To Go beyond EV Market
The author is an analyst of NH Investment & Securities. He can be reached at minwoo.ju@nhqv.com. -- Ed.
Daejoo’s SiOx capacity should climb sharply in line with Ultium Cells’ US capacity ramp-up plans. Downstream markets are set to expand as silicone additives will likely be used in smartphone batteries, as well as EV batteries.
SiOx business boasts explosive growth potential
We suggest a Buy rating and TP of W88,000 for Daejoo Electronic Materials, a manufacturer of silicone oxide (SiOx; an anode additive along with Si-C). Of note, the gas-phase synthesis method is used in SiOx production, whereas the solid-state reaction method is used for Si-C. SiOx is inferior to Si-C in terms of productivity and price competitiveness, but it provides longer life and better efficiency. It will be crucial to use silicone anode additives when producing batteries that have energy density of 700Wh/L and above or that can charge in less than 15 minutes. Over 2022~2023, the application of silicone anode additives should start in earnest.
Given that raw material costs take up around 30% of production costs for silicone anode additives, and raw material prices have stabilized, margins of roughly 20% are expected. We expect Daejoo’s SiOx capacity to rise from 840 tons in 2021 to 3,000 tons in 2022, 10,000 tons in 2025, and 20,000 tons in 2026. These estimates are far above the consensus of a 3,000 ton capacity addition over the long term. Assuming the addition of 10 wt% SiOx, 10,000 tons of SiOx can cover battery production of 100GWh. Daejoo’s capacity ramp-up plans look reasonable given that Ultium Cells, a JV between LG Energy Solution and GM, is projected to add capacity of 140GWh (35GWh x 4) in the US.
OP at the SiOx business should climb from W3.6bn (out of overall OP of W21.1bn) in 2021 to W52.4bn (out of W97.9bn) in 2025. If 10 wt% or higher SiOx is added, our earnings estimates will be revised up. Daejoo’s SiOx boasts a competitive edge over that of peers in that its initial charge and discharge efficiency reaches as high as 82~85%. Going forward, major cell makers are forecast to explore ways to cooperate with silicone anode additives makers, including Daejoo, in order to secure stable supply.
To go beyond EV market
In order to both respond to increasing battery consumption in line with higher mmWave penetration and enhance consumer satisfaction, silicone additives will likely be used in smartphone batteries, as well as EV batteries. The Chinese firms ATL and BYD are most active on this front. As Apple is also considering utilizing silicone additives, the silicone additives market for smartphones is expected to bloom by 2025. Apple is predicted to reach out to a few players with proven track records in supplying EV battery additives, including Daejoo. Given its strong growth potential, we believe that Daejoo is undervalued, trading at a 2023F P/E of 34x and 2024F P/E of 22x.