SKIET
The author is an analyst for NH Investment & Securities. He can be reached at minwoo.ju@nhqv.com -- Ed.
Client diversification efforts are to proceed smoothly as the localization of separators is required in North America from 2028 at the latest.
Focus on client diversification
We maintain a Buy rating and TP of W105,000 on SKIET. Earnings concerns are virtually over thanks to the early turnaround of the separator business. Profitability should continue to rise, driven by quarterly volume growth and improved productivity. Separator business OPM is projected to rise to 1.3% in 1Q23, 3.1% in 2Q23, 6.0% in 3Q23, and 11.0% in 4Q23, before climbing to around 20.0% in 2024.
With the company taking the first steps towards normalizing earnings, it is time to focus on client diversification. The firm has made securing new clients other than captive client SK ON a top priority and is discussing new supply contracts with multiple customers, including North American OEMs and domestic battery makers. As separators are classified as battery components in accordance with IRA Section 30D regulations, localization of separators in North America is required from 2028 at the latest, which is a favorable for SKIET. Against this backdrop, we expect the firm to secure a number of new clients by 2028. Currently confirmed capacity for 2024 stands at 2.7bn m2, but when North American capacity is confirmed, capacity is expected to grow by more than 70% to at least 4.6 bn m2.
1Q23 review: Separator business sees early turnaround
SKIET booked 1Q23 sales of W143bn (+7% y-y, -19% q-q), falling short of consensus by 7%, and an operating loss of 3.7bn, beating market forecasts for a loss of 8bn. The favorable result is attributed to an earlier-than-expected profit turnaround at the separator business (OP of W1.8bn; OPM of 1.3%). Despite a 17% q-q drop in shipments due to the off-season, profitability rose at the Polish plant thanks to lower utility costs and improved productivity. In 2Q23, separator membrane selling price is expected to fall 2% q-q, but shipment volume should climb 20% q-q, and OPM is set to further improve to 3% on the volume increase.