Vitzrocell (KOSDAQ: 082920)

Lithium primary batteries sold into three end markets: smart meters, drilling and defense

Disclosure
Who wrote this, and why
A private analysis of public regulatory filings, written to set out what the filings say so that a reader can follow the sources and either agree or disagree. It was not produced for, or at the request of, any company, client or sponsor.
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• Not investment advice. Nothing here is a recommendation, an offer or a solicitation to buy or sell any security.
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Sources and accuracy
• Built from public filings (DART), company materials and press reports, as cited in the text.
• The author believes these sources are reliable but does not warrant their accuracy or completeness. Errors of transcription or interpretation are possible.
• As of 2026-09-16. Filings and results after that date are not reflected, and the author does not undertake to update this document.
Forward-looking statements
Section 11 sets out scenarios for 2027, and other passages describe possible futures. These are the author's estimates built on stated assumptions. They are neither forecasts of what will happen nor company guidance, and actual results may differ materially.
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• At the time of writing the author held no position in the security discussed, and received no sponsorship, fee or other consideration from the company discussed, its IR agency, or any other interested party.
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Translation
An English version of a Korean-language report. Where the two differ, the Korean original prevails.
Currency
Converted at a single rate of USD 1 = KRW 1,400. "KRW bn" means billions of won and "USD m" means millions of US dollars. Figures are rounded, so components may not sum exactly to totals.

Korea context (for readers new to this company)

What it does: a lithium primary battery maker earning about 85% of revenue overseas; 2025 revenue split into bobbin-type cells for smart meters 51.2%, high-temperature cells for oil drilling 17.5% and ampoule and thermal batteries for defense 15.2% (Section 1).
Where it trades: KOSDAQ, Korea's growth-stock board (ticker 082920), listed in 2009.
Reporting: consolidated, Korean IFRS (International Financial Reporting Standards); fiscal year = calendar year; filings on DART, Korea's electronic disclosure system run by the Financial Supervisory Service.
Who it sells to: smart-meter makers (Xylem and Badger Meter, with 2026–2028 contracts announced in company press releases; earlier contracts with ARAD and EDMI have ended — Section 4), oil and gas drilling (through its US sales subsidiary and Innova of Canada) and defense (India's BEL and Korean defense customers).
Korean-specific terms used below: DAPA (Defense Acquisition Program Administration, Korea's defense procurement agency), single-source contract, corporate value-up plan.
Currency: KRW figures with fixed-rate USD conversions (see Currency above).

Summary — Vitzrocell is a lithium primary battery maker that earns about 85% of its revenue overseas. From 2025 revenue of KRW 243.1bn (USD 173.6m) and operating profit of KRW 69.3bn (USD 49.5m) (reported), 2026 revenue is estimated at about KRW 300bn (USD 214.3m) and operating profit at about KRW 84.5bn (USD 60.4m) (estimate); the largest risk to profit is the exchange rate, followed by one-off fire losses and orders from large smart-meter customers.

Basis item	Value
Company · as of	Vitzrocell (KOSDAQ 082920) · as of 2026-09-16
Shares outstanding	44,948,159 shares (excluding 191,318 treasury shares)
Financial basis	Half-year report 2026 (2026-06-30, filing no. 20260812000200)
Conventions	Amounts in KRW bn unless noted (USD 1 = KRW 1,400; amounts originally in USD or CAD are shown in that currency first, with won in brackets and no re-conversion) · H1 2026 = first half of 2026, Q2 2026 = second quarter of 2026 · E = estimate

Tags — [FACT] directly supported by filings or financial statements · [COMPANY] the company's own statement (not separately verified) · [VIEW] interpretation, estimate or calculation (including interpretations reported in the press). Source codes (D = filings, N = news and external materials) are listed in Appendix A.

0. First — company profile and key figures

0-1. Company profile

[FACT] Founded in 1987 (current name since 2002), listed on KOSDAQ in 2009, with headquarters and plant in Dangjin, South Chungcheong Province, and 433 employees (2026-06-30). Its subsidiaries are Vitzrocell USA, a US sales subsidiary, and Innova Power Solutions of Canada, acquired in October 2025, and it has supplied military lithium batteries to the Korean armed forces since 1993. The CEO is Vice Chairman Jang Seung-kook, and the largest shareholder is Vitzro Tech Co., Ltd. with 34.53% (38.36% including related parties) (D1 I·VII·VIII, D2 I-1).

0-2. Key figures at a glance (consolidated)

Item	2021	2022	2023	2024	2025	H1 2025	H1 2026	Last 12 months
Revenue	113.2	141.0	176.2	210.8	243.1	110.5	144.4	277.1
Operating profit	17.4	28.8	37.7	51.9	69.3	31.2	39.0	77.1
Operating margin	15.4%	20.4%	21.4%	24.6%	28.5%	28.3%	27.0%	27.8%
Net profit (all attributable to owners of the parent)	17.0	23.1	36.1	51.3	56.9	23.2	37.5	71.3
Operating cash flow	25.2	26.5	38.8	59.8	63.6	21.5	31.5	73.5
Purchases of property, plant and equipment (PP&E) and intangibles	9.7	5.4	10.3	4.1	11.4	6.0	6.4	11.8
Free cash flow (FCF)	15.4	21.1	28.5	55.7	52.2	15.5	25.1	61.7
Dividends paid	2.6	3.2	4.2	5.5	10.3	10.3	11.7	—

[FACT] Taken from the consolidated financial statements (D1·D2·D14); operating margin, FCF and last-12-month figures are calculated.

