“Sell other rechargeable batteries and focus on Force Holdings.” It will skyrocket from this point on.
Q. There has been a lot of interest in POSCO Group stocks recently, including POSCO Holdings and POSCO Future M.
What are some stocks that can grow together?
A. I think there is POSCO International and POSCO DX, which produces automation equipment.
I think it would be better to condense the investment into POSCO Holdings, which owns all of the shares of those companies.
I think it will follow a similar trend as EcoPro Group's stock price increased more than 10 times with 100% secondary battery sales. This is because POSCO's sales are now 100% from steel and there are no sales from secondary batteries at all.
However, POSCO Holdings will begin mass production of lithium ore in October, and production will begin when the Argentina Umbre Muerto salt lake production plant is completed in the first half of 2024. Commercial production will begin approximately between February and May, and then sales for mass production of high-speed lithium in October in the second half of this year will be reflected in performance from the second half of next year.
Lithium produced from salt lakes in Argentina is expected to be reflected in sales as early as the end of next year or the first half of next year, with additional sales reflected sequentially.
Lithium produced from salt lakes has an EBITDA margin of approximately 80-90%. In particular, because Argentine salt lakes produce the highest quality lithium, the margin rate can increase to nearly 80-90%.
*EBITDA margin rate: Operating profit before depreciation (EBITDA) divided by sales
Lithium produced from lithium ore is also not as good as the salt lakes in Argentina, but the margin rate is still 30-50%. Then, if you add it up and average it out, you get 60-70%.
So, for example, if sales are 5 trillion won, the EBITDA margin is about 3.5 trillion won. Even if calculated as net profit, if 5 trillion won is calculated, almost 2 trillion won can be considered as net profit.
Even taking into account various costs such as depreciation, the forecast for 2024 is 1.8 trillion won. 3 trillion won in 2025 and 5.7 trillion won in 2026. Lithium hydroxide sales are expected to surge exponentially.
Stock prices are always reflected in advance.
Assuming that related sales will be reflected from the end of 2024, I believe that early 2024 will be the first year in which the value of POSCO Holdings' lithium hydroxide is fully reflected.
Just as EcoPro's stock price soared from the first year when sales of secondary battery materials were fully reflected, POSCO Holdings believes that it will follow a similar trend as EcoPro from the point when lithium hydroxide is reflected in sales.
POSCO even has smart subsidiaries. Since you own shares in POSCO Future M, POSCO DX, and POSCO International, it would be a good idea to calculate your shares.
It would be good to look at POSCO DX in relation to all the automation equipment used when POSCO Future M expands its cathode material plant. POSCO DX's market capitalization continued to rise due to the issue of its pre-KOSPI listing. Please consider that too.
Next, POSCO International directly procures nickel and lithium through trading. The equity value of POSCO International is also held by POSCO Holdings, as well as POSCO M-Tech and POSCO Stillion.
If you compare the equity value of these companies with the current market capitalization of POSCO Holdings, you will think, ‘Oh, it’s not that expensive.’
Even if you multiply the equity value of these companies by the so-called holding company discount, there is not much difference from the stock price of POSCO Holdings. (POSCO Holdings stock price has recently undergone some adjustment.)
The value of lithium hydroxide must be added to the equity value of subsidiaries that are listed here and have market capitalization. To put it simply, the value of lithium hydroxide is about 1 trillion won per 10,000 cans.
This is a very conservative figure. Considering that the price of lithium hydroxide is not $50,000 per ton but between $30,000 and $40,000 per ton, the value of lithium hydroxide is considered to be 1 trillion won.
You said that POSCO Holdings will produce 423,000 tons of lithium hydroxide by 2030.
So, if we calculate 1 trillion won per 10,000 tons, we can say that the total expected sales is 42.3 trillion won. Right now, we can expect sales of around KRW 1.8 trillion next year, and if this is reflected as profit, even if we calculate it very conservatively, the EBITDA margin is 70%, so if we calculate it as net profit from there, net profit will be around KRW 9 trillion, and if we look at it more broadly, it will be more than KRW 1 trillion. You can see that operating profit comes in every year.
Moreover, once production begins, it will not end at 1 trillion won, but will expand to 1 trillion, 2 trillion, and 4 trillion won. As a result, it makes more sense to go all-in on POSCO Holdings than to invest in surrounding companies. I'm looking at it that way.
There is currently controversy over POSCO Holdings' management governance structure, including Chairman Choi Jeong-woo, and it is expected that these concerns about governance structure will subside once a new CEO is appointed.
Lastly, POSCO Holdings is a quarterly dividend stock, so I think that will be a strength that will help those who own POSCO Holdings hold firm. Fortunately, the company is also trying to improve structurally. I know that they are also working hard on overseas IR, but foreign investors only value POSCO Holdings based on steel.
However, the fact that foreign investors will view it differently if lithium hydroxide sales occur is also a reason for a positive evaluation.
It will be very difficult due to the rechargeable battery stock price adjustment, but again, the stock price is reflected in advance. Please analyze the upcoming good news in advance and adjust your portfolio wisely.