[Click eStock] "Posco Future M Stock's Upside Potential Shrinks... Target Price Down"

"Losses Widened Due to Demand Slowdown and Price Decline in Q4 Last Year"

Hana Securities on the 1st lowered the target price for POSCO Future M to 464,000 KRW, stating that "the stock price momentum is expected to weaken for the time being." The investment rating of "Buy" was maintained.

On the same day, Kim Hyun-soo, a researcher at Hana Securities, said, "POSCO Future M's consolidated performance in the fourth quarter of last year recorded sales of 1.1 trillion KRW, a 47% increase compared to the same period last year. Operating loss turned to 73.7 billion KRW. The net loss attributable to controlling shareholders also remained at a loss of 75.3 billion KRW, showing poor performance," he explained.

Looking at the cathode materials segment, which accounts for 70% of sales, prices fell by 11% due to a decline in metal prices. Additionally, shipments to Europe decreased due to sluggish demand for electric vehicles, resulting in a decline in shipment volume as well, it is estimated. Consequently, segment sales decreased by 18% compared to the previous quarter. Compared to the same period in 2022, new production capacity increased, leading to a 93% increase in sales. Researcher Kim said, "Regarding segment profitability, inventory increased during the demand slowdown. Coupled with the price decline, a large-scale inventory valuation loss was reflected," adding, "excluding inventory valuation losses, the operating margin is estimated to be around '-2%.'"

The anode materials segment, which accounts for 4% of sales, saw sales decrease by 18% compared to the same period last year. Due to the slowdown in European electric vehicle demand, orders from all three domestic battery companies declined. Regarding profitability, the natural graphite segment is estimated to have maintained an operating margin of about 1%, similar to the previous quarter. Artificial graphite is still in the pre-production stage, with a small level of inventory valuation loss estimated. The steel basic materials segment (26% of sales) saw sales increase by 5% compared to the same period last year due to increased plant segment sales. Overall company profitability recorded an operating loss margin of -6.4%, down 9.3 percentage points from the previous quarter due to inventory valuation losses.

For the first quarter of this year, consolidated sales are expected to be 1.2 trillion KRW, with operating profit of 14.9 billion KRW (turning to profit), indicating improved profitability. In the cathode materials segment, shipments of high-nickel cathode materials to Ultium Cells, a US battery cell manufacturer, are expected to continuously increase, leading to higher segment sales compared to both the same period last year and the previous quarter. Segment profitability is expected to record an operating margin of about 1%, turning profitable. This is because inventory valuation losses are expected to significantly decrease during the continued sideways trend in cathode material prices. The anode materials segment is expected to see increased sales due to the completion of inventory adjustments for customers' natural graphite products and the start of shipments of artificial graphite products.

Researcher Kim said, "due to increased initial production costs of high-nickel cathode materials and artificial graphite anode materials, we have lowered this year's earnings estimates. Considering the rise in discount rates and the slowdown in front-end market growth, a downward revision of earnings and valuation factors is inevitable," he added. He also said, "In the short term, global uncertainties regarding electric vehicle policies have expanded. We believe the stock price momentum will be weak," adding, "With large-scale investments expected until next year (an average of 3 trillion KRW annually over two years), there is also a possibility of equity dilution."

Furthermore, he recommended a conservative approach for the time being. In the long term, he noted that "there is high earnings visibility as cathode materials are supplied to the North American market, where demand visibility is relatively high," adding, "considering only the value of cathode materials, a value of about 31 trillion KRW is derived. When reflecting the value of anode materials and precursors, an appropriate value of up to 36 trillion KRW can be derived, indicating mid- to long-term stock price growth potential."

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