Ecopro Co Ltd

KOSDAQ:086520

[Interpreted]

We would like to commence Ecopro's First Quarter 2025 Earnings Conference Call. We will first begin with the presentation on first quarter earnings, then move on to business outlook for Q2 and the second half, followed by the Q&A session. We will be providing consecutive interpretation for the presentation, which will be followed by outlook and questions.

I will now turn it over to Ecopro.

[Interpreted]

Thank you for joining the company's earnings release today. With me today are Ecopro CFO, Jae Ha Park; Soon-Ju Kim, Managing Director of Finance and Accounting; [indiscernible], Director of Technology and Strategy; and from Ecopro Materials, CFO, [indiscernible] ; and from Ecopro HN, we have [indiscernible] , the CFO; [indiscernible] Group, Team Leader of Battery Materials; [indiscernible] , Team Lead of Business Management; and Kim Jang-woo, team Leader of RMBD Planning.

Please note that earnings are yet to be audited by an independent auditor and thus are subject to change upon auditor's review. With that said, let's begin earnings presentation for Q1 of 2025.

[Interpreted]

Good Afternoon. I'm Soon-Ju Kim, Managing Director of Finance and Accounting Department at Ecopro. Starting this quarter, we've made changes to the way we hold earnings release calls. Ecopro BM will hold their separate earnings release call, and we have grouped together Ecopro Materials, Ecopro HN and the Holdco Ecopro to hold earnings call altogether. We hope to be able to provide greater detail in more depth to investors and market participants through this new IR format.

Please refer to the earnings material we circulated. And today, we will go through our 3 listed affiliates of Ecopro companies in order, after which we will take your questions. Keyword which we wish to highlight during today's earnings release is earnings improvement and financial soundness. Q1 '25 consolidated profit of Ecopro was KRW 1.4 billion, reporting a quarterly operating profit turnaround on a consolidated basis, breaking away from the loss-making streak during 2024. We expect turnaround trend will continue this year, gradually expanding the size of profit.

Second, Q1 2025 consolidated basis cash stands at KRW 857.7 billion for Ecopro. Debt ratio for Ecopro is 97.5%, HN is 49.3% materials, 90.3%, which demonstrates stable financial buffer. On this basis, we will actively explore global projects, which we deem to be essential for building our competitiveness and carry on with shareholder return policy, inclusive of dividend distribution.

On Page 6, I will walk through earnings results from Ecopro Materials. In Q1 of '25, Ecopro Materials reported revenue of KRW 136.1 billion, which is up 54% Q-o-Q. Driven by growth of both captive and noncaptive sales volume, Q1 volume recorded a steep rise of 98% Q-o-Q and a decline in sales mix of oxide precursors, ASP fell 13%. However, profitability improvement was constrained due to recognition of one-off expenses incurred in relation to responding to new customer requirements. Operating profit, hence, recorded negative KRW 14.8 billion.

During Q2, there will be inclusion of Green Eco Nickel of Indonesia as our subsidiary, and thus, we expect profit improvements to follow in the second half of the year. And by onboarding multiple number of new customers, we look forward to faster speed of diversification of revenue stream.

The Page 7 is on the financial position. Total asset as of end of Q1 '25 was up 7.7% Q-on-Q, reporting KRW 1,389.4 billion and total liabilities was up 19% Q-o-Q to KRW 659.4 billion. Equity was down 1% Q-on-Q, reporting KRW 730 billion. In relation to Green Eco Nickel acquisition, there was provision of loan and CapEx for Pohang #4 campus drove debt ratio to 90% temporarily as of first quarter end. But as per our early April disclosure, we improved the financials via capital financing of KRW 389 billion. And by optimizing the inventory asset, inventory amount as of end of Q1 was down 27% Q-o-Q, reporting KRW 179.3 billion.

