Supplies Cathode Materials to Samsung SDI, SK Innovation
The author is an analyst of NH Investment & Securities. He can be reached at j.ko@nhqv.com. -- Ed.
With its shipments of cathode materials likely remaining solid in general, EcoPro’s 1Q21 earnings release should (as expected) show overall earnings improvement, helped by the reflection of rising metal prices through ASP hikes. Given its differentiated competitiveness in the cathode materials arena, the firm appears set to enjoy hefty earnings growth this year. We advise maintaining an overweight position on the stock.
Anticipation strengthening towards cathode materials domain
We maintain a Buy rating and a TP of W250,000 on EcoPro BM, anticipating that earnings at its rechargeable battery cathode materials business will rise significantly going forward. The company’s expanding sales of various Ni-rich and Mn-rich cathode materials and widening supply portions at clients (cell makers) should both translate into steady earnings growth momentum.
We forecast consolidated 2021 sales of W1.39tn (+62% y-y) and OP of W103.5bn (+89% y-y), led by anticipated high quantitative (Q) growth centering upon Ni-rich cathode materials. According to their product roadmaps, battery makers plan to focus on Ni-rich cathode materials, as they seek to secure leading status in the high energy density battery market. In fact, EcoPro BM’s main clients, Samsung SDI and SK Innovation, are expected to expand their production of rechargeable batteries using Ni-rich cathode materials. Boasting high exposure to both global leading rechargeable battery makers and the Ni-rich cathode materials segment, the company stands well situated to benefit from ongoing rechargeable battery market growth.
In addition, upon EcoPro BM’s newly-developed Mn-rich cathode materials gaining stronger visibility down the road, its earnings growth should be further spurred. Of note, Mn-rich cathode materials are low in nickel and cobalt, a factor which helps in reducing battery costs. Volkswagen has already announced plans to apply Mn-rich cathode materials in its low/mid-end EV models with high price sensitivity.
1Q21 preview: To show improved earnings
On a consolidated basis, we now expect EcoPro BM to post 1Q21 sales of W263.7bn (+7% q-q) and OP of W17.1bn (+19% q-q). Although earnings will likely come in below our previous estimates on a heavier transportation cost burden (due to rising freight rates), the firm should still deliver overall earnings improvement, as expected. With its shipments of cathode materials likely remaining solid in general, we believe that the firm’s earnings for the quarter were pushed up by the reflection of rising metal prices through ASP hikes.