About 1/3 of Output Capacity to Be in U.S. by 2026
The author is an analyst of KB Securities. He can be reached at cm.lee@kbfg.com. -- Ed.
Maintain target price of KRW180,000
We maintain BUY and TP of KRW180,000 on Ecopro BM. Our DCF-based TP (9.73% WACC; 10.61% COE; 4.50% after-tax COD; 1.03 104w adj. beta) represents 36.9x 12m fwd P/E, 9.98x P/B, 16.6x EV/EBITDA and offers 72% upside (vs. Oct 18 close).
Strong 3Q22 earnings; improvement in both ASP, shipments
Ecopro BM posted 3Q22 revenue of KRW1.56tn (+283% YoY) and OP of KRW140.9bn (+246% YoY; 9.0% OPM), which beat the market consensus of KRW131.2bn. Amid strong cathode material demand from the company’s two main clients—high-nickel NCA to Samsung SDI, NCM 9½½ to SK on—the company saw:
(1) QoQ increases in ASP, which reflect increases in key feedstock prices (e.g., nickel, lithium), and
(2) boosts in cathode material shipments from early operation of CAM5N (September; 30k mt/year) and full-quarter contributions from CAM4 (operations resumed after fire in April; 12k mt/year).
By 2026, about 1/3 of EcoPro BM’s output capacity should be in U.S.; highest proportion expected among peers
We forecast 2023 revenue at KRW7.64tn (+50% YoY) and OP at KRW671.8bn (+60% YoY; 8.8% OPM). Earnings growth should top market expectations on (1) strong demand for high-nickel cathode materials and (2) full-year contributions from new production lines (CAM5N 30k mt/year, CAM7 54k mt/year). The U.S. Inflation Reduction Act (details expected to be finalized this year) will make it virtually impossible for Chinese companies to enter the U.S. market. Thus, Ecopro BM should enjoy an increase in orders from battery/EV manufacturers, whose only option would be high-nickel cathode materials. By 2026, 18k of Ecopro BM’s 55k mt output capacity should be in the U.S., the highest proportion expected among the company’s peers.