[Click eStock] "POSCO Future M, Financial Structure Improvement Needed... Target Price Down"

Target Price Revised Downward by 25% Compared to Previous Level

NH Investment & Securities on the 3rd downgraded the target price of POSCO Future M from 240,000 KRW to 180,000 KRW, citing the need for future financial structure improvement. The investment opinion was maintained as 'Buy.'

Joo Min-woo, a researcher at NH Investment & Securities, explained, "The target price was lowered by 25% compared to the previous one due to reducing the anode material sales growth rate this year from 25% to 14% and raising the discount rate from 5.2% to 5.7%. We also lowered earnings estimates considering the slowdown in the U.S. electric vehicle market in the second half of this year and the pace adjustment by major end customers GM and Stellantis."

POSCO Future M has greater exposure to the U.S. electric vehicle market than Europe. However, demand is expected to weaken due to the anticipated abolition of the U.S. electric vehicle purchase tax credit in the second half of this year. Researcher Joo stated, "GM is estimated to have about 80,000 electric vehicle inventory, so it needs to adjust the pace of inventory acquisition. Stellantis recently postponed the launch of the RAM 1500 electric pickup to 2026 in response to this situation. Anode materials will require time for sales improvement as the overseas fluorinated ethylene oxide compound (FEOC) regulation application is deferred until 2026."

There is an opinion that future financial structure improvement and mid- to long-term expansion plan adjustments are necessary. Researcher Joo said, "POSCO Future M recorded a debt ratio of 192% as of the third quarter last year and recently started managing the debt ratio through perpetual bond issuance. Although recognized as capital, it is effectively debt, so future financial structure improvement along with mid- to long-term expansion plan adjustments seem necessary."

Last year's fourth-quarter performance is expected to fall short of market expectations. Researcher Joo analyzed, "POSCO Future M's fourth-quarter sales are expected to decrease by 28% year-on-year to 826.9 billion KRW, with an operating loss of 47.9 billion KRW, significantly below the consensus (927.4 billion KRW sales, 4.7 billion KRW operating profit). The main cause is poor performance centered on energy materials. Cathode materials are estimated to decrease by 17% quarter-on-quarter and drop 8% in price due to inventory adjustments by major end customer GM. Profitability is also expected to be negative due to fixed cost burdens, inventory valuation losses, and one-time costs related to legacy factories."