Advanced Technology Subsidiaries Nurtured by Chimney Industries Become Profit Drivers

Overcoming Credit Rating Downgrades and Undervaluation... Growing into a Subsidiary Everyone Envies
"KCC, Dongwha Enterprises, Iljin Group, Successful M&A Praised... Emerging as Core Group Companies"

KCC, exterior view of the Daejuk Silicone Factory in Seosan, Chungnam. [Photo by KCC]

[Asia Economy Reporter Kim Jong-hwa] Recently, the electric and hydrogen vehicle sectors have been highlighted as promising future industries, drawing attention to KCC, Dongwha Enterprise, and Iljin Group. All three companies own promising subsidiaries that develop and produce essential materials for electric and hydrogen vehicles using advanced technologies.

In May 2019, KCC acquired Momentive Performance Materials (Momentive), a U.S.-based silicone manufacturer; in August of the same year, Dongwha Enterprise acquired Panax Etec (now Dongwha Electrolite); and in 2011, Iljin Group acquired the Korea Composite Materials Research Institute (now Iljin High Solus), which produces compressed natural gas (CNG) bus storage tanks.

Before and after these acquisitions, the three companies did not receive favorable reviews. Due to concerns over business profitability and financial stability, KCC’s credit rating was downgraded from 'AA' to 'AA-,' and Dongwha Enterprise had to endure undervaluation with concerns that "business risks and financial burdens would increase." Iljin High Solus was a company with little presence within the group until it supplied hydrogen storage tanks for Hyundai Motor's next-generation hydrogen vehicle, Nexo, in 2017.

Worries Washed Away, Becoming Coveted Subsidiaries

However, all three companies have now become subsidiaries envied by many. Since 2003, KCC has built Korea’s first upstream silicone production plant, realizing the localization of silicone raw materials that were previously entirely imported. In 2011, it acquired and merged with Basildon, a UK-based organic silicone product manufacturer, expanding its silicone business. After acquiring Momentive in the U.S. in 2019, it rose to become the third-largest global player in the organic silicone market.

Silicone (metal silicon) is divided into inorganic and organic silicone. Inorganic silicone is used for semiconductor silicon wafers and polysilicon for solar power. Organic silicone is widely used in products ranging from daily necessities to medical, cosmetics, construction, automotive, electrical and electronic, and aerospace industries, with about 5,000 types of applications. The organic silicone market is rapidly growing recently due to the expansion of the electric vehicle market.

KCC recorded an operating profit of 149.4 billion KRW in the first quarter, a 93% increase compared to the same period last year, and expects the second quarter operating profit to reach 155.1 billion KRW, a 33% increase year-on-year. The silicone business accounts for about half of KCC’s total sales and more than 30% of the entire group’s sales, establishing itself as a solid growth engine for the group. Last year, KCC posted sales of 5.8749 trillion KRW and an operating profit of 382.6 billion KRW, and this year, it is expected to surpass 6 trillion KRW in sales for the first time since its founding.

A KCC official said, "Only KCC Momentive, DowDuPont in the U.S., Wacker in Germany, and Shin-Etsu in Japan can manufacture organic silicone that withstands the high temperatures of electric vehicle batteries," adding, "Momentive, which was mainly active in North America and Europe, is rapidly growing as a subsidiary of KCC, which has close ties with Hyundai Motor and Samsung Electronics."

Dongwha Electrolite Hungary Electrolyte Production Base. [Photo by Dongwha Corporation]

Driving Dongwha Enterprise into the 1 Trillion KRW Club: ‘Dongwha Elec’

In November last year, Dongwha Enterprise completed the Dongwha Electrolite (Dongwha Elec) production base in Hungary with an investment of 50 billion KRW, and last month confirmed the establishment of a 66,000㎡ electrolyte production base in Tennessee, USA. After the U.S. production base is completed in 2025, Dongwha Elec’s electrolyte production capacity, currently at 53,000 tons, will expand to a total of 100,000 tons. Investments in technology research and development for electrolytes and additives are also active. Recently, Dongwha Elec developed ‘PA800,’ a core additive for medium-to-large battery electrolytes, for the first time in Korea. This domestic production of additives, previously dependent on imports, has reduced electrolyte manufacturing costs by about 15%.

Dongwha Elec accounted for 12.7% of Dongwha Enterprise’s sales (283 billion KRW) with 36.1 billion KRW in sales in the first quarter, and has set a goal to be responsible for half of Dongwha Enterprise’s sales within five years. Dongwha Enterprise expects consolidated sales in the second quarter to increase by 30% year-on-year to 301.1 billion KRW, operating profit to rise 13% to 31.3 billion KRW, and Dongwha Elec’s operating profit to increase to 38.2 billion KRW.

A Dongwha Enterprise official said, "The average sales forecast for this year announced by securities analysts over the past three months is 1.2039 trillion KRW, putting us on the verge of joining the 1 trillion KRW club," adding, "Stable performance in the wood business has been the driving force behind continuous investment in secondary battery materials. Synergies with subsidiaries will continue to expand."

Bird's-eye view of Iljin Highsolus R&D Center.
[Photo by Iljin Highsolus]

Subsidiary with No Presence Becomes a World ‘Top 2’ Company

Iljin Group listed Iljin High Solus, which it acquired for 8.5 billion KRW, last year and has grown it into a company valued at 1.2455 trillion KRW. Iljin High Solus is recognized as one of the world’s ‘top 2’ companies, alongside Japan’s Toyota, to have succeeded in mass-producing ‘Type 4’ hydrogen storage tanks globally. It has been the exclusive supplier of Type 4 hydrogen storage tanks for the 2014 Tucson ix and the 2017 Nexo.

Although sales in the first quarter declined 21% year-on-year to 14.3 billion KRW due to decreased sales of Hyundai Motor’s Nexo last year, performance is expected to normalize from the second quarter. This is because Nexo’s sales have increased this year, and the company has secured technology to lead the hydrogen mobility ecosystem in the mid-to-long term. An Iljin High Solus official said, "Although electric vehicles are more visible because passenger cars occupy a large share of the automotive market, hydrogen fuel cells in hydrogen vehicles have an energy density more than five times higher than batteries," adding, "Significant growth is expected especially in the commercial vehicle sector, which requires high output."

An investment industry official said, "Recently, subsidiaries of KCC, Dongwha Enterprise, and Iljin Group have been cited as successful M&A cases in the investment industry," evaluating that "subsidiaries that were once unwelcome have become core companies of their groups by leading future markets with advanced technologies."

This content was produced with the assistance of AI translation services.