Global EV Market Growth Story Remains Valid

The author is an analyst of NH Investment & Securities. He can be reached at jangjaeho@nhqv.com. -- Ed.

 

We view the global EV market mid/long-term growth story as remaining valid, noting strong environmental regulations in Europe and an EV subsidy extension in China. We expect quarterly earnings performance at Chunbo’s rechargeable battery material division to strengthen gradually going forward, driven by both rising demand from downstream industries and continual capacity expansion.

Raise TP from W70,000 to W83,000

Maintaining a Buy rating, we raise our TP on Chunbo from W70,000 to W83,000, reflecting an adjustment in our target P/E from 21x to 28x (10% discount to global peer average 2020E P/E of 32x) made in light of improved investment sentiment amid a subsiding in the Covid-19 crisis.

We view the global EV market mid/long-term growth story as remaining valid, noting strong environmental regulations in Europe and an EV subsidy extension in China. The company’s electrolyte offerings have proven excellent in prolonging battery life and suppressing discharges. Thus, with the portion of electrolyte being added to rechargeable batteries steadily expanding to now reach around 5%, the electrolyte market should continue to grow going forward.

Chunbo’s production capacity should climb from 660 tons pa in 2019 to 2,420 tons pa this year via an 800 tons pa expansion project in 1H20 and a 960 tons pa expansion project in 2H20. Spurred by this ongoing capacity expansion, we expect quarterly earnings performance at Chunbo’s rechargeable battery material division to strengthen gradually going forward, forecasting that its 2020 sales of rechargeable battery materials will rise 81% y-y to W94.8bn.

1Q20 review: Earnings meet expectations

Chunbo posted consolidated 1Q20 sales of W38.5bn (+14.5% y-y, +14.3% q-q) and OP of W7.2bn (-1.6% y-y, +3.4% q-q), with both figures meeting our estimates and consensus. We mainly attribute the q-q increase in earnings to: 1) normalized operations at the firm’s LiPO2F2 plant following the completion last year of a capacity expansion project; and 2) greater shipments of LCD etchant additives and OLED materials. But, OPM at the electronic materials division narrowed to 13.7% (vs 4Q19: 16.3%) on customer churn.

Citing the deteriorating OPM at the electronic materials division, we cut our full-year 2020 OP projection by 9.6% from our previous estimate. That said, we forecast that 2020 sales and OP will climb to W181.7bn (+34.3% y-y) and W35.4bn (+30.3% y-y), respectively, spearheaded by anticipated earnings growth at the rechargeable battery materials division, a factor which should offset the sluggish performance at the electronic materials arm.

 

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