EcoPro Materials Co Ltd

KRX:450080

Q2-2025 Earnings Call

[Operator]

We will now begin Ecopro's Q2 2025 Earnings Conference Call. Following the earnings announcement, we will provide an outlook on Q3 and the second half of the year and hold a Q&A session.

The earnings announcement will be conducted with simultaneous English interpretation. After that, the business outlook presentation and Q&A session will be conducted with consecutive interpretation.

Now we will proceed with Ecopro's presentation.

Thank you, everyone, for attending today's earnings call despite your busy schedules. Joining us today are Ecopro's CFO, Park Jae-Ha; Managing Director of Finance and Accounting, Kim Soon-Joon; Ecopro Materials CFO, Ho Song Jun; Ecopro HN's Executive Director, Lee Ju-hyung; Head of Management team, Choi Jin Hyung; and Head of R&BD [indiscernible] .

Please note that the earnings presentation today may change due to independent auditor's review.

Now we'll begin Q2 2025 Ecopro's earnings report.

[Soon-Joo Kim, executive]

Good morning. I am Kim Soon-Joo, Managing Director of Finance and Accounting Department at Ecopro. Please follow along the earnings material that has been shared. I will present the earnings report of 3 Ecopro Group companies and Indonesian Investment results followed by Q&A.

The keywords for this quarter's earnings call are: Continued profitability; Indonesia investment performance; new order acquisitions; and mid-low price lineup expansion.

First of all, Ecopro's Q2 2025's consolidated revenue recorded KRW 931.7 billion, recovering to a level similar to Q2 2024. Operating profit continued to grow from Q1, reaching KRW 16.2 billion, laying the foundation for sustained profit creation in the future.

We have completed the first phase of our smelting investment in Indonesia. By investing in 4 projects, the company expects to recognize an average annual profit of KRW 180 billion, through which, stable sourcing of raw materials and enhancing differentiated profitability will become possible.

During July, Eco Materials commenced shipment to new customers to meet the recent market needs, Ecopro BM has completed the development of high-voltage mid-nickel is getting ready for samples by revamping the mass production line and is expecting to win orders from new customers in the second half for both cathode and precursors.

Putting aside the high nickel in which Eco Materials is already leading the market, to expand our mid- to low-end product lineup, we are preparing not only the high voltage, mid-nickel material, but also LFP that can serve the full spectrum of EV and ESS applications.

A pre-mass production line with a 5,000 tonnes annual capacity scheduled to be ready within the year. We are currently collaborating with a North American OEM for LMR development.

Ecopro will exert efforts to position itself as a differentiated company, capable of creating sustained profit in a highly uncertain market environment.

Moving on to Page 6, Ecopro HN's business results. In this quarter, Ecopro HN's revenues grew 13% Q-o-Q to KRW 39 billion.

In Q2, sales grew with the fine dust reduction business expanding into the power plant segment. And on a Y-o-Y basis, there was a decline impacted by the Water Treatment business revenues.

However, operating profit recorded KRW 3.7 billion on the back of cost reduction and product mix improvement, resulting in an improvement in profit margin.

In the second half, we anticipate a higher revenue coming from the Greenhouse Gas mitigation solution business as our semiconductor customers are expected to resume facility investment.

We're concentrating sales efforts and fine dust reduction to expand our customer base, and we look forward to securing new orders.

We are planning to launch initial mass production of our new business item in the second half of the year in the Chopyeong campus.

Financials on Page 7. At Q2 end 2025, total assets were down 0.2% Q-o-Q to KRW 437.9 billion. Total liabilities down by 3% Q-o-Q to KRW 140.5 billion, and total equity up 1.2% Q-o-Q to KRW 297.4 billion.

Dividend payout completed in Q2 and realizing steady net income drove the debt ratio down slightly Q-o-Q to 47%, showing a robust level.

Let me now discuss Ecopro Materials' business performance on Page 8. Ecopro Materials revenues were down 43% Q-o-Q to KRW 78.1 billion.

The decline in sales is due to a 9.6% drop in ASP due to currency depreciation and a reduced proportion of oxidation precursors as well as a decrease in shipment volume caused by uncertainties around the EV policies in North America.

