EcoPro Materials Co Ltd

KRX:450080

Q3-2025 Earnings Call

[Operator]

[Interpreted] We will now begin Ecopro's 2025 Third Quarter Earnings Conference Call. Following the presentation of the third quarter results, we will provide an overview of the outlook for the fourth quarter and next year and then proceed to the Q&A session.

While the earnings presentation will be interpreted simultaneously, business outlook and Q&A will be interpreted consecutively. Now we will begin Ecopro's presentation.

Good morning. Thank you for taking the time out of your busy schedule to join Ecopro's earnings conference call. For today's call, we have from Ecopro, CFO, Park Jae-ha; Kim Soon-Joo, Managing Director of Finance from EcoPro Materials, [indiscernible] Head of Business Management from Ecopro HN, Choi Jin Hyung and [indiscernible].

Please note that the earnings presented today may change subject to independent auditor's review. We will now begin Ecopro's presentation on the 2025 3rd quarter results.

[Soon-Joo Kim, executive]

[Interpreted] Good morning. I'm Kim Soon-Joo, Managing Director of Finance. Please refer to the earnings presentation materials that were previously distributed. For today's earnings call, we'll begin with an overview of the business results of Ecopro's 3 listed family companies, followed by a Q&A session.

The key takeaways from Ecopro's Q3 earnings presentation are entry into the second phase of the Indonesia investment and key product strategies for each segment of the battery materials market. As previously mentioned in the last earnings call, Ecopro has completed its Phase 1 investment in the IMIP smelting project Indonesia and has now entered Phase II investment in the IGIP project. In Phase 1 IMIP, all 4 investment projects have ramped up and started full-scale production, completing a nickel production structure with an annual capacity of 150,000 tons. Ecopro has secured offtake right for around 30,000 tons of that outcome.

Expected annual profit contribution from IMIP include KRW 100 billion in consolidated profit from Green Eco Nickel, KRW 50 billion in equity method gain from the other 3 projects and KRW 30 billion from metal trading, totaling around KRW 180 billion in annual profit contribution.

Phase 2 IGIP project will proceed in 2 stages. In the first stage with participation from Indonesian state-owned mining company, Vale, Ecopro will hold a 20% stake, while in the second stage, Ecopro will hold a majority stake and take the lead as the largest shareholder. Once both stages are complete, IGIP will have a total nickel metal production capacity of 130,000 tons and Ecopro plans to secure offtake rights for about 50,000 tons.

As with Phase I, we expect a much larger profit contribution through consolidated earnings, equity method gains and metal trading. At the final stage of investment, we aim to integrate smelting and cathode materials production to achieve synergies and produce the world's lowest priced products. Next, Ecopro's key product strategies by market segment within the battery materials business. In the high nickel segment where Ecopro has a strong technological edge, we will leverage our Indonesia operations to produce world's lowest priced, non-China products for premium EV, high-performance ESS and the rapidly growing robotics sector.

As the EV market continues to expand, the volume may be expected to represent a larger portion of future demand will be targeted through high-voltage mid-nickel products. Ecopro has already secured performance in Single Crystal and is refurbishing mass production lines in collaboration with customers. For mid-nickel by securing a production base and resources in Indonesia, Ecopro plans to achieve cost competitiveness comparable to Chinese players and gain a leading position in the market. In response to the growing demand for LFP batteries in entry-level EV and ESS market, Ecopro has completed a non-China precursor free process to secure near mass production capacity, and we are in close discussions with customers.

For sodium ion batteries, we are developing products with energy density comparable to LFP. These can be manufactured using existing ternary plans, enabling rapid market response in the future. Ecopro, through its high nickel technology and Indonesia based cost competitiveness plans to reinforce its market position by expanding into mid-nickel products. And as the market continues to evolve, we will also actively respond to customer needs in the LFP and sodium ion battery segment.

Please turn to Page 7 for Ecopro HN business results. In Q3, due to slowdown in the petrochemical and steel industries and delayed facility investments by water treatment and semiconductor customers, Ecopro HN recorded sales of KRW 28.4 billion, down 27% Q-o-Q and operating profit of KRW 2.3 billion, down 36% Q-o-Q. While sales in the chemical filter segment remained stable, revenue declined in project-based businesses such as fine dust and greenhouse gas reduction and water treatment solutions.

