[Click eStock] "Cheonbo, 2Q Secondary Battery Division Performance Weak... Recovery Expected in Second Half"

[Asia Economy Reporter Lee Jung-yoon] Hana Financial Investment maintained a buy rating and a target price of 380,000 KRW for Cheonbo on the 12th, stating that although short-term earnings decline is expected in the second quarter of this year, a recovery trend is anticipated in the second half.

In the first quarter of this year, Cheonbo's sales increased by 92% year-on-year to 94.3 billion KRW, and operating profit rose by 90% to 18 billion KRW. The operating profit slightly exceeded the consensus estimate. The secondary battery materials segment, which accounts for about 69% of sales, recorded a 114% increase in sales compared to the previous year due to increased demand for lithium salts and additives driven by growth in front-end markets such as electric vehicles and power tools.

However, although the price of LiPF6 (lithium hexafluorophosphate), the raw material for the main product P electrolyte, declined from March, the raw material input cost was reflected based on the volume purchased at the end of the fourth quarter of last year and the beginning of the first quarter of this year, when prices were at their peak. As a result, segment profitability is estimated to have decreased by about 1 percentage point compared to the previous quarter.

The semiconductor and display materials segment, which accounts for about 31% of sales, recorded a 51% increase in segment sales year-on-year due to price increases caused by rising raw material costs despite a slowdown in set demand.

In the second quarter of this year, Cheonbo's sales are expected to increase by 22% year-on-year to 73.5 billion KRW, and operating profit is expected to rise by 41% to 13.5 billion KRW, indicating a decline in profit compared to the previous quarter. Kim Hyun-soo, a researcher at Hana Financial Investment, explained, "Due to an increase in lithium supply from China, product prices are expected to continue declining, causing electrolyte customers to defer volume orders to the second half," adding, "Chinese customers, who account for half of total sales, are expected to experience production disruptions due to lockdown measures amid the spread of COVID-19, leading to weak secondary battery segment performance in the second quarter."

He continued, "With the continued growth in global electric vehicle demand and the expected lifting of China's lockdown measures around November, coinciding with President Xi Jinping's confirmed third term, additive order volumes are expected to show a sharp recovery from the third quarter," and added, "Future production capacity (CAPA) is expected to increase from 3,500 tons at the end of last year to 37,000 tons by 2026, with approximately 700 billion KRW of required funds, of which 300 billion KRW was secured through convertible bonds (CB) and bonds with warrants (BW) issued in February."

He also added, "Given the expected annual operating cash flow of 80 to 100 billion KRW over the next four years, the possibility of additional borrowing or capital increase is considered low."

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