Capacity Expansion and Rising Sales Expectations
The authors are analysts of Shinhan Investment Corp. They can be reached at yjjung86@shinhan.com and ik.jung@shinhan.com, respectively. -- Ed.
1Q21 OP of KRW17.8bn (+102.2% YoY) meets market expectations
Ecopro BM reported operating profit of KRW17.8bn (+102.2% YoY) on sales of KRW263.2bn (+57.0% YoY) for 1Q21, in line with the market consensus. Sales from EV battery materials came in at KRW104.1bn (+121.5% YoY), topping the KRW100bn mark for the first time. Sales from non-IT battery materials were also solid at KRW142.7bn (+28.8% YoY). Growth slowed 10% QoQ due to weak seasonality, but was held up by brisk demand for home appliances. The division sustained growth of more than 20% YoY for three quarters in a row. Operating profit margin stood at 6.8% on increased capacity utilization at the new CAM5 plant. Ecopro BM maintains the highest profitability among cathode materials makers backed by solid client demand, preemptive investments, and internalization of the value chain across the group.
Capacity expansion and rising sales expectations
The company’s industrial complex in Pohang is set to generate sales in earnest. CAM5 Line 3 (NCA) has started production and Line 2 (NCM) will be up and running in 2H21. Non-IT battery materials are expected to see a boost in sales thanks to strong seasonal demand for home appliances. ESS materials are generating meaningful sales since 1Q21. Meanwhile, concerns over continuity of the EV business, the company’s key growth driver, have been removed as SK Innovation, one of its major client, and LG Energy Solution have settled their long-running battery dispute. Ecopro EM, a joint venture with Samsung SDI, plans to ramp-up production early next year.
Retain BUY for a target price of KRW245,000
We retain our BUY rating on Ecopro BM for a target price of KRW245,000. Prospects for overseas expansion are positive as the company has revealed the possibility of venturing into the European market (2024-2025 expected). The group-wide vertical integration of the value chain goes to prove its competitiveness in sourcing. The company is solidifying its competitive edge in core battery material technologies, including single-crystal cathodes, all-solid state batteries, manganese-rich cathode materials, and high-nickel NCM cathode materials. Ecopro BM remains our top pick among the domestic secondary battery materials suppliers.