orts to arious countries8 >ith Thailand at the center o1 their Southeast Asian strategy, Samsung Electronics has en2oyed un3recedented gro/th in sales and 3roduction in the region8 Such 3er1ormance has led Samsung to 1orecast #49!$5 gro/th in the region in the year #$$!8 Samsung Electronics currently ranks third in terms o1 market share in Thailand, trailing only the t/o cell 3hone giants, (okia and Motorola8 ,n order to gain market share dominance, many o1 the com3etitors in Southeast Asia are in ol ed in com3etition 7ased on mass 3roduction8 Samsung, ho/e er, intends to 1ollo/ a di11erentiating strategy to increase its market share, o11ering inno ati e, luxurious, high9:uality 3roducts and ser ices8 The trends in the Thai market seem to 1it 3er1ectly /ith Samsung6s di11erentiating strategy8 Ha ing de elo3ed multi1unctional color screens, enhanced /ith detailed 3icture de1initions and shar3ness, Samsung is the leader T.T9LC- technology8 +ther ne/ and modern 1eatures are incor3orated into the cell 3hones 7eing o11ered on the market, including o er &$ 3oly3honic ring tones, 7uilt in cameras, and cell 3hones e:ui33ed to handle 7road7and ,nternet8 >ith its industry leading technology, Samsung targets the middle to high9end user markets, looking to take ad antage o1 the Thai market characteristics8 As Samsung Electronics scans the economic and market en ironment, their o72ecti e seems to 7e clear8 Ay the end o1 #$$!, Samsung Electronics ho3es to gain at least an additional !5 market share in Thailand6s mo7ile 3hone market8 The challenge that lies ahead is aluing such a mo e /ith realistic 1igures, data, and ex3ectations8 >ith that said, de elo3ing 3ro2ections 1or the 1uture 3er1ormance o1 a su7sidiary /ithin a Korean Bchae7olC is an inherently di11icult

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& task8 +ur grou36s initial ho3e /as to calculate 7oth the current alue o1 Samsung Electronics and the (PD o1 the Thai mo7ile 3hone ex3ansion 3ro2ect in /hich Samsung is 3lanning to in est8 Ho/e er, gi en the secreti e nature o1 the 1inancing o1 Korean su7sidiaries /ithin a chae7ol, our grou3 decided not to aluate the Samsung Thailand 7ranch8 The num7ers are not 3u7licly a aila7le8 >e kno/ that the 1act that the 3ro2ect is a 2oint enture com3licates the 7reakdo/n o1 1igures and data8 -es3ite this o7stacle, /e still 7elie e that realistic data can 7e 1orecasted and o7tained and that an accurate (PD aluation is 3ossi7le8 Since South Korean la/s 3re ent chae7ols 1rom o/ning 3ri ate 7anks, unlike the situation 1or the Ea3anese keiretsus, the su7sidiaries o1 a chae7ol does not ha e unlimited access to lo/ interest credit8 Aecause Samsung Thailand cannot use its le erage to 3our unlimited amounts o1 ca3ital into its ex3ansion 3ro2ects, our calculations /ill not 7e distorted8 -es3ite the 1act that Samsung Electronics has 7een 7reaking sales and 3ro1it records on a regular 7asis recently, one misste3 in the com3etiti e industry o1 home electronics could s3ell trou7le 1or the com3any8 >e /ish to e aluate /hether or not Samsung6s decision to ex3and its cell93hone market share in Thailand is 3rudent 1rom a 1inancial 3ers3ecti e8 ,1 the (PD should 7e negati e or near 7reak9e en, /e /ould ad ise Samsung to halt its ex3ansion until the mo7ile market en ironment changes and circumstances 7ecome more 1a ora7le to/ard ex3ansion8 The decision to in est is also closely tied to the 1inancial strength o1 the 3arent com3any8 There1ore, /e must 1irst aluate Samsung Electronics, disco er its /orth, and ask oursel es /hether it has the necessary ca3ital to in est in Thailand /hile 1ul1illing its other de7t o7ligations at the same time8 Risks nvo!ve" in Samsung E!ectronics# $hai!an" Strategy Analy;ing risk correctly is essential 1or success1ul ex3ansion into international markets8 >e ha e di ided the risks 1or Samsung6s Thai mo7ile 3hone enture into the 1ollo/ing categoriesF economic, 3olitical"7usiness, social, and industry s3eci1ic8 9 Economic *isk Aeing one o1 the largest economies in Southeast Asia, Thailand gre/ signi1icantly 7e1ore the Asian 1inancial crisis hit in %??G <the attack on the Aaht 1orced Thailand to de alue its currency=8 Thailand is /ell kno/n 1or ha ing a highly educated, yet inex3ensi e, /ork 1orce8 This 3ro ides Samsung Electronics /ith a great o33ortunity8 They ha e al/ays re:uired highly trained 3eo3le to 7uild and sell their technology, 7ut in Thailand, they /ould also 7e a7le to economi;e on la7or costs8 Moreo er, the currency de aluation, /hich cri33led the economy, did make Thailand6s ex3orts more attracti e in the /orld market3lace, sta7ili;ing its ex3ort sector8 Ho/e er, although Samsung Electronics may reali;e 3ositi es in the 3rice and :uality o1 la7or and in the /orld demand 1or the Thai 3roduct, many in estors and analysts still do not ha e the same con1idence in the Thai economy that they had 7e1ore %??G8 They claim that Thailand has not sho/n huge 3ositi e signs that its economy /ill re7ound soon8 ,n order 1or Samsung to reach such lo1ty goals as they ha e set 1or themsel es in the Thai market, the /ealth o1 the 3eo3le in the country and their standard o1 li ing must trend 3ositi ely8 >e ie/ the 3ro2ect 3er1ormance to 7e ery de3endent on )-P 3er ca3ita gro/th due to Samsung6s high9end,