Looking ahead, with the boom in semiconductor industries, sales of chemical filters are expected to rise and demand for greenhouse gas reduction projects to increase. The fine dust reduction business by entering power plant and cement markets aims to see customer diversification and secure new order momentum for next year.

Please turn to Page 8 for the financial overview. At the end of Q3 2025, total assets stood at KRW 432 billion, down 1.3% Q-o-Q. Total liabilities were KRW 132 billion, down 6.1% Q-on-Q and total shareholders' equity was KRW 300.1 billion, up 0.9% Q-o-Q. The debt ratio stood at 44% and the current ratio at 419%, maintaining a sound financial position.

Please turn to Page 9 for Ecopro Materials business results. In Q3, Ecopro Materials precursor sales increased 13% Q-o-Q, driven by shipments to new customers, but total sales declined 19% Q-o-Q to KRW 63.2 billion due to lower product sales. As a result, operating loss remained similar to the previous quarter at KRW 25.1 billion. However, following the completion of the acquisition of a high value-added nickel smelter, Green Eco Nickel in Indonesia, Ecopro Materials recorded a KRW 164.3 billion, increase in net income due to bargain purchase gain. In Q4, with greater captive sales, precursor sales volume and amount are expected to increase sharply. With Green Eco Nickel completing ramp-up in September and commencing full-scale mass production, we expect a positive contribution to consolidated earnings along with additional benefits from securing offtake volumes and byproducts of rare metals such as cobalt, manganese, copper and Scandium, whose prices have recently surged.

Please turn to Page 10 for the financial overview. At the end of Q3, total assets stood at KRW 1.892 billion, up 7.8% Q-o-Q, total liabilities at KRW 556.3 billion, down 5.5% Q-o-Q and total shareholders' equity at KRW 1,252.9 billion, up 15% Q-o-Q. Due to the Green Eco Nickels acquisition payment and CapEx, cash and equivalents decreased by KRW 106.2 billion. However, the company secured about KRW 350 billion in credit lines and with improved earnings, the debt ratio declined to 44%.

Now please turn to Page 11 for the consolidated results of Ecopro, the holding company. In Q3 2025, Ecopro recorded consolidated revenue of KRW 959.7 billion, up 3% Q-o-Q and operating profit of KRW 149.9 billion, up a significant 824% Q-o-Q. This was driven by profit increases from the acquisitions of Indonesia's Green Eco Nickel and ESG equity and higher precursor and lithium sales from new customers. Although there were some inventory adjustments for EV cathodes, in Europe, NCA cathode sales for ESS rose 103% Q-o-Q to KRW 155.4 billion.

Looking ahead, consolidated revenue and profit are expected to improve further as Green Eco Nickel ramps the production, while normalized depreciation periods across group companies will also support earnings growth. Despite the U.S. EV tax credit expiration, demand remained strong for AI data center as UPSU's ESS cathodes as well as for non-China precursors, supporting continued earnings momentum. In Q4, through the completion of Debrecen plant in Hungary and establishment of a new European entity in Germany, the company plans to expand its European customer base.

Please turn to Page 12 for results of the holding company's stand-alone and unlisted businesses. Ecopro's stand-alone business revenue was KRW 64.5 billion in Q3, up 48% Q-o-Q. With the completion and full operation of 4 IMIP smelters, equity method and trading profits are expected to increase gradually. In Q3, as previously announced, Ecopro initiated Phase II IGIP Stage 1 investment, which is expected to drive business portfolio diversification and synergy with existing businesses. The lithium business posted a loss of KRW 60.5 billion in Q3, but improvement is expected in Q4, driven by higher sales and inventory valuation reversal.