Operating loss for the quarter was KRW 28.8 billion. Uncertainties still persist with the passing of OBBB Act. But in the Q3, continued efforts will be made to increase sources of revenues such as commencement of shipping to new external customers.

Also, with the subsidiary integration of Indonesia's Green Eco Nickel in its final stage, we expect improvement in profitability. And as was previously mentioned, to address the need for a mid- to lower price lineup, there is ongoing collaboration with a global OEM for developing high-voltage mid-nickel products.

And Eco Materials' financial results on Page 9. As of quarter end, total assets grew 21% Q-o-Q to KRW 1,678.4 billion. Total liabilities decreased 11% Q-o-Q to KRW 588.4 billion, and total equity increased 49% Q-o-Q to KRW 1089.9 billion.

Capital procurement of KRW 389 billion in early April helped reduce the debt ratio significantly to 54%, and continued efforts are being made to reduce borrowings and to enhance the working capital efficiency.

Page 10 discusses Ecopro, the holding company's consolidated business results. Q2 Ecopro revenues on a consolidated basis rose 15% Q-o-Q to KRW 931.7 billion, and operating profit recorded KRW 16.2 billion, expanding the profit margin.

Since Q3 2024, Ecopro has maintained the revenue growth momentum. And during the second quarter this year, it was mainly driven by the higher cathode material sales due to the new vehicle effect in the European market and the expansion in sales of battery materials led by new orders in the lithium business.

On the profit side, notable positives were the improved utilization rate on the back of increased sales volume and return on Indonesia investment.

In regards to the Indonesia investment, Q2 revenues were KRW 84.2 billion and related operating profit KRW 44.6 billion. In the second half, with expectations valid for the European market for strong performance from downstream OEMs and the resumption of subsidies, we're expecting sales for ESS applications to increase.

Also, with the Indonesia project scheduled to be fully consolidated, we anticipate improvement in profitability.

Now Page 11, the holding company's consolidated financials. As of Q2 end 2025, total assets rose 4.5% Q-o-Q to KRW 8,851.3 billion, total liabilities up 2.6% Q-o-Q to KRW 4,785.5 billion, and total equity up 6.8% Q-o-Q to KRW 4,065.8 billion.

Thanks to flexible adjustments in investment planning and proactive financial restructuring, the affiliates debt ratios were managed stably at 100% level.

In Q2, capital reinforcement and profit realization led to a 5 percentage point decrease in the consolidated debt ratio Q-o-Q, bringing it down to 118%.

Let me now go over the holding company's own business and other business segments operating performance. Ecopro is pursuing a strategy to strengthen the holding company's own business capabilities. And with the completion of 4 smelting investment projects in Indonesia this year, investment outcomes are beginning to materialize.

We plan to secure our own profit source as well as the affiliate's long-term profit base. Nickel MHP sales secured through offtake agreements increased from KRW 33.3 billion last quarter to KRW 41.9 billion in Q2, and equity method gains and loan-related income are expected to continue expanding.

The lithium business gained a 28% increase in revenue in terms of sales volume compared to the previous quarter by winning contracts from a new customer, SK On in Q2, and we are in the process of recruiting additional clients in the second half.

Recycling and industrial gas businesses are continuing to increase revenues Q-o-Q on the back of utilization rate improvements by the affiliates.

Lastly, Page 13, allow me to walk you through the Indonesian investment results. Ecopro has begun to realize tangible investment returns, recording profits of KRW 56.5 billion in the first half of the year from its smelting project in Indonesia.

From 2025 to 2030, the company expects to generate an average annual investment profit of KRW 180 billion. As a result of investing in 4 projects, including QMB, it has secured an annual offtake volume of 28,300 tonnes of nickel MHP. This is expected to contribute to a stable raw material procurement for its affiliates and positively impact cost competitiveness.

The holding company is integrating and managing all projects as a whole, further strengthening its role as a business holding entity through trading and investment returns.

Ecopro Materials will complete the acquisition and consolidation of Green Eco Nickel in the third quarter, while Ecopro BM is planning to establish an integrated cathode materials production process.

The Indonesia project has not only delivered short-term financial performance, but is also positioned as Ecopro's differentiated strategy, laying the foundation for structural profitability in the mid to long term.

