On Tuesday, Ecopro BM Co Ltd (247540:KS) received a new stock rating from Bernstein SocGen Group. The firm initiated coverage on Ecopro BM with an Underperform rating and set a price target of KRW90,000.00.
The rating reflects the analyst's view that while the company is a global leader in battery cathode materials and possesses industry-leading nickel content in its products, its current valuation may not fully account for the challenges it faces.
Ecopro BM, known for specializing in high-nickel ternary cathode active materials, boasts a nickel content of 91-92%, with plans to increase this to mid-90% within the next two to three years. The company has consistently delivered competitive margins, averaging an operating profit margin (OPM) of 7% over the past five years, which is notably higher than that of its ex-China counterparts.
The company's growth prospects include a significant increase in cathode production capacity, expected to rise from 180ktpa in 2023 to 470ktpa by 2027, a compound annual growth rate (CAGR) of 27%. Revenue forecasts are equally optimistic, with a projected 43% CAGR from KRW2.9 trillion to KRW5.9 trillion over the 2024-26 period. The OPM is also anticipated to improve from -1% in 2024 to 4% in 2026.
Despite these growth projections, the analyst pointed out that the balance sheet poses a significant challenge for Ecopro BM. The company has seen a sharp decline in profits in the past two years, coinciding with substantial investments in capacity expansion. The target price provided by Bernstein SocGen Group is based on a discounted cash flow (DCF) valuation, factoring in a 10% weighted average cost of capital (WACC) and a terminal growth rate of 2%.
The analyst concluded that although Ecopro BM is set for exceptional growth, the market has already accounted for this, with the stock trading at 200 times its 1-year forward price-to-earnings (P/E) ratio. This valuation suggests that the market may have overly optimistic expectations for the battery material supplier's financial performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.