Margin trend — operating margin rose every year from 2021 to 2025 (0-2)

Part 1. The business — what it sells, to whom, and why customers do not switch easily

1. Business model

Bottom line — [FACT] A lithium primary battery maker (single-use lithium batteries that are not recharged) earning about 85% of revenue overseas; 2025 revenue split into bobbin-type cells for smart meters 51.2%, high-temperature cells for oil drilling 17.5%, and ampoule and thermal batteries for defense 15.2% (D1 II-4, D2 II-4). [VIEW] Because the batteries go into “devices that must not stop for more than ten years”, certification and supply history make them hard to replace, and most cash comes from ad-hoc purchase orders (PO) placed under framework agreements.

1-1. What it sells

[FACT] The core product is lithium thionyl chloride (Li/SOCl2, a primary-battery chemistry with high voltage and energy density) cells, and the consolidated entity reports a single operating segment, “battery business” (D1 II-1).

Product	Main use	2025 revenue (share)	H1 2026 revenue (share)	Export share (2025)
Bobbin-type cells	Low current over long periods — electricity, gas and water smart meters	124.6 (51.2%)	66.9 (46.3%)	94.2%
High-temperature cells	Oil and gas drilling measurement tools	42.6 (17.5%)	26.0 (18.0%)	100.0%
Ampoule batteries	Reserve batteries activated by launch shock (kept inert until just before use) — electronic fuzes for artillery shells	23.1 (9.5%)	12.6 (8.7%)	71.3%
Wound-type cells	High current — military communications equipment, location tracking	17.6 (7.2%)	6.8 (4.7%)	1.6%
Thermal batteries	Instant high power — guided weapons	13.9 (5.7%)	9.5 (6.6%)	100.0%
EDLC (Electric Double Layer Capacitor)	Backup for instant power output	5.6 (2.3%)	3.6 (2.5%)	90.7%
CR cells, lithium-ion cells	Includes goods bought in for resale	5.8 (2.4%)	2.8 (2.0%)	—
Canada segment (Innova)	Battery packs for drilling tools (cells bundled with monitoring circuitry as a finished unit), monitoring chips	7.3 (3.0%)	16.6 (11.5%)	—

[FACT] The Canada segment's 2025 figure covers the fourth quarter after the acquisition, and its H1 2026 figure includes inter-segment transactions (elimination −KRW 14.9bn (−USD 10.6m)). Exports accounted for 84.7% (2025) and 86.1% (H1 2026) of the domestic segment's revenue (D1·D2 II-4).

2025 revenue split into bobbin-type cells for smart meters 51.2%, high-temperature cells for oil drilling 17.5%, and ampoule and thermal batteries for defense 15.2%

1-2. Who pays, and how

Customer group	Confirmed customers	How it gets paid	Switching difficulty
Smart-meter makers	[FACT] Supply contracts performed with Xylem and Badger Meter (US), ARAD (Israel) and EDMI (Singapore) (D4–D7)	Framework supply contracts of around three years plus ad-hoc orders, settled in US dollars	[COMPANY] Replacement cost is hundreds of times the battery price / [FACT] But fulfilment rates differ by customer, so order volumes are at the customer's discretion (4-2)
Oil and gas drilling	[FACT] Sold through the US sales subsidiary and Innova in Canada	Ad-hoc orders; moving toward bundling cells through to packs	[COMPANY] Medium — most competitors are US companies
Defense	[FACT] Ampoule battery exports to India's BEL (Bharat Electronics Limited) (4-5); DAPA and defense companies in Korea	Single-source contracts (contracts with a specific supplier without competitive bidding) in Korea; contract-by-contract overseas	[COMPANY] Difficult — a domestic monopoly for well over a decade / [FACT] Thermal batteries are goods bought from an affiliate (7-3)

[FACT] At the end of the half, “there are no long-term supply contract orders with a material effect on the financial statements” (translated from the Korean filing), and the only disclosed order backlog is the BEL contract (D1 II-4).
[FACT] On 2025-10-01 the company acquired 100% of Innova in cash for CAD (Canadian dollar) 33,375,638 (about KRW 33.6bn). The price is near the low end of the external appraisal range; Innova's 2024 revenue was KRW 26.77bn (USD 19.1m) and its net profit KRW 4.69bn (USD 3.4m) (D10).

1-3. Customers' pain points

[COMPANY] A battery failure triggers costs hundreds to thousands of times the battery price (meter replacement, damage to drilling tools), and customers require a new supplier to pass at least 6–8 months of testing and a factory audit (D1 II-7). [VIEW] What customers are really paying for is closer to “an assurance that no complaints will arise ten years later”, so supply history is weighed before price.

1-4. Where it can expand

Direction	Current stage	Tag · source
Drilling cells → packs and monitoring chips	Innova acquisition completed; Canada segment revenue generated	[FACT] D1
Overseas expansion of defense ampoule and thermal batteries	BEL contract disclosed in a filing; Türkiye and US deals reported in the press (4-5)	[FACT] / [VIEW]
Li/CFx-MnO2 cells for loitering-munition (self-destructing) drones	Under development; joint project 2024-11–2027-10	[COMPANY] D1 II-6
LIC (Lithium-ion Capacitor) for AI (Artificial Intelligence) data centers	Market entry “under review and being pursued”; press report of supply “discussions” with Delta Electronics of Taiwan	[COMPANY] D13 / [VIEW] N17
Secondary-battery materials, lithium recycling	Research and government-project stage (2025-08–2028-12); target of 11% of revenue from new businesses in 2030 (10-2)	[COMPANY] D1 II-6, D13
Batteries for space launch vehicles	Joint development project 2024-06–2026-06	[COMPANY] D1 II-6

[VIEW] Drones, data centers and materials have no measured revenue, so they were not sized.

