[NEWS IN FOCUS] EcoPro stocks skyrocket, but some analysts spooked

EcoPro, a chemicals group that owns a battery materials unit, soared almost 500 percent in the first four months on the Kosdaq stock market, prompting investors and analysts to scrutinize the company.

EcoPro BM's building in Pohang, North Gyeongsang [YONHAP]

EcoPro, a chemicals group that owns a battery materials unit, soared almost 500 percent in the first four months on the Kosdaq stock market, prompting investors and analysts to scrutinize the company.

Solid demand and optimism for electric vehicles are major factors driving up the stock, but the breakneck rally has some analysts worried.

The combined market capitalization of three listed EcoPro companies — EcoPro, EcoPro BM, and EcoPro HN — now exceeds 45.5 trillion won ($34 billion), beating even Hyundai Motor, the country's largest automaker. EcoPro is a holding company that holds 46 percent of EcoPro, a cathode producer, and 31 percent of EcoPro HN, an energy company.

The value of the shares held by Lee Dong-chae, founder and former chairman of EcoPro, has surpassed that of the chiefs of household names like LG and SK.

Lee held 2.5 trillion won worth of shares as of the end of last month, compared to SK Group Chairman Chey Tae-won's 2.24 trillion won and LG Corporation Chairman Koo Kwang-mo's 2.1 trillion won, according to a recent report by the Korea CXO Research Institute.

A series of analyst warning reports has seemingly blunted the rally for a while, with EcoPro closing at 609,000 won Thursday, down 26 percent from its peak. EcoPro BM closed at 294,000 won Thursday, down 7 percent from its peak.

EcoPro, which traded at just 110,000 won on Jan. 2, rose as high as 820,000 won on April 11, a 640 percent surge.

EcoPro BM surged 238 percent to reach its peak of 315,500 won on April 10. On that day, a total of 2.66 trillion won of EcoPro BM stocks were traded on the Kosdaq, a daily high on the secondary bourse since Jan. 1, 2000.

The dramatic spikes came as countries rapidly shift to electric vehicles and battery makers, and automakers scramble to reinforce supply chains.

Former EcoPro Chairman Lee Dong-chae, third from left, and Samsung SDI CEO Choi Yoon-ho, center, hold a ribbon-cutting ceremony to mark the completion of a cathode materials factory in Pohang, North Gyeongsang on Oct. 23. [SAMSUNG SDI]

Samsung SDI, one of Korea’s three largest battery makers, formed a joint venture called EcoPro EM with EcoPro BM in 2020 and constructed the world’s biggest cathode factory in Pohang, North Gyeongsang.

EcoPro BM is known for mass-producing high-nickel cathode materials with nickel content of more than 80 percent. Cathodes are critical materials in making electric vehicles, accounting for 40 percent of battery costs.

SK Innovation, which owns battery maker SK On, has inked a 13 trillion won cathode deal with EcoPro BM.

The stock price rally is also indebted to the U.S. Inflation Reduction Act (IRA), a law that offers up to $7,500 subsidies for electric vehicles that were assembled in North America.

“The recently announced rules define cathode active materials as critical minerals, which means that electric vehicles that were made with cathodes produced in countries that signed FTA agreements with the United States are eligible for the subsidy,” said researcher Lee Anna from Yuanta Securities.

“Battery cell companies will have to extend more orders" for EcoPro BM, Lee added.

Immediately after the U.S. Treasury Department’s announcement, EcoPro decided to invest 2 trillion won into its Pohang plant in North Gyeongsang to dramatically boost its production capacity.

The company’s cathode production capacity, which stands at 180,000 tons in 2023, will likely increase to 710,000 tons by 2027. That is enough to make 7.1 million electric vehicles.

EcoPro BM officials celebrate the company's public listing in March 2019 at Korea Exchange headquarters in Yeouido, western Seoul. The cathode producer is now No. 1 on Kosdaq. [KOREA EXCHANGE]

However, some analysts remain skeptical about the prospects of the companies, warning that the stocks are way overvalued.

Analyst Han Byung-hwa of Eugene Investment & Securities was the first researcher in Korea to release an in-depth report having a “neutral” opinion on the stock in the midst of hundreds of reports voicing “buy.”

“The share prices reflect potential prospects far too quickly, and it’s time to review the stocks,” Han said.

“Smaller European companies and Chinese start-ups are rapidly entering the market, so it is overly optimistic to believe Korean cathode makers are the sole competition in the scene.”

Han’s report was shocking at the time as reports by local analysts tend to adopt optimistic positions.

Of a total of 15,037 analyst reports written over the past year, only 5 percent, or 843, adopted “neutral” onions on stocks. Only eight, or 0.05 percent, urged investors to “sell,” according to market tracker FnGuide.

Kim Hyun-soo of Hana Securities was the first researcher in Korea to release an in-depth report recommending investors sell EcoPro stocks on April 12.

“The current market capitalization of EcoPro even exceeds what it will be five years from now,” Kim wrote in a report on April 12, warning people to “sell” the stocks. “A thorough review of its proper value is urgently needed.”

“Investors should not overlook policies that could change based on countries’ political and economic circumstances, as well as ongoing tensions between the United States and China,” Kim said. “EcoPro is currently a 'great' company with 'bad' stocks.”

BY SARAH CHEA [chea.sarah@joongang.co.kr]