[Click eStock] "Lotte Energy Materials, Target Price Set at 40,000 Won"

DS Investment & Securities has set a target price of 40,000 KRW and a buy rating for Lotte Energy Materials.

The target was calculated using a 2026 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of 189.3 billion KRW and a target multiple of 11.4x. This multiple reflects the lowest level observed over the past three years.

The enterprise value to EBITDA ratio (EV/EBITDA) stands at around 9x, which is historically low, indicating a low valuation burden. The delay in capital expenditure plans due to weakening demand for electric vehicles (EVs) was noted as a downside. However, the expansion of applications beyond EVs, such as AI accelerators, is expected to enhance profit resilience. In particular, despite the margin pressure on the Iksan plant caused by domestic electricity rate hikes, the expansion of high-margin copper foil products for AI accelerators is anticipated to be a solution for profit improvement.

Choi Tae-yong, a researcher at DS Investment & Securities, stated, "From next year, key points to watch include the expansion of deliveries for AI accelerator applications, the start of deliveries for 4680 batteries, and the full-scale operation of major customer joint ventures (JVs)." He forecasted both quantitative growth through expanded customer base and qualitative growth through an increased mix of high value-added copper foil. Previously, the low-density copper foil (HVLP3) for AI accelerators was supplied mainly for CCL (Copper Clad Laminate). Recently, demand has expanded to high value-added PCB applications through next-generation ultra-low-density copper foil (HVLP4).

Deliveries are scheduled to begin in the first quarter of next year, with a mix effect expected due to higher margins compared to EV applications. Deliveries for the 4680 battery are planned to start with general-purpose copper foil (I2B) before April next year. High-end (I2S) products are expected to complete quality testing in the first half of 2025, with deliveries for next-generation 4680 and new 2170 batteries anticipated to begin by early 2026.

Inventory adjustments by customers are expected to continue until the fourth quarter of this year. Sales for Q4 are projected at 211.2 billion KRW, with an operating loss of 470 million KRW. Due to inventory adjustments by major customers, which caused weakness in Q3, external growth is expected to be limited through Q4. Although the StarPlus JV will start operations in Q4, considering ramp-up, the effect of increased shipments is likely to become significant from next year.

Copper costs are expected to rise again within Q4, and due to lagging price adjustments, margin recovery potential is limited. However, since copper inventory levels have increased, the potential for further price increases is not significant. Inventory levels are expected to normalize by the first half of next year, and along with price stabilization, the risk of inventory valuation losses is expected to gradually ease.