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& 3remium 3ricing strategy regarding their mo7ile 3hones8 ,n %??@, real out3ut dro33ed 7y ?8@5 1rom the year 7e1ore8 >ith the ,M. 7ailout, ho/e er, the economy gre/ &8@5 in year #$$$8 ,n #$$%, the glo7al do/nturn e11ected Thailand negati ely, and they gre/ only %8@58 ,n #$$#, there /as nice re7ound, as the economy gre/ &8&58 This re7ound can 7e ex3lained 7y the /ay in /hich the market ie/s the Thai economy8 The Thai go ernment increased in estor con1idence through re1orming 1iscal 3olicy, tightening go ernment s3ending8 Thus, the re7ound in gro/th can 7e attri7uted to the market risk in the glo7al economy8 9 Political"Ausiness *isk The Thai 3olitical en ironment has sta7ili;ed greatly o er the 3ast ten years, /ith no cou3s during this time8 + er the 3ast three years, Thailand has trans1ormed itsel1 1rom ha ing had one o1 the least trans3arent and legal economies in the /orld into no/ ha ing a /idely res3ected economy8 The Asian .inancial Crisis had a stirring im3act in the /ay the go ernment ie/ed 7usiness 3ractices8 ,n order to /in trust among in estors, the Parliament 3assed la/s to stam3 out corru3tion and to allo/ 3u7lic 3olicy to enter into 3olitical decisions <%Hth Constitution=8 Ho/e er, such changes in 7usiness 3olicies cannot 7ecome the norm in 3ractice o ernight8 Although the %Hth Constitution /as 3assed in %??G, there is still a lot o1 7ri7ery, and many still hold a Bmoney talksC attitude to/ards 7usiness transactions8 Sadly, 7ri7ing seems to 7e acce3ted as a 3art o1 e ery day 7usiness and is almost ex3ected in 7usiness deals8 Mitigation o1 such risks is not in Samsung6s hands8 ,nstead, it is the duty o1 the Thai go ernment8 Also, Thailand has ery com3lex legal and regulatory systems /hen it comes to 1oreign in estment8 There are di11erent sets o1 rules and la/s 1or di11erent countries, /hich lead us to sus3ect that trans3arency is still in its in1ant stages8 Although Thailand has taken ste3s to mitigate these risks, it is still too early to ex3ect Thailand to clear u3 all o1 its trans3arency 3ro7lems8 9Social *isks The social structure in Thailand is characteri;ed 7y signi1icant dis3arities 7et/een the /ealthy and 3oor8 High9income indi iduals are inclined to 7uy luxury items and are 7uying into marketing and ad ertising8 These are those indi iduals /hom Samsung must target /ith its marketing cam3aigns8 The 3oor only make around I#$9I&$ a month, so there is no /ay they can a11ord a Samsung mo7ile 3hone8 ,t is interesting to note that Thailand consumers sho/ ery little resem7lance in tastes /hen com3ared to >estern consumers8 Thailand6s main trade 3artner 7eing Ea3an, the Thai consumers6 tastes are more related to Ea3anese tastes8 Thus, Samsung has to 7e care1ul in their marketing and ad ertising and reali;e /hat /orks 1or them in the 'nited States /ill not necessarily /ork in Thailand8 9,ndustry S3eci1ic The Thai consumer 3re1ers to 3urchase 1rom 7rand names /ith a re3utation 1or ha ing high :uality and technological excellence8 Samsung Electronics is currently one o1 the com3anies 3ositioned in such /ays in the minds o1 the Thai consumer8 Ho/e er, there is a huge industry s3eci1ic risk in ol ed /hen selling in this market8 >ith already a great demand in

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& technology, the intense com3etition 7et/een (okia, Motorola, and Samsung /ill only increase this demand8 Thus, Samsung needs constantly to 7e de elo3ing and selling cutting edge technology 7e1ore its com3etition8 Since 7uying decisions are dri en 7y 3rice not 7y so3histication in technology, this may 3ut a 7ig strain in *J- and marketing costs8 To reach their goal o1 an increase o1 !5 in market share, it is essential 1or them to /in or at least kee3 3ace in the technology race8 Samsung seems to ahead as o1 no/, as they are the leader in some mo7ile 3hone s3eci1ications technology such as T.T screens8 ,ndustry9s3eci1ic risk is controlla7le, and Samsung Electronics is in ery good 3osition to 7e a leader in the technological ad ancement in the mo7ile 3hone market8 Thus this risk can 7e e11ecti ely mitigated i1 Samsung continues to create ne/ technologies in the 1uture as they ha e done in the 3ast8 The rest o1 the risks outlined a7o e are uncontrolla7le, 7ut Samsung Electronics must 7e /ise in ho/ they deal /ith such risks8 The same risks can 7e a33lied to all 1irms com3eting in the mo7ile 3hone market8 A1ter analy;ing these risks, the mo7ile 3hone 3ro2ect re3resents the same amount o1 risk 1or Samsung Electronics as it /ould 7e 1or (okia or Motorola8 Samsung Electronics is already in the market and has done :uite /ell, /hich leads us to assume that they ha e managed the 3olitical"7usiness, social, and economic risks e11iciently, and /ill continue to do so in the 1uture 7arring any un1oreseen e ents in la/s and regulations or any 1inancial crisis8 Samsung E!ectronics is one o1 the largest manu1acturers o1 consumer electronic de ices in the /orld and is a su7sidiary o1 Samsung )rou3, the largest Bchae7olC in South Korea8 +ne o1 its strategic short9term goals is the ex3ansion o1 its 3roducts into ne/ unta33ed markets /ithin Southeast Asia 7eginning this year8 The countries o1 Cam7odia, Aangladesh, and Myanmar are 2ust some o1 the targets in this ne/ am7itious ex3ansion 3lan8 >ithin this s3eci1ic strategic shi1t, our grou3 /ishes to analy;e in 3articular Samsung6s current 3ro2ect that aims to ca3ture %45 o1 Thailand6s mo7ile 3hone market8 Currently, the com3any only has a %$8G5 market share in mo7ile 3hones 1or Thailand8 This 3ro2ect re1lects the di11iculty that a 1oreign multinational 1irm 1aces /hen in esting in an emerging market economy that has limited trans3arency and si;a7le 3olitical"economic risk8 >e /ill 1ocus on the issue o1 accurately aluing the credi7ility o1 the in estment through (PD analysis, taking into account such issues as the a33ro3riate rate to discount cash 1lo/s, the country6s credit risk, and currency exchange rates8 Country %na!ysis: $hai!an" >ith a 3o3ulation o1 o er G$,$$$,$$$ 3eo3le, Thailand is one o1 the largest economies in Southeast Asia8 ,t 3osted extremely ex3ressi e economic gro/th rates o1 around ?5 <1rom %?@49%??4= annually 7e1ore the 7u77le economy 7urst in %??G8 ,t is kno/n 1or 7eing a lo/9cost manu1acturing ex3orter /ith a highly educated /ork1orce8 *ight no/, Thailand is slo/ly re7ounding 1rom the crisis through its strong ser ice sector and machinery ex3ort industry8 ,ts largest ex3ort market is Ea3an and until that country sho/s signs o1 economic reco ery, the Thai economy /ill not 7e a7le to li e u3 to its 3romise in the near 1uture8