Next on Page 8 is Ecopro results. Q1 '25 revenue for Ecopro HN was down 57% Q-o-Q to KRW 34.4 billion. Q-on-Q revenue decline was due to downstream industry pushing back on investment time line and slow seasonality, but thanks to cost savings efforts, operating margin was kept at 10% level, which drove operating profit of KRW 3.4 billion. Chemical filter sales are solid. And as there were order wins from overseas for greenhouse gas business, we expect to drive an uptrend in the second half. We are also expanding the target markets for fine dust business from the current shipbuilding and chemical sectors into power generation. Water treatment business for which we won large-scale orders last year will continue to see revenue stream from maintenance.

Page 9 is on the financial position. Total assets as of end of Q1 '25 was down 6% Q-o-Q to KRW 438.8 billion. Total liabilities down 15% Q-on-Q to KRW 144.9 billion and total equity was down 0.8% to report KRW 293.9 billion, with debt ratio reporting a sound 49%. Since the capital injection made end of last year, the proceeds were used for tangible asset investment amounting to KRW 11.7 billion and KRW 9 billion was used for repayment of debt. As such, in line with the overall investment time line, we are efficiently managing our capital.

Moving on to Page 10 on consolidated results of the holding company, Ecopro. Q1 '25 consolidated revenue for Ecopro was up 24% Q-over-Q, reporting KRW 806.8 billion with operating profit coming in at KRW 1.4 billion. Driven by sound battery materials backdrop such as launching of new models by major OEMs and inventory stocking at cell companies, coupled with positive impact from FX and inventory valuations, operating profit recorded a turnaround in profit on a quarterly basis. In terms of increase in sales from affiliates, cathode was up 36% Q-on-Q, precursors 98% and conversion to lithium was 238%, demonstrating a pronounced growth, and there was reversal of provision for inventory valuation on a consolidated basis amounting to KRW 278.3 billion.

On the back of EV market recovery in Europe and easing impact of slow seasonality on the environment business, we expect top line uptrend will continue while underpinned by rise in utilization following an increase in production volume and consolidation of Indonesia project and equity method treatment thereafter, we project profitability to show steady improvement.

On Page 11 is consolidated financials of the holdco. Total assets as at end of Q1 of '25 increased 4.1% Q-o-Q to KRW 8,468.3 billion. Total liabilities up 8.5% Q-on-Q to KRW 4,665.8 billion. Total equity was down 0.9% Q-on-Q, reporting KRW 3,802.5 billion with consolidated debt ratio reporting 123%. Debt ratio of subsidiaries are currently around 100% as of Q1 end, maintaining a steady state. And for Ecopro HN and Ecopro Innovation, they are 49% and 11%, respectively, keeping to a sound level. We project EBITDA to also see improvements following stronger earnings this year, which will lead to higher level of liquidity.

Each of Ecopro affiliate companies have secured resources for CapEx by making reasonable adjustments to speed of investment and have worked to optimize their inventory assets, pushing down consolidated inventory by around 11% Q-over-Q. You can see that we are continuously working to operate our assets efficiently.

On Page 12, I will run through the results from our other businesses. Nonlisted affiliates of Ecopro also showed an uptrend in revenue and operating profit in Q1 of '25. While the Holdco continues to book equity method gains from the QMB project in Indonesia, we expect to realize profit from additional projects such as from Ming and ESG projects. Recycling business reported record high production last March, driving up utilization and yield. While lithium business had additional new customer wins in the first quarter as we continue to diversify sales outlets. Since last year, despite difficult business environment, all of Ecopro affiliates focused their efforts on fortifying their respective fundamental competitive strength through customer and product diversification and cost savings, and we will also place greater effort behind shareholder value enhancement.

This ends the earnings presentation. We now move on to the business outlook for second quarter and second half of 2025.

[Interpreted]

Yes. Hello. I am Jae Ha Park, CFO of Ecopro. I will first run through the second quarter outlook for the holding company and battery materials subsidiaries, then move on to Materials and HN business outlook. As mentioned, we turned operating profit positive on a consolidated basis in the first quarter. Customers depleted their inventory and on new customer wins, we saw steep rise in sales of cathodes, precursors and lithium. Metal prices and ASP stabilized, followed by reversal of provisioning for inventory for the Battery Materials business unit.

