Closed at 13,020 won on August 26, down 57% from 52-week high
Operating profit projected to jump 70% this year, but financial burdens persist alongside US battery and satellite material growth
Even as Sangsangin Frontech (089980) expands its energy storage system (ESS) battery components and satellite communication materials businesses in the US to drive an earnings turnaround, its share price has plummeted by more than half over the past six months. Despite projections of a 70% year-on-year increase in annual operating profit, the company's valuation has sharply contracted.
Shares Down 54.63%… Operating Profit Projected to Rise 70% This Year
Sangsangin Frontech closed down 2.40% at 13,020 won on August 26 compared to the previous trading session. The stock has suffered a decline of 54.63% over the past six months, plunging 57.03% from its 52-week high of 33,000 won.
In contrast to its share price, the company's fundamentals are showing signs of recovery. Consolidated revenue for the second quarter rose 24.7% year-on-year to approximately 55.8 billion won, while operating profit surged 127.6% to about 3.6 billion won.
According to a report released by Eugene Investment & Securities on August 26, third-quarter revenue is estimated at 61 billion won with an operating profit of 3.2 billion won, up 22.2% and 49.1%, respectively, from the same period last year. While operating profit is expected to decline by about 11% quarter-on-quarter, the improvement compared to the previous year remains pronounced.
Annual earnings are also expected to maintain an upward trajectory. This year's revenue is projected at 226.8 billion won and operating profit at 11.4 billion won, representing a 70.2% jump in operating profit from the previous year. Next year, revenue and operating profit are forecast to expand further to 285.9 billion won and 17.9 billion won, respectively.
Despite upward revisions to earnings forecasts, the company's target price was lowered. Eugene Investment & Securities slightly raised its operating profit forecasts for this and next year while adjusting its target price from 30,000 won to 25,000 won. This adjustment reflects the widening gap between the target price and actual stock prices caused by the recent sharp downturn in the stock market. The juxtaposition of rosy earnings expectations and falling share prices highlights a significant temperature gap between corporate growth prospects and market appraisals.
Growth in US Battery and Satellite Materials… Cash Flow Improvement Remains a Hurdle
Sangsangin Frontech is scaling up its battery component production facilities to target the US ESS market. Its US plant currently operates a single cap assembly production line for ternary batteries and is adding a lithium iron phosphate (LFP) battery line. Revenue generation from the new lines is anticipated by the second half of 2027.
Eugene Investment & Securities estimates that once the total number of US production lines expands to four and all become operational by the second half of 2028, the company could generate annual sales of 200 billion to 240 billion won.
Revenue from satellite communication materials is also on the rise. Monthly sales of ETFE (ethylene tetrafluoroethylene) films for receivers supplied to global satellite operators grew from 1 billion won in the second half of last year to 1.5 billion won in the first half of this year. Eugene Investment & Securities noted that recent monthly sales have reached up to 2 billion won.
The financial situation tells a different story. In May, Sangsangin Frontech issued the 8th series of convertible bonds worth 45 billion won. According to regulatory filings, the proceeds are earmarked for debt repayment (29.4 billion won) and operational funds (15.6 billion won).
Financial projections by Eugene Investment & Securities show that operating cash flow this year will decline to 6.7 billion won from 9.8 billion won last year. Free cash flow (FCF) is projected to remain negative, following last year's -14.2 billion won, with -16.2 billion won this year and -10.3 billion won next year.
While net borrowings are set to increase from 98.2 billion won at the end of last year to 117.6 billion won by the end of this year and 131.1 billion won by the end of next year, the interest coverage ratio is projected to improve from 1.1x to 1.9x and 2.8x over the same period. Although profit growth will enhance debt-servicing capacity, pressures from borrowings and cash flow are expected to linger for the time being.