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& Economic Conditions Thailand had 7een one o1 the 1astest gro/ing economies in the /orld 7e1ore it ex3erienced an economic crisis in %??G8 *eal )-P had increased 7y an a erage o1 @8@5 year o er year 1rom %??$ to %??&8 ,n %??4 and %??H, real )-P gre/ @8@5 and 4845 res3ecti ely8 The dou7le9digit a erage annual gro/th o1 manu1acturing <%$8G5= led this surge in out3ut 1rom %??$ to %??H8 Thailand6s economy slo/ed 7eginning in Euly o1 %??G8 *eal out3ut 1ell 45 in the last hal1 o1 the year alone, and ?8&5 o er %??@8 >ith the hel3 o1 a I%G8# 7illion relie1 3ackage 1rom the ,M., the Thai economy ex3anded in %??? 7y !8!5 and 7y &8@5 in #$$$8 The Thai go ernment restored in estor con1idence 7y re1orming the 1inancial system and tightening 1iscal s3ending8 )lo7al slo/do/n again hurt Thailand in #$$% as its gro/th slo/ed to %8@58 The &8&5 increase 1or #$$# sho/s that most o1 the uncertainty around the Thai economy can 7e attri7uted to market risk o1 the /orld economy8 This can 7e ex3ected 1or any economy /hich has ex3orts contri7uting to %"! o1 )-P8 At the end o1 #$$#, .itch re ised its outlook on the Thai so ereign rating 1rom sta7le to 3ositi e8 >ith the re ision, in estors can ex3ect an u3grade 1rom its current AAA9 /ithin a year or t/o8 At that time, go ernment de7t /ould not re:uire as high a country risk 3remium8 ,n1lation had 7een 7et/een 45 and @5 7e1ore %???8 Since %???, in1lation has remained 7elo/ #58 *eal interest rates ha e remained 7et/een %$5 and %458 Perha3s most im3ortantly 1or economic de elo3ment, the su33ly o1 2o7s has 1inally gro/n enough to satis1y the 1ormer la7or a7undance8 >ith unem3loyment no/ 7elo/ #5, education and training should im3ro e and allo/ 1or higher alue9added la7or to 7e 3er1ormed in Thailand8 Social Situation Thailand, un1ortunately, is characteri;ed 7y extreme dis3arities in /ealth8 Most o1 the middle and u33er classes reside in Aangkok8 They ha e relati ely high dis3osa7le incomes and are ery susce3ti7le to 1oreign marketing and luxury consumer goods8 +n the other hand, Peasants re3resent the ma2ority o1 the 3o3ulation8 Thai consumer taste exhi7its ery little >estern in1luence due to the 1act that it has ne er 7een coloni;ed 7y a 1oreign 3o/er in its modern history8 The great ma2ority o1 Thais are Auddhist <?45= 7ut there is a signi1icant Muslim 3o3ulation as /ell8 There is a high le el o1 religious and ethnic tolerance among Thais, in marked contrast to other countries /ithin the region <i8e8 ,ndonesia, Phili33ines, Malaysia=8 The national language is Thai and is s3oken 7y ?&5 o1 the 3o3ulation8 English is rarely s3oken exce3t among young educated 3ro1essionals /ho ha e studied the language8 Thailand has a ery high literacy rate <?&5= 7ut has a ery under91unded educational system that discourages the gro/th o1 secondary language skills exce3t among the elite8 Ausiness Practices

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& As in most Asian cultures, Thais 3re1er to esta7lish 3ersonal relationshi3s 7e1ore entering any 7usiness agreements8 Thailand has a ery com3lex legal system and regulatory structure 1or 1oreign o3erations and in estment8 -i11erent la/s a33ly to di11erent nationalities8 There are high le els o1 corru3tion in the 7usiness arena and 7ri7es are ie/ed as a normal cost o1 doing 7usiness in Thailand8 Characteristics of the $hai Consumer &arket Thailand 3ro7a7ly makes the 7est case 1or an argument in 1a or o1 market segmentation and s3eci1ic segment targeting in a 1oreign country 7y M(Cs8 The le el o1 income among the Thai 3o3ulace 1luctuates /ildly 7et/een IH4$"month to I#$"month8 Households in Aangkok earn and s3end more than dou7le the amount com3ared to their 3ro incial 3eers8 .urthermore, the youths o1 under9#$ year olds make u3 &&5 o1 the total 3o3ulation and re3resent a great deal o1 3urchasing 3o/er8 The Thai youth market is ery so3histicated and is susce3ti7le to the strategy o1 identity 7randing8 Most youths earn an a erage o1 I4$ in monthly dis3osa7le income8 A *eader6s -igest sur ey has 1ound that Thais ha e ery strong 7rand loyalty to /ell kno/n 7rands8 Thais, similar to other Asian consumers, 3re1er to 3urchase 7rand names coming 1rom countries /ith a re3utation 1or excellence in a 3articular 3roduct category8 .oreign com3anies should 7e a/are that des3ite the high sa ings rate 3resent in Thai 1amilies, there has 7een rising consumer de7t among Thais8 The recent terrorist threats in the region ha e hurt the im3ortant tourist industry and the re enues it generates8 Samsung an" its mobi!e 'hone strategy Ay year9end #$$#, Samsung Electronics Co8 had taken in I&84 7illion in re enue 1rom ex3orts to Southeast Asia, en2oying an increase o1 4$5 1rom year9end #$$%8 Samsung6s local 3roduction in Southeast Asia 3osted an increase o1 H$5, u3 to I%8? 7illion 1rom I%8# 7illion in #$$%8 The success has cata3ulted Samsung into the stratos3here o1 market leaders in the Southeast Asian region and no/ directly com3etes /ith names like Sony, Panasonic, and (okia8 The success in #$$# has 1ostered high ex3ectations and Samsung has not shied a/ay 1rom making 7old re enue 1orecasts 1or #$$!, ex3ecting to reach IH8! 7illion <!$5 increase= through ex3orts and I#8& 7illion <#$5 increase= through local 3roduction8 Thai Samsung Electronics Co8, Ltd8 /as esta7lished in %?@@ as a 2oint enture 7et/een Saha Pathana ,nter9Holding Co8, Ltd8 and Samsung Electronics, Co8 to manu1acture home electronics and other hi9tech 3roducts8 Samsung ie/s Thailand as a key de elo3ing market in its glo7al strategic ision and has chosen the country as a ma2or manu1acturing hu7 1or glo7al ex3orts o1 arious hi9tech 3roducts8 Thai Samsung6s main mission is to 7ecome /hat is kno/n as a -igital9e Com3any, 3ro iding inno ati e digital 3roducts /ith the a7ility 1or online 3rocesses in order to ca3ture the digital9online and net/ork com3ati7ility re olution8 Samsung is currently third in the Thailand mo7ile 3hone market, 7ehind (okia <!#5= and Motorola <%45=8 Ay the end o1 the year, Samsung intends to gain at least an additional !58 This intense com3etition 7et/een the market leaders /ill lead to a 1urther increase gro/th and 7oost demand in technology8 The o erall demand 1or cell 3hones is ex3ected to increase to a7out se en million units, and the consumer 3re1erences are ex3ected to e ol e as /ell8 Auyers are getting more and