And thanks to our internal cost innovation efforts and favorable FX movement, we were able to make the turnaround to profit in 5 quarters. Although the size of profit turnaround is not big, we believe it is a meaningful signal to the end of long-winded slump. All of us here at the company are of one mind as we endeavor to gradually grow the size of quarterly profit and make sure that it is not just a one-off temporary improvement.

Going forward, we expect there will be recovery in volume from battery materials affiliates and the slow seasonality of the environment business will dissipate. And this year, European EV market is expected to grow at around 15%, and we will gradually see the impact from new model releases from these OEMs. We also expect power tool sales volume to double versus last year and order size from current customers, therefore, will increase. And with new customer wins, we expect cathode annual sales to increase by around 40% versus last year.

For the Lithium business in Q1, we secured domestic cell company as new customer, and we expect about 20% Q-on-Q sales volume increase in Q2. We also expect to onboard overseas OEM and domestic cell companies in the second half of the year, and this will enable diversification of our customer base moving away from high dependence on small number of customers, which is part of the process for business structural enhancements, eventually lowering customers' concentration risk.

We are also implementing new strategies in order to enhance corporate competitiveness. There are 4 projects actually ongoing, one of which is investment into nickel smelter in Indonesia, which is actually a key pillar behind producing cathodes at lowest global pricing. We have QMB and Ming project under stable operations and Green Nickel project, whose acquisition will soon be completed through materials and also through the ESG project, where we will be acquiring 10% stake in Q2 will help us secure 30,000 tonnes per year offtake volume in the second quarter. Through these efforts, we will enhance cost competitiveness of cathode materials and drive equity method gains of the Holdco and contribute to trading business of metal materials.

We also expect profit size to gradually grow moving into the second half of the year through spreading of fixed cost enabled by higher production and sales and through cost savings following process improvements and write-back of provisions for inventory asset. As such, on top line expansion and enhanced cost competitiveness, we will be equipped with fundamental strength to overcome headwinds from the external environment.

[Interpreted]

Thank you I am [indiscernible] From Ecopro Materials. I will respond -- I will provide an outlook for the Materials business. First, if you look at precursor sales, it had shown marginal recovery up to first half, but we expect sales volume to rise on the back of higher share of non-captive customers as we head into the second half of the year. Under such low first half and second half sales trend, we expect annual non-captive sales mix to reach above 50%. We are also expected to win about 2 to 3 new customers before the end of the year.

In terms of the bottom line, acquisition of PT. Green Eco Nickel is ongoing as planned. We are going through administrative procedure to acquire the stake. And as announced early this year, we will complete the acquisition by the second quarter and gain majority shareholder status of this entity. Through the acquisition of Green Eco Nickel, consolidated profit is expected to improve KRW 100 billion annually. And even for this year, tens of billions of positive consolidated profit impact is expected.

Lastly, our plan is to complete the development of the next-generation high-voltage mid-nickel precursor before the end of the year so that we can penetrate into the low to mid-end of the market, and we will collaborate with a new partner. And to replace the coprecipitation method, which generates wastewater during the precursor production process, we are working on a separate process technology. This year, we expect Ecopro Materials to win customers, strengthen profitability and develop future technologies and make advancements in all aspects. Thank you.

[Interpreted]

Hello. I am Kim Jang-woo, Team Leader of Business Management at Ecopro HN. I will briefly run through the outlook for Q2 of '25. Q1 usually is a slow season for our environment business. And as we enter into Q2, we will start to see orders come through. Chemical Filter business enjoys stable replacement demand and with growing HBM demand from domestic semiconductor sector, which is leading to higher market share of new products, we expect top line to uptrend.

