KB Securities "Expanding K-Battery Industry Share... Cathode Materials Most Preferred"

Next Year EV Battery Demand to Increase by 69% Compared to This Year
Domestic Battery Companies' Operating Profit Expected to Reach 3.7 Trillion Won in 2023

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Minji Lee] It is forecasted that the performance improvement of domestic battery companies will accelerate next year. Through proactive expansion and securing orders, the operating profit of domestic battery companies is expected to rapidly grow from around 1 trillion KRW this year to 3 trillion KRW in 2023.

On the 17th, KB Securities analyzed, "Both Korean EV battery manufacturers and material suppliers are expected to benefit from the growth in upstream demand." With the continued expansion of electric vehicle sales in 2022, a significant performance improvement of EV battery companies is anticipated, and secondary battery material companies are also expected to see sales growth due to increased demand for EV materials. It is judged that the performance improvement trend of cathode material companies will be particularly notable.

Global EV battery demand is projected to reach 537 GWh next year, an increase of about 69% compared to this year. Accordingly, the sales and operating profit of three Korean EV battery companies are expected to grow by 39% and 118% year-on-year to 44.9522 trillion KRW and 2.6896 trillion KRW, respectively. Through proactive expansion and securing orders, K-battery operating profit is forecasted to increase from 1.2 trillion KRW this year to 3.7 trillion KRW in 2023. In 2023, the EBITA of the battery business is expected to surpass capital expenditures, enabling the generation of free cash flow (FCF).

Researcher Baek Young-chan of KB Securities stated, "The combined operating profit on a consolidated basis of four secondary battery material companies (SK IE Technology, POSCO Chemical, EcoPro BM, and L&F) is estimated at 813.4 billion KRW next year, an increase of about 76.2% compared to the previous year." He added, "The average annual operating profit growth rate of the secondary battery material sector over the next three years is expected to be 72.5%, significantly exceeding the KOSPI's average annual operating profit growth rate of 27.9% during the same period."

Among secondary battery material sectors, the cathode material industry is noteworthy. Cathode materials have the fastest technological advancement among secondary battery materials, with cost reduction and driving range improvement simultaneously achieved centered on high-nickel ternary cathode materials. The sector's average margin is also showing improvement; while other material companies' margins have stagnated this year, cathode material companies' margins are rapidly improving due to product mix enhancement, vertical integration, and economies of scale.

EcoPro BM and L&F were identified as the top preferred stocks within the material sector. EcoPro BM, as a key cathode material partner of Samsung SDI and SK Innovation, is expected to see increased demand driven by the growth of upstream customers. Researcher Baek said, "The advantage in raw material sourcing through vertical integration of precursors highlights superior profitability compared to competitors." In the case of L&F, the attractiveness is increased by its most aggressive expansion of electric vehicle battery production. Baek noted, "Sales and profits are rapidly increasing as Tesla-oriented NCMA cathode materials have begun to contribute significantly to performance," adding, "There is also a possibility of direct supply of cathode materials to Tesla in the future."

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