Profitability at Steel Business to Remain Tepid
The author is an analyst of NH Investment & Securities. He can be reached at minwoo.ju@nhqv.com. -- Ed.
Although POSCO Chem’s steel-related earnings for 1Q22 arrived sluggish on a hefty raw material cost burden, its energy materials business delivered solid earnings in line with strong demand. Accordingly, the related contributions to overall OP reversed for the first time in the firm’s history.
Maintain TP of W200,000
We maintain a Buy rating and a TP of W200,000 on POSCO Chem. We boost our 2023~2025F earnings forecasts to reflect upward revisions to the energy materials business (anode materials + cathode materials) capacity. But, we adhere to our current TP on a lowering of our target multiple (24.0x → 21.7x) due to a decline in share prices for rechargeable battery material peers. We increase our cathode materials capacity estimates by 25% (275,000 tons → 345,000 tons) for 2025 and 52% (400,000 tons → 610,000 tons) for 2030. Meanwhile, we push up estimated capacity for anode materials in 2030 by 19% (260,000 tons → 310,000 tons). It is expected that domestic and overseas business cooperation with major customers and new customers (which form the basis for the capacity upward adjustment) will materialize soon.
Energy materials business on track
POSCO Chem posted consolidated 1Q22 sales of W664.6bn (+42% y-y, +24% q-q), 25% above consensus, and OP of W25.5bn (-25% y-y, +25% q-q), 8% below the market projection. Its energy materials business sales exceeded our estimate by 39%, driving company-wide sales growth. However, the steel domain showed sluggish margins due to cost burden, with company-wide OP missing consensus a result. In 2021, energy materials accounted for 34% of overall OP, but as of 1Q22 the figure now hits 55%, exceeding that for steel. Both cathode and anode materials saw 1Q22 sales growth in the mid-20% q-q range, but earnings improvement for cathode materials was more pronounced thanks to mid-10% ASP hike effects.
We forecast 2Q22 sales of W689bn (+43% y-y, +3% q-q; 21% over consensus) and OP of W27.6bn (-22% y-y, +8% q-q; 15% below consensus). Profitability at the firm’s steel business is to remain tepid for now due to cost burden, but q-q OP growth at the energy materials business should continue. In 2Q22, the energy materials business’s OP contribution is likely to expand to 62%. Moving ahead, the firm is to strengthen its mid/long-term business competitiveness via: 1) business portfolio expansion (LFP, LLO, low-expansion anode, etc); 2) the securing of new clients; and 3) smooth progression of upstream market entry.