[Into the Stocks] Ecopro BM Accelerates Amid Strong Second Battery Market

[Asia Economy Reporter Song Hwajeong] Amid the recent strong performance of K-battery, EcoPro BM continues to stand out with a remarkable upward trend. With solid earnings and overseas expansion providing ample momentum for stock price growth, securities firms have been raising their target prices one after another.

According to the Korea Exchange on the 20th, EcoPro BM's stock price has risen 36.59% from the beginning of this month until the day before. In the past 15 days, the stock price fell on only two days. The stock price, which was around 210,000 KRW at the beginning of the month, has climbed to the 280,000 KRW level. It has been hitting record highs day after day this month.

Stock Price and Earnings Take an Unprecedented Path

While the stock price is reaching all-time highs, earnings are also expected to increase to record levels. According to financial information provider FnGuide, the consensus forecast for EcoPro BM's Q2 earnings projects revenue to increase by 62.45% year-on-year to 308.5 billion KRW, and operating profit to rise by 67.63% to 23.3 billion KRW. Securities firms expect EcoPro BM's Q2 results to significantly exceed this consensus. Samsung Securities estimates Q2 revenue at 317.7 billion KRW and operating profit at 27 billion KRW. Samsung Securities analyst Jang Jeonghoon said, "Based on quarterly operating profit, it will record another all-time high following Q1," adding, "Shipments of non-IT products and electric vehicle (EV) products from major clients are increasing evenly, highlighting EcoPro BM's material growth."

Choi Boyoung, a researcher at Kyobo Securities, said, "The reason for the strong Q2 earnings is the increased operating rate of the new CAM5 plant in Pohang, which has led to an operating profit margin far exceeding last year's average of 6.4%," adding, "It is understood that non-IT and EV volumes are increasing in cylindrical batteries due to the strong performance of client businesses."

Expectations for Q3 and beyond are even higher. Meritz Securities analyst Joo Minwoo said, "We are paying more attention to EcoPro BM's profitability in Q3," explaining, "The Q3 margin is expected to reach 9.2%, the highest since EcoPro BM's listing, achieving an operating profit of 36.1 billion KRW. This exceeds the consensus by 39%." He added, "The completion of the CAM5 integrated cathode material production system (gas, lithium, precursor, recycling) is reflected in the numbers," and "All newly expanded plants will apply this integrated production system, providing cost competitiveness incomparable to other cathode material companies."

Securities firms are raising their operating profit estimates for EcoPro BM for 2022 and 2023. Meritz Securities has revised its operating profit estimates upward by 27% and 49%, respectively. Kyobo Securities also raised theirs by 46% and 24%. Researcher Choi said, "This year's consolidated revenue is expected to increase by 64.1% year-on-year to 1.4038 trillion KRW, and operating profit is projected to grow by 120.1% to 120.5 billion KRW," adding, "Due to the structural increase in operating rates in Q2, such high operating profit margins are expected to continue, leading to upward revisions of operating profit estimates for next year and the year after."

Expansion expectations are also a factor driving stock price increases. On the 7th, EcoPro BM announced in a disclosure that it is reviewing overseas facility investments (cathode material plants) and pre-announced the possibility of a rights offering. EcoPro BM plans to raise approximately 400 billion KRW in the second half of the year through a rights offering followed by a general public offering of unsubscribed shares. Shinhan Investment Corp. analyst Jung Yongjin said, "Secondary battery material companies have seen valuation reratings due to aggressive expansions, fundraising, customer base expansion, and long-term supply contracts," adding, "EcoPro BM hinted at overseas expansion possibilities through the rights offering plan and bond issuance announced on the 4th. With the overseas expansion of its two major core clients, SK Innovation and Samsung SDI, accelerating, timely investment is necessary."

Ample Momentum in the Second Half... Target Prices Raised One After Another

Although the recent stock price rise has been steep, opinions suggest that momentum in the second half remains abundant. Researcher Choi said, "There is a high possibility of large-scale orders related to Ford supply through SK Innovation, and due to the nature of clients without cathode material internalization ratios, it is easy to expand additional volumes," adding, "In response to client demand and through the most aggressive forward market response experience so far, additional expansion plans will be announced following overseas expansion in the second half." Kyobo Securities raised EcoPro BM's target price from 250,000 KRW to 380,000 KRW.

Starting in the second half, EcoPro BM is expected to supply NCM9.5.5 for the Ford F150 Lightning through SK Innovation. Yuanta Securities analyst Kim Kwangjin said, "Usually, two types of cathode materials are mixed to manufacture cells, but due to the characteristics of pickup trucks, it is likely that EcoPro BM's NCM9.5.5 material will be used alone," adding, "This will make EcoPro BM the main cathode material vendor for SK Innovation following Samsung SDI." Kim predicted, "There is a high possibility of large-scale orders for Ford," and added, "SK Innovation's order backlog for Ford is estimated at about 500 GWh over the next 6 to 7 years, so EcoPro BM could secure orders close to 10 trillion KRW." Yuanta Securities raised EcoPro BM's target price by 56% from 250,000 KRW to 390,000 KRW.

Meritz Securities also raised its target price to 385,000 KRW, reflecting upward revisions of operating profit estimates for 2022 and 2023, and Shinhan Investment Corp. raised its target price by 43% to 350,000 KRW.