Please turn to Page 13 for the consolidated financial overview. At the end of Q3 2025, total assets stood at KRW 8,782.7 billion, down 0.8% Q-o-Q. Total liabilities were KRW 4,568 billion, down 4.5% Q-o-Q and total shareholders' equity was KRW 4,247 billion, up 3.7% Q-o-Q. Due to bond repayment and the Green Equine acquisition, cash and equivalents decreased by KRW 258.4 billion and inventories declined 16% Q-o-Q through ongoing rationalization efforts. The consolidated debt ratio improved to 108.4% and the Ecopro Group continues to manage its debt ratio around 100%. With the holding company's KRW 800 billion stake sale and completion of PRS contract in October, further improvement in financial structure and liquidity is expected in Q4. Please refer to the following slide for your reference.

And we'll now move on to the business outlook and Q&A session. This concludes our earnings presentation. Next, business outlook for Q4 and next year.

[Jae-ha Park, executive]

[Foreign Language]

I am Park Jae-ha, Head of Business Management of Ecopro. Let me present the business outlook for Ecopro Holding Company.

[Foreign Language]

First of all, as was mentioned during the earnings presentation, we are very pleased to inform you that Ecopro Materials equity acquisition of Green Eco Nickel project and Phase 1 investment in Indonesia has been successfully concluded. Just like the ESG project led by Ecopro BM in the prior quarter, we were able to recognize significant gain from bargain purchase because we acquired a stake in a smelter that was already generating high value added at a strategically advantageous price.

[Foreign Language]

Furthermore, the Indonesia project is already contributing to the P&L right now through profit from Nickel MHP trading and equity method gain. This project is a way to achieve sustained growth of the Ecopro group companies and share results with the market. And it is also meaningful that we're adding smelting as a new business domain.

[Foreign Language]

Following the successful completion of Phase 1, Phase 2 investment is well underway. I would like to note that unlike Phase I, in Phase II, Ecopro is taking the lead in the project. For Stage 1, our equity participation has been decided at around 20% together with a state-owned mining company and a sovereign wealth fund of Indonesia and for Stage 2, Ecopro plans to assume a much more than 50% stake as the largest shareholder. These decisions have been made, thanks to the existing strong partnership with Chinese Green Eco manufacturer based on well aligned interests and a common vision for the cathode market. And this is a structure that no other domestic company can match, and it is Ecopro's unique strategic strength.

[Foreign Language]

Annual profit from Phase 2 is projected to be more than KRW 300 billion on average far exceeding KRW 180 billion of profit expected from Phase 1. This number is indeed a conservative estimate, including consolidated profit and trading profit based on the assumption that nickel price would be $16 per kilogram by 2030. If nickel that is produced here is added to precursors and cathodes, we anticipate cost savings of around 20% to 30% depending on products, and we expect to be able to secure the same level of competitiveness as Chinese anywhere in the world.

[Foreign Language]

Moving on to the outlook for the fourth quarter. Green Eco Nickel will be consolidated to EcoPro Materials from the fourth quarter the profit from the project will be fully reflected in the operating profit of EcoPro Materials and the holding company as well. As the other 3 projects are into -- are put into full operation, equity method profit is expected to increase further. In addition, in the process of reestimating the useful life of tangible assets, on the back of the changed economic environment, the overall depreciation expense in 2025 is expected to decrease significantly.

For example, the useful life of production equipment has been set at 10 years, but it can be used for 15 years. Since the 15-year criterion is already used widely in the industry, this change will improve comparability between companies. After review by experts from an accounting firm and equipment providers, the adjustment to the useful life will be applied to all Ecopro group companies starting from the fourth quarter.

[Foreign Language]

Also, as you may have seen in the media and through our disclosure last week, we signed the PRS contract worth KRW 800 billion to secure funds for the investment in Indonesia in preparation for the future. Although the uncertain external environment continues, Ecopro is steadily implementing differentiated strategies. We ask for your continued support and interest. Thank you.

[Unknown Executive]

[Foreign Language]

This is , [indiscernible], Managing Director of Business Management for Ecopro Materials. Let me present the Q4 business outlook for Ecopro Materials.

[Foreign Language]

On a separate basis, in the fourth quarter, meaningful sales volume growth is expected Q-o-Q as captive customers secure precursor inventory for North America. Also, cobalt price has risen significantly from $34 per kilogram at the end of September to $48 as of the end of October. On the back of this upward trend, we have secured orders for metal sales, and we expect additional orders going forward, which is expected to further improve our profitability.

