[Into the Stock] L&F's Cathode Materials Soar 22% in a Month Due to High Demand

Foreigners Net Buy 148.1 Billion KRW in One Month
Largest Scale Among KOSDAQ Stocks
Investor Sentiment Boosted by Anode Material Shortage
US Inflation Reduction Act Also Acts as a Positive Factor

[Asia Economy Reporter Minji Lee] L&F, a secondary battery cathode material company, has surged more than 20% in a month. This is due to the rapid increase in electric vehicle production, leading to a situation where demand exceeds supply.

As of 9:15 AM on the 18th, L&F's stock price stood at 255,600 KRW, marking an approximate 22.2% increase over the past month. The driving force behind L&F's stock price rise has been foreign investors. Over the past month, foreigners have net purchased L&F shares worth 148.1 billion KRW, the largest amount among KOSDAQ stocks in terms of scale.

Although the second-quarter earnings fell short of expectations due to one-off factors, the overall sentiment remained positive. In Q2, L&F recorded sales of 862.8 billion KRW and operating profit of 61.3 billion KRW, with operating profit below the market estimate of 71.4 billion KRW. This was due to the reflection of incentive costs (3 billion KRW) and a temporary reduction in shipments caused by the suspension of operations at the front-end customer factories.

The surge in investor sentiment was driven by the cathode material shortage crisis. The company supplies Tesla through LG Energy Solution and delivers high-nickel NCMA cathode materials, but Tesla's strong sales have led to supply shortages. To meet the increased orders since May, the company started early operations at its Daegu Guji Plant 2, and thus, cathode material sales in Q3 are expected to exceed initial forecasts. Jinsoo Park, a researcher at Shin Young Securities, analyzed, "Tesla expanded its production capacity to 1.1 million units annually through capacity expansion work at its China plant in July and August," adding, "Demand for NCMA cathode materials will increase even more steeply."

The rising sales prices are also positive. The average selling price of cathode materials rose by 30-35% in Q2 and is predicted to increase by about 10% in Q3 compared to Q2. Hyuntae Kim, a researcher at BNK Investment & Securities, analyzed, "Lithium, the main raw material, remains priced higher than other metals, and due to the long input lag, price declines will be reflected slowly."

Being recognized as a major beneficiary of the 'Inflation Reduction Act,' officially enacted by President Biden's signature, also played a significant role. Examining the act reveals the importance of securing a vertically integrated value chain from battery minerals to cathode materials within the United States. Currently, the company has a strategic partnership with Redwood, a U.S. battery recycling company, and if the establishment of a joint venture becomes visible, rapid growth in the North American market is expected. The company anticipates its cathode material production capacity to grow to 220,000 tons in 2024 and up to 300,000 tons in 2026. Assuming cooperation with Redwood, production capacity is expected to increase by an additional 100,000 to 150,000 tons.

Market expectations are also rising. Securities firms estimate this year's year-end operating profit at 300.8 billion KRW, a 580% increase compared to the same period last year. This is more than double the 142 billion KRW forecasted in January this year. Operating profit is predicted to reach 470 billion KRW next year and 690 billion KRW in 2024, indicating a steep profit growth trend. The target stock price for the company reaches up to 430,000 KRW.