[Click eStock] "POSCO Chemical, Impact of Finished Car Production Disruptions to Recover from Next Year"

[Asia Economy Reporter Song Hwajeong] NH Investment & Securities maintained its 'Buy' rating and target price of 270,000 KRW for POSCO Chemical on the 22nd, forecasting a lack of short-term earnings momentum due to sluggish sales of anode and cathode materials caused by disruptions in finished car production.

POSCO Chemical's third-quarter earnings this year fell short of market expectations (consensus). Third-quarter sales increased by 29% year-on-year to 504.9 billion KRW, meeting consensus, but operating profit rose by 62% to 31.4 billion KRW, falling 16% below consensus. Jumin Woo, a researcher at NH Investment & Securities, explained, "This was due to a one-time cost of about 5 billion KRW reflecting increased labor costs," adding, "Excluding this, the earnings were in line with consensus."

The core business achieved strong performance centered on refractories and quicklime due to increased crude steel production at POSCO, but sales volume of anode and cathode materials declined quarter-on-quarter due to finished car production disruptions caused by semiconductor supply shortages. The impact was particularly significant on cathode materials used in various car models. Sales volume weakness due to finished car production disruptions is expected to continue in the fourth quarter. Researcher Joo said, "POSCO Chemical's fourth-quarter operating profit is expected to increase by 47% to 30.7 billion KRW, which is 20% below the consensus of 38.8 billion KRW," adding, "As in the third quarter, cathode materials are expected to underperform more than anode materials."

NH Investment & Securities revised down its 2021 cathode material sales forecast by 8% from the previous estimate but maintained the 2022 cathode material sales forecast considering production recovery and deferred demand. Researcher Joo said, "While short-term earnings momentum is lacking, confirmation of overseas capacity expansion, new customer acquisition, and cost competitiveness improvement through upstream entry, which will raise mid- to long-term earnings estimates, will be the momentum for stock price appreciation."