For the greenhouse gas business, we are in the process of executing MOUs with local EPC companies in the U.S., Asia and Europe. Based on global references, we've been able to successfully secure we are negotiating specific terms of the agreement, and we believe we can win new orders before the end of the first half. Find dust abatement business will see expanded investment into the power generation sector in line with the national power supply plan, and we are working hard at sales as we speak.

In terms of new business, we started to supply [indiscernible] to the captive market in Q1 as per the plan. We plan to complete testing of non-captive volume in the second quarter and full-fledged supply will start in the second half. Pilot production of Sagard will be complete during Q2, and we will be ready for supply in the second half. We are currently running product evaluation on the Sagard together with our non-captive customers.

For the Semiconductor business, we've been supplying material for HBM and packaging to our domestic customers. We expect growth will come from second half of 2026, coinciding with the increase in market share of our end customers. We finished development work on material for Semiconductor processes and 2 items are currently under evaluation for customer approval in the second half. There are admittedly uncertainties like the tariff policy of the U.S. and its downstream impact, and we look forward to sustained growth backed by launching of new business items and stronger competitiveness of our current businesses. Thank you.

[Interpreted]

This ends the presentation on the outlook. We will now take your questions.

[Interpreted]

[Operator Instructions] The first question will be presented by Jin from Mediaset Securities.

[Interpreted]

I have 2 questions that I would like to ask, and I am [indiscernible] Jin from Miya Asset Securities. My first question relates to what you believe is going to be the impact to your group of companies coming out of the impact from the U.S. tariff policy? And second question regards [indiscernible] Recent announcement of its focus on the SIB batteries. I would like to understand what Ecopro's perspective and view is on these SIBs and also what your market response would be like?

[Interpreted]

Responding to your first question, I am Jae Ha Park from Ecopro, I'm the CFO. As you would appreciate, there still exists a lot of uncertainties with regards to the U.S. government's tariff policy direction. So it's actually quite difficult for us to arrive at a one specific conclusion. In that sense, I would like to just share with you as to what the high-level impact would be like.

If you first look at our environmental business, which includes the Chemical Filter and Greenhouse Gas business, they are mostly construction businesses, which means that we have high exposure to domestic market and the sales that actually goes to the U.S. market is quite minimal. So the impact from tariff is not going to be big. In terms of cathode, basically, the share of U.S.-bound cathode from our perspective is not that large. It's only around 10%, and we are not yet exposed to any pricing-related pressures from our customers. And as you know, in the early April, the reciprocal tariff basically was put on pause for 90 days up until early July.

So up until the time the policy is confirmed or finalized, we may actually be seeing some increases in terms of preemptive demand. And also as to whether cathode is going to be deemed as automobile components and parts, still that is undetermined. And automakers in the United States, I understand, have demanded that the tariff on auto parts be repealed. So there still exists a lot of uncertainty.

Now if you look at tariff from our precursor and lithium business, including the captive market, basically, we sell mostly to domestic cathode companies, and we do not have any volume that gets directly exported to the U.S. market. Having said that, these minerals are actually subject to the IRA and non-FEOC requirement. So if we think about our prospective customers in the United States, there may end up being some indirect impact.

[Interpreted]

I am. I'm Director of Ecopro Technology and Strategy responding to your question on sodium-ion batteries, the SIB batteries. So let's take a look at what was announced by [indiscernible] Recently on the SIB batteries. If you look at the sodium-ion batteries that [indiscernible] About, the lineup is divided into EV propulsion and vehicle starter. So first, taking a look at the EV propulsion sodium batteries, it actually competes with LFPs and it uses layered cathode materials. And basically, in sodium battery cathode on a relative basis, the capacity is higher.

Now for the vehicle starter SIB sodium batteries, the target is to replace the lead acid battery. It basically uses iron as the metal material in order to reinforce the safety profile as well as to improve on the cost base. The cattle announced the -- some of the properties and characteristics of their sodium cell and the information that they shared, especially on the low temperature properties of being -- withstanding negative 40 degrees and also the outcome of the safety test, I believe, is meaningful.

