Solid Performance to Be Maintained
The author is an analyst of KB Securities. He can be reached at cm.lee@kbfg.com. -- Ed.
Lower target price 11% to KRW160,000
We maintain BUY but lower our TP by 11% to KRW160,000 on Ecopro BM to reflect our downward revisions to (1) avg. KRW/USD rate estimates (1,420 in 4Q22/1,340 in 2023E →1,362 in 4Q22/1,275 in 2023E) following plunges in November and December and (2) long-term utilization rates (65%) amid increasing shares of output from overseas plants. Our DCF-derived TP is based on 8.98% WACC (9.47% COE; 6.36% after-tax COD; 1.06 52w adj. beta), represents 34.7x 12m fwd P/E, 8.34x P/B, 13.4x EV/EBITDA and has 60.2% upside vs. Jan 11 close.
Strong demand from EV makers; steady revenue growth to continue
We forecast 4Q22 revenue at KRW1.8tn (+258% YoY) and OP at KRW126.2bn (+359% YoY; 7.0% OPM), which is below the market consensus. Weak power tool demand amid the slowing economy and FX declines should disappoint, but revenue should maintain steady growth (+15% QoQ) on the back of solid demand for high-nickel cathode materials (for EV batteries) from Samsung SDI and SK on. OP should be hit by one-off costs (e.g., performance bonuses, impairment of unusable assets).
Solid performance to be maintained despite concerns over slowing demand
We see Ecopro BM continuing its earnings run, posting 2023E revenue of KRW8.1tn (+55% YoY) and OP of KRW654.0bn (+59% YoY; 8.1% OPM). Despite concerns over slowing demand, the company’s solid performance should be maintained, as (1) the capacity utilization rate for EV batteries at major client Samsung SDI is holding at high levels and (2) cathode material shipments should grow 42% YoY thanks to lines CAM5N (added in 1Q23), CAM7 (operations to start in 1Q23) and CAM4N (recovery from fire damage).