[Company Exploration] KH Vatec, Growing Wings Riding on Foldable Core Component ‘Hinge’

Securing Technology by Manufacturing Laptop Hinges, Maintaining Monopoly Position
Collaboration with Samsung Since 2019, Performance Jump Expected from Q3

[Asia Economy Reporter Kwangho Lee] Samsung Electronics' recently released foldable phones, the ‘Galaxy Z Fold4’ and ‘Galaxy Z Flip4,’ are gaining worldwide popularity, raising expectations that the foldable phone product line will surpass the ‘10 million units’ milestone for the first time. According to global market research firm IDC, foldable phone shipments reached 7.1 million units last year, a 264.3% increase compared to 2020. The foldable phone market is expected to maintain a high growth rate of around 70% annually until 2025. Besides Samsung Electronics, Chinese smartphone companies such as Xiaomi, Oppo, TCL, and Vivo have also actively entered the foldable phone market. As the foldable ecosystem enters a growth trajectory, related parts and materials companies are also showing rapid growth. Asia Economy analyzed KH Vatec, which produces hinges for the folding parts of foldable phones, and Sekyung Hightech, a company producing protective films for foldable displays.

KH Vatec operates mainly in the business of internal and external parts for major portable IT devices such as smartphones, laptops, and tablets, utilizing various metal parts processing equipment and technologies including die casting and CNC. It is especially recognized recently as a key manufacturer of ‘hinges’ that enable foldable phones to fold.

KH Vatec was established in 1992 under the name Kumho. It started as a manufacturer of communication and electronic device parts, mainly producing components related to audio and VHS video at the time. It began to grow significantly in the mid-1990s by producing laptop hinges. In the early 2000s, as the mobile phone market grew, it enhanced its competitiveness by supplying Samsung Electronics and Nokia. Thanks to the technology accumulated during this period, it was able to capture the foldable phone hinge market.

In the second quarter of this year, KH Vatec’s sales amounted to 58.3 billion KRW, down 18.6% from the previous quarter. The main cause was a decrease in volume from domestic clients. Hinge sales slightly increased compared to the first quarter. The hinge shipment volume in the first half of the year was around 2 million units. Operating profit was 3.7 billion KRW, down 24.4% from the previous quarter.

Although performance in the second quarter fell short of expectations due to sluggish foldable phone sales, the growth potential remains considerable. KH Vatec is the exclusive supplier of external hinges for foldable smartphones to Samsung Electronics. While some competitors are attempting to enter the market, there are entry barriers. KH Vatec holds a competitive advantage in product quality, making it the biggest beneficiary of new foldable phones.

In particular, hinge sales are likely to expand significantly in the third quarter. Dongju Lee, a researcher at SK Securities, said, “Samsung Electronics’ foldable phone shipments this year are estimated to be around 15 million units, about twice that of last year,” and added, “KH Vatec’s market share is 90% overall, and it is highly likely to maintain its exclusive position in new products.”

KH Vatec recently received the spotlight as Samsung Electronics launched new foldable phones worldwide, including the ‘Galaxy Z Flip4’ and ‘Galaxy Z Fold4.’ The company has been working closely with Samsung since 2019 when Samsung first introduced the world’s first foldable phone. Since then, its sales have been closely linked to Samsung Electronics’ foldable phone shipments. For this reason, KH Vatec is closely associated with Samsung’s foldable devices.

KH Vatec is a company that consistently strives. It maintains a high market share within Samsung Electronics due to its strong development capabilities. In fact, it invests heavily in research and development. According to KH Vatec’s semi-annual report, R&D expenses were 7.9 billion KRW in 2020, 9.5 billion KRW in 2021, and 16.3 billion KRW in the first half of this year, showing a steady increase.

This is why it holds as many as 48 patents. Additionally, it has filed 40 more patent applications, so its intellectual property (IP) portfolio is expected to grow further. Based on this competitiveness, it continues to secure orders steadily. It basically operates on a make-to-order basis according to the production plans of manufacturers such as Samsung Electronics. Except for product development orders, it usually receives orders 2 to 4 weeks in advance in a short-term ordering format.

KH Vatec has business sites in Gumi, Gyeongsangbuk-do (headquarters), and Ansan, Gyeonggi-do in South Korea. It also has overseas production subsidiaries in China (Tianjin, Huizhou), Vietnam (Hanoi, Bac Ninh), and India (Greater Noida). Currently, its production capacity is running at 100% utilization. The shipment volume, which was around 2 million units in the first half, is expected to increase more than fourfold in the third quarter. According to securities firms, KH Vatec’s expected performance for this year is sales of 440.8 billion KRW and operating profit of 40.8 billion KRW. Sales are forecast to increase by 29.7% and operating profit by 51.7% compared to last year.

Researcher Cheolhee Jo of Korea Investment & Securities said, “Attention should be paid to KH Vatec, which can maintain a high market share within Samsung Electronics due to its strong development capabilities.” Unho Kim, a researcher at IBK Investment & Securities, analyzed, “After a sluggish first half, performance is improving significantly from the second half. It has growth momentum through the production of core foldable parts, and the possibility of new products and expanding new clients remains high, so further growth is expected.”

Meanwhile, KH Vatec’s founder, Chairman Nam Kwanghee, holds a 13.9% stake. His spouse, Kim Jongsook, holds 8.95%, and Kim Jongse holds 2.38%, securing a combined 25.23% stake among related parties.