[Click eStock] POSCO Chemical, Justified High Valuation... Target Price Raised by 10%

[Asia Economy Reporter Lee Seon-ae] KB Securities announced on the 7th that it maintains a buy rating on POSCO Chemical and raises the target price by 10% from the previous 200,000 KRW to 220,000 KRW. This is because the third-quarter earnings are expected to achieve record-high results. They evaluated that there are valuation premium factors such as expectations for additional customer acquisition and upstream proactive investments. As of the 6th, the current POSCO Chemical stock price is 158,500 KRW, with an upside potential of 39%. The target price was calculated using the DCF method (Discounted Cash Flow), applying a WACC of 10.46% (COE 11.08%, after-tax COD 2.69%, 104-week adjusted Beta 1.11).

Researcher Lee Chang-min of KB Securities explained, "The reason for raising the target price is that we revised upward the operating profit estimates for 2022 and 2023 by 46% and 74%, respectively, reflecting improvements in cathode material margins and normalization of anode material prices."

The third-quarter earnings are expected to break the record for the highest performance. Lee said, "POSCO Chemical's third-quarter 2022 earnings are estimated at 863.9 billion KRW in sales and 56 billion KRW in operating profit, projecting a record-high performance. The energy division (cathode and anode materials) is expected to show notable expansion in scale and profitability improvement."

He continued, "For cathode materials, positive average selling price (ASP) trends continue due to price pass-through, and increased customer demand leads to shipment volume growth, resulting in a 23% increase in sales compared to the previous quarter. The margin improvement effect due to higher operating rates will also be highlighted." Regarding anode materials, he emphasized, "Although raw material (graphite) price increases had not been fully passed on to prices until now, price normalization is expected to lead to performance recovery."

For 2023, sales are estimated at 5.3436 trillion KRW and operating profit at 362.2 billion KRW, expecting significant performance improvement. Lee analyzed, "The main reason is the growth in cathode material performance due to a substantial expansion of production capacity (CAPA). POSCO Chemical's recent stock price trend has been robust compared to the sector average, driven by expectations for additional cathode material customer acquisition and the spotlight on POSCO Group's proactive upstream value chain investments due to the U.S. Inflation Reduction Act (IRA)." He added, "There are definite premium factors compared to competitors, and positive additional momentum is expected."