[Click eStock] "Cheonbo, Earnings Slump Due to China Risk... Target Price Down 16%"

Samsung Securities Report

On the 26th, Samsung Securities downgraded the target price of Cheonbo to 250,000 KRW, citing a lowered annual performance outlook due to inventory burdens originating from China. The investment opinion was maintained as a buy.

In the first quarter, Cheonbo's sales amounted to 49.6 billion KRW, a 50% decrease compared to the same period last year, and operating profit plummeted by 91% to 1.6 billion KRW, falling short of market expectations. The deterioration in profitability was due to inventory burdens from Chinese customers that began in the fourth quarter.

Jang Jeong-hoon, a researcher at Samsung Securities, stated, "The high proportion of Chinese customers within the secondary battery materials segment meant that inventory burdens in China were fully reflected in the performance. The main product, P electrolyte, faced a double burden not only from price adjustments due to the decline in LiPF6 prices but also from the high cost level of existing inventory, resulting in a 71% drop in sales compared to the same period last year."

For a stock price turnaround, the depletion of Chinese inventory and the impact of long-term supply contracts need to become visible. Towards the end of the second quarter, domestic electric vehicle sales in China are expected to gradually proceed, leading to normal shipments.

Additionally, with the enforcement of the IRA, the company's price competitiveness based on its electrolyte and additive synthesis capabilities is expected to be actively utilized by domestic battery cell manufacturers, who previously depended on Chinese electrolyte suppliers but now have production bases in Korea. Unlike Chinese customers, Korean customers engage in long-term contracts of 4 to 5 years, which may reduce the risk of performance volatility compared to before.

This year's performance is expected to be lower than previous market forecasts, with sales of 392.9 billion KRW and operating profit of 57.4 billion KRW. However, from the third quarter onward, the effects of new volumes of FEC and VC are anticipated, and from the fourth quarter, the mass production of 9,000 tons of F electrolyte is expected to contribute to a recovery in growth. Regarding annual capacity changes, this year’s total is 24,900 tons, which is five times higher than last year.

Researcher Jang explained, "The prerequisite of a recovery in the Chinese domestic market may be a short-term burden. However, once this phase is overcome, the effects of capacity expansion and the performance stability from customers' long-term contracts will drive a revaluation of value."