August 10, 2022

POSCO Chemical: Expect Mass Production of High-Nickel Cathode Materials

The author is an analyst at NH Investment & Securities. He can be contacted at [email protected] — Ed.

We draw attention to POSCO Chem’s planned large-scale mass production of high-nickel cathode materials for electric vehicles beginning in 2023. We also anticipate that securing new customers requiring a nickel content of 90% will run smoothly.

Lower TP to W162,000

Although we are sticking to a buy rating, we are lowering our TP on POSCO Chemical (POSCO Chem) by 19% to 162,000W. + anodes) by 13-18% from our previous estimates, reflecting a change in our ASP assumption of cathode materials from 30 USD/kg to 36~38 USD/kg. . In turn, we are increasing our associated global sales projections by 10-14%. Although we increased 2024F EBITDA for our TP calculations by 4%, we lowered our TP in light of a drop in our target multiple (21.7x to 18.0x) resulting from the decline in the price of peer group action.

Expect mass production of high-nickel cathode materials for use in electric vehicles

POSCO Chem announced for 2Q22 consolidated sales of 803.2 billion W (+67% yy, +21% qq) and an OP of 55.2 billion W (+55% yy, +116% qq), beating the consensus by 19% and 72%, respectively. Its cathode material sales were 346.8 billion W (+106% YoY, +27% tq), 18% higher than our estimate, reflecting increases in cathode material prices following interdependent metal price contracts. The OP of the company’s cathode materials business exceeded our estimate by 86%. Natural graphite anode materials did not experience significant growth due to both a cost charge for natural graphite and production disruptions at downstream customers. Profitability was also hampered by the rise in raw material prices and the amplification of the fixed costs charge. In the steel-related areas of the business, the chemical division delivered strong profits on ASP increases in response to higher oil prices. In 2Q22, energy materials accounted for 49% of the company’s overall sales and 51% of its PO.

In 2023, we expect the sales and OP portions represented by POSCO Chem’s energy materials business to expand to 70% and 75%, respectively, with cathode materials spearheading profit growth. We forecast 2023 cathode materials sales of 2.8 billion W (+111% YoY) and OPs of 181.5 billion W (+110% YoY). In addition to the expected revenue growth, we also draw attention to the planned mass production of high-nickel cathode materials for electric vehicles from 2023. 4 (2H23) are expected to start production of mass of cathode materials with a high nickel content (nickel content 85-87%). In the past, high-nickel mass production for small batteries was achieved in modest quantities, but large-scale mass production for electric vehicles will mark a first. Also auspicious, securing new customers requiring 90% content should go smoothly by 2023. Given these positives, we believe it is time to reevaluate POSCO’s cathode materials business. Chem.