As presented during the recent eco-friendly day, the project is designed to achieve cost disruption and structural innovation through the integration of technologies and processes. The remaining slides are for your reference, and we will now proceed with Q&A.

[Unknown Executive]

Thank you. And now we will proceed to Q3 and second half business outlook.

[Park Jae-Ha, executive]

[Interpreted] Good morning. This is Park Jae-Ha, CFO of Ecopro. We're pleased to report another quarter of operating profit. While Q2 revenue was similar to last year, operating profit improved from a KRW 50 billion loss to a profit of over KRW 10 billion, driven by structural improvements in our cathode materials business as well as internal cost innovation across the group and strategic initiatives such as our investment in Indonesia.

We expect this positive earnings trajectory to continue through the second half of 2025.

As mentioned in Ecopro BM's earnings call yesterday, the cathode business saw improved results, mainly due to increased shipments to cell makers driven by new EV launches by OEMs and strong performance in Europe.

Profits from our Indonesia investment also contributed meaningfully. While the U.S. market faces some uncertainties due to the rollback of U.S. EV subsidies, ESS demand is expected to remain solid.

In Europe, strong sales of key models from Volkswagen and Ford are expected to continue, and upcoming EV subsidy program resumptions in major countries in Europe point to a favorable market environment.

In Korea, we expect it to benefit from the KRW 1.5 trillion national ESS where Samsung SDI, which uses NCA, was selected with a large share. Our products are also expected to be positively impacted. Ecopro Materials' precursor business and innovations lithium business are working to move beyond captive supply and are actively pursuing new noncaptive customers with gradual results beginning to show.

Materials began sales to a new customer in Q2, and innovation signed a lithium hydroxide supply agreement with SK On in July, with shipments currently ongoing. We're making every effort to secure additional new customers expected to be added in the second half.

In addition to these subsidiaries efforts, Ecopro is stably executing plans to expand its role as a holding company by overseeing investments in Indonesia. To date, our equity investments have been made in 4 projects in Indonesia. And from there, we see equity method income and sustained loan interest being generated.

And we also secured nickel offtake volumes, which amount to 30,000 tonnes annually, which contributes to a steady growth in metal trading revenue.

We're also preparing a completely new project in the IGIP Industrial complex in Indonesia to establish an integrated production facility, spanning nickel refining, precursors and cathode materials, together with business partners and investors.

If this project is implemented, we expect cost competitiveness to improve by a minimum 20% vis-a-vis Korea due to lower cost nickel and lower CapEx.

Recently, there have been many concerns about the K battery industry, although we have moved beyond the worst space and are gradually improving, the situation remains tough with considerable political and economic uncertainties expected in the second half of the year.

However, Ecopro is making steady progress, improving its fundamentals step-by-step with the long-term vision and concrete plans for the future. We believe that the completion of the integrated cathode material project in Indonesia will position us with a competitive edge that surpasses that of our Chinese counterparts.

With this difficult period -- when this difficult period comes to an end, we aim to generate solid results and fulfill the expectations of our shareholders and investors. We kindly ask for your continued support and attention. Thank you.

[Unknown Executive]

[Interpreted] This is Ho Song Jun, CFO of Ecopro Materials. I would like to share with you our outlook for Q3 and latter half of this year.

Although our downstream market conditions are currently unfavorable, product sales to new noncaptive customers began in July, accelerating sales channel diversification.

Another new customer is expected to be added in Q4, further increasing noncaptive sales. The acquisition of Green Eco Nickel is expected to finalize within Q3 as administrative procedures conclude.

Consolidating this company as a subsidiary will improve for consolidated profit, and the company anticipates a better profitability through securing low-cost raw materials.

Following the recent passage of the OBBB Act in the U.S., demand for non-PFC precursors is rising sharply. While many companies are entering the non-PFC precursor market, we understand they face challenges such as trial and error during mass production and cost competitiveness issues.

We're responding to customer demand by developing various products, including oxidation precursors, doped precursors with specific materials and high-voltage mid-nickel precursors. Our target is to secure a total of 12 customers by 2030, and we expect to demonstrate progress in customer diversification, starting in the second half of this year.

[Unknown Executive]

[Interpreted] I am Che Jin Hyung, Head of Management Team of Ecopro HN, and I'd like to share with you our outlook for the second half of this year.

