Broader Vision Built on Strong Fundamentals
The author is an analyst of Shinhan Investment Corp. He can be reached at yjjung86@shinhan.com. -- Ed.
Share price rise with reason
The logic of investing in secondary battery companies is simple. Stocks have undergone a re-rating upon: 1) aggressive capacity expansion through financing; or 2) new client additions and long-term supply agreements. On July 7, Ecopro BM announced a plan to issue new shares (roughly KRW400bn) and corporate bonds in 2H21 to finance investment in overseas production facilities. A timely investment needs to be made with two key clients, SK Innovation and Samsung SDI, accelerating their overseas market forays.
Ecopro BM is also expected to play an important role in Korea’s so-called “K-battery” development strategy. The government promotes domestic sourcing across the whole value chain to meet surging demand for secondary battery production going forward, as well as recycling of used batteries. The company should benefit once Ecopro CnG, an affiliated company, ramps up its battery recycling business in 2H21.
Broader vision built on strong fundamentals
We now expect Ecopro BM to post operating profit of KRW24.2bn (+73.8% YoY) on sales of KRW317.1bn (+66.9% YoY) for 2Q21, exceeding the market consensus. Demand for both non-IT and EV battery materials has been on a steady rise. Increased capacity utilization at the new CAM5 plant was attributable to a 20-30% QoQ rise in the production of flagship EV models at automotive clients in 2Q. The full-fledged operation of CAM5 Line 2 (NCA cathode materials) from 3Q should drive growth further. Strong earnings enable the company to raise funds and take action in the capex cycle.
Retain BUY and raise target price by 43% to KRW350,000
We retain our BUY rating on Ecopro BM and raise our target price by 43% to KRW350,000, based on 2022F EBITDA and a target EV/EBITDA of 35.1x. We applied a 10% premium to the average EV/EBITDA of domestic cathode materials makers in view of the company’s diversified client portfolio and synergy within the group.