[Click eStock] Korea Zinc, Separate Profitability Recovery... Secondary Battery Business Unveiled

Daishin Securities announced on the 25th that it maintains a Buy rating and a target price of 700,000 KRW for Korea Zinc. This is because profitability on a standalone basis is highly likely to recover from the third quarter, and additional information related to the secondary battery business is expected to be disclosed in the second half of the year.

Lee Taehwan, a researcher at Daishin Securities, noted at a recent Korea Zinc Non-Deal Roadshow (NDR) that the main points of interest were the outlook for global zinc supply and price trends, key factors for improving standalone smelting business performance in the second half, causes of subsidiary performance sluggishness and the timing of potential profitability turnaround, progress of investments in copper foil (KZAM) and precursor (KPC), the possibility of consolidated inclusion through changes in the shareholding structure of affiliated company Kemco, the significance of the semi-annual dividend amount and dividend policy, and issues related to shareholding competition.

The three main reasons for the weak performance in the second quarter were identified as an unusual sharp drop in zinc prices, a decline in sales volume due to annual facility maintenance schedules, and slow performance improvement of consolidated subsidiaries.

The researcher explained, "Among these, the zinc price decline and annual facility utilization rate issues are expected to be resolved from the third quarter, enabling a turnaround," adding, "The sharp price drop occurred as zinc supply loosened due to increased smelter operations in Europe amid low zinc demand." He analyzed that recent supply restrictions caused by mine operator shutdowns have provided an opportunity for price rebound. However, a decline in spot smelting charges (TC) is inevitable and is expected to affect the 2024 BM TC negotiations. The annual sales volume guidance (640,000 tons of zinc, 430,000 tons annually) is considered fully achievable.

He pointed out that subsidiary performance improvement is progressing slowly. Australian SMC has completed the change to the perioxide process but will undergo a 12-month ramp-up due to stabilization issues. Steelcycle is expected to continue operating at a loss due to facility maintenance and rising raw material procurement costs.

The copper foil business is projected to commence commercial production and delivery by the end of the year (November to December). Currently, production capacity is 13,000 tons, with plans to expand to 60,000 tons by 2027. Assuming normal yield, a low teen operating profit margin is expected. The nickel business is currently reviewing customers and raw material sourcing from multiple angles.

The precursor business is preparing production facilities with a capacity of 20,000 tons by the end of this year and is scheduled to start operations in the third quarter of next year. Expansion to 50,000 tons is planned in the future. The researcher stated, "We are fully aware of the issue regarding the consolidated inclusion of Kemco, which holds a 51% stake in KPC," adding, "Although it is difficult to specify the timing, we are currently reviewing the expansion of control." After resuming semi-annual dividends, a DPS of 10,000 KRW was announced. Despite weak first-half performance, he viewed this as a message of shareholder returns.

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