On the 1st, iM Securities said it understands the strategic need for EcoPro BM's 1.2 trillion won rights offering released the previous day, but added that the burden from the financing method is unavoidable.
Earlier, EcoPro BM disclosed after the market closed the previous day that it would raise about 1.2 trillion won through a rights offering for existing shareholders followed by a public offering of forfeited shares. The size of the new share issuance is 9.9 million common shares, equivalent to about 10.1% of the existing shares outstanding.
Of the funds raised, 915 billion won will be used for equity investment in the BNSI nickel smelter in Indonesia and investment in the Hungary subsidiary. The remainder will be used as operating funds for investments in domestic cathode production facilities and for purchasing materials and supplies.
Park Jeong-ha, an analyst at iM Securities, said, "The background of this rights offering is additional investment in the Hungary plant and equity investment in the BNSI nickel smelter in Indonesia," adding, "It can be interpreted as a strategic choice to expand local production capacity in Europe and internalize materials and supplies to enhance value chain competitiveness."
It could be an investment to secure competitiveness in the long term, but in the short term, burdens remain. Park analyzed, "While time is needed until BNSI actually begins operations and the cost-saving effect in nickel procurement expense is meaningfully reflected, in the short term uncertainty over the timing of investment recovery exists and could act as a short-term burden on the stock price."
In particular, it was explained that this BNSI investment is the second-stage investment following the 2022 investment in the IMIP nickel smelter in Indonesia. Previously, EcoPro carried out an 800 billion won investment using its own funds and affiliates. This second investment is seen as one where EcoPro BM bears a considerable portion, and reliance on equity-like financing such as rights offerings has increased.
Regarding the Hungary plant investment, the firm said it is a "key base to respond to the recovery of the European electric vehicle market and the strengthening of in-region supply chain regulations," but analyzed that "at a time when it is difficult to say that customer volumes have clearly improved, confirmation is needed on short-term earnings contribution and utilization rates."
It pointed out that the timing of the investment and the financing method carry significant burdens. Park said, "Implementing a large-scale rights offering while electric vehicle demand is slowing, the cathode industry's recovery is delayed, and uncertainty over customer volumes remains could act as a burden for investors," adding, "At a time when an industry recovery has not been confirmed in earnings, funding that accompanies shareholder dilution is inevitably interpreted negatively in the short term."
While EcoPro's participation in the subscription is viewed positively, it said it will be difficult to dispel investor concerns. Park assessed, "The fact that EcoPro, the holding company, will participate 100% in the subscription for existing shareholders is a positive signal showing investment commitment and responsible management," but added, "The core of market concerns is not whether the rights offering will succeed, but whether it is appropriate to continue aggressive investment while industry uncertainty remains."
Park added, "For a rebound in the stock price going forward, it will be necessary to confirm tangible results such as improved utilization at the Hungary subsidiary, reflection of the BNSI investment's performance in earnings, a recovery in cathode demand, and the acquisition of new customers."