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Supply to LG appears to have resumed

Maintain TP at W35,000; supply deals with LG appear to have resumed

We maintain our target price of W35,000 on SK IE Technology (SKIET). Although weak market conditions are likely to weigh on near-term and full-year earnings, we believe the stock deserves a closer look due to: 1) its attractive valuation (2025F P/B of 0.7x); and 2) positive developments stemming from tariff uncertainties (with global supply chain shifts leading to new customer acquisitions). We expect the company to see top-line improvement in 2Q25 and swing to an operating profit in 4Q25.

It was recently reported that SKIET has begun supplying separator materials for new EV projects in North America (with plans to supply to up to 300,000 EVs through 2026). We believe the order involves LG Chem (coating) and the LG Energy Solution (LGES)-Stellantis joint venture―a notable development, given that SK and LG had not cooperated for several years due to a patent dispute. It appears that heightened supply chain uncertainties caused by steep US tariffs are prompting the two groups to cautiously rebuild their supply relationship. In 1Q25, SKIET also secured separator orders from Chinese battery cell makers (including Gotion), which are seeking to tap into North America and Europe. All in all, we believe that increased tariff uncertainties are creating opportunities for SKIET to expand sales and orders.

Earnings to remain weak in the near term, but revenue has likely bottomed

For 1Q25, we expect SKIET to report revenue of W57.3bn (-3% QoQ) and an operating loss of W60bn (remaining in the red QoQ). With end-market demand remaining sluggish and customer inventory adjustments weighing on shipments and utilization, we see limited room for meaningful earnings improvement through 1H25. That said, we expect shipment volumes to recover gradually from 2Q25 on: 1) increased supply to SK On for its Georgia (US) and Hungary plants; and 2) the recently reported separator material supply deal (assumed to be for LG Chem). We continue to expect the firm to swing to an operating profit in 4Q25, backed by a normalization in customer inventory levels and a recovery in utilization.

Tariff-driven supply chain shifts deserve attention

Tariffs are heightening global supply chain uncertainties. While domestic separator suppliers have been steadily losing market share to Chinese rivals in recent years, we believe the competitive dynamics are shifting. If tariffs on China remain elevated, battery cell makers operating in the US (including Korean, Japanese, and even Chinese firms) will likely be unable to rely solely on Chinese-made separators. Indeed, SKIET has recently secured some unexpected orders (including from Chinese LFP battery makers and one believed to be from LG Chem), pointing to a broader move among global customers to diversify their supply chains away from China.