[Click e Stocks] 2nd Battery Material Stocks, Sharp Price Drop Is a Buying Opportunity

[Asia Economy Reporter Song Hwajeong] Amid the recent weakness in the stock prices of secondary battery material stocks, Korea Investment & Securities has recommended Cheonbo and EcoPro BM, viewing the sharp decline in stock prices as a buying opportunity since there are no fundamental issues with these stocks.

According to Korea Investment & Securities on the 3rd, the stock prices of major secondary battery material stocks have notably declined since the 19th of last month. All material sectors, including cathode materials, copper foil, electrolytes, and additives, showed weakness in stock prices. Researcher Kim Jeonghwan of Korea Investment & Securities analyzed, "There is no change in the sales and profit growth outlook for secondary battery cell and material companies, but the valuation premium for Korean secondary battery material stocks is shrinking. The semiconductor chip supply shortage and supply chain disruptions caused by the spread of COVID-19 have lasted longer than expected, leading to concerns over the slowdown in automobile production and sales data since November, which is driving the stock price decline."

He expressed the opinion that there are no abnormalities in the fundamentals. Researcher Kim said, "We maintain our previous view that the Korean secondary battery value chain will receive a valuation premium due to accelerated entry into the North American market. With North American and European electric vehicle manufacturers raising their production targets, the profit outlook for material companies is also expected to continue improving, so there are no issues with the fundamentals." He added, "Stocks with excessive price declines are buying opportunities."

Korea Investment & Securities recommended buying Cheonbo and EcoPro BM among secondary battery material stocks. In the case of cathode materials, while Chinese cathode material companies' stock prices rose in the second half of November, Korean cathode material companies' stock prices underwent corrections. Researcher Kim explained, "The relative decline in Korean cathode material companies' stock prices, contrasting with the strong stock prices of low-cost cathode material producers such as lithium iron phosphate (LFP), is excessive. Especially, EcoPro BM, which announced large-scale capacity expansion and an expansion of its cathode material product lineup, justifiably deserves a valuation premium. We recommend buying with a target price of 730,000 KRW."

Regarding electrolytes, Chinese electrolyte companies' stock prices declined in November due to expectations of a slowdown in profit growth following a sharp rise in product prices, whereas Korean electrolyte companies saw valuation increases due to capacity expansion and market share gains during the same period. Researcher Kim said, "Cheonbo, which has attractive clear profit growth from increased shipments to China and the introduction of new electrolytes and additives, is expected to see further valuation increases. We recommend buying with a target price of 460,000 KRW."

Additionally, in the case of separators, related companies' stock prices continued to weaken in November due to concerns over a slowdown in shipment growth rates and accelerated entry of competitors. Researcher Kim said, "SK IE Technology is expected to see a stock price rebound next year due to significant profit growth from the mass production of new expansion lines in Europe and China."