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Entry into new markets is key

Raise TP by 16% to W290,000

We raise our target price for POSCO Future M by 16% to W290,000 (from W250,000). We used an SOTP approach, valuing existing businesses (including ternary cathode materials) at W7.9tr, the LFP cathode materials business at W1.8tr, and the anode materials business at W16tr.

We believe quarterly earnings have already passed the trough and will improve gradually, supported by: 1) continued increases in lithium and cathode materials prices; 2) ongoing shipments of NCA cathode materials for ESS applications; and 3) the start of supply to a new Chinese cylindrical battery customer. From a medium/long-term perspective, sustaining earnings growth and a valuation premium will likely require: 1) LFP cathode materials orders for both ESS and EV applications; and 2) additional anode materials orders (beyond existing orders from a key North American customer).

Notably, POSCO Future M is one of only a few major LFP cathode materials players outside of China and effectively the only viable non-Chinese player in anode materials.

1Q26 review: New customer wins drive faster-than-expected shipment recovery

For 1Q26, POSCO Future M posted revenue of W757.5bn (+36% QoQ) and operating profit of W17.7bn (swinging to black QoQ). Cathode materials revenue increased 132% QoQ to W481.7bn, exceeding our estimate, with operating profit estimated at W9.6bn (OP margin of 2%). The better-than-expected performance was likely driven by: 1) the start of supply to a new Chinese cylindrical battery customer, which increased quarterly shipments by about 4,000 tonnes; and 2) higher NCA volumes for ESS applications.

N86 shipments for North American EV applications―previously the main driver of company-wide earnings weakness―have effectively declined to near zero, limiting the potential for further downside in overall shipment volumes. We expect N86 volumes for North American EV applications to improve gradually in 2H26.

For 2Q26, we look for revenue of W814.3bn (+7% QoQ) and operating profit of W27.9bn (+57% QoQ). We forecast cathode materials revenue at W478.7bn (flat QoQ), with profitability likely to improve gradually. In basic materials (chemicals), earnings improvement should accelerate on higher oil prices. Meanwhile, losses in the anode materials business should narrow as supply to Panasonic begins.