In the first half of this year, challenging downstream market conditions have caused some delays in securing new orders in the environmental business.

In the second half, we are concentrating our efforts on technical sales across a wider range of downstream industries, leveraging our successful track record to build a solid order backlog.

In addition, with government incentives for Green technology and facility investments expected to continue increasing, we anticipate a gradual growth in our top line and bottom line in our environmental business.

In the Battery Materials segment, customer evaluations for dopants and saggars are currently underway with mass production targeted by year-end.

The saggars are developed to deliver top performance in high nickel applications is being tailored and tested for 3 domestic cathode material companies.

The electrolyte additives is in the final stage of customer approval. And upon receiving approval by the end of Q4, sales are expected to commence in earnest in 2026.

Lastly, in the semiconductor materials business, the supply volume of back-end process materials we have been delivering is expected to slightly increase in the second half due to expanded models for HBM and packaging materials by domestic customers in Q3. The front-end process raw materials are in the final stage of mass production validation with full-scale sales scheduled to start in early 2026.

[Unknown Executive]

[Interpreted] Next, we are going to move on to the Q&A session.

[Operator]

[Foreign Language]

[Operator Instructions]

[Foreign Language]

The first question will be presented by [indiscernible] Securities.

[Unknown Analyst]

[Interpreted] I have 2 questions. Number one, this is relevant for the holding company. We see that overall battery businesses are raising funds. So I'd like to understand whether what the financial situation is at the group level and also funding potential going forward?

And my second question is for HN. There is a recent news about Samsung Electronics winning an order from Tesla. Does this have any impact on Ecopro HN as well?

[Park Jae-Ha, executive]

[Interpreted] Yes, this is Park Jae-Ha, CFO of Ecopro. I would like to take your questions on the overall financial situation of the group and also the funding potential.

First of all, as of Q2 this year, our group affiliates have a debt ratio of below 120%. And also in the second half, other than the new projects in Indonesia, the funding needs are not that significant.

To elaborate, as of the end of Q2, our consolidated cash holdings, including subsidiaries, stands at approximately KRW 920 billion. This year, corporate bonds are worth KRW 110 billion from the holding company and KRW 62 billion from Ecopro BM are set to mature in Q2 -- Q3, but these can be fully repaid using our current cash reserves.

However, proactive investments to secure mid- to long-term growth drivers and maintaining a stable financial structure remain key priorities at the group level. We plan to monitor developments closely and respond with flexibility going forward. Thank you.

[Unknown Executive]

[Interpreted] This is Choi Jin Hyung, Head of Management team of Ecopro HN. Let me explain the impact of the Samsung Electronics order you inquired about.

The supply contract between Samsung Electronics and Tesla is expected to involve contract manufacturing at Samsung facility in Taylor, Texas. Currently, only the T1 plan at the site is complete and preparing for operations, and we have already delivered some equipment for T1 Phase 1. As reported in the media, if the site continues to expand and production volume increases accordingly, we expect many opportunities to arise for our company as well.

[Operator]

[Foreign Language] The next question will be presented by[indiscernible] from KB Securities.

[Unknown Analyst]

[Interpreted] I have 3 questions for Ecopro Materials. First, what is the current status of noncaptive sales? And what is the expected share of noncaptive sales in the second half of 2025?

Second, at this point in time, how much of a premium are you receiving compared to Chinese competitors?

And third, with the IRA expiration approaching in September, is there a concern that your competitiveness may be diluted? How is the company assessing the situation?

[Unknown Executive]

[Interpreted] This is Ho Song Jun, CFO of Ecopro Materials, and let me address your first question on noncaptive sales and the expected share in the second half of 2025 and in 2026.

In the first half of this year, we supplied mass-produced oxidation precursors to 1 noncaptive customer and also sold paid samples to several others. Noncaptive sales accounted for approximately 50% of total sales in the first half.

Sales to a new noncaptive customer began in July, and we expect to secure an additional sales channel in Q4.

As a result, the noncaptive sales share is projected to exceed 50% in the second half of this year. In addition, we are currently collaborating on multiple projects with both new and existing external customers, some of which are expected to lead to actual sales next year.

