We met 30 clients during our HK/SG marketing trip on 23-27 May. Investors showedstrong interest in the Korea Cosmetic Surgery sector given its high growth potential.

　　Higher preference for BTX than HA fillers. In particular, investors seemed to considerbotulinum toxin (BTX) manufacturers as more value-add: 1) There are only eight BTXmakers globally and 2) given BTX’s higher entry barrier to HA fillers, it should be easierfor BTX makers to defend against an ASP drop. Investors also seemed to agree with ourview that China may be an attractive market for the Korean BTX makers given the limitedcompetition (there are only two BTX brands in China) and the favourable recognition ofKorean brands. The pricing of Korean brands is also more competitive. While investorsexpected to see faster growth from HA fillers than BTX due to their more widespread use,they seemed concerned about price cuts for HA fillers as new competitors can alwaysenter the market given HA fillers are easier to make.

　　Hugel most preferred for its earnings growth potential. Investors largely seemed toagree on Hugel having the highest possibility of generating faster earnings growth as itexpands its presence in the international markets. Hugel expects to obtain additionalapprovals for its Botulax in Brazil, Russia and Mexico in 2H16. It also recently receivedFDA approval to start the third clinical trial in China. Medy-tox seemed to be considered aquality play as it was the first Korean company to launch the BTX product. Meanwhile,uncertainties regarding the licence-out contract for its Innotox to Allergan seemed to bethe key concern for the company. For Humedix, by when it could show a noticeableperformance in China was of most interest to investors. Many also showed strong interestin Caregen’s newly launched hair fillers and queried whether they are effective anddifferent from the other hair loss treatment products already existing in the market.

　　Hugel and Humedix remain our preferred sector picks: We retain Buy on Hugel (TPKRW430,000) and Humedix (TP KRW70,000). We like Hugel for its margin upsidepotential as it expands its global presence. We like Humedix for its presence in China.