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& more so3histicated and technology conscience instead o1 7eing 3rice /ary as they /ere in the 3ast8 Auying decisions are no/ mainly 7ased on o3erating e11iciency and technological so3histication8 The trends in the Thailand market seem to 1it 3er1ectly /ith Samsung6s di11erentiating strategy 3er1ectly8 A1ter ha ing de elo3ed multi1unctional color screens enhanced /ith detailed 3icture de1initions and shar3ness, Samsung is the leader T.T9LCtechnology8 +ther ne/ and modern 1eatures are incor3orated into the cell 3hones o11ered on the market, including o er &$ 3oly3honic ring tones, 7uilt in cameras, and 7road7and ,nternet ena7led cell 3hones8 Ay targeting middle to high9end user markets /ith industry leading technology, Samsung aims to take ad antage o1 the Thailand market characteristics8 Samsung is ery o3timistic a7out its 1uture in Thailand and ex3ects to see s3ectacular gro/th in the near 1uture8 Thai Samsung ex3ects to 7e the leader in the local Thai market not only in mo7ile 3hone and net/orking, 7ut also in home electrical a33liances and o11ice net/orks 7y the year #$$&8 Three conce3ts Samsung /ill 1ocus on are high :uality, ease o1 use, and reasona7le 3rices8 Ausiness >eek6s annual ,nterArand sur ey ranked Samsung as the /orld6s !&th most alua7le 7rand and it has also 7ecome the 1astest gro/ing glo7al 7rand /ith an increase in 7rand alue to I@8% 7illion8 Thus, in a 7rand name dri en market such as Thailand, it is not sur3rising that the Samsung 7rand name is highly regarded 7y Thai consumers <Exhi7it %=8 Also, a 1act that seems to 7ack u3 Samsung ery o3timistic ie/ on Thailand is the reaction 7y the consumers themsel es8 The three most cited reasons /hy Samsung has a strong re3utation among Thai consumers are exactly /hat Samsung stri es to doF inno ation, :uality, and ease o1 use8 (inancia! Statements an" Performance + er the 3ast 4 years, Samsung Electronics6 1inancial 3er1ormance has 7een exem3li1ied 7y a strong 7alance sheet, income statement and statement o1 cash 1lo/s8 ,n #$$#, unaudited results sho/ that the com3any has reached all time highs in o3erating income, net income, re enues and earnings 3er share8 ,t is still too early to tell 1rom these 3ast 1inancial 3er1ormances /hether or not Samsung /ill continue its healthy gro/th in the long run and sur3ass Sony as the /orld market leader in home electronics8 Balance Sheet >hen /e look at Samsung Electronics6 7alance sheets 1rom %??@9#$$%, /e can see that the com3any has o ercome the Asian currency crisis /oes o1 %??G and 7ecame a healthier com3any according to all 1inancial item indicators8 Cash items gre/ 7y roughly %$$5 1rom %???9#$$%8 ,n entory le els ha e 7een some/hat olatile 7ut Samsung /as a7le to reduce in entory 7y #&5 in #$$$9$%8 The ma2ority o1 the com3any6s long9term assets consist o1 3lant, 3ro3erty and e:ui3ment <o er I%% 7illion=8 This indicates that the com3any has in ested a great deal in 3hysical ca3ital and is 3oised 1or 1uture gro/th J ex3ansion gi en the right o33ortunity8 .urthermore, the large 3ercentage o1 1ixed assets is re3resentati e o1 its industry8 Like most electronics 1irms, Samsung reali;es it must in est a great deal in manu1acturing and *J- to 3roduce inno ati e 3roducts /hile taking ad antage o1 economies o1 scale8

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& >hen /e examine ho/ the assets are ca3itali;ed, /e see a 3otential 1or 1inancial insol ency8 The com3any seems to 7e 1inancing its su7stantial long9term assets /ith mostly Bshort9term 7orro/ingsC <!$5 o1 total lia7ilities=8 Current lia7ilities make u3 a /ho33ing G&5 o1 total lia7ilities8 Thus, Samsung is ery ulnera7le to olatile interest rate mo ements8 ,1 short9term loan 3ayments increase, the com3any /ould 7e hard93ressed to come u3 /ith cash 1rom its illi:uid long9term assets8 +ne could argue, ho/e er, that the ery nature o1 the Samsung )rou3 reduces de1ault risk 1or all o1 its su7sidiaries8 Should Samsung Electronics e er run out o1 cash, the other mem7ers o1 the Bchae7olC /ill likely ste3 in to 3ro ide loans and 7ail the com3any out o1 1inancial distress8 A :uick glance at shareholders6 e:uity sho/s that the com3any6s retained earnings makes u3 H45 o1 its total8 This sho/s that management is dedicated to gro/th and has rein ested most o1 the com3any6s earnings 7ack into the 7usiness rather than distri7ute them out as di idends to shareholders8 >hen /e do a sim3le 1inancial analysis on the 7alance sheet 1or the com3any in #$$%, /e see that Samsung has a current asset ratio o1 %8%& and a de7t9to9e:uity ratio o1 only 8!%8 This sho/s that Samsung is a mature and esta7lished 3layer in the electronics 3roducts industry and it is not o erloaded /ith de7t8 Income Statement (o/here is Samsung Electronics6 ra3id gro/th more e ident than in its income statements8 .rom %??@ to #$$%, sales gre/ 7y @$5 and a erage annual re enue gro/th 1or that 3eriod /as ##58 The 7ulk o1 Samsung6s income consists o1 ex3orts <H@5 o1 total sales in #$$%= and /e look 1or that 3attern to continue in the 1uture8 >ith the exce3tion o1 the #$$% year, Samsung has achie ed 3ositi e annual gro/th in all ma2or income item categories <Sales, )ross Pro1it, (et ,ncome=8 >e 7elie e this outlier is ex3lained 7y the occurrence o1 the Se3tem7er %%th Tragedy8 Since the 'S is a ma2or ex3ort market 1or Samsung, the reduced consumer sentiment and market de3ression that 1ollo/ed the terrorist attack had a se ere negati e e11ect on Samsung6s income8 Ho/e er, 7y achie ing record income le els in the 1ollo/ing year, Samsung sho/ed that it still had strong 7usiness 1undamentals and /as a7le to sell its 3roducts more success1ully than e er8 .rom the in estor6s 3oint o1 ie/, Samsung shares are a ery attracti e 7uy in the market3lace8 EPS and 3ro1it margins ha e sho/n steady gro/th 7arring #$$%8 Samsung also had an interest co erage ratio o1 ?8!& 1or #$$%8 This means that Samsung has ? times as much income as it needs to make its re:uired interest 3ayments8 This is a ery healthy 1igure and means that Samsung6s in estors do not need to /orry a7out the 1irm6s credit risk in the near 1uture8 Samsung is currently trading at a ery strong P"E ratio o1 %H8@? <in Korea=8 This ratio re1lects in estors6 high ex3ectations 1or 1uture gro/th 1rom Samsung8 Cash Flows Statement