2. Market and demand

Bottom line — [VIEW] The company's revenue grew much faster (an average 17.4% a year over 2023→2025 and 21.0% a year over 2021→2025) than the lithium primary battery market growth rate it cites (5.56% a year), and the gap was created not by the smart-meter market alone but by high-temperature cells, defense, the acquisition and the exchange rate together. The three end markets differ in character, so the whole is hard to label with the single phrase “structural growth”.

2-1. Market size

[COMPANY] The company wrote that the Li/SOCl2 market will grow from about KRW 917.7bn (USD 655.5m) in 2024 to about KRW 1,209.8bn (USD 864.1m) in 2028, the Li/MnO2 market from about KRW 1,037.3bn (USD 740.9m) to about KRW 1,403.9bn (USD 1,002.8m), and the lithium primary battery market as a whole at an average 5.56% a year over 2022–2028 (D1 II-7). [VIEW] The company's revenue mixes packs, defense reserve batteries and affiliate goods, so market share was not derived from these sizes.

2-2. The company's current position

[COMPANY] The company wrote that SAFT leads the Li/SOCl2 market with about 50% and that it is one of the world's top three alongside Saft and Tadiran, and in smart grids it used the hedged wording that it “appears to rank No. 1 in global share”. The 80% domestic industrial share is a 2010 figure and cannot be used as current evidence (D1 II-4·II-7).

2-3. What drives demand in each end market

End market	Character	Demand driver	Recently confirmed facts
Smart meters	[VIEW] Structural replacement + large-customer contract cycles	[COMPANY] Digital conversion of meters; replacement cycle of about 10 years	[FACT] Customer Badger Meter's Q2 2026 water business revenue −8%, with full-year organic revenue guided “similar to last year” — explained as uneven progress in AMI (Advanced Metering Infrastructure, remote meter-reading infrastructure) (N7, Form 8-K filed with the SEC (Securities and Exchange Commission))
Oil and gas drilling	[VIEW] Oil price and drilling cycle	Number of active drilling rigs (rig count)	[FACT] North American rig count 728 in September 2025 → 795 in September 2026 (N8). US rig count peaked at 775 in January 2023 → 526 in August 2025 → 588 on 2026-09-04 (N9)
Defense	[VIEW] Structural shift + geopolitical cycle	[COMPANY] Electronification of weapons; fuze power sources fitted under an agreement aiming to keep dud rates within 1%	[FACT] Export contract with India's BEL, [COMPANY] DAPA contracts (4-5)

2-4. Why it outgrew the market, and the rhythm of the three end markets

[FACT] From 2023 to 2025, bobbin-type cells grew +13.4%, high-temperature cells +41.0%, wound-type cells +34.8%, and defense (ampoule + thermal) went from KRW 13.4bn (USD 9.6m) to KRW 37.1bn (USD 26.5m); the revenue mix shifted from 62.3% to 51.2% for bobbin-type cells and from 7.6% to 15.2% for defense (calculated from D2 II-4).
[VIEW] Revenue growth of 21% a year over 2021–2025 is about four times the 5.6% market growth, so market share gains, the exchange rate (5-6) and the acquisition explain most of it. The more the rhythms of the three end markets (installation waves · oil price cycles · contract steps) diverge, the less revenue swings, but in a year when they all fall together the diversification effect disappears — this is the backbone of the “Low” path in Section 10 and the “Bear” case in Section 11.

3. Competition and moat

Bottom line — [VIEW] The entry barrier comes less from patents than from “long qualification periods and high-volume automated equipment”, and because time built this barrier, it will not collapse quickly. But a large part of the margin rise reflects the exchange rate and stable lithium prices, and an event that calls the supply history itself into question, such as the quality dispute, is pending, so it is too early to call it a “wide moat”.

3-1. Competitors and substitutes

Tier	Who	Company description
Leader	SAFT (France; owns Tadiran)	All applications, share of about 50%
Second group	Electrochem (US) · Hitachi Maxell, Toshiba (Japan)	No. 1 in drilling and medical devices / memory backup
Third group	EaglePicher (US) · Chinese makers (EVE, etc.)	Custom orders / low price; share rising within China with Chinese government support
Domestic military	—	“Monopoly or oligopoly in the domestic market”; DAPA encourages competition by securing multiple suppliers
Substitutes	Secondary batteries · Li/MnO2 cells	Limited in non-replaceable devices and harsh environments / lower power output and durability, but a price advantage

[COMPANY] Everything in the table is the company's own description (D1 II-2·II-7). The strengths it cites are delivery lead time (competitors 12 weeks or more vs the company's 6–8 weeks for first orders and 3–4 weeks thereafter — no reference date for the comparison) and price; the weakness it cites is a weaker brand due to a shorter history.

3-2. The barriers the company says it has built

#	Barrier	Basis
①	Long customer qualification	[COMPANY] At least 6–8 months of testing + factory audit
②	Fulfilment of multi-year contracts	[FACT] Six-year Xylem contract fulfilled above the contract amount (4-2, D4)
③	Automation and in-house components	[COMPANY] Over 90% process automation at the Dangjin plant; key components such as lithium foil produced in-house
④	Military supply history	[COMPANY] Supplying the Korean military since 1993; joint development of reserve batteries with the Agency for Defense Development (ADD)
⑤	Patents and R&D (research and development)	[FACT] 50 patents registered and 34 applications filed over the past five years; R&D expense of KRW 11.1bn (USD 7.9m) in 2025 (4.7% of revenue) and KRW 5bn (USD 3.6m) in H1 2026 (3.9%) (D1 II-6)
⑥	Capacity expansion	[FACT] Bobbin-type capacity expanded by 10.7% (5-2)

3-3. Did those barriers show up in the numbers?

