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Among rechargeable battery stocks, there is a company that has the highest valuation (share price relative to earnings). L&F is a cathode material producer. The company’s share price is at the highest level not only among rechargeable battery material stocks in Korea, but also among major Chinese and European companies. Nevertheless, the market is paying attention to the company’s rapid growth and differentiated technology rather than the valuation burden.
Share price 10 times in 1 year and a half
On the 14th, L&F finished the transaction at 211,400 won. As of today’s closing price, the market cap is 7.3 trillion won. The stock has risen 18.10% in the month alone. The increase rate in the second half reached 130.53%. The stock price, which was in the low 20,000 won range in the first quarter of last year, soared tenfold in 16 months. Even within the rechargeable battery industry, it was truly a ‘stock of the other world’. During the same period, the foreign ownership rate, which was less than 10%, rose to the 20% level. Among rechargeable battery material stocks, foreign ownership has the highest level. It is higher than its cathode material competitors EcoproBM (16%) and POSCO Chemical (8%).
The material for the sharp rise in stock prices in the second half is the expectation of capacity expansion and the announcement of supply contracts. In April of this year, it signed a 1.2 trillion won supply contract with SK Innovation. In September, when EcoproBM, a competitor, succeeded in winning a long-term order worth 10 trillion won from SK Innovation, expectations for the cathode material market as a whole increased, raising the stock price. This is because it was well observed that rival L&F would also actively seek additional orders or expansion. The previous day, news that IMM Credit Solution, a subsidiary of MM Private Equity, completed blind funding of 500 billion won and selected L&F as the first investment destination, supporting such expectations.
Differentiate with NCMA cathode materials
However, there are many responses that it is difficult to readily understand that the 12-month forward price-earnings ratio (PER) exceeds 90 times, even with high expectations for positive news. This is because it is much higher than EcoproBM (68 times). what’s different In the securities industry, there are two main categories. First, the Tesla effect. Cathode materials made by L&F are being supplied to Tesla through LG Energy Solutions. As the value chain of the company with the largest market share for electric vehicles, it is recognized for its high share price.
The bigger reason lies in the technology itself. L&F is the only company in the world to mass-produce NCMA (nickel cobalt manganese aluminum) cathode materials. NCMA cathode material is a quaternary cathode material that contains four raw materials (nickel, cobalt, manganese, and aluminum). Competitors produce ternary cathode materials using three raw materials, such as NCA and NCM. NCMA cathode material was a competitive field that EcoproBM and POSCO Chemical had fiercely fought until last year. In this field, the industry’s evaluation is that L&F has won.
Although the quaternary cathode material increases energy density, the key was to maintain stability and increase production yield. L&F achieved rapid success based on its long-standing research know-how in this field. With the NCMA cathode material, it was possible to dramatically increase the mileage of the battery, and it met the needs of Tesla, which is competing with Lucid Motors for mileage. Another advantage of NCMA cathode materials is their price. The proportion of expensive nickel or cobalt can be relatively reduced. Less exposure to commodity price volatility.
As more and more companies are adopting NCMA cathode materials, demand outstrips supply. The production of a little over 40,000 tons this year will increase sharply to more than 80,000 tons next year and to more than 120,000 tons in 2023. The high PER of 90x also reflects expectations. Kim Jung-hwan, a researcher at Korea Investment & Securities, explained, “The NCMA load capacity is expected to increase sharply from next year, centering on LG Energy Solution.”
As expectations were quickly reflected in the share price, securities firms belatedly followed the target price. The average target price is Rs. That’s four times higher than 50,000 won a year ago. However, it is still below the current share price. We recently raised our target price to 260,000 won for Mirae Asset and 240,000 won for Korea Investment Corp.
In the long term, it is necessary to watch the competition for cathode materials and change investment strategies. Belgian Umicore and EcoproBM are spurring mass production of high (or rich) manganese cathode materials with a high proportion of manganese. This is to increase the density of the cathode material and lower the price. It is also pointed out that secondary battery material stocks are relatively passive compared to those who are active in the battery recycling (recycling) business even for cost reduction.
Reporter Go Yoon-sang
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