[Into the Stocks] 'Carbon Neutrality' Beneficiary SangA Frontec, Hydrogen Car Sales Take Off

Hydrogen Fuel Core Component Membrane Sales Expected to Grow Rapidly
High Stock Volatility and 30 Billion KRW CB Pose Burden on Stock Price

[Asia Economy Reporter Ji Yeon-jin] Sang-A Frontec, considered a leading stock in the 'hydrogen era,' has started its takeoff. This comes as expectations rise that sales of the company's core components for hydrogen vehicle fuel, developed in line with the government's carbon neutrality goals, will soar. However, the stock price is highly volatile, and the 30 billion KRW convertible bonds issued last year to expand the hydrogen business are pressuring the company's valuation.

According to the Korea Exchange on the 4th, Sang-A Frontec's stock price rose as much as 9.20% intraday to 70,000 KRW, compared to the previous day. This is the first time in about a month since September 28 that the stock price recovered to 70,000 KRW. The closing price the previous day was 68,300 KRW (+6.55%), and the stock has shown an upward trend for two consecutive days.

Sang-A Frontec is a company that manufactures precision parts used in secondary batteries (lithium-ion batteries), printers, displays, semiconductors, and automobiles by utilizing high-performance plastics. It was listed on the KOSDAQ market in July 2011. Last year, due to the global lithium-ion battery industry's supply contraction caused by COVID-19, sales decreased by 17.6% to 153.3 billion KRW. However, cumulative sales up to the third quarter of this year recovered to 133.4 billion KRW, a 22% increase compared to the same period last year.

In particular, sales in the new business sector of membranes (polymer electrolyte membranes) have begun, and future sales growth is expected to be steep. Membranes are materials used across all stages of hydrogen supply and consumption, including hydrogen vehicles and hydrogen fuel power generation. After five years of development, Sang-A Frontec has commercialized the product and is applying it to domestic hydrogen vehicles.

The government initially set a carbon emission reduction target of 26.3% by 2030 compared to 2018 but raised it to 40% last month. To achieve this, it announced plans to distribute 3.62 million electric vehicles and 880,000 hydrogen vehicles by 2030. Since the cumulative number of hydrogen vehicles distributed domestically was 10,000 until last year, achieving the target requires an average annual increase of 41% in hydrogen vehicle sales. Researcher Han Byung-hwa of Eugene Investment & Securities estimated that Sang-A Frontec's membrane sales, which were 3.5 billion KRW last year, will grow to 9.3 billion KRW this year, 193.7 billion KRW in 2025, and 629.6 billion KRW by 2030.

However, competition is expected to weigh on the stock price as Kolon Industries also possesses polymer electrolyte membrane technology and began full-scale production this year. Additionally, the 30 billion KRW convertible bonds issued last year for new business investments such as hydrogen have recently converted into approximately 7.6 billion KRW worth of shares (170,309 shares), which has hindered the stock price. Sang-A Frontec's stock price this year has been a rollercoaster. It fell to the 42,000 KRW range in May, rose to 72,000 KRW in September, but declined after the conversion rights were exercised on September 28, before recently rebounding. The recent stock price level is about 50% higher than at the beginning of the year.