Malaysian Subsidiary to Drive Growth in Sales and Margins
The authors are analysts of Shinhan Investment Corp. They can be reached at yjjung86@shinhan.com and ik.jung@shinhan.com, respectively. -- Ed.
2Q20 OP of KRW14.5bn (-16.6%YoY) slightly above consensus
Iljin Materials posted operating profit of KRW14.5bn (-16.6% YoY) on sales of KRW135.2bn (-11.2% YoY) for 2Q20, slightly exceeding the market consensus (KRW12bn). Sales from ICS (PCB-use elecfoil) decreased roughly 20% YoY, while those from I2B (secondary battery-use elecfoil) including IMM Tech increased 21% YoY. Global electric vehicle (EV) sales volume dropped 36% YoY due to sluggish demand from China, but I2B sales growth was driven by increased EV battery shipments at domestic secondary battery makers, the company’s major clients. Inventory restocking at clients ahead of new volume EV releases in 2H20 appears to have been partially reflected. Sales from Hungary, a barometer for demand in Europe, went up 35.1% YoY to KRW13.8bn (10.2% of total sales).
Malaysian subsidiary to drive steep growth in top line and margins
The Malaysian subsidiary IMM Tech has continued to grow at a fast pace by steadily beefing up capacity. With the ramp-up of a second plant (capacity of 10,000 tons) in August, sales will likely exceed domestic I2B sales from 4Q20. We forecast quarterly I2B sales from Malaysia alone to surpass KRW50bn. With capacity additions gaining speed, a third plant (20,000 tons) should go into operation in 3Q21. Sales of more than KRW100bn look possible upon normalization of production. IMM Tech is projected to generate sales of KRW420.6bn (+175.1% YoY) in 2021.
Retain BUY for a target price of KRW63,000
We retain our BUY rating on Iljin Materials for a target price of KRW63,000. High profitability is expected to be secured with the growth of IMM Tech which has cost advantage. The company should continue to work on expanding overseas capacity in line with domestic battery companies’ strategies to increase overseas production.