[This Week's Industry Insight] Seongil Hi-Tech Also Benefits from Secondary Battery Growth

Extraction of Cobalt, Nickel, Lithium from Waste Batteries
Global Waste Battery Recycling Market to Reach 72 Trillion Won by 2040
Increased Interest as Europe’s Critical Raw Materials Act (CRMA) Gains Momentum

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you invest in with your own money? In the unrefined and chaotic online environment filled with all kinds of information, Asia Economy aims to be your hands and feet, eyes and ears, delivering accurate information about companies. Each week, we focus on companies that rank high in stock inquiries by the financial information provider FnGuide, delivering everything from basic information to analyses of related companies such as partners, customers, and investors. We will explain companies' financial conditions, performance status, and future value in an easy-to-understand manner. We meet you every week under the name "This Week's Watchlist," highlighting stocks of interest. This week, we analyzed Sungil Hightech, a specialist in the secondary battery recycling business.

[Asia Economy Reporter Lee Jung-yoon] As electric vehicle and secondary battery stocks gain attention in the stock market, Sungil Hightech, which collects used batteries and recycles them into resources, is also drawing interest. The company ranks among the top in stock inquiries on the financial information provider FnGuide, and its stock price has been rising continuously. Compared to the beginning of the year, it has surged more than 20%.

Sungil Hightech was newly established on March 24, 2017, through a spin-off of the secondary battery recycling business division from Sungil Highmetal. Its headquarters are located in Gunsan, Jeonbuk, with overseas business sites in Poland, Hungary, China, India, and Malaysia. The main business involves extracting valuable metals from secondary batteries used in electric vehicles, mobile phones, laptops, and energy storage systems (ESS), and recycling them.

The Only Domestic Recycling Company Extracting Five Major Materials

The cathode materials used in secondary batteries consist of cobalt, nickel, manganese, and lithium. Sungil Hightech produces and sells base materials for cathode materials in the form of cobalt sulfate, nickel sulfate, manganese sulfate, and lithium carbonate. It is known as the only domestic company with technology to produce the five major materials?cobalt, nickel, lithium, manganese, and copper?through a pre-processing recycling park that discharges, disassembles, and crushes secondary batteries, and a post-processing wet smelting operation (Hydro Center) that extracts various materials. As of 2021, the sales composition was 46% cobalt, 37% nickel, 6% lithium, and 11% others.

Battery recycling is broadly divided into wet and dry processes. The wet process involves discharging collected used batteries to reduce explosion risk, then physically sorting, heat-treating, and crushing them into metal powder form. This is called the pre-processing stage. Subsequently, through wet smelting processes such as leaching, filtration, and solvent extraction, nickel, cobalt, manganese, and lithium are recovered. The dry process involves placing used batteries directly into a dry melting furnace without pre-processing, oxidizing organic materials, and transforming them into metal powders such as nickel, cobalt, copper, and slag forms like lithium and aluminum. The metal powders then undergo wet smelting to extract compounds, and the slag is reused in asphalt, cement, etc. The distinction between wet and dry processes is based on the method of producing the powder form before the wet smelting stage.

The dry process does not require pre-processing, resulting in shorter production times. However, it requires a high-temperature melting furnace, leading to relatively high investment costs. The wet process has lower investment costs and is considered more suitable for recycling because it extracts relatively larger amounts of metals like lithium and manganese. Although it requires pre-processing and wastewater treatment, most companies adopt the wet process. Sungil Hightech is known as the only domestic company to have successfully commercialized large-scale wet smelting technology.

The global used battery recycling market is expected to grow rapidly from $794 million (approximately 998.9 billion KRW) in 2025 to $5.558 billion (approximately 6.992 trillion KRW) in 2030. By 2040, the market size is projected to soar to $57.395 billion (approximately 72.2029 trillion KRW), which has kept Sungil Hightech consistently in the spotlight.

Positive Outlook as Europe’s Critical Raw Materials Act (CRMA) Discussions Gain Momentum

In this context, as Europe accelerates discussions on the Critical Raw Materials Act (CRMA) in response to the U.S. Inflation Reduction Act (IRA), Sungil Hightech’s core business of used battery recycling is gaining more attention. The European Union (EU) Commission is promoting CRMA to secure and diversify raw material supply chains. It is expected that a detailed bill may be announced in February or March. If the European CRMA is enacted, it is anticipated to include mandatory measures requiring a certain percentage of raw materials extracted through recycling to be included in electric vehicle battery production. The European Parliament strengthened the scope and targets for used battery collection rates through the adoption of the EU Battery Directive in March last year.