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& >e can see that the com3any6s cash 1lo/ mo ements ha e 7een relati ely sta7le o er the 3ast 4 years8 Samsung Electronics has ke3t a sa1ety cushion o1 I%84 7illion in cash annually to co er its ex3enses8 ,n esting acti ities such as the ac:uisition o1 3lant and e:ui3ment and 3ayment o1 long9term de7t account 1or the ma2ority o1 cash out1lo/s8 +nce again, the com3any6s em3hasis is to retain cash 1or ex3ansion o33ortunities and loan maturities8 >e also see cash out1lo/s due to a steady 3attern o1 losses on e:uity in estments and currency translations8 >e may extra3olate that the com3any should 1ocus on hedging currency risk more e11iciently and making smarter e:uity in esting decisions in the 1uture8 )usiness Practices* Stock nformation* an" Performance .or years Samsung Electronics has 7een 3utting market share ahead o1 3ro1its8 (o/, /ith the im3lementation o1 2ust9in9time strategy, Samsung Electronics has ex3erienced a drastic turnaround, and has hel3ed dri e the Samsung )rou3 chae7ol 1rom the 7rink o1 7ankru3tcy8 ,n the constantly changing electronics industry, ne/ inno ations dri e old technology out and dri e ne/ ones in at alarming rates8 An exam3le o1 the 2ust9in9time system at /ork is in stock3iled PC monitors8 These stock3iles used to lose a7out 45 o1 their sales alue e ery month, 7ut /ith the ne/ in entory strategy, Samsung Electronics sa es millions a year 7y ha ing only t/o9month su33ly o1 in entory8 A cost cutting strategy has also 7een im3lemented in order reduce their o erall de7t8 Sho/ing de1iance to Korean 7usiness 3ractices such as li1etime em3loyment, Samsung Electronics cut the num7er o1 its em3loyees 1rom @!,$$$ to 44,$$$, sa ing I#G$ million last year8 + erall, Samsung Electronics consolidated de7t has 7een reduced 1rom #G trillion /on <48@ times e:uity= to %H trillion /on, or I%$ 7illion <%8# times its e:uity=8 The com3any has also taken on 3ositi e and lucrati e in estments o er the last cou3le o1 years8 ,n +cto7er o1 %???, -ell agreed to 7uy I#$$ million o1 SamsungKs con erti7le 7onds in return 1or a steady su33ly o1 1lat93anel screens8 Although the cell 3hone market has not 7een great, Samsung is determined to 3lace their stam3 on this industry8 The industry ex3ects to see total shi3ments o1 a7out &%$ million handsets /orld/ide in #$$!, u3 1rom !?4 million in #$$#8 Ho/e er, /ith their uni:ue 3ricing strategy and targeting mid to high le el income ranges, Samsung Electronics ex3ects re enues 1rom cell 3hone to increase 1rom %$8? trillion /on in #$$# to %!8G trillion /on in #$$!8 There is ho/e er a 1ear o1 lack o1 trans3arency 1rom in estors outside o1 Korea8 Some are concerned that Samsung may go 7ack into market share 1irst93ro1its second /ay o1 thinking, and the 1act that Samsung re2ects to 7reak do/n its 3ro1it 7y di ision adds e en more /orries8 This lack o1 trans3arency hel3s ex3lain /hy Samsung stock traded at %&8# times its earnings in %???8 *ecent 3olitical change may mean that economic success might not come so easily to Samsung as it has come in the 3ast8 >ith the inauguration last /eek o1 *oh Moo9hyun, re1ormation o1 the chae7ol has 7ecome a 3riority8 *oh is said to 7e much more li7eral than outgoing 3resident, Kim -ae9Eung8 *oh6s term 7egan /ith a sudden arrest o1 Chey Tae9/on, ice9chairman o1 SK )rou3, a huge textile manu1acturing chae7ol8 This ne/ 3resident aims to 7ring greater trans3arency to these organi;ations and to 1orce the 1irms to consider the interests o1 minority shareholders8

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& *oh 3ledged to allo/ 1or class action la/suits, meaning that shareholders can no/ sue 1or 1alse re3resentation and 1raud8 He ex3ects that the 1uture o1 the Korean economy /ill 7e 7righter i1 it mo es a/ay 1rom these 1amily organi;ations to/ards more modern 7usiness organi;ations8 He 7elie es that it is im3ortant 1or the economy to continually e ol e es3ecially as a ser ice 3ro ider and in science and technology8 This shi1t o1 thinking in the South Korean macroen ironment is sure to ha e drastic a11ects on Samsung Electronics6 cor3orate strategies8 Samsung Electronics stock isnKt traded in the 'nited States, 7ut in estors can 7uy Samsung Electronics )-*s <glo7al de3ositary recei3ts=, /hich are traded on arious Asian and Euro3ean exchanges8 Samsung Electronics sells on the South Korean Stock Exchange 1or #G?,4$$ South Korean >on8 The '8S8 dollar 7uys %,%?& South Korean >on8 This means that a share o1 Samsung Electronics can 7e 3urchased out o1 South Korea 1or #!!84$ '8S8 dollars8 Aecause this is such a high 3rice 3er share, t/o )lo7al -e3ositary *ecei3ts re3resent one share o1 the underlying Korean stock8 The )-* re3resenting common shares sells at %%G8?# '8S8 dollars8 This im3lies a %8$$5 3remium a7o e the 3rice o1 the underlying shares8 +ne )-* re3resents one share o1 3re1erred stock, and sells at a %8445 3remium 1or 4G '8S8 dollars8 >ithin the last year, the common stock )-* has traded /ithin the range o1 I%$?8$4 to I%H!8%48 The 3remium on these )-*s has 7een as little as L&5 and as high as &58 The 4#9/eek high on 3re1erred )-*6s /as I@&, and the lo/ I4!8 The 3remium 1or these )-*s has ranged 1rom L %45 to @58 Samsung E!ectronics: Cre"it Rating South Korean credit rating en ironment .or se eral years, South Korea has 7een o erlooked as a ia7le market 1or 7ond in estors, largely due to hard9currency issuance and excessi e risk 3remium8 ,n #$$$, South Korea6s credit rating /as AAAM, /hile Mexico6s /as AAM8 -es3ite 7eing a3art 7y only one le el, South Korea /as %%$ 7asis 3oints o er8 The attracti eness o1 the Latin American emerging markets, as /ell as a general lack o1 issuance and the need to restructure in Korea, led to a 3eriod o1 relati e inacti ity in terms o1 in estor con1idence in the Korean 7ond market8 *ecently, South Korea has started to en2oy a more 1a ora7le credit rating8 ,n March o1 #$$#, the Moody6s ,n estors Ser ice raised South Korea6s rating 7y t/o le els, 1rom BAaa#C to BA!8C +n Eune #Gth o1 that year, SJP 1ollo/ed suit and rose Korea6s rating one le el to BA9B 1rom BAAAM8C The u3dates /ere accredited to the country6s di erse economy, 3rogressing 3ri ate restructuring and increasingly strong external 3osition, according to a re3ort 3u7lished in BKorea Today8C Samsung Electronics Samsung Electronics has attained a cor3orate 7ond rating o1 AAA <current as o1 (o em7er #$$#=8 .or the most 3art, its credit rating has con1ormed to the general im3ro ement seen throughout South Korea8 Exhi7it & lists Samsung6s most recent issuances and their current ratings8 Dirtually all o1 them once 1luctuated around Aaa!, /hich /as t/o le els under their

