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[KH Explains] Is EcoPro a ‘meme stock’?

Battery materials firm family becomes overnight star of Korean stock market

April 20, 2023 - 15:59 By Im Eun-byel
Headquarters of EcoPro (EcoPro)

Stock prices of South Korean battery materials firm EcoPro and its affiliates have been skyrocketing over the past few months, backed by a retail investor frenzy.

EcoPro was previously a little-known stock listed on the tech-laden Kosdaq. But recently it has been arguably the most talked about stock in the local equity market.

The group’s shares -- those of EcoPro, EcoPro BM and EcoPro HN, nicknamed the "three brothers" -- have been on a rapid rise as Korean battery firms are expected to benefit from the US government’s Inflation Reduction Act, as cathode materials processed in Korea will be eligible for tax credits.

The EcoPro family's shares have been described as a "meme stock," referring to company stocks that experience rapid share price growth backed by the buying spree of retail investors, who are often swayed by online followings, leading to prices that defy fundamentals. The case of the Gamestop frenzy in the US market just over two years ago is the prototypical example.

EcoPro BM, an affiliate of EcoPro that produces cathode materials for batteries, closed at 294,000 won ($222) on Thursday, nearly three times its closing price of 94,700 won on Jan. 6.

Its holding company closed at 609,000 won on Wednesday, nearly fivefold its closing price of 109,600 on Jan. 6. It even rose as high as 820,000 won on April 11.

EcoPro also marked the highest net purchasing from retail investors this year listed on the Kosdaq, Korea's secondary bourse. Small traders bought a net 1.42 trillion won of EcoPro stock from Jan. 2 to April 19.

With the growth, the combined market cap of EcoPro and EcoPro BM mounts to nearly 44.8 trillion won as of Thursday, surpassing Kospi's No. 7 Hyundai Motors with 40.9 trillion won.

With the skyrocketing stock prices, Lee Dong-chae, founder of EcoPro, owns shares worth nearly 2.5 trillion won, surpassing the appraised value of shares owned by chaebol tycoons such as SK Group Chairman Chey Tae-won with 2.24 trillion won and LG Group Chairman Koo Kwang-mo with 2.08 trillion won in stock.

The overheated price of EcoPro has even made the Morgan Stanley Capital Index listing set for next month uncertain. Though it has fulfilled other requirements for the listing, it may be considered for reevaluation if its stock price further rises, as it could be deemed to have exhibited an extreme price increase by the global index provider.

The market deems that the bar for extreme price increase is at the low 600,000 won range for the company.

Following the rapid, unexpected growth of the share prices of the EcoPro family of stocks, analysts have issued warnings noting that the prices are valued higher than they should be.

"There needs to be a thorough review on the fair value of EcoPro shares. The market cap has surpassed the projected company value in five years," Hana Securities analyst Kim Hyun-soo suggested through a report.

"For the further growth of the stock price, there needs to be some adjustments for a significant period of time to confirm the midterm performances of the company."

Kim's report was met with shock for the market, as it is unusual for a securities firm to offer a "sell" opinion when a share price is soaring. Usually, securities firms offer a "hold" opinion if skeptical of further growth of share prices.

After Kim’s report, more analysts echoed the view that the share price of EcoPro and its affiliates had risen too sharply. Reports suggested the appropriate price range of EcoPro shares should be between 380,000 won and 450,000 won.

The reports received complaints from retail investors concerned that the stock price of the EcoPro family may be brought down by the skeptical outlook. Despite the reports, investors are continuing to show their dedication for the EcoPro family through high trading volumes.

“The market is not always reasonable,” an official from a local securities firm said. “Stock investment decisions should always come with well-thought-out projections on company value in the future, not short-term results.”