The author is an analyst at Shinhan Investment Corporation. Their contact details are bh.lee@shinhan.com and jy.son@shinhan.com. -Ed.

The first lithium battery manufacturer in South Korea and the third in the world

Vitzrocell, a manufacturer of primary lithium batteries, currently occupies a dominant position in the domestic market, with a share of about 80%. Its products are mainly used to power defense systems such as utility meters and guided weapons. As of 3Q21, spool Li-SOCl2 (lithium thionyl chloride) batteries accounted for 66.9% of sales, high-temperature batteries 13.8%, spiral wound Li-SOCl2 batteries 10.3%, and others 9.0%.

Focus on: 1) Recovery/growth of major customer industries; 2) Expansion of the secondary lithium battery market

More than 60% of Vitzrocell's sales come from batteries for utility meters in the North American market. Earnings in 2021 have been on a clear recovery track. With the relaxation of the COVID-19 lockdown, major customers have resumed normal business operations. Xylem (XYL) is a major customer of Vitzrocell and has the largest share of the smart meter market in North America. With the expansion of smart grid projects, the demand for this market continues to grow.

We also expect that the demand for primary lithium batteries used in mortars and missile systems will increase due to: 1) normalization of military exercises after the delay and cancellation caused by the pandemic; 2) initiation including replacement of military use New projects including radio systems. Vitzrocel occupies a dominant position in the domestic military battery market. With the upgrade of defense systems (increased missile range and warhead weight, etc.), the demand for ampoule batteries is also growing. Supported by the increase in South Korean missile exports, the company will also benefit from expanding overseas markets to India, Ukraine and Middle Eastern countries.

At the same time, Vitzrocell has been focusing on securing secondary lithium battery materials (negative electrode materials, positive electrode conductive additives, etc.) and process technology through mergers and acquisitions. The company seeks to use its vertical integration process and technical advantages in primary lithium batteries to expand to secondary lithium batteries. For the secondary battery business, Vitzrocell plans to start with products for automotive emergency call systems, focusing on niche markets and next-generation materials.

Growth outlook for 2022: sales increased by 20.6% year-on-year, and operating income increased by 28.7% year-on-year

For the full year of 2021, we expect that as the demand for batteries for utility meters improves, revenue will return to normal levels. In 2022, with the increase in instrument battery sales and the recovery of military batteries, revenue should increase. From the product point of view, the sales of spool Li-SOCl2 may increase by 18.3% year-on-year, and the sales of ampoule (military) batteries may increase by 154.0% year-on-year. The sales share of the new secondary lithium battery/material business should gradually increase from 3.5% in 2022 to 5.0% in 2023.