20171130-三星证券-Positive_outlook,_despite_3Q_disappointment_5页_294kb

Ecopro (086520) Company Update Summary

Core Content

Ecopro (086520) reported its 3Q17 results, which showed a consolidated sales figure of KRW81.3 billion, in line with expectations. However, the operating profit was only KRW3.3 billion, a significant drop from the previous quarter. The report attributes this decline to one-time expenses such as depreciation of newer plants, bonus payouts, and conservative accounting practices in anticipation of the public offering of its subsidiary, Ecopro BM.

Despite the 3Q performance, the outlook for Ecopro's business remains positive, especially in the battery materials segment. The report highlights that Tesla's announcement of the Semi long-haul cargo truck with a minimum 1MWh battery pack could drive demand for NCA materials. While Samsung SDI is expected to eventually replace NCM622 with NCA cathodes for large batteries, only SMM (Japan) and Ecopro are actively expanding their capacity to meet this growing demand, which bodes well for Ecopro's future growth in this area.

Key Points

3Q17 Performance

• Sales: KRW81.3 billion (up 12.0% y-y, down 51.7% q-q)
• Operating profit: KRW3.3 billion (down 31.3% y-y, down 44.8% q-q)
• Pre-tax profit: KRW-1.5 billion (a pretax loss)
• Net profit: KRW-3.1 billion (a net loss)

Valuation Summary

• Target price: KRW40,000
• Current price: KRW36,250
• Upside: 10.3%
• P/E ratio (2017E): 89.9
• P/B ratio (2017E): 5.2
• EV/EBITDA (2017E): 20.8
• EPS growth (2017E): 402.5%
• ROE (2017E): 5.9%
• BVPS (2017E): KRW6,934

Financial Highlights

• EPS (2017E): KRW403
• EPS (2018E): KRW2,027
• EPS growth (2017-2018E): 402.5% to 2,027
• Adjusted EPS (2017E): KRW403
• Net debt to equity (2017E): 66.0%
• Interest coverage (2017E): 3.2x

Full-Year Forecasts

• Sales (2017E): KRW325.4 billion
• Operating profit (2017E): KRW25.0 billion
• Pre-tax profit (2017E): KRW8.6 billion
• Net profit (2017E): KRW7.2 billion

Main Views

• Short-term volatility: The 3Q results reflect short-term volatility, but the firm believes this is a blip and that long-term growth potential remains strong.
• Earnings improvements: The report expects earnings improvements in 2018, driven by capacity expansions and a growing battery materials market.
• Positive outlook: Despite the 3Q disappointment, the company maintains a BUY rating due to its strong position in the NCA materials market and the potential for future growth.

Key Information

Analyst Information

• Analyst: JungHoon Chang
• Research Associate: Hyunseok Cho
• Contact: jhooni.chang@samsung.com, 822 2020 7752, hyun162.cho@samsung.com, 822 2020 7858

Investment Ratings

• BUY: Expected to increase in value by 10% or more within 12 months and is highly attractive within the sector
• HOLD: Expected to increase/decrease in value by less than 10% within 12 months
• SELL: Expected to decrease in value by 10% or more within 12 months

Target Price Calculation

• EPS average (2017-2018E): KRW1,621
• Applied P/E: 27.6
• Discount: 10%
• Fair value per share: KRW40,261
• Target price: KRW40,000

Market Performance

• 1M: 30.9%
• 6M: 118.4%
• 12M: 272.9%
• Vs Kosdaq: 15.5%, 79.6%, 184.4%

Share Information

• Shares (float): 22,090,191
• Market cap: KRW800.77b/USD743.66m
• 52-week high/low: KRW37,850/KRW8,650
• Avg daily trading value (60-day): KRW50.5b/USD46.9m

Compliance and Disclaimer

• Analyst holdings: As of Nov 29, 2017, the analyst did not own any shares or convertible debt instruments of the company.
• Disclosure: The report is not an offer or solicitation to buy or sell securities and does not provide individually tailored investment advice.
• Copyright: All material is under copyright and cannot be altered, reproduced, distributed, or transmitted without prior written permission.
• Disclaimer: The report is based on publicly available information and is not guaranteed for accuracy or completeness. It does not take into account individual client circumstances and is not intended as investment recommendations.