[Click eStock] "L&F, Biggest Beneficiary of Inflation Reduction Act Passage"

[Asia Economy Reporter Hwang Yoon-joo] Daishin Securities stated on the 17th that L&F is expected to be the biggest beneficiary of the passage of the Inflation Reduction Act (IRA). Accordingly, they upgraded the investment rating to 'Buy' and raised the target price to 380,000 KRW.

Jeon Chang-hyun, a researcher at Daishin Securities, analyzed, "We expect third-quarter sales to increase by 484% year-on-year to 1.4 trillion KRW, and operating profit to rise by 613% to 96.4 billion KRW."

Jeon explained, "This includes the performance deferred to the third quarter due to inventory adjustments by customers in June (estimated sales of 128.5 billion KRW and operating profit of 9 billion KRW)."

He further analyzed, "The selling price (P), linked to the rise in metal prices, is expected to increase by 13% compared to the second quarter, and shipments (Q) will also increase by 45% compared to the second quarter due to the full operation of the Guji Plant 2 (40,000 tons)." However, profitability (OPM) is expected to slightly decrease by 0.2 percentage points from the previous quarter to 6.9%, due to the continued relative increase in selling prices.

[Image source=Yonhap News]

Above all, L&F is expected to be the biggest beneficiary of the recently announced IRA bill in the United States. The key point regarding EV subsidies under the IRA bill is that battery materials (such as cathode materials) must be produced within North America, and minerals (lithium, nickel, etc.) must be produced either in countries with FTA agreements or recycled within North America.

Jeon said, "The cooperation between Redwood (mineral recycling) and L&F (cathode materials) to establish a North American cathode material value chain will be the model answer," adding, "The business model securing a vertically integrated value chain from mineral (recycling) to cathode materials within North America will quickly build a local supply chain in line with the IRA bill." He explained that a concrete announcement is expected in the second half of the year.

He added, "Considering additional overseas capacity after 2024, rapid growth centered on North America is expected," and projected, "Current capacity guidance is 130,000 tons in 2022 (domestic basis), 220,000 tons in early 2024, and 300,000 tons in 2026."

He continued, "There is a high possibility of upward revision of guidance due to additional overseas capacity," and concluded, "We maintain L&F as the top pick in the industry."

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