Positive Earnings Momentum to Continue

The author is an analyst of NH Investment & Securities. He can be reached at neul.ha@nhqv.com. -- Ed.  

 

With global demand for rechargeable batteries sustaining strong, Tapex’s sales of battery tape are on the rise. With the firm enjoying its best-ever quarterly sales and OPM in 2Q22, we can confirm its position as the exclusive domestic supplier of cylindrical battery tape. Its business environment should remain favorable

Rechargeable battery materials division cruising

We maintain a Buy rating and a TP of W110,000 on Tapex. With global demand for rechargeable batteries sustaining strong, the firm’s sales of tape for use in rechargeable batteries are climbing rapidly. This accomplishment is particularly notable as the company’s rechargeable battery tape shipments have been robust despite lockdown issues at a major EV maker’s production facilities in China. With the portion of power tool makers using high-quality tape also widening, ASP (excluding forex rate effects) upped 4% q-q in 2Q22.

Earnings performances at major cell makers were also driven by cylindrical batteries in 2Q22. Not only Tesla, which mainly uses cylindrical batteries, but also BMW and EV start-ups are known to be planning to expand their use of cylindrical batteries. Although the appeal of Tapex’s domestic supply monopoly on cylindrical battery tapes is becoming more prominent, its shares remain undervalued compared to those for its rechargeable battery material peers.

The firm has started to ship OCA film for OLED panels to a major customer. Although Tapex succeeded in localizing the product, which was exclusively supplied by a global competitor, it took time for the company to secure a notable client. We recommend paying attention to the business’s scalability, such as a rise in application models and client diversification, rather than immediate sales.

2Q22 review: Achieved record-high quarterly sales and OPM

Tapex booked 2Q22 sales of W50.3bn (+38.6% y-y, +8.2% q-q) and OP of W9.5bn (+45% y-y, +33% q-q), beating our estimates by 2.2% and 15.9%, respectively. In particular, OPM stood at 18.9% (+4.5%p y-y, +3.5%p q-q), demonstrating next level profitability. The margin growth is attributed to two factors: 1) sales at the rechargeable battery tape business, which accounts for a high portion of variable costs, grew rapidly and the portion of fixed costs fell; and 2) the price of PVC, a raw material for Uniwrap, declined. As OP contributions from the electronic materials division (rechargeable battery tape) are estimated at around 60~70%, we believe that sales growth at the division was the main driver of the margin improvement. Positive earnings momentum should continue on the back of improved profitability, as the division enters a stable growth trajectory.
 

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