L&F Is the Top Pick; LFP Commercialization and Capacity Utilization Will Determine Battery Materials Sector Re-Rating

Overview

This report summarizes investor feedback on Morgan Stanley's assumptions for its Korean battery materials coverage. The market remains cautious on the sector outlook, though sentiment has improved from the August lows. The report believes that LFP commercialization progress, utilization of existing high-nickel cathode lines, and actual earnings recovery will be the key variables affecting sector valuations.

Core views

LFP has become the strategic direction of greatest investor interest due to its greater commercialization visibility.Under balance-sheet constraints, further sector re-rating will depend on earnings delivery and improved utilization rather than new capacity announcements.L&F's 2H volume and ASP outlook is relatively positive, with resilient demand from key customers; even if NCM volume declines 8% year over year next year, the LFP ramp-up could still drive total volume growth of 27% year over year.POSCO FUTURE M's U.S. ESS LFP agreement validates demand for cathodes outside PFE, but capacity additions weighted toward 2028 and beyond, potential equity sell-downs, and funding needs remain risks.Ecopro BM's NCA demand from ESS and power tools can only partially offset weaker end-market EV demand, while the ramp-up of its Hungary plant further heightens utilization concerns.

Analysis framework

The report combines investor feedback, volume and ASP outlooks, capacity utilization, customer qualification and order progress, capital expenditure, and free cash flow prospects, and assesses valuation using mid-cycle EV/EBITDA multiples within historical ranges applied to estimated 2027 EBITDA.

Methodology notes

• Valuation methodsEV/EBITDA Mid-Cycle Valuation

  Applies target EV/EBITDA multiples to estimated 2027 EBITDA and compares them with historical trading ranges.

  POSCO FUTURE M and Ecopro BM use a 30x target EV/EBITDA multiple, while L&F uses 20x; all are positioned at mid-cycle levels within their respective historical valuation ranges.

• FundamentalsEarnings and Capacity Utilization Validation

  Validates recovery through improvements in volume, ASP, capacity utilization, and free cash flow.

  Given funding constraints, the market places greater emphasis on actual earnings delivery and utilization improvements rather than awarding a re-rating based solely on capacity expansion plans.

• GrowthLFP Commercialization Ramp-Up

  Assesses customer qualification, commercialization speed, order wins, and margins.

  LFP is viewed as a growth area with relatively high near-term visibility, but execution progress and profitability still need to be proven.

Asset mapping & comparison

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

• L&F Co Ltd (066970.KS)

  Morgan Stanley's top pick in Korean battery materials coverage, rated Overweight.

  Strengths

  Positive 2H volume and ASP outlook, with resilient demand from core customers; the LFP ramp-up can support total volume growth; the stock is trading near the low end of its historical EV/EBITDA range.

  Weaknesses

  The long-term sustainability of high-nickel business growth remains under debate, while future dual-sourcing strategies could pressure customer share.

  Comparison

  Compared with POSCO FUTURE M and Ecopro BM, L&F has greater near-term volume and earnings visibility, along with more pronounced valuation support.

  Risks

  LFP execution or margins below expectations, delayed customer qualification, weaker NCM demand, and loss of share at key customers.

• POSCO FUTURE M (003670.KS)

  A Korean battery materials coverage name, rated Underweight.

  Strengths

  Its U.S. ESS LFP supply agreement validates demand for cathodes outside PFE; faster LFP customer qualification and commercialization could create upside in orders and volume.

  Weaknesses

  New capacity is largely weighted toward 2028, limiting near-term incremental delivery; potential equity sell-downs, high capital expenditure, and funding pressure weigh on valuation.

  Comparison

  Its LFP agreement is a positive catalyst, but its near-term earnings and funding certainty are weaker than L&F's.

  Risks

  LFP commercialization or customer qualification slower than expected, weak U.S. ESS deployment and demand outside PFE, loss of share at key EV customers, and intensifying competition.

• Ecopro BM (247540.KQ)

  A Korean battery materials coverage name, rated Underweight.

  Strengths

  NCA demand from ESS and power tools provides support; its Indonesian nickel investment may provide a more stable earnings source.

  Weaknesses

  Weak end-market EV demand constrains a 2H utilization recovery; the ramp-up of the Hungary plant and declining cathode exports from Korea to Hungary exacerbate utilization concerns; returns on capital allocation after the rights offering remain unclear.

  Comparison

  Compared with L&F, Ecopro BM faces greater uncertainty regarding demand recovery, utilization, and capital allocation.

  Risks

  Rapid share gains by Chinese brands in the European EV market, substitution by LFP and new technologies, ESG and corporate governance issues, and uncertain returns from upstream investments.

Key data

• L&F share price performance since early AugustUp 32%The KOSPI rose 7% over the same period.
• L&F next-year NCM volume assumptionDown 8% year over yearUnder this assumption, the LFP ramp-up is expected to drive total volume growth of 27% year over year.
• POSCO FUTURE M target valuation30x EV/EBITDA on estimated 2027 EBITDAHistorical range is 20-50x.
• L&F target valuation20x EV/EBITDA on estimated 2027 EBITDAHistorical range is 10-40x.
• Ecopro BM target valuation30x EV/EBITDA on estimated 2027 EBITDAHistorical range is 20-50x.
• L&F Co Ltd closing price₩102,600As of 2026-08-13.
• POSCO FUTURE M closing price₩165,900As of 2026-08-13.
• Ecopro BM closing price₩114,500As of 2026-08-13.

Impact & implications

For investors, the sector investment thesis is shifting from a capacity-expansion narrative to validation of earnings, utilization, and commercialization execution. L&F has relative advantages in near-term earnings visibility and valuation; potential upside for POSCO FUTURE M and Ecopro BM depends more on LFP orders, demand recovery, and easing capital-allocation uncertainties.

Risks

• Slower EV penetration and weaker-than-expected end-market EV demand.
• Prolonged low utilization at existing high-nickel cathode production lines.
• Delays in LFP customer qualification, commercialization, and project commissioning.
• Excessive capital expenditure, rising funding pressure, and low ROE.
• Loss of share at key customers, intensifying competition, and technology-route substitution.
• Potential equity sell-downs, post-rights-offering capital allocation, and uncertain returns from upstream investments.

What to watch

• LFP customer qualification, commercialization pace, and new long-term orders.
• L&F's 2H volumes, ASPs, NCM demand, and LFP margins.
• Utilization rates at high-nickel cathode production lines and the pace of industry demand recovery.
• The size of POSCO FUTURE M's U.S. ESS LFP order to be disclosed in the third quarter, the timing of volume contribution, and funding arrangements.
• Ecopro BM's ESS and power-tool demand, Hungary plant ramp-up, returns on Indonesian nickel investments, and capital deployment.
• Whether actual 2027 volumes, earnings, and free cash flow match mid-cycle valuation assumptions.