SK Securities maintained a 'buy' rating on Lotte Energy Materials (020150) on July 9 while lowering the target price from 90,000 won to 60,000 won. Analyst Park Hyung-woo cited expectations that 2027 copper foil supply shortages will benefit the company's AI substrate circuit board business expansion as substrate capacity growth outpaces copper foil supply. Domestic battery foil manufacturers are reducing capacity and delaying expansion, which is expected to improve copper foil supply-demand dynamics.
Analyst Predicts 2027 Circuit Board Copper Foil Shortage
Park stated that "circuit board shortage is expected in 2027" as "copper foil supply cannot keep up with substrate expansion speed, and domestic battery foil companies are also reducing capacity and delaying expansion, which will lead to improved copper foil supply-demand." He added that "substrate material shortages are expected to appear earlier and more severely than substrate shortages."
Lotte Energy Materials Converts Iksan Plant to Circuit Board Foil Production
The company is converting its Iksan plant battery foil line to circuit board foil with an annual capacity of 16,000 tons, targeting completion in the first half of next year. The converted volume will be supplied for AI network mainboard applications, and the company plans to gradually expand HVLP (high-specification circuit board) product shipments for AI applications.
Q2 Earnings Show Continued Losses with Improvement Trend
SK Securities estimated Lotte Energy Materials' Q2 revenue at 193.1 billion won with an operating loss of 20.1 billion won. Circuit board shipment volume is expected to increase 25% quarter-on-quarter, while battery foil volume is projected to rise 20%, but profit improvement speed will be limited due to lower battery foil average selling prices.
Second-Half Outlook Focuses on Capacity Utilization Recovery
Park noted that "North American energy storage system (ESS) demand is driving battery foil shipments while suppliers are reducing battery foil capacity through circuit board conversion." He projected that "second-half monthly capacity utilization is expected to rise to a maximum of 80%, and we are paying attention to the possibility of price recovery in conjunction with supply-demand improvement."
Analyst Maintains Top Pick Status Despite Target Price Cut
Park stated that "Lotte Energy Materials is the only domestic alternative for PCB and CCL circuit board foil localization among Korean battery material companies" and that "circuit board is a business with high profit leverage, and operating margin could significantly exceed 10% in 2027-2028." He added that "the recent stock price decline could be a buying opportunity, and we maintain our top pick opinion within the battery materials sector."
Regarding the target price reduction, Park explained that "the target price was calculated by applying the lowest price-to-earnings ratio (PER) of 15x from AI substrate peer companies to the estimated 2028 earnings per share (EPS)" and that "we lowered the target multiple considering the gap between the previous target price and the current stock price."
FAQ
Why did SK Securities lower Lotte Energy Materials' target price while maintaining a buy rating?
SK Securities lowered the target price from 90,000 won to 60,000 won due to valuation methodology adjustments, applying a lower PER multiple of 15x to 2028 estimated EPS to reflect the gap between the previous target and current stock price. The firm maintained the buy rating based on expectations that 2027 copper foil supply shortages will benefit the company's circuit board business, which has high profit leverage potential with operating margins projected to significantly exceed 10% in 2027-2028.
What is Lotte Energy Materials doing to capitalize on the expected copper foil shortage?
Lotte Energy Materials is converting its Iksan plant battery foil production line to circuit board foil with an annual capacity of 16,000 tons, targeting completion in the first half of next year. The converted capacity will supply AI network mainboard applications, and the company plans to gradually expand high-specification HVLP circuit board product shipments for AI applications as substrate material shortages are expected to emerge earlier and more severely than substrate shortages.