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& current le el8 All o1 them are still under consideration 1or 1urther u3dates, and 7oth local currency and 'S I issuances are at a uni1orm le el8 Also, SJP has gi en the com3any an A9"Sta7le"A# 1or 7oth local currency and 1oreign currency8 As a result, Samsung Electronics ha e 7uilt a strong credit 3osition in 7oth local and international market8 $hai!an"#s &obi!e Phone &arket )eneral + er ie/ Currently, Thailand has a33roximately %4million mo7ile 3hone users, /hich re3resents a #@ 3ercent mo7ile 3enetration rate8 Com3arati ely, Malaysia has &$ 3ercent, Phili33ines at %G 3ercent, China /ith %H 3ercent, and ,ndonesia has 4 3ercent, according to a study conducted 7y Credit Lyonnais Securities Asia<CLSA=8 The Thai mo7ile industry is under su3er ision 7y t/o ma2or state agencies, the Tele3hone organi;ation o1 Thailand<T+T= and the Communication Authority o1 Thailand<CAT=, 7oth o1 /hich re3ort to the Ministry o1 Trans3ortation and Communications<M+TC=8 Mo7ile ser ice 3ro iders are re:uired to 7e licensed 7y these agencies to o3erate in Thailand8 Licensing9related ex3enses include registration 1ee, monthly 1ee, and airtime 1ee a33lied only to outgoing calls8 T/o large local licensees, A,S and -TAC, has a user9 7ase o1 %%8%million, or H45 o1 the total market share8 The rest are made u3 o1 other licensees, /hich include other local ones such as Ta/an Mo7ile Telecom, as /ell as 1oreign ones such as Samsung8 T+T and CAT themsel es o3erate mo7ile ser ice net/ork on a limited 7asis as /ell8 *ecent +utlook -es3ite a glo7al economic slo/do/n that has gras3ed the glo7e6s economy, there are markets that are little or 2ust not a11ected, and the Asia9Paci1ic region6s mo7ile 3hone market is one o1 them8 The chart 7elo/ is the 3ro2ected handset sales, in millions, 1or the Asia93aci1ic region, taken 1rom data 3u7lished 7y )lo7al >ireless (e/s8
350 300 250 200 150 100 50 0 2001 2002 2003 2004 2005 2006 Series1

The chart dis3lays a sta7le gro/th 3attern, 7ut Thailand itsel1 does not con1orm to the 3attern 1ollo/ed 7y the rest o1 the region8 A1ter seeing its market 3enetration increase ra3idly 1rom !8H5 in %??@ to #@5 in #$$#, most industry ex3erts 7elie e that the Thai mo7ile market is slo/ing

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& do/n8 ,n Se3tem7er o1 #$$#, Aoonchai Aencharongkul, chie1 executi e o11icer o1 -TAC<+ne o1 Thailand6s t/o largest mo7ile o3erators=, /as :uoted as saying that the Thai market is Balmost saturated, /ith sales slo/ing a1ter hitting the 3eak in the 1irst ! :uarters o1 #$$#8C He attri7utes this to arious 1actors, such as recuded re enue 3er line, less aggressi e 3romotional cam3aigns, and less com3etition among local 3ro iders8 The general trend o1 the local 3ro iders ha e started to shi1t to/ard 3romoting customer retention rather than ex3ansion 1rom !rd :uarter o1 #$$#8 Exhibit + Brand Name Recognition Among Consumers in Southeast Asia
Sharp 15%

Samsung 32%

Panaosnic 26% Philips 27%

Exhibit , o!ile Phone ar"et Share in #hailand

$%ear&'nd 2((2)

Motorola 25%

Samsung 20%

Nokia 55%

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%&

Exhibit Samsung ElectronicsF Assets

Samsung ElectronicsF EPS

Samsung ElectronicsF (et ,ncome

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%&

Samsung ElectronicsF +3erating ,ncome

Samsung ElectronicsF *e enues

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& Exhibit . Samsung6s -e7t *atings
JP541009AS42 !96050AB" Issued: 19 APR 1996 Issued: 1! S#P 1996 JPY Baa1 3 JUN 2002 3 JUN 2002 3 JUN 2002 3 JUN 2002 Upgrade Yes Possib e Upgrade 15 JAN 2003 Upgrade Upgrade Upgrade Yes Possib e Upgrade 15 JAN 2003 Yes Possib e Upgrade 15 JAN 2003 Yes Possib e Upgrade 15 JAN 2003 Possib e Upgrade 15 JAN 2003

US$ Baa1

USY!4!1"AN06 Issued: 10 JUN 199! US$ Baa1 !96050A#2 Issued: 30 S#P 199! US Baa1 $ %R Baa1 (

