[MarketING] Lithium Battery Stocks Smile After a Long Time

KOSPI Rises for 7 Consecutive Days... KOSDAQ Up for 6 Days
Institutional and Foreign Buying Drive the Increase

The upward march of the domestic stock market continues. The KOSPI rose for 7 consecutive days, and the KOSDAQ for 6 consecutive days. After a sharp rise in stock prices at the beginning of the year, secondary battery stocks, which have been undergoing adjustments since last month, led the index's strength by rising for the first time in a while. However, since the valuation burden of secondary battery stocks remains high, it is expected that the bullish trend will not be easy to sustain.

KOSPI Rises for 7 Consecutive Days... KOSDAQ Up for 6 Days

On the 23rd, the KOSPI closed at 2,567.55, up 10.47 points (0.41%) from the previous day. The KOSDAQ ended the session at 859.16, rising 7.12 points (0.84%).

[Image source=Yonhap News]

Institutional buying led the index gains. On that day, institutions net purchased 401.8 billion KRW in the KOSPI market and 23.1 billion KRW in the KOSDAQ market. Foreign investors continued their buying in the KOSDAQ market by purchasing 60.1 billion KRW but net sold 53.3 billion KRW in the KOSPI market. Individual investors sold 341.1 billion KRW in the KOSPI market and 66.5 billion KRW in the KOSDAQ market, respectively.

Kim Seok-hwan, a researcher at Mirae Asset Securities, analyzed, "The KOSPI led the index rise as institutions expanded their buying, marking a 7-trading-day consecutive increase," adding, "The KOSDAQ's gains widened due to foreign investors switching to buying and the strength of secondary battery stocks." He further noted, "The won-dollar exchange rate fell more than 7 won during the session, maintaining won strength, but foreign investor flows lacked a clear direction." On that day, the won-dollar exchange rate in the Seoul foreign exchange market closed at 1,312.7 won, down 5.4 won from the previous day.

Secondary battery stocks, which showed strength due to foreign buying the previous day, continued their rally, supporting the index rise. On that day, LG Energy Solution rose 2.50%, Samsung SDI 1.43%, POSCO Future M 3.09%, EcoPro BM 2.96%, L&F 5.18%, and Cosmo Advanced Materials 4.17%. Institutional and foreign buying inflows led to the price strength of secondary battery stocks. Institutions ranked LG Energy Solution, L&F, POSCO Future M, and EcoPro among their top net purchases, while foreigners bought LG Energy Solution, L&F, and Cosmo Advanced Materials. LG Energy Solution and L&F ranked first and second in foreign net purchases that day.

Recent Tesla stock strength and Ford's battery supply plan announcements are interpreted as factors influencing the rise of secondary battery stocks. Researcher Kim said, "Tesla's stock strength in the U.S. market positively affected investor sentiment, and Ford's plan to focus on specific electric vehicle markets, easing competition with Tesla, along with announcements to strengthen the battery supply chain, drove the rise of secondary battery stocks."

In the U.S. stock market the previous day, Tesla rose 4.85%, Nikola 7.16%, Rivian 5.64%, and Lucid 6.55%, showing a broad rally among U.S. electric vehicle stocks. Notably, Tesla maintained a 5-day consecutive upward trend.

Ford announced multiple contracts to strengthen its lithium supply chain in line with its 'Investor Day' event the previous day. It also indicated a focus on specific electric vehicle markets such as commercial vans, where competition is less intense.

Secondary Battery Stocks Still Burdened by High Valuations

Although secondary battery stocks, which had been undergoing adjustments, have recently shown an upward trend due to rebound buying inflows, there are opinions that the still high valuations remain a burden.

Park Hyung-woo, a researcher at SK Securities, explained, "Secondary battery stock prices have risen sharply over the past three years. During the same period, they have outperformed the KOSPI and KOSDAQ, playing a leading role in the Korean stock market," adding, "Battery companies' stock prices rose approximately 200-250%, and material companies increased about 150-3500%. Among materials, cathode material companies, recognized for growth based on large-scale orders, showed the largest price increases."

It is analyzed that many domestic and international momentum factors have already been reflected in the earnings outlook and stock prices of these secondary battery companies. These include global eco-friendly policies, supply constraints due to the U.S.-China dispute, rapid growth of the electric vehicle battery market, joint ventures (JV), and long-term supply contracts.

Researcher Park said, "There is a burden that the current corporate value may be overestimated," analyzing, "The current price-to-earnings ratios (PER) for 2024 of LG Energy Solution and Samsung SDI are 40 times and 19 times, respectively. Material companies range from 20 to 70 times, and many cathode material companies exceed 40 times." He added, "The PERs of domestic companies are high even compared to competitors in China and Japan," and said, "To justify further price increases at the current level, securing larger-scale orders or improving profitability is necessary."