What’s Happening? A KRW 4.3 Billion Hydrogen Tram Contract
On July 17, 2025, Joongang Advanced Materials announced it had signed a KRW 4.3 billion supply contract with Maintrans Co., Ltd. Here are the key details:
- – Contract Details: Manufacturing and delivery of an integrated broadcasting system for 34 units of the Daejeon Line 2 hydrogen tram.
- – Contract Value: KRW 4,300,000,000 (equivalent to 23.14% of recent annual revenue).
- – Contract Period: July 17, 2025, to July 24, 2028 (3 years).
This contract is significant as it secures a stable source of income for the next three years.
Why It Matters: A Ray of Hope Amid Financial Struggles
The reason this contract is drawing so much attention lies in the company’s current dire situation. According to its Q1 2025 report, the company is facing severe financial headwinds.
- – Plunging Revenue: Q1 2025 revenue was KRW 3.7 billion, a decrease of over 80% year-over-year.
- – Widening Losses: The net loss expanded to KRW 2 billion.
- – Sluggish Core Business: The decline is mainly due to the poor performance of its main business segments: PVC products, construction materials, and telecommunication equipment.
In this context, a contract that exceeds the entire Q1 revenue is like welcome rain in a drought. This is the key reason for the heightened expectations for an improvement in the company’s cash flow and short-term earnings.
The Impact: Short-Term Stock Rally vs. Long-Term Outlook
The effect of this contract on Joongang Advanced Materials can be viewed from both short-term and long-term perspectives.
Short-Term Impact: Earnings Improvement and Stock Price Expectation
While the KRW 4.3 billion revenue will be recognized over three years, the announcement itself can positively influence investor sentiment. It is expected to be partially reflected in the Q2 or Q3 2025 results, contributing to a reduction in losses. This is likely to create short-term upward pressure on the stock price.
Long-Term Impact: Fundamental Turnaround Remains a Challenge
Securing stable revenue for three years is a plus, but this single contract is not enough to fix the company’s long-term financial structure. The long-term growth of Joongang Advanced Materials hinges on two factors:
- 1. Success of New Business (2nd-Gen Battery Materials): The fledgling secondary battery material distribution business must generate significant revenue and establish itself as a new growth driver.
- 2. Recovery of Core Businesses: A turnaround in the struggling existing business segments is essential.
In conclusion, a long-term growth story can only be expected if this deal leads to further large-scale orders and the new business successfully takes off.
Investor’s Action Plan: Weighing Risks and Opportunities
If you are considering an investment in Joongang Advanced Materials, you must assess the following risks and opportunities.
Opportunities
- – Earnings Turnaround Hopes: Potential for a short-term earnings improvement from this contract.
- – Potential for More Orders: Further business opportunities driven by the growth of the hydrogen tram market.
- – Strategic Shift: Expectations for the new battery business following the change in the largest shareholder.
Risks
- – Macroeconomic Uncertainty: Persistent high-interest rates and recession fears could negatively impact existing businesses.
- – Raw Material & FX Volatility: Rising raw material prices and currency fluctuations could erode profitability.
- – New Business Uncertainty: The secondary battery material market is highly competitive, and success is not guaranteed.
In conclusion, this contract is a clear short-term positive for Joongang Advanced Materials. However, for a long-term investment decision, one must approach with caution, continuously monitoring the progress of the company’s battery business and any real turnaround in its core operations.
Q. Will this new contract have an immediate impact on Joongang Advanced Materials’ stock price?
A. Yes, it is likely to have a positive short-term impact. A contract worth KRW 4.3 billion, which surpasses the entire Q1 2025 revenue (KRW 3.7 billion), can boost investor sentiment and lead to a short-term stock price increase. However, it’s important to consider that the revenue will be recognized over three years.
Q. Is this single contract enough to justify a long-term investment in the company?
A. No. While this contract is a positive sign, it’s insufficient to fundamentally change the company’s financial structure. For a long-term investment decision, it is crucial to confirm the successful establishment of its new core business in 2nd-gen battery materials and the recovery of its existing business segments.
Q. What are the primary risks investors should consider for Joongang Advanced Materials?
A. The biggest risk is ‘earnings uncertainty.’ The main businesses are underperforming, while the new 2nd-gen battery distribution business is still in its infancy with no visible results yet. Furthermore, macroeconomic factors like high-interest rates and currency fluctuations pose a risk to profitability.