[Click eStock] "EcoPro BM, Steady Corporate Value... Resumption of Profit Growth"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a buy rating on EcoPro BM on the 14th, expecting profit growth to resume. The target price was set at 610,000 KRW, down 12% considering the rising interest rate environment.

In the fourth quarter of last year, EcoPro BM recorded sales of 503.9 billion KRW and operating profit of 26.8 billion KRW, growing 104% and 99% respectively compared to the same period last year. Sales significantly exceeded market expectations of 444.3 billion KRW. Despite global semiconductor supply shortages causing disruptions in automobile production, the electric vehicle battery segment, which accounts for 44% of sales, saw a substantial increase in sales of new high-nickel cathode materials and prioritized electric vehicle production under carbon emission regulations. Supported by rising mineral resource prices leading to higher selling prices, segment sales increased by 194% during the same period.

The non-IT segment (approximately 51% of sales), which mainly serves demand for power tools and e-bikes, saw a 43% increase in sales year-on-year due to strong global demand for power tools and expanding applications in e-mobility. The ESS segment (5% of sales) experienced more than a tenfold increase in sales compared to the previous year, driven by concentrated year-end orders for overseas projects from customers and a base effect from the same period last year.

However, operating profit fell short of the forecast (40.3 billion KRW). The early operation of a new factory by EcoPro EM, a consolidated subsidiary and JV with Samsung SDI, increased fixed costs, and a rise in one-time year-end expenses caused the operating profit margin to drop 4.3 percentage points quarter-on-quarter to 5.7%.

EcoPro BM's first-quarter sales are expected to reach 604.7 billion KRW, with operating profit of 45 billion KRW, representing growth of 130% and 152% year-on-year, respectively. Hyunsoo Kim, a researcher at Hana Financial Investment, analyzed, “Despite the shortage of automotive semiconductors, OEMs continue to prioritize semiconductor allocation for electric vehicles, and the company's market share is expected to increase due to the full adoption of high-nickel cathode materials by cell makers.” The operating profit margin for the company in the first quarter is predicted to rise to 7.4% due to the market share increase.

Sales for this year are forecasted at 2.8 trillion KRW, with operating profit at 214.9 billion KRW. In 2023, sales are estimated to grow to 3 trillion KRW and operating profit to 314.1 billion KRW. This is because major customers' battery sales to Europe and the United States are expected to continue increasing in the mid to long term. Researcher Hyunsoo Kim stated, “The company's 2026 production target was recently revised upward from 480,000 tons to 550,000 tons, which could generate sales of 12.7 trillion KRW. Assuming a 60% controlling stake in EcoPro EM and overseas subsidiaries, the expected net income attributable to controlling interests from 550,000 tons of production is approximately 600 billion KRW.”

While the corporate value remains unchanged, Hana Financial Investment lowered the target price by shortening the valuation period amid the rising interest rate phase. The target price was derived based on an expected net profit of 350 billion KRW in 2024 and a target PER (price-earnings ratio) of 40 times. Researcher Hyunsoo Kim added, “The current PEG (price/earnings to growth) ratio based on the current stock price has fallen to 0.7 and 0.4 times, the lowest within the sector. The exposure to sales impact from fire accidents is estimated to be less than 5% of total sales, and employee turnover is not expected to affect profit-generating capability.”

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