But if you look at their driving range of 50 kilometers, considering the criteria upon which China calculates the driving range, I think that there is -- the figure is a bit overblown. And in terms of the starter, the vehicle starter SIB, they have mentioned that they will be using it for FAW trucks, but they have not yet specified as to which customer application the EV propulsion sodium battery will be used for.

Now looking at what impact this would have an implication it would have for Ecopro and the players in the similar sector. If you compare sodium batteries to LFPs, basically, it does have cost competitiveness if you just purely look at the cathode. But at the cell level, you cannot say that it's more cost competitive compared to LFP because you have to also include the electrolytes and the anodes as well. And also you need to have an electrolyte that is dedicated for use -- for use for sodium batteries, and you also have to develop hard carbon anodes as well and SIBs at this point does not have that economy of scale.

At our company, we've been developing SIB cathode since 2 years ago, and we also have secured coating and doping materials and technologies, which are unique to us. So it is because of that very reason that we have been chosen to lead the national project on battery cathode materials, and we are at this point, playing a very important role in leading the SIB, the sodium battery cell bus-related project. We've also started developing SIB cells together with domestic battery companies. And so we are looking forward to gaining some tangible results. And the SIBs that we are developing at our company is basically the cathode is based on the layered structure, which means that as a transition metal, it uses nickel. So we can also look forward to synergies coming off of together with the Indonesian Nickel business.

So all in all, it is true that compared to China, Korea in terms of sodium batteries may be relatively later. However, we already have the sodium battery-related cathode technology under our belt. And it also requires time for SIB to actually catch up with LFP's different aspects such as cost and the value chain, securing of the value chain. So we believe that we have ample opportunity to actually create the value chain for sodium cathode as well as some critical materials that is required in making that cell.

[Interpreted]

The following question will be present by Tiu from NT Investment Securities.

[Interpreted]

I have 2 questions related to your materials business and one on your HN business. Could you first provide us an update as to what your new customer wins are like for your material business? And why are we seeing weak profitability from this business? That's the second question. And the third question on AN business is, can you share with us what your new business endeavors are looking like?

[Interpreted]

I am CFO, Soon-Ju Kim from Ecopro Materials. Responding to your question about the update on our new customer wins, starting 2 years ago, in order for us to secure growth engine, we've been very actively doing sales activities against our external customers, and we are starting to see visible results come through starting this year. And also recently, because of the hard-handed China policy that's been implemented by the United States, we, as a company, can actually enjoy unrivaled positioning as a precursor company as we are decoupled with China.

So it is under this backdrop that we're currently running sample tests with multiple number of partners, and we believe that we will be able to onboard at least 2 to 3 new customers within the year and start commence with sales.

Responding to the question on why we are reporting a muted profit that is at Ecopro Materials. Basically, the development-related cost that was captured this quarter can be considered as one-off factor. And we see that the nickel prices are also quite steady as nickel is the key raw material for developing and manufacturing the precursors. We believe that additional inventory valuation loss seems quite unlikely at this point. But the reason why we see such muted profit figures is because of high level of fixed cost that we need to bear due to low utilization.

So as we are in this first half and second half trend, we believe that the fourth quarter utilization is going to regain its normal level. And also at the same time, before the end of the second quarter, we're going to be including Green Eco Nickel to our consolidation, which is going to significantly improve our consolidated profit.

[Interpreted]

I am Pangyng Group Team Leader of Battery Materials at Ecopro HN, providing you an update as to our new battery materials business. First, looking at the [indiscernible] For cathode, we are supplying 10 to 20 tons to our affiliate BM. And in terms of the additional grade, we are at this point going through 4 approval process at our end customer, and we believe that this is going to be completed within the first half of the year. And in the second half, we are going to see volume grow by about twofold, and we will be able to achieve breakeven point earlier than expected.

