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Cathode materials revenue to see full-fledged growth in 2H24

Retain TP of W200,000

We maintain our target price of W200,000 for Cosmo AM&T. We see revenue growth accelerating in 2H24, led by single-crystal cathode materials. We also expect the company to add new products and customers in 2H24, including: 1) mid-nickel (NCM6) cathode materials for Samsung SDI; and 2) NMX cathode materials for SK On. End-market players are actively seeking supplier diversification to ensure stable materials supply and improve bargaining power over the medium to long term. While Cosmo AM&T is a late entrant (and thus needs to prove its mass production capabilities), we believe it will outpace competitors in revenue growth, backed by growth in both shipment volume (market share gains) and ASP (mix improvements).

1Q24 review: Cathode materials revenue surges 69% QoQ

For 1Q24, Cosmo AM&T reported revenue of W122.1bn (+38% QoQ) and operating profit of W5.3bn (-33% QoQ). Cathode materials revenue surged 69% QoQ to W89bn on revenue recognition for single-crystal cathode materials supplied to LG Chem. That said, we estimate OP margin slumped to 2% (from 4% in 4Q23), as spreads narrowed due to lower metal prices.

2H24 outlook: Improvements in ASP/shipments and addition of new customers

We forecast earnings to expand meaningfully from 2H24. The firm’s production capacity is likely to jump to 100,000 tonnes by end-2024 (from 20,000 tonnes at end-2023) with the addition of a new production line in 2Q24. Single-crystal cathode materials supplied to LG Chem should continue to drive shipment growth. In addition, we expect ASP to climb in 3Q24, considering that metal prices (lithium, nickel, etc.) likely bottomed in February/March. Notably, the company will likely see faster ASP growth than rivals thanks to product mix improvements (high-nickel products).

Expectations for new products

Expectations for new products remain intact. We see orders materializing in 2H24, including for mid-nickel (NCM6) cathode materials (from Samsung SDI) and NMX cathode materials (from SK On). While Cosmo AM&T is a late entrant (and thus needs to prove its mass production capabilities), we believe it will outpace competitors in revenue growth. Sector-wide weakness should continue to weigh on the stock in the near term, but the medium/long-term outlook remains positive. We reiterate our Buy recommendation.