Moat candidate	Where it should show up in the numbers if it is a moat	Does it actually show up?	Assessment
Certification and reliability (intangible asset)	Stable selling prices, consecutive renewals with large customers	[FACT] Xylem contract increased 2019 → 2023 / [COMPANY] 2026–2028 renewal press release (4-3), explanation that price-decline pressure is limited (5-3)	Partly confirmed
Switching cost	High contract fulfilment rates and no customer losses	[FACT] Fulfilment rates ranged from half to all, depending on the customer (4-2) / Itron damages lawsuits (4-4)	Weak to medium
Cost and delivery	Gross margin above peers	[FACT] Gross margin rose from 29.5% (2023) to 39.6% (H1 2026) (5-4)	Confirmed (causes mixed)
Domestic defense monopoly	Stable domestic military revenue	[FACT] Domestic ampoule revenue KRW 14.71bn (USD 10.5m) in 2024 → KRW 6.63bn (USD 4.7m) in 2025 → KRW 3.72bn (USD 2.7m) in H1 2026 — declining instead	Not confirmed in the numbers

[VIEW] The company itself cited stable raw materials and a strong dollar among the causes of higher 2025 profit (5-4), so reading the gross margin improvement only as a stronger moat would overstate it. [FACT] Raw material purchases/revenue fell from 35.1% (2024) to 31.2% (2025) and rose again to 36.7% (H1 2026) (D1 II-3), and [VIEW] this is likely the effect of consolidating the Canadian pack business.

3-4. Will it last?

[VIEW] ①②④ are barriers that only time can build and that are hard to shortcut with money, but they rest on the belief in “a supplier that does not cause problems”, so if quality disputes and plant accidents pile up they can be eroded all at once. Most of the patents in ⑤ relate to secondary batteries and materials and do not support the barrier in the core markets.

Seen from the bull side	Seen from the bear side
[VIEW] The record of fulfilling a six-year large contract above the contract amount (②) is the most direct evidence that a customer did not switch suppliers	[VIEW] Itron, from the same customer group, sued in two countries over “battery specification non-conformity” (4-4) — that record was not the same for every customer
[VIEW] With three end markets, competition in one market is unlikely to bring down the whole	[VIEW] Thermal batteries are goods bought from an affiliate (7-3), so defense expansion is tied to the affiliate's capacity expansion

4. Customers — the first question to check

Bottom line — [VIEW] Dependence on the largest customer is falling (17.9% → 10.9%), but actual fulfilment rates of past large contracts were scattered between half and all depending on the customer, and the largest new contract (Xylem, USD 126.34m (about KRW 180.2bn)) is confirmed only by a press release, not a filing. If that largest customer is Xylem, the first question to check is that H1 2026 revenue was less than half the new contract's pace.

4-1. Dependence on the largest customer

Period	Revenue from the customer with a 10%+ share (Customer 1)	Share of the relevant revenue base
2024	KRW 37.65bn (USD 26.9m)	17.9% of consolidated revenue of KRW 210.78bn (USD 150.6m)
2025	KRW 33.33bn (USD 23.8m)	14.1% of separate revenue of KRW 235.76bn (USD 168.4m)
H1 2025	KRW 17.65bn (USD 12.6m)	16.0% of separate revenue of KRW 110.45bn (USD 78.9m)
H1 2026	KRW 14.19bn (USD 10.1m)	10.9% of separate revenue of KRW 129.88bn (USD 92.8m)

[FACT] Customer 1 amounts are taken from the note “dependence on major customers” in each report, and shares are calculated (D1 consolidated note 4 · separate note 4, D2). The company did not disclose the customer's name.

4-2. How well were past contracts fulfilled?

Customer	Contract period	Result	Notes	Source
Xylem (US)	2020-01-01–2025-12-31	[FACT] Fulfilled USD 152.4m / contract USD 151.59m = 100.5%	About USD 25.4m a year on average over six years	D4
Badger Meter (US)	2023-01-01–2025-12-31	[FACT] Fulfilled KRW 22.05bn (USD 15.8m) against the firm portion of KRW 20.42bn (USD 14.6m) = 108.0% / 68.2% against the total of KRW 32.34bn (USD 23.1m) including the conditional portion	Conditional USD 8.39m not fulfilled due to delayed customer approval	D5
ARAD (Israel)	—	[FACT] 63.1% of the contract	Amended filing on contract termination	D6
EDMI (Singapore)	2019-04–2025-03	[FACT] Contract amount amended from USD 10.5m to USD 5.31m = 50.6%	Reasons: low meter installation rate at a UK gas utility (66% at end-2024), and tighter Chinese controls on dual-use items (items usable for both civilian and military purposes and therefore subject to export controls) that reduced and delayed imports by the customer's Chinese contract manufacturer	D7

[VIEW] Even under the same “long-term supply contract”, revenue actually received ranged from half to all of the contract amount. It appears safer to read a contract amount as closer to an order ceiling than to confirmed revenue.

4-3. New smart-meter contracts — confirmed only by press releases

[COMPANY] The new Xylem contract is USD 126.34m for 2026–2028 (about KRW 180.2bn, N1), and the new Badger Meter contract is USD 29.64m for 2026–2028 (about KRW 43.6bn, N2).
[FACT] Neither contract appears in a DART single sales or supply contract filing or in the order status of the 2026 half-year report (D1 II-4).
[VIEW] The Xylem contract pace is about USD 21.1m per half, or KRW 30.5bn to KRW 31.5bn (assuming 1,450–1,500 won per US dollar), so if Xylem is the largest customer, H1 2026 largest-customer revenue of KRW 14.19bn (USD 10.1m) is 45–47% of that pace. However, filings cannot tell which of the following applies: (a) orders concentrated in the second half, (b) contract amount = order ceiling (4-2), or (c) other customers growing, so that bobbin-type revenue overall rose 9.1% (5-1).

