Betting 500 million won on electric car business with debt… Sales skyrocket 36 times in 14 years

Seeing once is better than hearing a hundred times. In order to resolve the information imbalance in the flood of fake news, a ‘combat ant’ with 18 years of experience in stock investment visits listed companies in person. He examines the company’s business status, meets with executives and employees, and resolves investors’ questions. The term ‘combat ant’ is a word he uses to describe his situation in which he invests in stocks to win every time, based on the idea that ‘stocks are a battlefield’. He knows well that the pain of loss is greater than anyone else in stock investment, so he writes articles from the perspective of an individual investor today as well.

“We have developed a 4680 (diameter 46mm, height 80mm) battery cylindrical current interrupting device (CID) and are currently conducting sample tests on our customers. We have also completed the application for related patents (method for manufacturing a secondary battery with excellent sealing properties and a secondary battery produced thereby), and we expect rapid growth when the 4680 battery market opens.”

Hwang Man-yong, CEO of Shinheung E&C (born 1965), said this on the 23rd about future growth engines. The company manufactures secondary battery components (circular, square, polymer) and equipment, and about 70% of its sales come from medium- to large-sized square cap assemblies. It prevents external gas emissions and explosions when the pressure inside the battery cell increases, similar to the lid that prevents food from leaking out of a square lunchbox during school days. As it expands its product line to all areas of secondary batteries, it is also seeing opportunities in the 4680 battery market. Tesla announced its 4680 battery development plan in September 2021.

Shinheung E&C was founded on May 16, 1979, and boasts 45 years of history. After Chairman Choi Hwa-bong started Shinheung Precision, it mainly produced HD TV electronic gun parts. With the advent of LCD TVs, it entered the secondary battery business in the 2000s. It was listed on KOSDAQ in September 2017. The headquarters is located at 48 Yangsan-ro, Osan-si, Gyeonggi-do, approximately 1 hour and 40 minutes by car from Seoul.

“Burn 500 million in electric vehicle business, sales skyrocket 36 times… US plant to enter full-scale mass production system in December”

Mr. Hwang, who is also Chairman Choi’s son-in-law, said, “No one was interested in electric vehicles in 2009,” and “I borrowed money and bet 500 million won on the electric vehicle business, and I was able to pool about 5 billion won in capital with the Chairman and business partners and use it for investments in electric vehicle parts facilities.” He laughed and said, “If it weren’t for this decision, I might have been sucking my thumb by now.” As a result of this decision, sales skyrocketed 3,499% in 14 years, from 15 billion won in 2009 to 539.9 billion won last year.

“I have been the CEO for 15 years, and the lesson I have personally learned is that if you hesitate, you will miss everything,” said Hwang, who has been the CEO of Shinheung SEC since 2009. “After betting on electric vehicles, I focused on management while only remembering the word ‘survive.’”

In the first half of this year, sales were KRW 246 billion (up 4.9% year-on-year), and operating profit was KRW 16.4 billion (down 0.9%). Although performance is expected to be weaker than planned at the beginning of the year, the company plans to do its best to defend profitability by operating the Fort Wayne, Indiana, U.S. plant normally, improving yields through quality improvements at existing workplaces, and expanding production of premium new products. The U.S. plant (land area of ​​20,000 pyeong, building area of ​​4,200 pyeong), in which about KRW 70 billion was invested, will enter full-scale mass production in December and can produce 5 million cap assemblies per month. Looking at the sales ratio by country (as of the second quarter), Hungary exceeds 50%, and overseas ratios such as Malaysia and China account for 78.2%. It is a 4.7% point increase compared to 73.5% in the second quarter of 2022.

“Efforts to achieve double-digit growth next year… Achieving 1 trillion won in sales by 2027”

CEO Hwang said, “The electric vehicle chasm (temporary stagnation in demand) is likely to continue in the second half of the year,” and “This year’s performance is likely to slow down compared to last year, which recorded the highest ever.” However, he emphasized, “The operating rate of the Hungarian plant is gradually increasing, and if the U.S. plant is fully operational, we can aim for double-digit growth in performance next year.” With eight domestic and international business sites, including those in China and Malaysia, the company plans to respond immediately to the demand for electric vehicle parts. The large Hungarian plant can produce 12 million cap assemblies and 4.2 million cans per month.

He raised his voice, saying, “We haven’t set up a business plan for next year yet, but our plan to achieve 1 trillion won in sales by 2027 remains unchanged.” The reason for this was that, “Products from the U.S. plant that will be operational within the year will be supplied entirely to Star Plus Energy, a joint venture between an American automaker and a domestic battery manufacturer,” and “The U.S. is an early market for electric vehicles and is expected to grow rapidly in the future, so we are fully prepared to allow additional expansion locally in line with our customers’ expansion plans.” Star Plus Energy is a joint venture between multinational automaker Stellantis and Samsung SDI.

He also emphasized, “We have completed our own development of the cylindrical new product, the 4680 battery component, and we are preparing to develop LFP (lithium iron phosphate) batteries and solid-state battery case components.” He also claimed, “If Vice President Kamala Harris, the Democratic candidate for the US presidential election who is friendly to electric vehicles, is elected, the business outlook could become even brighter.”

4680 Battery Parts Patented… High Price Competitiveness and Excellent Sealability

He said, “I think there are only two keywords for electric vehicles,” and “They are fire prevention and short charging times to increase customer convenience.” To achieve this, continuous research and development and active R&D investment stand out. As of the end of last year, the company held 37 patents. It also has a 4680 battery component patent, and since it has a small number of components, it is highly price competitive and has excellent sealing performance, so many battery companies are expected to love it. Another feature is that it is manufactured using a reverse rivet method.