While policy-related uncertainties make it difficult to provide a clear outlook, we expect the noncaptive sales share to reach at least 60% to 70% in 2026.

Now let me move on to your second question regarding the price gap between our precursors and Chinese-made ones. In general, there is a noticeable difference in the North American market between Chinese and non-Chinese precursors.

In particular, with the recent passage of the OBBBA, the price gap has become more pronounced. Based on current precursor product prices, the gap is around 5%. Considering the tariff differences between Korea and China when exporting to the U.S., we believe that our pricing remains highly competitive.

Lastly, regarding your question on the potential impact of the RIA phase out on our competitiveness. With the recent passage of the OBBBA, EV subsidies under Section 30D in the U.S. are expected to end by late September. However, Section 45X introduces new regulations related to prohibited foreign entities or PFCs.

As a result of starting from next year using both precursor and anode materials produced in China or by Chinese-owned overseas entities may make it difficult to qualify for the AMPC credits in the U.S.

Among battery materials, Chinese companies hold about 90% market share in both precursors and anode materials. However, since precursors are relatively easier to source outside of China, customers are prioritizing derisking their supply chains by shifting precursor sourcing away from China.

As a result, demand for non-PFC precursors is rising sharply. In this slide, Ecopro Materials will continue to respond swiftly to consumer needs and position itself as a leader in the non-PFC precursor market.

[Operator]

[Foreign Language] The next question will be presented by [indiscernible] Securities.

[Unknown Analyst]

[Interpreted] I have one question each for Ecopro Materials and Ecopro HN.

First, for Materials, what is Ecopro Materials' readiness for the mid- to low-price precursor market?

And moving on to HN. What is the progress on your carbon reduction business? And how is it affected by current environmental policies?

[Unknown Executive]

[Interpreted] This is Ho Song Jun, CFO of Ecopro Materials. We are approaching the mid- to low-priced market through 3 different strategies.

The first is high-voltage mid-nickel precursors, which lower costs by increasing the manganese content and improve stability via single crystal technology.

Ecopro Materials is collaborating with OEMs to develop high-voltage mid-nickel products targeted for shipment in 2027. The development is progressing smoothly and is expected to become a game changer, bridging high nickel products and LFP segments.

Second is the LMR precursor. Thanks to the recent drop in lithium prices, LMR has become more price competitiveness -- price competitive. Ecopro Materials is developing this production in collaboration with a fleet of companies, positioning it as our next key item for the mid- to low-price market following the high voltage of mid-nickel product.

Commercialization is targeted for 2028.

Lastly, there is the non-co-precipitation precursor. Ecopro Materials is developing spray drying and spray pyrolysis methods to replace the traditional co-precipitation process.

These new methods are expected to significantly reduce waste water discharge, lowering environmental costs and improving precursor production costs.

We're currently co-developing this technology with an OEM partner, targeting implementation in 2028. Thank you.

[Unknown Executive]

[Interpreted] This is Kim [indiscernible], the Head of the R&BD team of Ecopro HN.

I would like to answer your question on the progress of our carbon reduction business and also the impact of environmental policies of the Korean government. Now HN was elected in July for the government-led 2025 carbon neutral transition loan support program.

Through this initiative, the company plans to build mass production facilities for honeycomb catalysts to actively respond to growing industrial demand.

The current administration plans to establish a Ministry of Climate and Energy to lead national climate response and industrial decarbonization efforts.

HN is currently engaged in Greenhouse Gas Reduction projects focused on PFC and N2O. In line with its mid- to long-term strategy, the company identified carbon neutrality is a core growth area and is preparing to enter the CCU business.

This direction is well aligned with the government policies and expected to benefit the company.

We are also working on the commercialization of our third-generation honeycomb catalyst and developing additional new technologies, including small-scale DAC solutions.

Given the government's strong push for decarbonization, the R&D support for carbon-neutral technology is expected to expand. Should policy incentives such as tax benefits or subsidies become available, we plan to actively leverage them to accelerate the development of these new technologies. Thank you.

[Operator]

[Interpreted] Currently, there are no participants with questions. [Operator Instructions]

[Unknown Executive]

[Interpreted] Since there are no further questions, we would like to wrap up today's earnings call. Before we do that, I would like to, once again, thank all the participants for your time. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]