4-4. Quality dispute — the Itron lawsuits

[FACT] Itron France SAS claimed damages on 2024-04-18 over “battery specification non-conformity” (France, through the 14th hearing), and Itron, Inc. filed a further suit over the same matter on 2025-09-15 in the US District Court for the Eastern District of Washington (served 2026-05-14). The disclosed claim of USD 7,934,000 (about KRW 11.86bn, 3.59% of equity at end-2025) is the same amount as the French claim (USD 7,934,048). The US suit asks for the amount to be “determined at trial” and also seeks pre- and post-judgment interest (at the maximum rate allowed by law), attorneys' fees and other relief, and the French claim also carries compound interest, EUR 50,000 and litigation costs (D1 XI-2, D9, N10).
[COMPANY] Management judges that there will be no material impact on operations or finances. [VIEW] So USD 7.93m (KRW 11.86bn) is closer to a starting point than a ceiling for the loss. Also, because this case collides head-on with the “reliability” moat, the substance of the outcome (whether specification non-conformity is found) matters more than the amount.

4-5. Defense customers

[FACT] Contract with India's state-owned BEL for ampoule batteries for electronic artillery fuzes, USD 13.62m (filed as KRW 20.47bn), for 2026-05-23–2027-10-29 (D8). [COMPANY] Six lithium battery supply contracts with DAPA totaling KRW 16.6bn (USD 11.9m) (N4, 2025-08-08).
[COMPANY] Explanation that Vitzro Miltech's thermal battery capacity will be expanded by July 2027 in response to requests from a Turkish defense company (N6). [VIEW] Press reports of Vitzro Miltech doubling its thermal battery plant and of thermal battery talks with two US defense companies (N5·N15).

Part 2. Numbers — how that strength showed up in revenue, profit and cash

5. What drives revenue and profit

Bottom line — [VIEW] Recent revenue was pulled by volume (Q), the exchange rate (won translation of dollar prices) and the acquisition (Canadian packs) together, and profit was supported by a rising gross margin and low depreciation. Ahead lie two headwinds: depreciation rising again with capacity expansion, and a fading exchange-rate effect.

5-1. Revenue = volume (Q) × price (P) breakdown (H1 2025 → H1 2026)

Product	H1 2025	H1 2026	Change	What moved
Bobbin-type cells	61.27	66.87	+9.1%	[VIEW] Volume + exchange rate — selling prices not disclosed
High-temperature cells (parent)	20.40	25.96	+27.3%	[VIEW] Volume + exchange rate. [VIEW] Press reports of a windfall from a fire at a North American competitor (competitor name and facts not confirmed in filings)
Innova Canada (packs)	0	16.61	New	[FACT] Acquisition effect
Thermal batteries (goods)	5.61	9.52	+69.7%	[VIEW] Defense volume
Wound-type cells	6.11	6.77	+11.0%	[VIEW] Domestic military and industrial
Consolidated total	110.45	144.44	+30.8%	—

[FACT] Product amounts are taken from the sales tables of the 2025 and 2026 half-year reports (D1·D3 II-4). Product categories changed in 2026, so ampoule batteries, EDLC and some other items cannot be compared with the same period a year earlier.

5-2. Capacity and expansion plans

[FACT] Bobbin-type capacity rose from 45,235 thousand to 50,085 thousand units (2026-06, +10.7%), and the utilization rate is “a trade secret”. [COMPANY] The 2026 plan for new and purchased equipment is KRW 37.67bn (USD 26.9m) (target completion December 2026) (D1 II-3).

5-3. Control over price (P)

[COMPANY] The company explains that military sales are exclusive single-source contracts and that civilian customers also put quality first, so price-decline pressure is limited. [FACT] Selling prices and raw material unit prices are both undisclosed, so pass-through power (the ability to pass cost increases on to selling prices) cannot be confirmed in the numbers (D1 II-2·II-3).

5-4. Profit drivers and the one-off cost in Q2

Item	2023	2024	2025	H1 2025	H1 2026
Gross margin	29.5%	33.4%	37.5%	37.3%	39.6%
SG&A (selling, general and administrative expenses)/revenue	8.1%	8.8%	9.0%	9.1%	12.6%
Depreciation (PP&E)	—	13.32	11.04	5.70	4.57
Employee benefits expense	—	28.60	31.56	15.23	23.65

[FACT] Consolidated income statement and the “expenses by nature” note (D1·D2); ratios are calculated.

The company itself cited stable raw materials and a strong dollar among the causes of higher 2025 profit (5-4), so reading the gross margin improvement only as a stronger moat would overstate it.

[COMPANY] The causes of higher 2025 profit were stronger military and high-temperature cell demand, a strong dollar, stable raw material prices and the inclusion of Innova (D11).
[FACT] The Q2 2026 operating margin was 24.6% (28.5% a year earlier); retirement benefits within Q2 2026 SG&A were KRW 2.9bn (USD 2.1m) (KRW 120m (USD 85,714) a year earlier), and retirement benefits for key management in the first half were KRW 4.22bn (USD 3.0m) (D1). [COMPANY] The company regarded executive retirement pay of about KRW 2.9bn (USD 2.1m) as one-off (N3). [VIEW] Excluding the KRW 2.9bn (USD 2.1m) cited by the company, Q2 2026 operating profit is about KRW 21.7bn (USD 15.5m).

