Hydrogen tanks
The author is an analyst for Shinhan Securities. He can be reached at cgh815@shinhan.com -- Ed.
Direct beneficiary of fuel cell industry growth
Expansion of the fuel cell industry is directly leading to growth of the hydrogen tank industry, with the tanks playing a key role in hydrogen supply systems used in fuel cell power packs and powertrains.
Liquid hydrogen to replace compressed hydrogen in the long run
The dawn of the liquid hydrogen era is raising concerns over the market standing of compressed gaseous hydrogen. Since liquid hydrogen sharply outperforms compressed gaseous hydrogen in terms of bulk density, it isreasonable to assume that liquid hydrogen tanks (LH2 tanks) will replace compressed gaseous hydrogen tanks (CGH2 tanks) in the long run. However, a sudden and immediate transition to LH2 tanks is unlikely, in our view.For LH2 tanks to be widely adopted in mobility applications (vehicles, in particular), relevant safety rules and standards must be legislated and the charging infrastructure needs to be set up across regions, requiring the advancement of related technologies. Until those conditions are met, CGH2 tanks will continue to dominate the market for hydrogen storage tanks, buying time for CGH2 tank suppliers to develop LH2 storage technologies.
Iljin Hysolus is currently working on a research contract focused on cryogenic insulation material for LH2 tanks, and running in-house R&D projects for thedevelopment of LH2 storage technologies. Once the LH2 tank business takes shape, the company’s business portfolio will cover most hydrogen-powered equipment including fuel cell systems and hydrogen engines. Notably, the LH2 tank business will allow Iljin Hysolus to expand into power generation applications, which is protected by a high entry barrier. Near-term earnings results remain important, but alignment of the company's business strategies with the industry's longer-term transition from CGH2 to LH2 tanks will also be a key point to watch for as Iljin Hysolus continues on its efforts to secure LH2 storage technologies.
Retain BUY and target price of KRW38,000
Iljin Hysolus is set to proceed on large-scale capex investment upon visible order inflow from its major overseas client. This is expected to create momentum for share price gains and earnings growth, helping to alleviate concerns over the company's growth potential.