'Due to Flooding'... Posco Chemical Expects Weak 4Q Earnings

Impact of Flood Damage Recovery Costs and Cathode Material Price Decline
Expecting External Growth in 2023
Current Valuation Pressure if Customer Acquisition Momentum Delays

[Asia Economy Reporter Hwang Yoon-joo] Hanwha Investment & Securities announced on the 22nd that POSCO Chemical is expected to experience a performance shock in the fourth quarter of this year. One-time costs such as flood damage recovery are the main reasons.

Lee Yong-wook, a researcher at Hanwha Investment & Securities, said, "The fourth-quarter performance is expected to be consolidated sales of 920.1 billion KRW and operating profit of 22.2 billion KRW," adding, "Operating profit is expected to fall significantly short of the consensus (75.8 billion KRW)."

The main causes of the performance decline are ▲ reflection of flood damage recovery costs ▲ narrowing of the price-cost spread due to a drop in cathode material prices.

Lee explained, "In the cathode material sector, shipments for IT use are also decreasing, and profitability is expected to fall to 5-6% (estimated 10% in the third quarter), and in the anode material sector, profitability is estimated to have fallen to 4% (estimated 7% in the third quarter) due to shipment decreases."

Shipments of cathode materials for electric vehicles remained solid. It is considered fortunate that there were no signals of a slowdown in electric vehicle demand. However, the cathode material sector is expected to find it difficult to expect high short-term profitability as in 2022 due to the decline in metal prices.

Lee stated that significant external growth is expected with the operation of a new cathode material plant with a capacity of 90,000 tons this year. He explained, "Sales in 2023 are expected to be 5.7 trillion KRW and operating profit 388.8 billion KRW," adding, "because the 60,000-ton Gwangyang cathode plant and the 30,000-ton Pohang plant will be sequentially operated from the beginning of the year."

Additionally, further customer acquisition is expected through anode materials and securing a stable raw material value chain. In this regard, the second natural graphite plant (25,000 tons) will also be operated, and sales in the anode material sector are expected to nearly double.

Lee diagnosed, "Since they have secured natural and artificial graphite anode materials and a stable raw material value chain, the possibility of acquiring additional customers is high, and the premium compared to competitors is considered justified."

However, he pointed out, "Since the 2024 PER is already 26 times, a 100% premium compared to the competitor average (13 times), if the momentum for acquiring customers is delayed, the current valuation will be a burden."

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