5-5. First headwind — depreciation

[FACT] Of the KRW 54.33bn (USD 38.8m) acquisition cost of machinery, KRW 42.91bn (USD 30.6m) has already been depreciated (D1). [VIEW] The decline in PP&E depreciation from KRW 13.3bn (USD 9.5m) (2024) to KRW 11bn (USD 7.9m) (2025) and KRW 9.1bn (USD 6.5m) annualized in H1 2026 is an “aging equipment” effect; once new capacity comes in, depreciation may increase and weigh on the operating margin.

5-6. Second headwind — the exchange rate, the weakest link in the story

[FACT] The exchange rate on contract dates went from 1,186.6 won per US dollar in 2019-10 to 1,503.5 won in 2026-05 (about +27%) (D4, D8), and the company also cited the strong dollar among the causes of higher 2025 profit. The disclosed sensitivity, “pre-tax profit ±KRW 9.18bn (USD 6.6m) for a 10% change in foreign currency”, is only the translation effect on foreign-currency assets and liabilities, not the effect on revenue flows (D2 IV-3). On the as-of date, 2026-09-16, the won closed daytime trading at 1,368.6 per US dollar, after rising for five consecutive sessions from 1,336.1 on 2026-09-09 (N20).
[VIEW] Including revenue flows, a 10% strengthening of the won could reduce operating profit by about KRW 15bn (USD 10.7m) to KRW 25bn (USD 17.9m) (20–30% of current profit). The upper end of KRW 25bn (USD 17.9m) is almost equal to 10% of 2026E export revenue and assumes zero offset from dollar costs; to the extent that raw materials (36.7% of revenue) are imported, the figure moves toward the lower end. Also, 4–5 percentage points a year (a rough estimate) of the 21% annual revenue growth over 2021–2025 came from the weak won. If the won reverts, growth and margins would both be shaken at the same time. The as-of rate already puts the won about 6% stronger than the Base assumption of around 1,450 won in 11-3.

6. Quality of earnings and cash

Bottom line — [VIEW] Cumulative five-year operating cash flow was 116% of net profit and free cash flow 94%, so profit is backed by cash; the audit opinion is unqualified; net cash at the end of the half was KRW 148.7bn (USD 106.2m) to KRW 184.5bn (USD 131.8m); and there are no potentially dilutive securities. However, fire losses · the Itron lawsuits · large capacity expansion could reduce cash over the next one to two years, and the change of auditor and the downward revision of operating profit from preliminary to final figures are worth recording.

6-1. Conversion of profit into cash (five years)

Year	Operating cash flow / net profit	FCF / net profit
2021	148%	91%
2022	115%	91%
2023	108%	79%
2024	117%	109%
2025	112%	92%
Five-year cumulative	116%	94% (FCF KRW 172.9bn (USD 123.5m) / net profit KRW 184.4bn (USD 131.7m))

[FACT] Consolidated cash flow statements (D14·D2); ratios are calculated.

Cumulative five-year operating cash flow was 116% of net profit and free cash flow 94%, so profit is backed by cash

6-2. Profit that may not recur

[FACT] Net non-operating income was KRW 12.58bn (USD 9.0m) in 2024 (including finance income of KRW 10.09bn (USD 7.2m)) and KRW 9.84bn (USD 7.0m) in H1 2026 (finance income KRW 8.43bn (USD 6.0m)) (D2·D1). [FACT] Q2 2026 operating profit was revised from a preliminary KRW 19.56bn (USD 14.0m) to a final KRW 18.76bn (USD 13.4m), KRW 800m (USD 0.57m) lower (D12·D1).

6-3. Working capital

Metric	2024	2025	H1 2026 (annualized)
Receivable days	75 days	74 days	67 days
Inventory days (cost-of-sales basis)	120 days	141 days	142 days

[FACT] Inventories went from KRW 46.11bn (USD 32.9m) (2024) to KRW 58.62bn (USD 41.9m) (2025) and KRW 67.94bn (USD 48.5m) (H1 2026) (D2·D1), and KRW 10.1bn (USD 7.2m) of the 2025 increase is inventory acquired with Innova (D2 consolidated note 39). [VIEW] Excluding the acquisition, 2025 inventory growth was about 5%, below revenue growth (15%), so it is not an abnormal signal.

6-4. Audit

[FACT] The audit opinion for 2023–2025 was unqualified, and the key audit matter (KAM) for three consecutive years was “appropriateness of the start date of depreciation of property, plant and equipment”. The auditor changed from Samil PwC (2022–2024) to Hanul Accounting Corporation (2025–2027), and audit hours fell from 1,851 to 1,414 and fees from KRW 195m (USD 0.14m) to KRW 140m (USD 0.10m) (D2·D14). [VIEW] 2025, the year audit hours fell, was the year the consolidation scope actually widened with the first overseas acquisition (Innova, consolidated from Q4) (contracted hours also went from 1,800 to 1,407). Construction in progress is small at KRW 5.79bn (USD 4.1m) (8.5% of PP&E), so the room for distortion of current profit is limited.