[Foreign Language]

On a consolidated basis, Green Eco Nickel will be consolidated starting from Q4, which is expected to result in meaningful improvements in terms of revenue and margin. Green Eco Nickel's annual nickel MHP production capacity is 20,000 tons, and it can record 20% to 30% margin at the current metal price levels. Since this smelter started ramp up in September, meaningful results are expected from Q4, and we expect to turn a profit on a consolidated basis if there are no special issues.

[Foreign Language]

Moving on to sales. We started precursor shipment to a new customer in the third quarter, and we are currently discussing additional projects with multiple customers. The project for a new customer originally planned for Q4 may be delayed due to the inventory issues of OEM in North America, but we're currently talking with customers about 7, 8 projects for mass production in the next year and the year after.

[Foreign Language]

We plan to finish the construction of CPM 3 precursor plant with the capacity of 33,000 tons where capacity expansion is progressing in line with the launch schedules of multiple projects. Starting from the second half of 2026, meaningful utilization improvement is expected. Thank you.

[Unknown Executive]

[Foreign Language]

This is [indiscernible], Team Leader of Business Management and Ecopro HN. Let me present the fourth quarter outlook for Ecopro HN.

[Foreign Language]

The trend of moderated investment by downstream customers of the environment business is expected to continue in the fourth quarter. Given the nature of order-based business, sales tend to be recognized more in Q4 but due to the slowdown in demand in the downstream industry in terms of water treatment and fine dust reduction business and the adjustment of CapEx by customers, the recovery of sales and profitability has been a bit slow. In response to this market uncertainty, we plan to make every effort to create tangible results by focusing on profitability-oriented business improvement and securing key orders.

[Foreign Language]

For chemical filter business, we are seeing high utilization rates of production fabs, thanks to an upturn in the semiconductor cycle. So we expect a stable demand trend to continue in the fourth quarter as well. As for the fine dust reduction business, on the back of the end of the grace period for emissions regulations in the cement sector, we expect that much delayed investment in environmental facilities will be gradually made in earnest. Regarding greenhouse gas reduction business, with the resumption of construction by downstream customers, the supply of equipment is expected to resume and increase gradually.

[Foreign Language]

In the Battery Materials business, [indiscernible] are currently undergoing product testing with 2 new non-captive customers. For crucibles, long lifetime products for NCA calcination have reached their target lifespan and preparations are underway for capacity evaluation. As for electrolyte additives, the developed products have passed comprehensive quality testing conducted by major electrolyte manufacturers with new orders expected in the first half of 2026. Thank you.

[Operator]

[Foreign Language]

We would now like to address the questions that we received in advance.

[Foreign Language]

The first question that we collected was about sourcing for raw materials for lithium business and Ecopro will address this question.

[Jae-ha Park, executive]

This is Park Jae-ha, Head of Business Management at Ecopro. Let me address this question. Currently, there are 2 main ways to source lithium for cathode. The first way is direct sourcing through Ecopro innovation. Ecopro innovation uses LSS, low sulfur substance recovered through a recycling process to reduce -- to produce raw materials as well as sourcing lithium carbonate from Argentina through a long-term supply contract and converting it to lithium hydroxide. Lithium produced this way is being stably supplied to Ecopro BM and Ecopro EM as well as non-captive customers. And recently, we've been seeing the increase in non-captive sales volume through our supply contract with SK on.

[Foreign Language]

The second way is that suppliers are often designated in consultation with our customers, mostly lithium from Australian mines and Chilean salt flat is sourced. In some regions such as Europe, upon customer request, Chinese lithium is used to a certain extent.

[Operator]

[Foreign Language]

The second question we collected in advance is on our ESS readiness in the current environment where the demand for ESS for AI data centers is expanding. An interest in supply chain diversification away from China is increasing as well. This question will be responded by EcoPro Materials.

[Unknown Executive]

[Foreign Language]

This is [indiscernible], Managing Director of Business Management and Ecopro materials. Let me respond to your question on our responses to ESS.