And also, we've developed nano alumina and nano titanium oxide, which is currently under evaluation for customer application. And in 2026, we're going to diversify the items that we provide so that we could drive up profitability. Now in terms of the Sagard for cathode, we completed the development for Sagard for high nickel cathode, basically extending the life span by 1.5 to 2x. We're currently working with 4 cathode companies domestically under the target of gaining the approval in the second half of the year. So we're going through evaluation. And we project that mass production will start in Q4 of 2025. By providing custom design that cater to the needs of each of the customers, we're making full preparation to make sure that we expand on the mass production volume.

And for 2 items of electrolyte additive, basically, we completed sample evaluation at 3 companies. And at this point, we're undergoing mass production evaluation, and we believe that we will be able to start to supply in the second half of the year. Market contraction that arises from the chasm in the market could actually work towards our benefit as we have cost competitiveness. Basically, the phosphate additive method that we proprietarily developed as a synthesis method, if we are able to make that into a mass production grade, we will be able to compete with the Chinese manufacturers in terms of pricing. And so we believe that this is an opportunity for us to capture the opportunities that actually generate out of the shift in the material supply chain, and we will really focus on the project so that we can make this into a success.

We are also working under an objective of reducing the material cost by 30% by additionally developing LFP additive and LOB additives based upon our proprietary synthesis method, and that development is slated to be complete before the end of the year. In terms of Battery Materials business, we are going to focus on receiving customer approval and certification as much as possible so that we can nimbly respond to customer requests and their requirements in the era of post-CASM. For semiconductor materials, we have been mass producing polyamide for packaging, centering on HBMs, and we are continuously developing and expanding the range of products that we can offer.

But at the end customer, because of the slowness in terms of their HBM business, the product expansion and portfolio expansion on our side has been delayed, but we expect that it will start to grow starting from 2026. So supported by such organic and inorganic synthesis technologies that we have, we will continue to discover different items so that we can bring them to commercialization.

[Interpreted]

We will be taking the final question. The following question will be presented by from Shinhan Securities.

[Interpreted]

I'm from [indiscernible] Securities. One question to Ecopro Materials and one to HN. Can you provide us with any color on whether there's any change to your capacity addition plans? And for HN, what are your CapEx-related updates that you could share with us? And would you be needing funding? And if so, how would you go about financing for it?

[Interpreted]

This is CFO, [indiscernible], updating you on the CapEx. Basically, our plan to secure 25,000 ton production capacity for precursors by 2030 stays intact. However, we are clearly aware that the demand from the downstream market has been slowing, and so we're closely looking into moderating the speed of investment. We will consider the overall aspects, including the investment that we will be making into Indonesia. And if there is any change to our CapEx plans, we will make disclosures and communicate to you.

[Interpreted]

I am [indiscernible] From Ecopro HB business management team. We expect CapEx for our business to be above [ KRW 60 billion. ] And in the second half of the year, we're going to implement full-fledged CapEx on Honeycomb catalyst production line. Our customers are working towards carbon neutrality by 2050, and they are demanding from us more efficient conditions with regards to the greenhouse gas abatement facilities. In order to respond to such requirement from our customers, we have completed the development of highly efficient honeycomb catalyst, and we plan on setting up the production line before the end of the year and start supplying to our customers in the second half of 2026.

In terms of the electrolyte, the phosphate additive, basically, we have completed the development of a manufacturing process that's going to give us 30% to 50% lower material cost compared to Chinese and our domestic competitors. And so in order to better utilize the opportunities that will arise from the shift in the global battery supply chain and also the demand in the market, we are at this point considering making investment into our business complex capacity in the amount of 550 ton production capacity and our goal is to complete that by first half of '26 and receive customer certification or approval by early '27 so that we may go into mass production.

Also, we are additionally developing a low-cost base process technology that can really compete with China. We are developing the F additive for LFP and DFOB additive. And these investments and efforts are going to help us with the commercialization that will follow. And after the funding that we've done at the end of last year, we, at this point, do not have any additional funding plans. Thank you.

[Interpreted]

This ends the earnings presentation. Thank you all for joining us.