[Stock of the Week] L&F: Divergent Target Prices Despite First Quarter 'Earnings Surprise' Outlook

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Market opinions on L&F are divided. Reports raising target prices and others lowering them have been released simultaneously, making investment decisions challenging. However, one common thread is the continued positive assessment of the company's earnings recovery and mid- to long-term growth potential, drawing attention to future share price trends.

L&F is a manufacturer of cathode materials, a key component for electric vehicle batteries. Among domestic cathode material manufacturers, it is recognized for its unrivaled competitiveness in the high-nickel product segment. Its flagship product is the "N95" cathode material, which contains 95% nickel. Recently, L&F has started supplying initial quantities of 46mm cylindrical batteries to new clients such as Rivian, broadening its customer base.

All of L&F’s production facilities are located in Korea, and most of its supply goes to domestic battery cell makers such as Samsung SDI and SK On. This structure makes L&F the domestic cathode materials company expected to benefit the most from the recently discussed "Korean-style IRA (domestic production promotion tax system)."

L&F’s revenue dropped sharply from 4.644 trillion won in 2023 to 1.907 trillion won in 2024. The battery materials industry downturn and plummeting lithium prices were the main factors. In particular, inventory valuation losses significantly damaged profitability, and the burden of financial costs was not negligible.

Signs of a turnaround appeared in L&F’s performance last year. In 2025, L&F’s revenue reached 2.1549 trillion won, up 13% year-on-year. Operating loss narrowed by 72% to 156.8 billion won. Net loss increased to 534.7 billion won, which was analyzed to be due to derivative valuation losses related to bonds with warrants (BW) triggered by the rise in share price.

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The outlook for the first quarter of this year is also positive. DS Investment & Securities forecasts L&F’s first quarter sales to reach 664.9 billion won, an 82% increase year-on-year, with operating profit at 68.2 billion won. The operating profit estimate is more than four times the market consensus of 17.7 billion won.

DS Investment & Securities cited the "reversal of large-scale inventory valuation loss provisions due to the rebound in lithium prices" as the key driver behind this earnings surprise. As lithium prices rebounded at the end of the quarter, a significant portion of previously accumulated inventory valuation loss provisions were reversed.

Sales volume is also expected to grow by 7% compared to the previous quarter. For high-nickel products, strong N95 cathode demand was sustained by robust Tesla sales in Europe and China, and initial deliveries of 46mm batteries to new customers, such as Rivian, have been gradually expanding. For mid-nickel products, demand that had been postponed in the previous quarter due to client inventory adjustments rebounded, creating a base effect.

Researcher Choi Taeyong at DS Investment & Securities emphasized, "If the Korean-style IRA is finalized in July, L&F is expected to be the biggest beneficiary among our coverage universe, given that all production facilities are in Korea and most supplies go to Korean cell makers, leading to an overwhelming benefit."

The contract with Samsung SDI has also been cited as a positive factor. On the 24th of last month, L&F announced a contract to supply LFP cathode materials to Samsung SDI. The contract is worth 1.6 trillion won, equivalent to approximately 120,000 tons in volume. The supply will last for four years starting from the second quarter of this year, with the quantity adjustable by around 25% depending on circumstances. There is also an option for additional contracts until 2032, leaving room for further order expansion.

Researcher Choi added, "With this order, the business visibility of the new LFP plant has significantly increased," and announced that the target price has been raised to 250,000 won in line with upwardly revised estimates.

Heungkuk Securities also acknowledged the first quarter performance rebound. Heungkuk Securities projects L&F’s first quarter revenue at 678.1 billion won, up 86% year-on-year, with operating profit at 50.9 billion won, again exceeding market expectations. Sales volume is expected to increase by 10% quarter-on-quarter, and with higher utilization rates, profitability is expected to surpass the break-even point based on the core business alone. The effect of inventory reversal due to rising lithium prices was also factored in, leading to a projected overall operating profit margin (OPM) of 7.5%.

Researcher Jung Jinsu at Heungkuk Securities analyzed, "L&F is expected to achieve continued profit growth by directly benefiting from the expansion of application markets that require high-output batteries, such as ESS and humanoid robots, based on its unrivaled high-nickel N95 product."

However, he also noted, "We have reflected the potential for multiple and corporate value dilution due to changes in the electric vehicle market environment," and lowered the target price to 170,000 won.

The two securities firms show notable differences in their valuation methods. Heungkuk Securities calculated its target price by applying a multiple of 30 to the estimated 2027 EBITDA of 277 billion won. In contrast, DS Investment & Securities applied a multiple of 45, indicating a more conservative approach from Heungkuk Securities. The slower growth and uncertain demand environment in the electric vehicle market were cited as reasons for valuation pressure.

There are also differences in their profitability forecasts. Heungkuk Securities’ estimate for this year’s operating profit is 115 billion won, lower than DS Investment & Securities’ 130 billion won. Heungkuk Securities also expects a controlling shareholder net loss of 71 billion won, projecting a continued deficit for this year. In contrast, DS Investment & Securities expects a controlling shareholder net profit of 81 billion won, forecasting a return to the black. The difference is analyzed to stem from how interest costs and non-operating gains and losses are treated.

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