The IRA is also viewed positively for Sungil Hightech. The IRA includes provisions for tax credits for electric vehicles produced in North America that meet origin requirements for battery components and critical minerals. After the IRA’s passage, the required percentage of U.S.-produced metals to qualify for tax benefits will increase by 10 percentage points annually from 40% in 2023. The amount of U.S.-produced metals is expected to increase significantly, but refining capacity for key battery minerals such as cobalt, nickel, and lithium is concentrated in China. To qualify for tax benefits, securing mines in countries with free trade agreements (FTA) with the U.S., establishing refining facilities, and used battery recycling hubs within the U.S. are urgent tasks. Apart from Chinese companies, only Sungil Hightech and Belgium’s Umicore have successfully commercialized recycling operations.

[Image source=Seongil High-Tech]

Sungil Hightech has established recycling parks at nine global local bases and operates two Hydro Centers domestically, securing a stable supply chain. The company is constructing a third Hydro Center plant, with the first phase of the second stage scheduled to be unveiled in December this year. Kim Sung-hwan, a researcher at Bukook Securities, said, "From 2024, when the expansion effect of the first phase of the third plant is fully reflected in performance, profitability is expected to improve due to economies of scale from significant growth in scale. The company plans to add fourth and fifth plants to establish local bases in Europe and North America by 2030."

Technological advancement and new business expansion are also positive factors. Through technology upgrades, the company is expanding its recovery scope from lithium hydroxide, NC solutions, high-purity copper metal, and cathode materials to anode materials and electrolyte materials. By 2030, the recycling park aims to expand to 350,000 tons and the Hydro Center to 34,400 tons, representing sevenfold and eightfold increases compared to 2021, respectively.

Sungil Hightech’s performance is also improving. The company recorded an operating loss of 6.2563 billion KRW on a consolidated basis in 2020 but posted an operating profit of 16.85798 billion KRW the following year. As of the third quarter last year, cumulative operating profit reached 44.80779 billion KRW. Sales have also trended upward, rising from 65.9387 billion KRW in 2020 to 147.25409 billion KRW in 2021. For last year, cumulative sales through the third quarter were 198.21006 billion KRW, surpassing the entire 2021 sales.

Thanks to this growth potential, Sungil Hightech attracted significant market attention despite the sluggish stock market when it entered the KOSDAQ market in July last year. Although it failed to achieve a "double the IPO price and hit the daily limit" (known as "ddasang") on the first day of listing, the closing price was 76.4% higher than the IPO price. The institutional demand forecast before listing recorded a record-high competition rate of 2,269.71 to 1.

Large corporations are also showing interest. As of the end of September last year, Samsung SDI, a customer, held about 8.8% of Sungil Hightech’s shares, ranking third in shareholding. According to stock ownership status, CEO Lee Kang-myung held 19.54%, and President Lee Kyung-yeol held 13.37%. Minority shareholders accounted for 99.98% of all shareholders, holding 30.76% of shares.

POSCO Holdings completed a used battery recycling plant with an annual capacity of 7,000 tons in Poland in August last year, with Sungil Hightech responsible for plant design and procurement (EPC) and direct operation. SK Innovation also signed a memorandum of understanding (MOU) last December to establish a joint venture with Sungil Hightech to recover lithium, nickel, cobalt, and manganese. Additionally, Sungil Hightech collaborates with global automotive groups such as Hyundai Motor Group and Tesla, and is connected with battery manufacturers like LG Energy Solution and material companies including POSCO Chemical, EcoPro BM, and L&F.

Sales Volatility Due to Raw Material Price Fluctuations Is a Weakness

There are also weaknesses. Fluctuations in prices of key raw materials such as cobalt, nickel, and lithium directly impact sales. In the event of an economic downturn or temporary demand slump due to external factors, prices may drop sharply. This can increase the volatility of Sungil Hightech’s short-term sales and profitability.

Securing used battery supply also significantly affects performance. It is influenced by each country’s policies and demand related to secondary batteries. If policies aimed at protecting and growing domestic technology hinder proper industry growth or demand does not increase, the company may suffer damage.

Since used battery supply connects to performance, there can be a time lag of about 10 years, corresponding to the lifespan of electric vehicle batteries. Therefore, the used battery recycling market grows roughly 10 years after the secondary battery market develops. Moreover, the increasing number of companies interested in the growth potential and eco-friendliness of the used battery market means competition will intensify. The third plant under construction is reportedly more than three times the size of the second plant; if yield is poor, overall performance guidance could be downgraded.

Additionally, it is important to note that stock prices of secondary battery or battery value chain companies have risen sharply. Due to the impact of interest rate hikes and other factors, battery-related growth stocks have experienced significant price corrections. Competitors’ stock price adjustments may lead to valuation multiple adjustments, potentially lowering Sungil Hightech’s relative value.