L&F: Rapid Growth

The author is an analyst of Shinhan Investment Corp. He can be reached at yjjung86@shinhan.com. — Ed.

L&F started off as a manufacturer of LCD back-light unit (BLU) in 2000. The company entered the market for EV cathode materials through a subsidiary in 2005, and withdrew from the BLU business in 2013 to wholly focus on EV battery materials. Sales of EV battery materials have grown in earnest since L&F succeeded in mass-producing high-nickel NCMA (nickel, cobalt, manganese, aluminum) cathodes at its new plant in Guji, Daegu in 2020. The sales portion of EV battery materials exceeded the 50% mark for the first time in 2021.

Profitability growth; competitive advantage to be sustained

L&F posted record-high consolidated earnings last year, with operating profit reaching KRW44.3bn (+2,910.3% YoY) on sales of KRW970.8bn (+172.6% YoY). Sales from contracts signed with LG Energy Solution (KRW1.5tr) at the end of 2020 and SK On (KRW1.2tr) in April 2021 were recognized for the first time in 2021. The new Guji plant has been running at high capacity to meet soaring demand for high-nickel cathodes for EV battery, driving improvement in profitability.

For 2022, we forecast consolidated sales at KRW2.3tr (+136.0% YoY) and operating profit at KRW178.8bn (+304.0% YoY). With the growth of the global EV market, supply shortages for high-nickel cathodes have intensified. L&F should continue to enjoy growth, unaffected by bottlenecks in the EV market. Its major EV-making clients including Tesla are faring far better than leading global automakers in terms of production.

Initiate coverage with BUY for a target price of KRW260,000

We initiate our coverage of L&F with BUY for a target price of KRW260,000, based on 2023F EBITDA and a target EV/EBITDA of 33x (average EV/EBITDA recorded in 2020-2021 when expectations were high for EV battery materials). The company’s average EV/EBITDA low was 32x since 2019 when EV battery sales started flowing in. We used 2023 earnings estimates as the valuation base, as the sales share of EV battery materials is projected to near 90% once the third Guji plant goes into operation next year.


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