The total number of shares is 38,919,035, and the largest shareholder is Chairman Choi Hwa-bong (10%), and six special related persons own 26.71% of the shares. Second Wave Limited holds 10.02%, Stick Global Innovation Growth Private Equity Partnership holds 10.02%, and treasury stock holds 0.51%. The foreign ownership rate is 5.81%, and the circulating volume is slightly less than 50%. As of the first half of the year, it holds 88.5 billion won in cash assets and 25.3 billion won in land. It is more than one-third of the market capitalization (307.1 billion won) on the 25th.

Despite stable performance, the stock price has fallen 39.59% from its annual high (KRW 13,060 on March 27). It has also fallen 15.52% this year. When asked about stock price support measures, CEO Hwang answered, “In order to increase the number of floating shares, we implemented a par value split last April, and we decided to purchase treasury stocks at KRW 3 billion per year for three years (KRW 9 billion in total until 2026) and burn them every year.” He also said, “Since listing on KOSDAQ in 2017, our dividend policy has always been a step-wise upward dividend,” and promised, “We will steadily increase it even a little and share the fruits of performance with investors.” The dividend, which was KRW 56 per share in 2019 (based on the basis of the par value split), rose to KRW 86 last year.

Manufacturing safety components to prevent battery explosions… Focusing on single customer transactions is a weakness

When asked about the positive investment factors, he answered, “We have secured the best domestic customers, and we have the product development capability and in-house facility manufacturing capability to respond to the evolution of battery types.” He continued, “Preemptive investment and the possession of multiple production facilities at home and abroad are advantageous for securing additional volumes.” He also emphasized, “Due to the recent fire accident at an electric vehicle apartment in Cheongna, Incheon, drivers’ interest has increased, and we are manufacturing safety parts related to battery explosion prevention.” The safety parts CID and cap assembly supplied by Shinheung SEC are components that fundamentally prevent the spread of battery cell explosions. CEO Hwang said confidently, “If you invest in our company, you will never fail, so I recommend long-term investment.”

Negative factors include the lack of customer diversification. Transactions are concentrated with Samsung SDI, and the company is a non-mainstream component stock in the secondary battery industry. However, steady dividends and stable growth are noteworthy.

What will the corporate blueprint look like? CEO Hwang said, “My first goal is to make Shinheung SE the first company to come to mind when people think of the number one secondary battery parts company,” and expressed his frustration by saying, “We are currently the leader in sales, but many people are not familiar with us because of our low corporate awareness.” He expressed his wish, saying, “I want to become a company that is loved by shareholders and employees by achieving 1 trillion won in sales during the rapid growth of secondary batteries.” He emphasized, “I will achieve the three challenges of 1 trillion won in sales, 100 billion won in operating profit, and 100 billion won in net profit, one by one,” while shouting the “111 toast” at a company dinner with employees.

Keeping promises on shareholder return measures such as face value split… “We will strengthen IR activities”

What would CEO Hwang, who has been leading the company for 15 years, say to young people? He answered, “I am not in a position to give advice, but my KakaoTalk profile says ‘passion.’ If you don’t have passion, it’s not easy to succeed in anything you do.” He also emphasized, “Young people shouldn’t pursue stability like older people, but should live with a challenging spirit even if their knees break.” He continued, “It’s hard for a lone wolf to survive in this world,” and added, “You have to produce good results through collaboration with your colleagues.”

Finally, he also spoke to individual investors. He emphasized, “I promised to increase shareholder value in an interview with the Korea Economic Daily late last year,” and “Accordingly, we decided to split the face value and buy back and burn our own shares this year.” He continued, “Based on sound business growth, we will work together with shareholders to increase value and work hard on IR activities to make this a company where investors will never suffer losses.”

Samsung Securities “Performance slowdown is inevitable this year… Target price is 10,000 won”

In the second quarter, sales of 114.1 billion won and operating profit of 6.1 billion won fell short of market expectations (sales of 128.6 billion won and operating profit of 6.9 billion won). Regarding this, Jang Jeong-hoon, a researcher at Samsung Securities, explained, “While the mainstay mid-to-large cap assembly decreased by 19% year-on-year, and the small current interrupting devices (CIDs) also decreased by 6.3%, mid-to-large cans increased by 21%. However, considering the effect of capacity expansion, it can be interpreted as the effect of the overall decrease in volume.” He added, “Assembly products for wireless earphones tripled, showing the best growth rate.” The company also manufactures coin cell parts (NS Assy) for wireless earphones that go into Samsung Electronics’ Bluetooth wireless earphones, the Galaxy Buds. It also supplies parts to Apple’s Bluetooth earphones, the iPod.

Researcher Jang said, “Weak performance in the third quarter is inevitable,” and “We are lowering our annual performance.” He continued, “Although the increase in volume related to energy storage systems (ESS) is positive, it will be difficult to offset the weakness in electric vehicle parts.” Sales in the third quarter are expected to be 111.5 billion won (a 2% decrease from the previous quarter). This year, sales are expected to be 553.7 billion won and operating profit is expected to be 34.6 billion won. He said, “Although it is experiencing performance volatility due to changes in customer business conditions, considering that it is a major component manufacturer of square and cylindrical batteries with structural growth expected, it is undervalued compared to its competitors (Sang-A Frontech: 2024 P/E 53.1x, 2025 P/E 36.5x).” He maintained his buy opinion and lowered the target stock price from 11,000 won to 10,000 won. There is room for an upside of 26.74% from the current stock price.

I will run with ’14 million ants’. I will write many interesting stock articles until the day your stock account turns red. If you click on the subscribe and support button for reporter Yoon Hyun-joo on the reporter page below, you can check the articles quickly every time.

Osan = Reporter Hyunju Yoon hyunju@hankyung.com