%R6005934&"2Issued: 24 AU' 2001

3 JUN 2002

Upgrade

Yes

SourceF Moody6s

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%&

Samsung Electronics
$eaching Note

Valuation of Samsung Electronics Co. Ltd. To aluate Samsung6s net /orth, /e decided to use the >eighted A erage Cost o1 Ca3ital A33roach <>ACC=, as the data re:uired in its calculation /ere more readily a aila7le8 According to the Modigliani and Miller Pro3ositions, the alue o1 a le eraged 1irm is calculated using the 1ollo/ing e:uationF DL N <EA,T O <%9Taxes==">ACC Ho/e er, gi en the 1act that Samsung Electronics is a large, gro/ing and 3u7licly traded 1irm, it is o7 ious that /e must take earnings gro/th and di idend 3ayouts into account8 Thus the 1ollo/ing e:uation /as usedF D N <<<%97=<EA,T= O <%9Taxes=="<>ACC9g== To calculate the >eighted A erage Cost o1 Ca3ital or discount rate, the 1ollo/ing e:uation /as usedF >ACC N >7O*7O<%9Taxes= M >sO*s The cost o1 de7t, the cost o1 e:uity, the tax rate, and the relati e /eights o1 the e:uity and de7t are all gi en in Exhi7it %8 Thus, the 1ormula 1or Samsung6s >ACC is the 1ollo/ingF >ACC N 8!4 O 8$4H O <%98%#$?= M 8H4 O 8#%4% >ACC N 8%4G Samsung6s a erage annual EA,T gro/th rate 1or the last %$ years <%??#9#$$%= is roughly !!8#58 Ho/e er, 1or the e:uation to hold <gro/th rate is no/ larger than the discount rate=, /e must use a sta7le earnings gro/th rate that can theoretically 7e sustained 1ore er8 Since no 1irm, in the long term, can gro/ 1aster than the economy in /hich it o3erates </hich might 7e the glo7al economy=, a sta7le gro/th rate cannot 7e greater than the gro/th rate o1 the economy8 Thus /e use the most recent real )-P gro/th <#$$%= o1 South Korea as our gro/th rate, /hich turns out to 7e !8#H58 The 3ayout ratio is calculated 1rom the #$$% di idend 3ayout <di idends 3er share"earnings 3er share= and is %%58 Earnings 7e1ore interest and taxes is sim3ly the o3erating income 1or the 3ast year8 (o/ /e sol e 1or the alue o1 Samsung Electronics and come u3 /ithF D N <<<%98%%=<!,&@G,?%%= O <%98%#$?=="<8%4G98$!#H==

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& D N #%,?!H,@$%8#G Million Korean >on Here, our valuation is complete and shows that Samsung Electronics is a powerhouse of a company that is worth about $ trillion !orean "on#

/a!uation of the $hai!an" &obi!e Phone Project Cost of Capital $ Correctly estimating the cost o1 ca3ital is ital in aluing the 3ro2ect8 -ue to the intrinsic risks in ol ed in in esting in a 3ro2ect in an emerging market, /e discounted the ex3ected cash 1lo/s using a risk9ad2usted discount rate8 (ormally /e /ould construct the discount rate using the ca3ital asset 3ricing model, 7ut in this case, /e are dealing /ith an international 3ro2ect /ithin an emerging market8 Thus, /e ha e decided to use the )lo7al ,ntegrated Model in order to create a suita7le discount rate to alue this 3ro2ect8 9 %he &oldman Integrated 'odel Conducting the )oldman ,ntegrated Model 3ro ed to 7e challenging and the in1ormation di11icult to assess8 The e:uation used to calculate our discount rate /as as 1ollo/sF * N *1 M SPS M Q<*isk 3remium= The 7ase assum3tion /hen using the )oldman ,ntegrated Model is that the 1irm6s o3erations in an emerging market are as risky as the same ty3e o1 o3erations in the 'nited States /ith an added risk 3remium 1or the emerging country6s added risk8 Thus, /e must use the '8S8 risk91ree rate and market risk 3remium in our calculation8 The '8S risk91ree rate is the yield on the %$9 year Treasury note, !8?!5 <1rom 1inance8yahoo8com=8 The so ereign yield s3read <SPS= /as calculated using the %$9year treasury note"7ond yields 1rom the 'nited States and Thailand8 The yield on the '8S8 Treasury note is !8?!5 and the yield on the Thailand 7ond is !8&58 Thus, taking the di11erence 7et/een these t/o, /e get the s3read e:ual to 84!58 This is a ery narro/ s3read, and gi en this, many 1und managers are reluctant to 7uy Asian 7onds8 Many analysts 7lame such tight s3reads on increased usage o1 de1ault s/a3s8 -e1ault s/a3s are insurance ty3e 3roducts allo/ing in estors to ad2ust ex3osures to the risk o1 de1ault or other e ent on a 7ond or loan8 Actually, Thailand is commonly named as the country /hose yield is most out o1 3lace 1rom /here it should 7e8 Thailand6s 7eta is 8@?8 This is the 7eta listed 1or the largest Thai mo7ile 3hone com3any, Ad ance ,n1o Ser ices, /hich is o/ned 7y the Prime Minister8 >e used the historical '8S8 market risk 3remium o1 G5
U.S risk free rate U.S market risk premium !ailan" #eta #on" %iel"&Sprea" Cost o* '+uit, 3.93% 7% 0.$9 0.53% 0.1069

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%&
Ad-usted R 0.213$

'sing all o1 this data, /e ha e calculated our discount rate to 7eF * N 8$!?! M <8$!?! L 8$!&= M 8@?<8G= N 8$%$H? or %$8G5 The rate /e got 1rom our calculation /as much lo/er than /hat /e had antici3ated8 >e attri7ute this 1inding to a cou3le o1 reasons8 .irst, the risk 3remium added through the 7ond s3read re1lects only the risk o1 the go ernment6s de1ault on de7t and not any o1 the risks in ol ed in the actual 7usiness taking 3lace in Thailand8 Secondly, due to the de1ault s/a3s, the true 7ond yield 1or Thailand has 7een mani3ulated8 )i en these t/o reasons, /e 1eel that this rate is too lo/ and not suita7le 1or our aluation8 >hile /e kno/ that it must 7e ad2usted, /e reali;e that /e ha e no /ay to 3in3oint the exact measure o1 this ad2ustment8 So, /orking on theory alone, /e 1eel /e should dou7le this rate to #%8&58 +nce /e are done /ith our (PD aluation using 7oth the %$8G5 and the #%8&5, /e can assume that the real alue o1 the 3ro2ect /ill 1all in 7et/een the t/o alues8 ,1 it still comes out 3ositi e, /e /ould then 7e sure that the 3ro2ect /ould 7e ery 3ro1ita7le and that Samsung should take the 3ro2ect8 Ha ing discounted the 3ro2ects ex3ected cash 1lo/s at a rate t/ice as high as the calculated rate, a 3ositi e (PD /ill undou7tedly ensure a ery high net /orth 3ro2ect8 (ro)ect Cashflows * >e alued Samsung Electronics6 ex3ansion into the Thailand mo7ile 3hone market 7y gro/ing the ex3ected 1uture cash 1lo/s 1rom the cash 1lo/ gro/th rate 1or the years #$$%9#$$! <#$$! is 3ro2ected year9end cash 1lo/ using Samsung Electronics6 ex3ectations=8 Through Thai Samsung, the su7sidiary that handles Thailand o3erations, Samsung Electronics has 7een a7le to generate a res3ecta7le and gro/ing gro/th rate8 Here is their cash 1lo/ 7reakdo/n 1rom year to year according to our calculationsF #$$%F Thai Mo7ile Phone market consisted o1 a33roximately & million estimated users and /as alued at At #$ 7illion, o1 /hich Samsung had a %$5 market share8 'sing this in1ormation, /e deri ed the cash 1lo/s to 7e #$O8% N At # 7illion8 #$$#F At ! 7illion #$$!F Thai Samsung estimates to 7ring in a total o1 At %@ 7illion 1rom all sales and o3erations, !$5 o1 /hich /ill come 1rom mo7ile 3hones8 Thus /e calculated the cash 1lo/s as %@O8! N At 48& 7illion8 'sing this in1ormation, /e ha e concluded Samsung Electronics6 has 7een a7le to garner a gro/th rate o1 roughly !?5 in terms o1 cash 1lo/ generation since their entry into the mo7ile 3hone market in #$$$ </e could not 1ind any su7stantial or rele ant statistics 1rom year #$$$ to include into this aluation=8 To do our aluation, /e ha e gro/n the 3ro2ected #$$! cash 1lo/ o1 At 48& 7illion 7y !?5 and /ill gro/ the cash 1lo/s 1or the next 4 years at the same rate8 -ue to the 1act that the Thai market has shi1ted a/ay 1rom 7eing 3rice conscious to 7eing more demanding o1 ne/ technologically, /e 7elie e Samsung is in a ery good 3osition to maintain such a high gro/th rate in the 1uture8 Aeing the leader in T.T9LC- technology and color screens along /ith

