Rechargeable Battery Materials Business Expanding
The author is an analyst of NH Investment & Securities. He can be reached at will.byun@nhqv.com. -- Ed.
Korea Zinc should report sound 4Q21 earnings thanks to zinc price increase. In 2022, the firm’s consolidated OP should climb 14% y-y. In addition, the rechargeable battery materials business should see the completion of an EV battery copper foil production facility in October and the solidification of cathode precursor business.
Strong earnings fundamentals and expansion of rechargeable battery materials business
We maintain a Buy rating and TP of W710,000 for Korea Zinc (010130.KS). Our TP corresponds to a 2022F P/E of 15.3x and P/B of 1.65x (ROE of 11.2%). Moving ahead, share price rise is anticipated, backed by solid earnings fundamentals and an expansion of rechargeable battery materials business.
Entering 2022, the LME zinc price remains above US$3,500/ton. Assuming an annual average price for zinc this year of US$3,276/ton (+11.0% y-y), the benchmark treatment fee (TC) is sized at US$200/ton (+25.8% y-y). In 2022, Korea Zinc’s consolidated OP should up 14.4% y-y to W1.27tn, a record high.
As for the rechargeable battery materials business, it is expected that: 1) an EV battery copper foil production facility with annual capacity of 130,000 tons will be completed in October; and 2) businesses related to cathode precursors and waste battery recycling will take shape.
4Q21 preview: To post healthy earnings thanks to zinc price expansion
Korea Zinc is forecast to log consolidated 4Q21 sales of W2.6tn (+15.8% y-y, +8.0% q-q), OP of W304.9bn (+16.5% y-y, +14.7% q-q), and NP (excluding minority interests) of W215bn (+41.4% y-y, +7.8% q-q), with sales, OP, and NP outstripping consensus by 3.1%, 7.6%, and 5.3%, respectively.
On a non-consolidated basis, 4Q21 OP is projected at W254.8bn (+26.2% y-y, +16.4% q-q). For 4Q21, the price of zinc applied to sales likely rose 9.4% q-q, driving profit growth. Amid zinc price expansion, earnings improvement is anticipated at both Australian subsidiary SMC (zinc smelter) and Zinc Oxide Corporation (domestic subsidiary producing crude zinc oxide (HZO)). Looking at other metals, lead and gold prices likely remained flat q-q, with the price of silver falling 7.5% q-q. Korea Zinc’s 4Q21 earnings were also likely buoyed by a rise in the value of the US dollar versus the Korean won.