[Click eStock] "Cheonbo, Profit Strength Justifying High Multiple"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating and a target price of 380,000 KRW for Cheonbo, a secondary battery electrolyte company, on the 8th, expecting rapid growth driven by the expansion of the Chinese secondary battery market.

In the fourth quarter of last year, Cheonbo's sales reached 88.2 billion KRW, and operating profit was 19.6 billion KRW, increasing by 96% and 105% respectively compared to the same period last year. Operating profit significantly exceeded market expectations (14.3 billion KRW). The secondary battery materials segment (accounting for 72% of sales) saw a 134% growth in sales during the same period due to continued demand increase for general-purpose P electrolytes and high-end F electrolytes. Hyunsoo Kim, a researcher at Hana Financial Investment, explained, "Unlike the previous quarter, when profitability was impaired due to rising raw material prices and increased fixed costs from new line operations, the cost increases were reflected in selling prices, and fixed cost burdens eased with higher operating rates, allowing the operating profit margin to recover to around 20%." The semiconductor and display materials segment (accounting for 22% of sales) grew by 34% during the same period as demand for materials in LCD, OLED, and semiconductor sectors increased.

Hana Financial Investment estimates that Cheonbo's sales for the first quarter of this year will be 89.8 billion KRW, up 2% from the previous quarter, while operating profit is expected to decrease by 11% to 17.6 billion KRW. Although profit decline is inevitable due to decreased sales of other products, growth is expected to continue on an annual basis thanks to the expansion of the secondary battery end market. Researcher Hyunsoo Kim stated, "Despite the shortage of automotive semiconductors, the Chinese electric vehicle market continued to grow, increasing by 128% annually even in December last year," adding, "Cheonbo, with over 50% of its sales directed to China, will benefit from this expansion."

With the expansion of the end market and the rising penetration rate of high-end electrolytes within the market, sales in the secondary battery segment are projected to increase from 76 billion KRW in 2020 to 184.8 billion KRW this year, 276.3 billion KRW in 2022, and 566.5 billion KRW in 2023. Accordingly, the company's sales for this year are estimated at 367.7 billion KRW, a 35% increase from the previous year, and operating profit is projected to rise 40% to 71 billion KRW. In 2023, sales and operating profit are expected to reach 663.9 billion KRW and 130.5 billion KRW respectively, continuing the growth trend.

Researcher Hyunsoo Kim said, "Unlike most material companies whose profit growth rates gradually shrink over the next two years compared to the past two years, Cheonbo's operating profit growth rate is expanding, averaging 54% over the past two years and 65% over the next two years," adding, "This will justify a high multiple."

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