POSCO Holdings
The author is an analyst for NH Investment & Securities. He can be reached at jaekwang.rhee@nhqv.com -- Ed.
With commercialization of the firm’s lithium business nearing and related details taking shape, we raise our TP on POSCO Holdings to reflect the rising values of its lithium venture and subsidiaries. However, the recent share price surge (+63% over two weeks) does present a risk factor.
Raise TP to W750,000 to reflect higher value of lithium business & subsidiaries
We raise our TP on POSCO Holdings to W750,000. The TP hike from the Mar 20 TP of W480,000 reflects the increased values of: 1) the lithium business (roughly W4.3tn → W16tn); and 2) the firm’s stakes in subsidiaries (approximately W7tn as of Mar 20 → W19tn as of Jul 24).
Initial estimates for the value of the lithium business reflected only plans for 43,000 tons pa of lithium ore production. However, we have now included the scheduled production of 25,000 tons pa of brine lithium (set to be completed in 2Q24) in our forecasts and upwardly adjusted our EBITDA margin projection, which was conservatively estimated at 27% (combined basis), to 53.5%. These changes reflect the fact that its rechargeable battery materials business is progressing as originally planned, as confirmed at the company’s ‘Secondary Battery Materials Business Value Day’ on Jul 11, that its future production capacity target has been pushed up from 300,000 tons to 423,000 tons pa, and that it has shown willingness to pursue further active investment. For reference, POSCO Holdings is targeting a lithium business EBITDA margin of 62.5%.
2Q23 review: Earnings rise on production normalization & market rebound
POSCO Holdings logged 2Q23 OP of W1.3tn (+88.2% q-q), in line with the consensus of W1.2tn. POSCO recorded OP of W841bn (+235.1% q-q), which indicates both a complete normalization of production following the flooding incident and a solid market rebound.