Eugene Investment & Securities on the 3rd cut its target price for EcoPro BM(247540) to 200,000 won from 250,000 won, reflecting a decline in market valuation despite an excessive share-price drop. It maintained a "buy (BUY)" recommendation.
Han Byunghwa, a researcher at Eugene Investment & Securities, said, "EcoPro BM's second-quarter revenue and operating profit were 576.7 billion won and 18 billion won, respectively, falling short of our previous estimates (revenue 671 billion won, operating profit 24.4 billion won)."
The causes of the weak results included sluggish demand from clients, changes in the battery energy storage system (BESS) market, and initial fixed-cost burdens.
Han said, "Combined client sales of electric-vehicle batteries in the United States and Europe were weaker than expected, and as U.S. BESS sales split between ternary and LFP, the company's sales of ternary cathode materials were relatively weak," adding, "Revenue from BESS cathode materials fell 44% year over year, and from EV cathode materials 28%, and an increase in fixed costs from the start-up of the Hungary plant was also a factor."
However, it was explained that attention should be paid to new momentum such as the operation of the Hungary plant and European Union (EU) policy.
Han said, "With the Hungary plant having begun operations in June, supply of NCA cathode materials to a German automaker is underway," adding, "From the end of this year, supply to a Korean automaker is set to begin, and from the second half of next year, supply of NCM volumes to a German company is scheduled to start."
He added, "If the EU's Industrial Acceleration Act (IAA) detailed rules are finalized within the year and the share of local sourcing for materials and parts is specified, pressure to locally source cathode materials—the largest cost component within batteries—will increase, strengthening the potential benefits."
Additional upside to results from a planned acquisition of equity in an Indonesian nickel smelter was also suggested. EcoPro BM, together with affiliate EcoPro, is pursuing the acquisition of a 39% equity stake in Indonesian nickel smelter BNSI and is pushing a 1.2 trillion won capital increase for this. Once the equity acquisition is completed, BNSI's results will be reflected on a consolidation basis.
Han said, "We recalculated the target price to reflect the decline in market valuation, and the applied PER is 38.7 times based on 2030 results," evaluating, "There is ample room for additional growth depending on securing new customers at the Hungary plant, expansion into LMR and sodium-battery cathode materials, and the outcome of entry into the nickel refining business." He added, "From next year, the U.S. EV market is likely to return to a growth phase, and K-battery beneficiaries are expected as Europe reins in Chinese products."