[Click eStock] "Dongwha Enterprises, Subsidiary Dongwha Electrolite Expands Earnings Contribution"

[Asia Economy Reporter Eunmo Koo] There is an analysis that the contribution of subsidiary Donghwa Electrolite's performance to Donghwa Enterprise is expected to expand, and that the core business competitiveness is also being strengthened through mergers and acquisitions (M&A).

Donghwa Enterprise, established in 1948, is the number one wood processing company in Korea. The Materials Division produces wood boards used for furniture and interior materials. The Building Materials Division's main products are housing materials such as laminate flooring and design walls. In August 2019, it acquired an 89.63% stake in Panas E-Tech (now Donghwa Electrolite), which produces electrolyte, a secondary battery material.

In the third quarter of this year, sales reached 190.7 billion KRW, a 2.9% increase compared to the same period last year, and operating profit also rose 32.0% to 18.8 billion KRW. On the 24th, KB Securities researcher Sang-guk Lim explained in a report, “Performance growth and profitability improvement appeared simultaneously due to the recovery of export volume to Vietnam and product mix improvement,” adding, “Subsidiary Donghwa Electrolite also showed third-quarter performance growth due to continuous order increases and improved profitability of small batteries.”

It is evaluated that the contribution of subsidiary Donghwa Electrolite's performance is expected to expand. Sales in the secondary battery electrolyte sector are continuously increasing, and the new customer portfolio is expected to expand in earnest from the fourth quarter. Researcher Lim said, “Overseas expansion is underway, including investment in a secondary battery core material electrolyte factory in Hungary, which is scheduled to be completed by the second half of next year,” adding, “Attention is focused on whether visible external growth will occur in line with the expansion of electric vehicle demand and growth of the upstream industry.”

While the core business market situation is sluggish, the company is leading the market and value chain through M&A. After entering Vietnam in 2012, it announced Donghwa Vietnam, a 100% stake in Hanoi, in 2019. In 2017, it secured cost competitiveness and achieved vertical integration through various M&As and overseas market entries, including acquiring domestic solar synthesis and Finnish Tegofilm companies.

However, the impact of the upstream industry and the results of investments were pointed out as risk factors. Researcher Lim explained, “The building materials and electrolyte businesses are downstream industries and are affected by the finished product markets such as construction and housing industries, electric vehicles, and energy storage systems (ESS),” adding, “In particular, whether continuous investments yield results is important.”