Korea’s cathode materials industry is entering an execution phase, with L&F’s earnings recovery and valuation more attractive

Overview

After three years of weak electric vehicle demand and margin pressure, Korea’s cathode materials industry is nearing an earnings trough, but constrained balance sheets are shifting the industry from a capacity expansion cycle toward a phase emphasizing commercialization, earnings delivery, customer diversification, and capital discipline. The report argues that companies’ recovery paths will diverge further: L&F has the clearest near-term earnings recovery path by being first to commercialize non-PFE LFP, entering Samsung SDI’s ESS supply chain, and expanding customers such as SKI; POSCO Future M and Ecopro BM have medium-term strategic value, but their realization cycles are longer and capital needs are higher.

Core views

L&F is the best risk-reward recovery play within coverage, supported mainly by LFP customer validation, U.S. non-PFE ESS opportunities, and its position near the bottom of its valuation range. POSCO Future M has a broad non-China platform covering cathode and anode materials, but near-term earnings still depend heavily on a recovery in Ultium utilization, while LFP and anode projects remain early-stage. Ecopro BM is strengthening its high-nickel NCM business through upstream nickel integration and Hungary localization, but lack of LFP exposure, competition from China’s supply chain in Europe, equity issuance financing, and a longer payback period limit near-term appeal. Whether the industry’s valuation premium can be sustained will depend on order growth, utilization recovery, and earnings delivery, rather than policy tailwinds alone.

Analysis framework

The report conducts a cross-sectional comparison based on corporate strategy and execution progress, product and customer mix, capital expenditure and balance sheets, regional policies and end demand, earnings forecasts, and historical and global peer valuations, using expected 2027 EV/EBITDA as the primary valuation benchmark. The analysis also distinguishes U.S. ESS and non-PFE supply chain opportunities from European electric vehicle demand and localization opportunities, assessing each company’s ability to capture policy benefits.

Methodology notes

• Valuation analysisEV/EBITDA relative valuation

  Measures the valuation of cyclical battery materials companies using enterprise value relative to earnings before interest, taxes, depreciation, and amortization.

  L&F’s target price uses a 20x multiple of expected 2027 EBITDA, corresponding to the middle of its historical normalized range; POSCO Future M uses a 30x multiple of expected 2027 EBITDA. The report also compares trading multiples of Korean cathode materials companies, Korean battery cell companies, and global cathode materials peers.

• Scenario analysisBull, base, and bear scenarios

  Assesses L&F’s potential price range under different valuation multiples.

  L&F’s bull, base, and bear scenarios use 30x, 20x, and 10x expected 2027 EV/EBITDA, respectively; the disclosed base-case target price is W120,000, and the bull-case scenario is W200,000.

• Competitiveness analysisCommercialization and execution capability framework

  Evaluates recovery quality based on commercialization progress, customer expansion, utilization rates, capital discipline, and earnings delivery.

  In a capital-constrained environment, strategic optionality alone is insufficient to support valuations; companies that obtain customer validation first, achieve mass-production ramp-up, and improve cash flow are more likely to earn a market premium.

• Policy and supply chain analysisNon-PFE supply chain compliance framework

  Assesses the impact of non-PFE material share requirements under U.S. 45X and 48E policies on cathode materials demand.

  U.S. policy support is shifting from stimulating electric vehicle consumption to supply chain security, gradually raising non-PFE material requirements, which should increase demand for compliant cathode materials; however, whether Korean manufacturers benefit still depends on LFP product certification, customer orders, and commercialization ramp-up.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• L&F Co Ltd (066970.KS)

  Top pick within coverage, rated Overweight, target price W120,000.

  Strengths

  Earliest among Korean peers in LFP commercialization and has entered Samsung SDI’s ESS supply chain; has U.S. non-PFE ESS exposure, with customer mix expected to expand gradually from Tesla to SDI and SKI; expected 2027 EV/EBITDA is about 15x, making valuation more attractive.

  Weaknesses

  Customer concentration with Tesla remains high, the balance sheet is under pressure, recent operating cash flow and free cash flow are weak, and falling lithium prices may also lead to inventory losses.

  Comparison

  Compared with POSCO Future M and Ecopro BM, L&F has faster commercialization progress, higher near-term earnings visibility, and a significantly lower valuation.

  Risks

  Delays in LFP mass production, customer certification or capacity ramp-up falling short of expectations, competing suppliers re-entering Tesla’s supply chain and diluting share, weaker ESS demand, and slower-than-expected balance-sheet repair.

• POSCO Future M (003670.KS)

  Rated Underweight, target price W96,000.

  Strengths

  Has one of the broadest non-China battery materials platforms among Korean peers, with businesses covering cathode and anode materials, and is positioning in LFP through production-line conversion and joint venture projects.

  Weaknesses

  Near-term capital needs are the highest, cathode business recovery still depends mainly on Ultium utilization, profit contributions from LFP and anode materials projects remain early-stage, and there is insufficient evidence of cash generation and balance-sheet improvement.

  Comparison

  Strategic coverage is broader than L&F’s, but commercialization delivery is slower; expected 2027 EV/EBITDA of about 36x is clearly higher than L&F’s.

  Risks

  Delayed Ultium recovery, insufficient new customer and order wins, continued losses in the anode business, excessive capital expenditure, and further balance-sheet pressure.

• Ecopro BM (247540.KQ)

  Rated Underweight, target price W75,000.

