Sell reports for reusable battery stocks abound

Posco Future M's cathode production plant in Pohang, North Gyeongsang. [POSCO FUTURE M]

Analysts have increasingly issued sell reports for reusable battery stocks, citing the overvaluation of an industry facing rapidly increasing competition.

Hana Securities on Friday released a sell report for EcoPro, a battery materials company, setting its target price by almost half its current value.

EcoPro is a holding company that holds 46 percent of EcoPro BM, a cathode producer, and 31 percent of EcoPro HN, an energy company.

EcoPro’s shares soared to 1.54 million won ($1,180) on July 26, up more than 1,600 percent from a year earlier following its push for the expansion of a battery components complex. The stock closed at 1.17 million won on Friday.

“The price earnings ratio [for the industry] is low despite the projected high growth because of the high volatility of the margin as well as concerns about the intensified competition in the industry as competitors from other sectors such as automobiles, batteries, oil refinery, IT and chemicals enter the lithium market,” Hana Investment analyst Kim Hyun-soo said in a Friday report titled “Still bad.”

Kim proposed the target price for the company at 550,000 won.

“The appropriate value of [market capitalization for] EcoPro is calculated at 14.3 trillion won. Considering the current value is 31.3 trillion won, we maintain our stance to sell,” he added.

NH Investment & Securities on Friday put EcoPro BM on hold, although it raised the target price to 410,000 won compared to the current 380,500 won in its stock price.

It said the company’s planned capacity to produce cathodes for 10 million electric vehicles by 2030 has already been reflected in its stock price and cited second-quarter operating profit that was 10 percent lower than the market consensus.

But warnings about the battery sector have already been ringing for several months.

In June, Goldman Sachs initiated coverage of EcoPro BM at sell with a target price of 125,000 won, according to a Korea Economy Daily report.

It also recommended investors sell Posco Future M, a battery material unit under steel giant Posco Holdings, due to an expected oversupply in the cathode market over the next decade and its low market entry barrier.

The bank’s target price for Posco Future M was 220,000 won, compared to 480,500 won on Friday.

The conservative view on the stock continued throughout July.

NH Investment & Securities issued a ‘hold’ on Posco Future M stock on July 25 with a target price of 560,000 won, citing the recent sluggish shipment of cathode materials and a second quarter operating profit that fell short of the market consensus by 17 percent.

Skyrocketing stock prices for battery stocks contributed to a record 22.87 trillion won in short sale transactions in July.

The amount for Posco Holdings' net short position was 1.17 trillion won on July 26, the highest among its Kospi peers, followed by Posco Future M with 1 trillion won.

On the Kosdaq, Ecopro BM had the highest net short position amount on the same day with 1.27 trillion won, followed by EcoPro with 743 .57 billion won and L&F, a cathode active materials producer, with 517.64 billion won.

“July's stock market was largely decided by the movement of the reusable battery sector,” Kyobo Securities researcher Kang Min-seok said in a report Thursday. “A short squeeze occurred as stocks for reusable batteries that soared were partly liquidated.”

BY JIN MIN-JI [jin.minji@joongang.co.kr]