Goldman Sachs slashes Korean cathode stock targets; market ignores

Goldman Sachs Group Inc. has slashed the target prices of South Korean top cathode stocks, namely EcoPro BM Co. and POSCO Future M Co., by nearly half with Sell ratings, citing the grim outlook for the cathode industry but investors shrugged off its advice and snapped up cathode stocks on Tuesday.

The US investment bank behemoth on Monday announced that it has initiated coverage of Korean cathode stocks and recommended investors to sell EcoPro BM and POSCO Future M shares but hold L&F Co.

It suggested the target prices of EcoPro BM and POSCO Future M at 125,000 won ($98.25) and 220,000 won, respectively.

EcoPro BM shares on Tuesday ended at 283,000 won, while POSCO Future M closed at 393,000 won. Goldman Sachs offered 250,000 won for the target price of L&F, which was traded at 281,500 won.

The US bank is pessimistic about the broad cathode industry, anticipating that the cathode market will suffer an oversupply in the next 10 years while such an abundant global supply would more than offset the absence of Chinese cathodes, preventing any cathode supply shortage in the US market.

It also noted that the quality of cathodes from different players is almost the same, and the low market entry barrier would soon lead to the crowding of the cathode market, allowing latecomers to eat away at frontrunner players' shares.

Worst yet, the Korean cathode stocks’ valuations are too high against their earnings, it added. Goldman Sachs increased short-selling bets on EcoPro BM in April, citing valuation worries.

INVESTORS BRUSH ASIDE 

Goldman Sachs said it favors Korean battery cell makers such as LG Chem Ltd. and Samsung SDI Co. over the cathode suppliers, citing the higher barrier to battery cell market entry and potential windfall gains from the US Inflation Reduction Act and China exodus.

But investors seemed to ignore the bank’s warning, as they continued to show strong appetite for Korean cathode stocks on Tuesday.

EcoPro BM rose 5.4% from the previous session on Tuesday, while POSCO Future M added 1.2%. L&F was down 1.2%.

On the same day that Goldman Sachs ruthlessly cut its Korean cathode stock targets, its US peer Morgan Stanley presented opposite views on the same stocks.

The latter even revised upwards POSCO Future M’s target price to 500,000 won from the previous target of 290,000 won and recommended buying more, citing the company’s long-term contract to supply cathodes by 2033, which bodes well for its earnings.

It has fewer concerns about the stock’s valuation than its bearish peer.

Write to Eui-Myung Park at uimyung@hankyung.com

Sookyung Seo edited this article.