To Evolve into a Major Rechargeable Battery Materials Player
The author is an analyst of NH Investment & Securities. He can be reached at minwoo.ju@nhqv.com. -- Ed.
POSCO Chem is projected to see earnings growth from 2023, when the firm should reap the benefits of cost competitiveness from its vertical integration in cathode/anode production. Furthermore, backed by its competitiveness in vertical integration, the firm is likely to expand partnership with major clients. Ultimately, we expect POSCO Chem to evolve into being a major rechargeable battery materials player.
Cathode/anode vertical integration deserves premium
We suggest a Buy rating and a TP of W270,000 on POSCO Chemical (POSCO Chem). As both cathodes and anodes have a high raw material cost portion of 60~70% out of manufacturing costs, material cost reduction is critical. By partnering with its parent company POSCO, POSCO Chemical plans to build (by 2025) a supply chain with precursor capacity of 160,000 tons (60% internalization rate) and lithium capacity of 110,000 tons (80% internalization rate). Furthermore, by forming a JV named POSCO HY CleanMetal, the firm plans to upcycle scraps from LG Energy Solution’s plant in Poland, thus securing major metals for cathodes at prices lower than the LME market price. For anode production, POSCO Chemical is internalizing a hybridization process and diversifying its suppliers of graphite from China to Africa.
All of such efforts have been made possible thanks to POSCO’s extensive funding capacity and global network. It is actually difficult for a cathode manufacturer to become competitive at this pace. Given such, we believe that POSCO Chemical deserves a valuation premium.
With stricter environmental regulations put in place around the world and EV competition getting heated among finished carmakers, battery supply has been far short of demand. Amid the unstable supply conditions, finished carmakers are focusing on securing major metals. US automakers have recently shown interest in POSCO Chemical’s vertically integrated value chain for cathodes and anodes. Partnership among them is also likely.
Aiming to become major rechargeable battery materials player
Moving beyond its current cathode and natural graphite anode materials businesses, POSCO Chemical is also preparing to enter the artificial anode materials and Si-C addictive businesses. Its shares are currently trading at a 2023F P/E of 40x, a premium compared to peers. The firm’s major business focus is likely to shift to rechargeable battery materials, with its portion of overall OP projected to grow from 40% in 2021 to 72% in 2023.