Robust Near-term Earnings Momentum
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Raise target price by 17% to KRW480,000
We maintain BUY on Hansol Chemical and lift our 12m TP by 17% from KRW410,000 to KRW480,000 (43.9% upside). Our TP increase is based on the following:
(1) As the world’s only company with patented technology to manufacture solid-state electrolytes (key ASSB material) following joint efforts with a global automaker, the company is set to benefit from the growing ASSB market.
(2) We revise up 2023E-25E earnings to reflect expected improvement in battery material sales given the company’s expanded battery material lineup; Hansol Chemical took on binders this year and plans to add silicon anode materials in 2023 and solid-state electrolytes in 2025.
Battery material sales to surge tenfold over five years
We forecast battery material sales to surge tenfold over five years (KRW42.0bn in 2020→KRW441.7bn in 2025), lifting battery material revenue contribution from 6.8% to 28.2%. We believe growth will be catalyzed by:
(1) the company’s growing binder market share (100% for binders used in Gen 5 batteries) and the addition of new clients (overseas battery makers) and
(2) the addition of silicon anode material sales in 2023 and solid-state electrolytes in 2025. Furthermore, we believe the ASSB market will ramp up as Toyota begins commercial production from 2025, and visibility should be high assuming ASSB technology gains traction. We forecast the global ASSB market to balloon 18-fold from KRW1.6tn in 2025 to KRW29.3tn in 2035.
Robust near-term earnings momentum, attractive valuations
We believe Hansol Chemical offers both near- and long-term earnings momentum while trading at attractive valuations. We forecast 2H21 OP to grow to a record KRW113.9bn (+46% YoY), or 3Q21 OP of KRW57.7bn (+13% YoY) and 4Q21 of KRW56.2bn (+110% YoY). Full-year OP should nearly double over three years (KRW220.0bn in 2021→KRW424.9bn in 2024). Hansol Chemical is the most undervalued stock in the battery material industry, trading at 16.7x 2022E P/E vs. industry avg. of 62.4x 2021E P/E, 41.1-83.7x 2022E P/E). Accordingly, we believe the stock will be re-rated upwards as valuations improve.