[Foreign Language]

As for precursors, we are working on 2 tracks, ternary and sodium for ESS application. First, in the case of ternary precursor, quality test is underway for a non-captive customer targeting North America. This customer is planning to convert their EV line to ESS line to meet the rapidly growing demand for ESS. Among non-Chinese materials, they need to secure a non-Chinese precursor to be eligible for advanced manufacturing production credit under OBBB. We are expected to be able to supply precursors for ESS starting from 2027.

[Foreign Language]

We're also collaborating with a captive customer and a cell company to prepare for shipment to domestic ESS projects. The cell company secured 80% of the -- in the government ESS bid, which is worth about KRW 1 trillion, and the bidding size is expected to continue to grow even further starting from next year. it is expected to contribute further to our sales growth.

[Foreign Language]

In the medium to long run, we are preparing for a precursor for sodium ion battery. This precursor is targeting both the ESS and the EV market. More specifically, we are developing NFM precursor in close cooperation with our group companies.

[Foreign Language]

At this point, commercialization, full-scale is rather delayed. But going forward, NFN battery is going to be more than 20% cheaper than LFP battery, and it can address the issue of too much dependence on China for precursor for ESS LFP value chain. Therefore, it is going to help diversify the value chain away from China. EcoPro Materials is working closely with our group companies with the target of mass production from 2027.

[Operator]

[Foreign Language]

The third question that we collected in advance is about the possibility of new orders for environment plant business. This question will be addressed by Ecopro HN.

[Unknown Executive]

[Foreign Language]

This is [indiscernible], Head of R&D at Ecopro HN. Let me address this question.

[Foreign Language]

This year, sales for plant business has been slow due to the moderation of investment pace by downstream customers such as semiconductor, oil and steel companies, However, with the revitalization of the semiconductor market next year, additional orders are expected for greenhouse gas reduction facilities for domestic and overseas semiconductor companies.

[Foreign Language]

Regarding fine dust reduction business, sales activities are being conducted for power generation using direct injection technology in Tongyng and Kwangyang areas according to the domestic power supply and demand plan. So we believe that there is a high possibility of receiving orders from this field.

[Operator]

[Foreign Language]

Now we would like to accept questions from the participants.

[Foreign Language]

[Operator Instructions] The first question will be provided by [indiscernible] from NH Investment & Securities.

[Unknown Analyst]

[Foreign Language]

This is [indiscernible] from NH Investment and Securities. I have 2 questions regarding EcoPro materials. First of all, I'd like to get some update on the order that you received from an American OEM that you disclosed early last year. And also, I'd like to understand if the Indonesian made MHP will be eligible for PFE or not regarding the Green Eco nickel?

[Unknown Executive]

[Foreign Language]

This is [indiscernible], Managing Director of Business Management and EcoPro Materials. Let me respond to your question on our U.S. OEM related business.

[Foreign Language]

Regarding direct supply to the U.S. OEM, delivery has been delayed due to sluggish sales of the target vehicle models but we aim for shipments next year. We're closely communicating with our customer with the goal of shipments of fine precursor in 2026 and coarse precursor around the end of 2026.

[Foreign Language]

In addition to the existing project that we announced, EcoPro Materials is preparing for precursor delivery to this OEM through a cell company in Asia. For this, we're discussing with the OEM customer with the goal of delivery in the second quarter of next year. If this happens, it is expected to help significantly improve our earnings.

[Foreign Language]

In addition, with the recent passing of the one Big Beautiful Bill, this customer needs to diversify its value chain away from China, and this need is very strong. So we're discussing additional projects as well. We hope to be able to announce good news very soon.

[Foreign Language]

Let me also address your question on the eligibility of GEN Indonesia and MHP PFE status.

[Foreign Language]

Together with the holding company, EcoPro Materials have secured 38% equity in Green Eco Nickel smelters in Indonesia and secured major management rights as well. As for the remaining equity stakes, several Chinese companies, excluding GEN, hold about 52%, while companies in other regions hold 10%.

[Foreign Language]

Under the current U.S. prohibited foreign entity regulations, ownership by a single foreign entity must not exceed 25% and combined ownership by multiple foreign entities must not exceed 40%. To comply with this regulation, we're planning to lower the Chinese ownership level. Going forward, in the event of a change in the external environment, such as SFE and FIE regulation changes, we will respond flexibly and proactively to enter the North American market and maintain business stability.