6-5. Balance sheet — net cash and debt

Item (2026-06-30, consolidated)	Amount
Cash and cash equivalents	20.05
Short-term financial instruments	146.36
Other non-current financial assets (long-term financial instruments, etc.)	35.78
Short-term borrowings (Shinhan Bank KRW 10bn (USD 7.1m) · Hana Bank KRW 6bn (USD 4.3m))	−16.00
Lease liabilities	−1.71
Net cash (broad / narrow — excluding long-term financial assets)	184.48 / 148.70

[FACT] The debt-to-equity ratio is 19.0%. In H1 2026 the company newly borrowed KRW 10bn (USD 7.1m) from Shinhan Bank (3.94%) and KRW 6bn (USD 4.3m) from Hana Bank (3.81%) (borrowings of KRW 1.95bn (USD 1.4m) at end-2025), and a KRW 30bn (USD 21.4m) credit line from the Export-Import Bank of Korea is undrawn. All convertible bonds have been converted, so there are no outstanding debt securities or warrants; contingent liabilities are the Itron claims (4-4), payment guarantees provided of KRW 1.87bn (USD 1.3m) and a brand licensing agreement (D1).
[VIEW] Why the company increased its loans while holding more than KRW 166bn (USD 118.6m) in cash-like assets is not confirmed in filings (presumed to address maturity mismatch or exchange rates).

6-6. The fire — an event that arrives all at once

[FACT] A fire at a warehouse at the Dangjin plant on 2026-08-31 was put out after 22 hours, destroying about 15 tonnes of lithium batteries (N14; the main blaze was brought under control that afternoon — N19). As of 2026-09-16 there is no disaster occurrence filing on DART.
[COMPANY] The company explains that it was a storage warehouse separate from the production buildings, with only some inventory lost and production normal (N5). [VIEW] Korea Economic TV reported an estimate of up to KRW 40bn (USD 28.6m) and recalled the major 2017 fire at the Dangjin plant (N15).
[VIEW] Apart from the loss amount, there is a path of shipment disruption in Q3 and Q4, which the Section 11 scenarios do not include separately.
[FACT] On 2024-06-24, a fire at another lithium primary battery plant in Hwaseong killed 23 people (N11). [VIEW] That is why the risk of the incident spreading into customer audits weighs more than the loss amount.

6-7. Investment and future free cash flow

[FACT] Cumulative five-year FCF is KRW 172.9bn (USD 123.5m) (D14·D2).

7. Who gets the money it earns?

Bottom line — [VIEW] The dividend and cancellation pledges are being kept (payout ratio in the 20% range, first cancellation of 200,000 shares in 2026-07), but only about 20% of what was earned over five years went to shareholders, and the structure in which manufacturing profit on the fastest-growing thermal batteries stays with an affiliate (Vitzro Miltech) under the controlling shareholder's holding company is a weakness from the minority shareholders' point of view.

7-1. Governance

[FACT] The largest shareholder of Vitzro Tech (whose stake is shown in 0-1) is Jang Soon-sang (41.40%), and Vitzro Tech is a holding company. CEO Jang Seung-kook holds 2.43% and bought 2,000 shares on the market on each of 2026-06-30, 07-16 and 08-03 (D1 VII, D21).

7-2. Where the money went (2021–2025 cumulative, consolidated cash flow statement)

Use	Amount	Share of operating cash flow
Total operating cash flow	213.8	100%
Investment in PP&E and intangibles	40.9	19%
Dividends paid	25.9	12%
Treasury share purchases	10.2	5%
Innova acquisition (net cash outflow)	31.4	15%
Net increase in loans to an affiliate (Vitzro ICT)	7.5	4%
Set aside in financial assets, etc.	Remainder	—

[FACT] Consolidated cash flow statements (D14·D2); totals are calculated. [VIEW] Dividends + treasury share purchases are about 20% of five-year net profit (KRW 184.4bn (USD 131.7m)), and part of the purchased shares was disposed of as employee compensation, so the effective return ratio is lower.

Dividends + treasury share purchases are about 20% of five-year net profit (KRW 184.4bn (USD 131.7m)), and part of the purchased shares was disposed of as employee compensation, so the effective return ratio is lower.

7-3. Affiliate transactions — a weakness from the minority shareholders' point of view

[FACT] In H1 2026, related-party purchases of KRW 9.78bn (USD 7.0m) came entirely from Vitzro Miltech (a subsidiary of Vitzro Tech), and thermal battery (“goods”) revenue in the same period was KRW 9.52bn (USD 6.8m) (D1 X-3). [FACT] In H1 2025 as well, purchases from Vitzro Miltech of KRW 6.33bn (USD 4.5m) exceeded thermal battery revenue of KRW 5.61bn (USD 4.0m), so purchases exceeded revenue in both periods (D1 X-3 prior-period figures, D3). [VIEW] Without knowing inventory changes and the mix of purchased items, the margin cannot be measured by comparing these periods. Still, because thermal batteries are bought from an affiliate and resold, the manufacturing margin accrues to Vitzro Miltech, and a significant part of the profit from “high growth in defense thermal batteries” may flow to the holding company side — this cannot be concluded, because the method of setting transaction prices is not disclosed.
[FACT] Other items include Vitzro Tech brand royalties and similar charges of KRW 1.37bn (USD 0.98m) in H1 2026, a loan balance to Vitzro ICT of KRW 7.5bn (USD 5.4m) (4.6% a year), and a CAD 2,000,000 convertible bond subscribed from MakeSens of Canada (D1).

7-4. Shareholder return pledges and delivery

Pledge (corporate value-up plan)	Delivery
Payout ratio of at least 20% for 2024–2026	[COMPANY] 20.4% in 2024 and 21.05% in 2025 (figures as disclosed) / [FACT] 2025 DPS (dividend per share) of KRW 260 (USD 0.19), totaling KRW 11.68bn (USD 8.3m) (D15)
Payout ratio of 25% or more from 2027 “under review”	[FACT] Not finalized — the wording is “under review” (D13)
	[FACT] 1:1 (100%) bonus share issue in 2025-12 (D17)
Treasury share cancellation	[FACT] 200,000 shares cancelled on 2026-07-06 (D16)

[FACT] Only one of the three outside directors attended the board meeting that decided the cancellation (D16), and the remaining 191,318 treasury shares are held for employee performance bonuses until the day before the 2027 annual general meeting (D1). [VIEW] A bonus share issue does not increase shareholder value, so it was not counted as a shareholder return.

