"LOTTE Energy Materials' Q3 shipments to jump 43%, with higher circuit foil prices also signaling a positive outlook" - SK Securities

[Financial News] LOTTE Energy Materials is expected to begin full-scale top-line growth in the second half of the year, driven by expanding shipments of battery foil and circuit foil. In particular, as supplies of battery foil for Energy Storage System (ESS) applications and North American customers increase, analysts say higher circuit foil prices and greater shipments of products for semiconductor packaging will lay the groundwork for improved profitability. However, since the recovery in battery foil selling prices is being delayed, the timing of an actual return to profit will likely depend on whether prices normalize.
According to SK Securities on the 27th, LOTTE Energy Materials' sales in the third quarter of this year are projected to reach 262.2 billion won, up 35% from the previous quarter. Total shipments are expected to rise about 43% to 8,750 tons in the third quarter from 6,100 tons in the second quarter.
The main driver of the shipment increase is battery foil for ESS. In addition, shipments of battery foil to North American customers are set to accelerate from the second half of the year, pushing sales volumes higher at a rapid pace. With the battery foil market for electric vehicles still sluggish amid slowing battery demand, expanded supply to ESS and North American customers is emerging as a new breakthrough.
The growth potential of the circuit foil business is also drawing attention. SK Securities expects the T-value of general-purpose circuit foil to rise by about $2 this year, more than 30% above last year. It also forecast that prices for HVLP, a high value-added product, will increase after volumes are secured.
The possibility of signing a long-term supply agreement (LTA) for circuit foil used in semiconductor packaging is another factor raising expectations for earnings improvement. If the deal is finalized, LOTTE Energy Materials could expand its product portfolio from existing battery foil and general-purpose circuit foil into high value-added semiconductor packaging materials.
SK Securities described LOTTE Energy Materials as virtually the only domestic alternative for localizing circuit foil used in printed circuit boards (PCB) and copper clad laminates (CCL) among Korean battery materials companies. As shortages and price increases in the circuit foil market are already becoming visible, the brokerage said price gains, rather than shipment growth, will be the more important factor in future earnings improvement.
Whether battery foil prices normalize is also a key issue. As many parts of the battery value chain are discussing price hikes to restore profitability, a real increase in selling prices could speed up LOTTE Energy Materials' earnings recovery.
Still, it may take time before the company turns profitable. SK Securities expects LOTTE Energy Materials to post an operating loss of 20.4 billion won in the third quarter as well. Even with a sharp increase in shipments, higher depreciation costs from the ramp-up of Malaysia Plant No. 5 and weak average selling prices (ASP) for battery foil are likely to weigh on profitability.
Meanwhile, LOTTE Energy Materials recorded an operating loss of 16.9 billion won in the second quarter. Total shipments rose to 6,100 tons from 4,830 tons in the first quarter, but the loss widened from the previous quarter as one-off gains, including inventory valuation reversals recognized in the first quarter, disappeared.

[email protected] Lee Dong-hyuk Reporter