[Foreign Language]

We will accept next question.

[Operator]

[Foreign Language]

The following question will be presented by Yushin Park from HSBC.

[Yushin Park, analyst]

[Foreign Language]

This is Park Yushin from HSBC. I'd like to ask 2 questions regarding gains bargain purchase. My first question is that you have recognized a sizable gain from bargain purchase this quarter. And going forward with your projects in Indonesia. I would like to understand if there are additional possibility for such gains to be recognized going forward? And the second question is that this particular gain was recognized and treated as nonoperating profit for EcoPro Materials, while it is operating profit for Ecopro. So can you explain the difference between the two?

[Jae-ha Park, executive]

[Foreign Language]

I am Park Jae-ha, Head of Business Management at Ecopro. Let me first respond to your first question regarding the possibility of additional bargain purchase gains in the future.

[Foreign Language]

According to accounting standards, if the fair value of the net assets acquired is valued higher than the acquisition price. The difference is recognized as a bargain for the current period and is booked as bargain purchase gain. As was mentioned earlier, smelters in our Indonesian project are expected to be highly profitable based on cheap nickel ore and excellent smelting technology. An investment is underway based on future strategy and long-term partnership with Chinese GEN.

[Foreign Language]

Currently, Phase II IGIP project investment is well underway. And in this process, if additional value is identified according to the accounting standards I just mentioned, bargain purchase gain can be recognized again. And I believe that this will be an opportunity to objectively confirm once again from the outside that our investment in Indonesia is an excellent one.

[Foreign Language]

Let me now comment on the classification of profit from bargain purchase.

[Foreign Language]

As you may know, Ecopro is a holding company that carries out investment business, which includes equity investment and management, securing of equity method profit and dividend income and generation of investment profit from related activities. Gain from bargain purchase is part of such investment activities, which constitutes Ecopro's operation, so it's been treated as operating profit. On the other hand, EcoPro Materials mainly conducts precursor business, so profit arising from equity investment is classified as nonoperating profit.

[Foreign Language]

We'll take the next question.

[Operator]

[Foreign Language]

The following question will be presented by [indiscernible] from Meritz Securities.

[Unknown Analyst]

[Foreign Language]

I'm [indiscernible] from Meritz Securities. I would like to ask 2 questions. The first question is that in discussing the Ecopro's business outlook, you mentioned of PRS, and I'd like to understand how you're going to use the PRS proceeds. And the next question is about change of use life for depreciation, and I'd like to understand the amount impact on your earnings.

[Soon-Joo Kim, executive]

[Foreign Language]

I'm Kim Soon-Joo, Head of Finance and Accounting at Ecopro. Let me address your first question on our PRS related plans.

[Foreign Language]

Financing through PRS aims to secure funds for strategic investments for the future and maintain financial soundness. We were able to secure about KRW 800 billion of fund as planned, so we are pleased that we can achieve these objectives.

[Foreign Language]

Of this amount, about KRW 200 billion will be used for the Indonesia project, IGIP project that will start in the late -- later this year as well as into the next year. And some of the funds will be used to meet refinancing need next year to maintain liquidity levels. The remaining amount will be used efficiently in accordance with the financial -- the financing situations of the group companies for the next 2 years. In addition, corporate income tax arising from the sale of shares for this PRS contract as well as some of the local tax will have to be paid next year, which is projected to be about KRW 200 billion.

[Jae-ha Park, executive]

[Foreign Language]

I'm Park Jae-ha, Head of Management at Ecopro. Let me address your question on the useful life change.

[Foreign Language]

Change in the useful life for depreciation purpose does not involve any changing of the past financial statements but rather a new criterion will be applied from the point of such change that's applied. Therefore, the effect of change attributable to the fiscal year 2025 will be recognized in the fourth quarter and the remaining value will be depreciated based on the changed useful life from next year. However, we are currently working on this change. So we are not able to share any specific numbers, please understand, but we will be able to share them with you next quarter. Thank you.

[Operator]

[Foreign Language]

Now we would like to conclude the earnings presentation for 2025, 4th quarter. Thank you very much for your participation.

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