[Click eStock] E&Di, 100 Billion Increase in Secondary Battery Sales and Benefiting from EU Raw Materials Act

[Asia Economy Reporter Lee Seon-ae] Hana Securities forecasted on the 5th that E&Di's 2023 performance will grow rapidly. However, they did not provide an investment opinion or target stock price. Kim Doo-hyun, a researcher at Hana Securities, pointed out, "With the full-scale sales of secondary batteries in 2023, it is expected to be the first year of performance growth. However, compared to the average price-earnings ratio (PER) of 35.3 times for domestic material companies, the company’s PER is 18.4 times, indicating that it is not fully receiving the secondary battery material multiple." He added, "The company’s growth drivers are sufficient due to the strong performance of its core catalyst materials, 100 billion KRW scale secondary battery precursor performance, and continuous demand increase from customers due to the European Raw Materials Act (RMA) and capacity expansion."

In the second quarter consolidated results, sales were 17.3 billion KRW, down 33.0% year-on-year, and operating profit was 1.8 billion KRW, down 38.0%. The decline was caused by poor catalyst system performance due to the Ministry of Environment’s budget cuts. Contrary to concerns, performance is expected to increase in the second half. Since the performance of Kiryeon ENC, acquired last year, was only recognized as 380 million KRW in the first half, it will be fully reflected in the third quarter. Additionally, catalyst material market conditions are improving due to emission regulations, and actual catalyst supply to a leading domestic gas heat pump (GHP) company started in July. Accordingly, expanding the sales proportion of catalyst materials will enable growth in the core business, and it is judged that the company can currently improve its structure as a secondary battery material company.

E&Di completed an annual 5,000-ton scale precursor capacity expansion in the first half of 2022 and is conducting trial operations in the second half. There is a possibility of sales related to the expansion in the fourth quarter, and the entire expanded facility is expected to be operational by January next year. Due to the nature of the facility, once full-scale mass production begins, yield will approach 100%. Currently, the precursor price is about 20,000 KRW/kg, so approximately 100 billion KRW in sales can be generated from the secondary battery business. Additional expansions of over 20,000 tons are expected to proceed stepwise, and since expansions such as Yumicore’s new plant in Canada are underway, forward demand remains continuous.

Meanwhile, if the battery supply chain is reorganized with a China-exit trend due to the European Raw Materials Act, this is also expected to be beneficial. As the proportion of high-nickel increases, the need for small-diameter precursor rises. E&Di is the only domestic company mass-producing below 5 μm and is scheduled to supply exclusively to Yumicore, the global No. 1 European customer. Additionally, further global customer acquisitions are expected based on references. Researcher Kim emphasized, "This year’s sales are expected to increase by 10.3% to 85.4 billion KRW, and operating profit to rise by 9.6% to 8.4 billion KRW. However, in 2023, sales and operating profit are expected to surge by 116.3% and 92.0%, respectively, to 184.7 billion KRW and 16.1 billion KRW."

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