Cosmo Advanced Materials, Will Large-Scale Expansion Boost Performance?

[Asia Economy Reporter Jang Hyowon] Cosmo Advanced Materials, a secondary battery cathode active material manufacturer, recorded strong performance in the first half of this year. The favorable conditions in the upstream industries are analyzed to have driven the results. Cosmo Advanced Materials plans to expand its production facilities with an investment of 150 billion KRW, and it is expected to grow alongside the market in the future.

◆Strong NCM and MLCC Market Conditions= Cosmo Advanced Materials produces key secondary battery materials such as cathode active materials used in electric vehicles (EVs) and energy storage systems (ESS), release films used in the manufacturing process of multilayer ceramic capacitors (MLCC), and toners used in copiers and printers. As of the first half of this year, the sales composition ratio is 63.7% for secondary battery cathode active materials and toners, and 36.3% for release films used in MLCC.

The main product, secondary battery cathode active material, was originally focused on lithium cobalt oxide (LCO) cathode active materials for batteries used in electronic devices such as laptops and smartphones. However, since 2018, the company has expanded its business to nickel cobalt manganese (NCM) cathode active materials, which are key materials for EV and ESS batteries. Currently, the NCM cathode active material business accounts for 95% of the total secondary battery cathode active material sales.

Cosmo Advanced Materials’ performance in the first half of the year is very favorable. The company recorded cumulative sales of 165.3 billion KRW in the first half, a 97% increase compared to the same period last year. Operating profit and net profit were 11.6 billion KRW and 9 billion KRW, respectively, increasing by 213.5% and 309%.

The reason for the strong first-half performance is interpreted as the favorable market conditions for NCM and MLCC, which led to increased production line utilization rates. The average utilization rates for secondary battery cathode active materials and functional films in the first half were 90.6% and 98.5%, respectively. In the same period last year, they were 50.6% and 93.8%. Additionally, a favorable KRW-USD exchange rate supported sales. Over 95% of Cosmo Advanced Materials’ sales are recognized as exports, so the exchange rate significantly impacts sales revenue.

Although the performance was good, the operating profit margin slightly declined to 7% compared to the previous quarter. This is analyzed to be due to rising raw material prices since the second half of last year, which increased the cost ratio. Kim Cheoljoong, a researcher at Mirae Asset Securities, stated, "With the start of operation of the new NCM line in the third quarter, shipment volume will increase significantly," and added, "As the gap between raw material costs and selling prices stabilizes, solid profitability will be restored."

Furthermore, Researcher Kim predicted, "When LG Energy Solution begins supplying NCM8 products for electric vehicle batteries at the end of the year, Cosmo Advanced Materials will be able to narrow the valuation gap with top-tier companies." It is known that Cosmo Advanced Materials supplies about 150 tons of NCM cathode active materials monthly to LG Energy Solution.

◆Profit Expected to Increase by 32% through Expansion= Cosmo Advanced Materials plans to significantly expand its NCM cathode active material production facilities. On the 17th, the company signed an investment agreement with Chungju City, Chungbuk Province, to expand a new NCM factory with an investment of 150 billion KRW. Accordingly, Cosmo Advanced Materials will expand a cathode active material factory covering 33,057 square meters on idle land within the existing plant by 2023.

Industry insiders estimate that expanding the factory with an investment of 150 billion KRW will increase production capacity by about 50,000 tons. Reflecting a gradual expansion schedule of 20,000 tons in 2022 and 30,000 tons in 2023, the total production capacity is estimated to reach 40,000 tons in 2022 and 70,000 tons in 2023. According to Mirae Asset Securities’ analysis, the expected earnings per share (EPS) for next year and 2023 are projected to increase by 21% and 32%, respectively, due to the factory expansion.

Cosmo Advanced Materials plans to self-finance 90 billion KRW of the 150 billion KRW investment and raise 60 billion KRW through external borrowings. As of the end of the first half, the company holds about 29 billion KRW in cash equivalents. Additionally, with a net profit of about 9 billion KRW in the first half and an expected annual profit of 18 to 20 billion KRW, there is no difficulty anticipated in securing investment funds.

Even with increased debt, the financial condition is expected to remain sound. As of the end of the first half, Cosmo Advanced Materials’ debt ratio stands at 84.5%. Short-term and long-term borrowings are approximately 51.3 billion KRW and 21.4 billion KRW, respectively. Except for USANCE (usance letters of credit), borrowings were obtained at low interest rates of 1-2% from institutions such as the Korea Development Bank, so interest burden is not significant. In fact, interest expenses for the first half were only 900 million KRW.

A Cosmo Advanced Materials official stated, "Additional funds for the NCM factory expansion will be secured through bank loans," and added, "We are not currently considering convertible bonds or rights offerings."

This content was produced with the assistance of AI translation services.