  Strengths

  Strengthens its high-nickel NCM business through upstream nickel integration and has localized capacity in Hungary, giving it the clearest exposure among Korean manufacturers to Europe’s localization trend.

  Weaknesses

  Lacks LFP capacity, creating an unfavorable product mix as low-end electric vehicles and ESS migrate toward LFP; projects are capital-intensive with a longer earnings payback cycle, and after equity issuance the market is more focused on capital allocation discipline.

  Comparison

  Its European localization advantage is stronger than L&F and POSCO Future M, but expected 2027 EV/EBITDA of about 37x is the highest among the three companies, and commercialization returns are slower.

  Risks

  Intensifying competition from China’s battery supply chain in Europe, high-nickel demand weaker than expected, delays in Hungary capacity ramp-up or customer orders, insufficient returns from nickel integration, and further financing pressure.

Key data

• L&F rating and target priceOverweight; W120,000Rating upgraded from Equal-weight to Overweight, with target price unchanged.
• POSCO Future M rating and target priceUnderweight; W96,000Underweight rating and target price maintained.
• Ecopro BM rating and target priceUnderweight; W75,000Target price cut from W90,000 to W75,000.
• Expected 2027 EV/EBITDAL&F 15x; POSCO Future M 36x; Ecopro BM 37xL&F is near the bottom of its historical valuation range since 2019, while the other two companies’ valuations remain high.
• Year-to-date share price performanceL&F -24%; POSCO Future M -27%; Ecopro BM -34%; KOSPI +48%Cathode materials companies have significantly lagged the broader Korean market.
• L&F earnings forecasts2026 operating profit W219bn; 2027 W216bnCorresponding operating margins are 6.4% and 5.8%, respectively; the 2026 forecast includes a one-off gain of W93bn in the first quarter.
• L&F shipment and utilization forecasts2026 93kt, 44%; 2027 122kt, 45%Cathode materials sales volumes are expected to maintain roughly 30% to 40% year-on-year growth through 2027.
• Recent earnings previewConsolidated operating profit W34bnA year-on-year swing to profit and a 71% quarter-on-quarter decline, broadly in line with consensus of W35bn; volumes and average selling prices are expected to rise 12% and 13% quarter-on-quarter, respectively.
• U.S. 2026 battery electric vehicle forecastSales down 20% year-on-year; penetration rate 6.5%The U.S. team views 2026 as an electric vehicle winter, with 2025 penetration at 8%.
• European battery electric vehicle trend2025 sales up 30% year-on-year; penetration rate 17%The European team expects penetration to rise to 24% in 2027, with policy support and more low-priced models continuing to provide support.
• U.S. non-PFE material requirements60% in 2026 rising to 85% in 203045X gradually raises the required non-PFE share in direct material costs for qualified battery components.
• Ecopro BM European capacityPlanned to reach 108ktpa in 2028The first production line at the Hungary cathode materials plant began operation in May 2026.

Impact & implications

At the industry level, Korean cathode materials companies are still likely to gain second- or third-supplier positions as the U.S. and Europe push for supply chain diversification, but such orders may carry structurally lower margins. Recent U.S. electric vehicle demand is weak, but 45X, 48E, and non-PFE restrictions are strengthening opportunities in ESS and compliant materials; European electric vehicle demand is stronger, but Chinese battery suppliers have not been broadly excluded. Therefore, investors should prioritize companies that can secure orders first, complete certification and mass-production ramp-up, improve cash flow, and reduce customer concentration. By this standard, L&F has higher near-term certainty than POSCO Future M and Ecopro BM.

Risks

• Global electric vehicle penetration slows, and U.S. electric vehicle demand recovers later than expected.
• ESS project deployments are delayed, and demand for LFP cathode materials is lower than expected.
• U.S. or European regulatory policy support for non-China supply chains and electric vehicle demand weakens.
• Delays occur in LFP commercialization, customer certification, and new capacity ramp-up.
• Korean manufacturers fail to secure sufficient new orders or make insufficient progress in customer diversification.
• Declines in raw material prices such as lithium and nickel trigger inventory losses, or price volatility compresses margins.
• High capital expenditure, negative free cash flow, and financing needs put further pressure on balance sheets.
• Chinese suppliers expand share in Europe and global markets through cost, scale, and integration advantages.
• The industry’s current valuation premium versus global peers contracts due to insufficient earnings delivery.
• Morgan Stanley may have business relationships with covered companies, and research objectivity may be affected by potential conflicts of interest.

What to watch

• Progress on certification, mass production, and revenue contribution from L&F’s supply of LFP ESS cathode materials to Samsung SDI.
• Whether L&F can expand customers related to SDI, SKI, and 46-series batteries and reduce dependence on Tesla.
• New orders, utilization rates, and inventory normalization progress among Korean cathode materials companies.
• POSCO Future M’s Ultium utilization recovery, roughly 15kt production-line conversion, and progress on the 50kt LFP joint venture project.
• Ecopro BM’s Hungary plant ramp-up, European customer orders, and delivery of its 108ktpa capacity plan.
• Implementation details of U.S. 45X and 48E non-PFE rules and demand for compliant cathode materials.
• Whether U.S. 2026 battery electric vehicle sales stabilize ahead of expectations, and whether ESS can absorb idle battery capacity.
• European electric vehicle demand, industry localization rules, and Chinese suppliers’ local market share.
• Changes in lithium prices and their impact on average selling prices, inventory gains/losses, and early restocking behavior.
• Each company’s operating cash flow, net debt, financing plans, and capital expenditure discipline.