2Q23 preview
The author is an analyst for NH Investment & Securities. He can be reached at minwoo.ju@nhqv.com -- Ed.
At EcoPro BM, temporarily sluggish earnings were likely unavoidable in 2Q23 due to falling ASPs and line conversion investment. However, the securing of capital for greater mid/long-term competitiveness, efforts to realize order growth, and preparations for the mass production of new products are all progressing smoothly
Entering into virtuous cycle
We maintain a Buy rating and TP of W310,000 (reflecting dilution of 1.6% from W440bn in convertible bond issuance announced on Jun 30) on EcoPro BM. Although near-term earnings are likely to arrive sluggish due to falling ASPs, line conversion investment, and tepid power tool demand, preparations to bolster mid/long-term competitiveness are progressing smoothly. We expect funds raised via convertible bond issuance to be used for overseas plant expansion. Considering its current market cap (W24tn), EcoPro BM should face little difficulty in raising capital in a timely manner with minimal share price dilution relative to peers. In our view, the firm is entering into a virtuous cycle of order growth and EV improvement thanks to the swift implementation of large-scale facility expansion to meet customer need. Future drivers of EV increase are forecast to include additional orders for cathode materials from existing clients and new products (LFP, OLO, NMx).
2Q23 preview: Temporary sluggishness due to falling ASPs and line conversion investment
We forecast 2Q23 sales of W1.98tn (+67% y-y, -1% q-q) and OP of W119.2bn (+16% y-y; OPM of 6.0%), with sales and OP to fall short of consensus by 9% and 10%, respectively.
Expectations for sluggish sales stem from: 1) a 5% q-q decline in ASP in 2Q23 due to lithium price decrease at the beginning of the year; 2) CAM5N line conversion investment (1 NCM811 line + 1 NCM9 half-and-half line → 2 NCM9 half-and-half lines); and 3) slower-than-expected demand recovery for power tools. Of note, the CAM5N line conversion is likely in response to production capacity increase for the F-150 Lightning (40,000 → 150,000 units pa). In 1Q23, EcoPro BM saw inventory value climb to W1.2tn (+44% q-q), which was likely due to pre-production of NCM811 products prior to line conversion. Effects of ASP decline and CAM5N line conversion investment are likely to be in play until 3Q23. In 3Q23, ASP will likely slide by 8% q-q (before rebounding from 4Q23), but shipments are projected to jump by 18% q-q.