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& integrating accessories such as a digital camera and high9s3eed access in their cell 3hone, Samsung seems to 7e in 3osition to gro/ signi1icantly in the near 1uture8

(PD Daluation9 A1ter gro/ing the cash 1lo/s at !?5, /e get the next 49year cash 1lo/s to 7e At G84 7illion, At %$8&! 7illion, At %&84 7illion, At #$8%H 7illion, and At #@ 7illion8 Since Samsung6s core strategy in Southeast Asia in recent years is one o1 hea y in estment in marketing, 7rand 7uilding, *J-, and manu1acturing, /e decided to calculate their initial in estment 7ased on this 1ocus8 According to 3ast 3ress releases, Samsung set aside At 4$$ million 1or a marketing cam3aign in #$$%8 >e used this num7er to re3resent their marketing and 7rand97uilding e11orts 1or this 3ro2ect8 According to a recent ne/s article, Samsung has also in ested 'SI#H million 1or *J- and manu1acturing ex3ansion in Thailand8 >e con erted this amount to Ahat using a s3ot exchange rate o1 I% N At &!8 The resulting o3erating in estment /as At %8%%@ 7illion8 The (PD calculation is as 1ollo/sF 'sing %$8G5 (PD NL %,H%@,$$$,$$$ M <G,4$$,$$$,$$$"%8%$G= M <%$,&!$,$$$,$$$"%8%$GR#= M <%&,4$$,$$$,$$$"%8%$GR!= M <#$,%H$,$$$,$$$"%8%$GR&= M <#@, $$$,$$$,$$$"%8%$GR4= N At 4&,H#&,4%@,%%%84# 'sing #%8& (PD NL %,H%@,$$$,$$$ M <G,4$$,$$$,$$$"%8#%&= M <%$,&!$,$$$,$$$"%8#%&R#= M <%&,4$$,$$$,$$$"%8#%&R!= M <#$,%H$,$$$,$$$"%8#%&R&= M <#@, $$$,$$$,$$$"%8#%&R4= N At !?,H&%,%$&,H&@8$&

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& Conclusions 9 As you can 7y the results, /e ie/ the mo7ile 3hone 3ro2ect in Thailand as a huge o33ortunity to generate enormous re enue and 7e an im3ortant 3art o1 Samsung Electronics6 o erall /orld success8 >e conclude that the (PD /ill 1all some/here in 7et/een At 4& 7illion and At !? 7illion 7ut to 7e on the sa1e side, /e /ould ad ise Samsung Electronics6 to /ork /ith the minimum alue8 The minimum according to our calculations is alued at o er At !? 7illion8 There is no dou7t Samsung Electronics should in est hea ily in the Thailand mo7ile 3hone market and /e /ould ad ise them to in est much more to increase their market share8 The Thai market itsel1 is gro/ing, and many o1 Samsung6s com3etitors are staking their claims in the market8 ,t /ould 7e to Samsung6s ultimate 7ene1it to 7e aggressi e and to 7ecome a dominant 3layer in the Thai mo7ile 3hone market8 According to the high (PD at /hich /e arri ed /ith our analysis, Samsung Electronics has 3lenty o1 room to maneu er and in est8 The extra in estments should come in the 1orm o1 *J- or marketing, or o3timally, a com7ination o1 7oth8 >ith so much money and room to maneu er under their 7udget, Samsung Electronics 1inds itsel1 in the 3er1ect situation that /ill allo/ them to 7ecome 7oth the technological leader and the market share leader in the Thailand mo7ile 3hone market o1 the 1uture8

Su''!ementary &ateria!s %8 #8 !8 &8 48 H8 G8 @8 ?8 %$8 %%8 htt3F""///87angkok3ost8net"4H3e#$$#"thaisamsung"thaisamsung8html htt3F""///87usinessinthailandmag8com"archi e"2ulySaug$%"%@8html htt3F""///8economist8com htt3F""///87usinessinthailandmag8com"archi e"2ulySaug$%"%@8html htt3F""///8glo7al/irelessne/s8com htt3F""///8cat8or8th"eng htt3F""///8shina/atra8com"eng +ews , -nalysis. Samsung/s climb to prominence 7y Cordelia Lee Thailand Maga;ine BHandset Makers Die 1or Aigger ChunkC Euly9August #$$% -un J Aradstreet Country *iskline *e3ortF Thailand8 .e78 #$$% (ational -emocratic ,nstitute 1or ,nternational A11airsF Thailand

Luis Hidalgo, Matt Kostiak, Kunihiko Mikuriya, Anthony Park, Chun Tao Samsung ElectronicsExecuti e Summary !"!"#$%& %#8 Ponha3 BSamsung Electronics Posts 'SI&84 AL( *e enue in Southeast AsiaC $%"$#"$! %!8 %&8 %48 Asia Market *esearchF Thailand Ca3sule8 Eune #$$# Aangkok PostF 4H Prominent Enter3rises8 Thai Samsung Electronics Com3any Limited8 The (ation8 Thai SamsungF Taking the hi9tech road to 3ro1it8 (o 8 %@, #$$#

.rom Lexi(exis %H8 Asia Pulse8 Samsung Electronics Posts 'SI&84 AL( *e enue in Southeast Asia8 Ean8 #$, #$$! %G8 )lo7al (e/s >ireF Thai Press *e3orts8 Samsung Launches (e/ Cell Phones8 Ean8 %H, #$$!8