IT parts/smartphone
The author is an analyst for Shinhan Securities. He can be reached at snowKH@shinhan.com -- Ed.
Disappointing 1H, gradual rebound expected in 2H
Chunbo is expected to have registered operating profit of KRW2bn (-83% YoY) in 2Q23, revised down from our previous estimate of KRW6.8bn. Operating profit came to KRW1.6bn (-91% YoY) in 1Q23. Earnings from secondary battery and electronic materials have continued on a downtrend due to falling ASP from price cuts and slowing client demand. Operating margin likely dropped by 13.7%p YoY to 4.6%.
Earnings should rebound gradually in 2H23 with improving demand and stabilizing price levels. What captures our attention is: 1) addition of new facilities with cost-saving benefits; and 2) diversification of products and clients through higher capex spend. We thus expect operating profit to jump from KRW3.7bn in 1H23 to KRW24.4bn in 2H23.
Earnings forecast to be revised up upon ASP hikes
The main culprit behind lackluster 2Q earnings was price cuts caused by declines in raw material costs. The ASP of secondary battery materials dropped from KRW81,835 (+32% YoY) in 2022 to KRW61,402 in 1Q23, similar to that in 2021 (KRW61,764). The capacity utilization rate stood at 76% in 2022 and 74% in 1Q23.
The company’s annual production capacity is projected to increase from 4,900 tonnes at end-2022 to about 21,000-25,000 tonnes in 2023. With new facilities set to start operations in 2H23, the effect of the capacity expansion will be felt for the full year in 2024. We forecast sales of secondary battery materials at KRW504.5bn (+228% YoY) for 2024, assuming a 50% capacity utilization rate during an upturn in demand and ASP adjustment from the addition of new additives. Secondary battery materials should enjoy sustainable growth. Operating leverage effect is also expected from margin gains on the back of product diversification.
Retain BUY for a target price of KRW300,000
Our target price for Chunbo remains unchanged at KRW300,000, based on 2024F EPS of KRW7,898 and a target PER of 38x (6% discount to past PER average). The company has advanced technology in the production of electrolytes and additives vs. battery materials peers, and has secured steady demand through market diversification. We retain our BUY rating on Chunbo, focusing on its mid/long-term growth momentum than short-term earnings.