7-5. Filings in the last 12 months (all 59 reviewed)

[FACT] There were no changes in the largest shareholder, rights offerings, convertible bond issues, auditor emphasis-of-matter paragraphs or exchange sanctions, and no new filings in the company's name after the fire through 2026-09-16 (DART filing list, as of 2026-09-16).
[FACT] Large holdings by foreign institutions were Fidelity 9.95% → 4.83% (2026-03–04), Morgan Stanley newly at 5.48% (07-14) → 3.56% (09-07) and J.P. Morgan 3.10% (07-20) (D20), and the company was added to the KOSDAQ 150 index and the Korea Value-up Index (D13).
[FACT] The only on-market disposal by an executive was by Senior Managing Director Kim Gil-joong (disclosure officer), who disposed of 455 shares in 2025-01 and 250 shares in 2026-03 and first reported them in reports dated 2026-01-06 and 2026-07-06 respectively (D22).

Part 3. Stress test — what must stay true, and what could break it

8. Pulling it together with SWOT (Strengths, Weaknesses, Opportunities, Threats)

8-1. Summary table

S Strengths	W Weaknesses
① Multi-year contract with a large meter maker fulfilled above the contract amount (4-2)	① Customer concentration and quality dispute — reliance on the largest customer, Itron damages lawsuits (4-1·4-4)
② Margin trend — operating margin rose every year over 2021–2025 (0-2)	② Dependence on affiliate transactions — thermal batteries bought from an affiliate and resold (7-3)
③ Diversified demand — three end markets: smart meters, drilling and defense (1-1·2-4)	③ Exchange rate exposure — most revenue is in foreign currency, and profit growth includes an exchange rate component (5-6)

O Opportunities	T Threats
① Overseas defense orders — ampoule battery contract with India's BEL (4-5)	① Installation pace at downstream customers — a customer's water business revenue declining, fulfilment rates varying by contract (2-3·4-2)
② Adding a drilling pack business — Innova acquisition and a recovering North American rig count (1-2·2-3)	② Competition and controls from China — dual-use item controls disclosed as a reason for a contract reduction, Chinese makers gaining share (3-1·4-2)
③ Smart-meter contract renewal — Xylem contract for 2026–2028 (press release, 4-3)	③ Plant safety accidents — warehouse fire at the Dangjin plant (6-6)

8-2. What the four boxes mean

[VIEW] Strength ② (margins) is the result of ① (fulfilment history) and ③ (diversification), but it contains an exchange-rate component, so it can fall even if ① and ③ stay intact. All three weaknesses are external variables the company cannot set (courts · affiliate · currency market); by amount, weakness ③ (the exchange rate) is the largest (9-1), and weakness ① (the lawsuits) takes direct aim at Strength ①.
[VIEW] Opportunity ③ (the new Xylem contract) has the largest impact and is the least confirmed. Threats ① and ② are cyclical and emerge slowly, while threat ③ (the fire) is a sudden event that can spread into customer audits. Weakness ① and Threat ③ target Strength ①, Threat ① targets Opportunity ③, and Weakness ② targets Opportunity ①; the signals for these are in 10-3.

9. Size of the risks and the strongest opposing case

Bottom line — [VIEW] The largest risk to profit is the exchange rate (20–30% of operating profit), followed by one-off fire losses and orders from large smart-meter customers. Litigation and governance are small in amount but erode the moat and the shareholders' share; of the six strongest arguments on the other side, two — exchange rate and quality/safety — are not rebutted by current evidence, and for profit attribution there is no evidence to judge at all.

9-1. Risk table (in order of profit impact)

Type	Risk	Approximate profit impact if it occurs	Basis
Financial	10% strengthening of the won	Operating profit lower by KRW 15bn (USD 10.7m) to KRW 25bn (USD 17.9m) a year (−20–30%)	[VIEW] 5-6
Financial	Fire loss (estimated at up to KRW 40bn (USD 28.6m) before insurance)	One-off hit to net profit of up to around −KRW 30bn (−USD 21.4m) (insurance recovery and shipment disruption not reflected)	[VIEW] N15, no filing (6-6)
Business	Weak orders from large smart-meter customers (bobbin-type −10%)	Revenue lower by KRW 6.7bn (USD 4.8m) to KRW 12.5bn (USD 8.9m), operating profit lower by KRW 2.5bn (USD 1.8m) to KRW 4.5bn (USD 3.2m)	[VIEW] Assumes a contribution margin of 35–40%
Business	Lower oil prices and drilling (high-temperature cells + packs −20%)	Operating profit lower by KRW 5bn (USD 3.6m) to KRW 7bn (USD 5.0m)	[VIEW] Based on annualized revenue of about KRW 80bn (USD 57.1m)
Business	Gap in defense orders (after a Middle East ceasefire)	Operating profit lower by KRW 2bn (USD 1.4m) to KRW 4bn (USD 2.9m)	[VIEW] Based on annualized revenue of about KRW 44bn (USD 31.4m)
Governance	Thermal battery profit accruing to an affiliate, brand royalties (about KRW 3bn (USD 2.1m) a year), affiliate loan of KRW 7.5bn (USD 5.4m)	Possible leakage of a few billion won a year from the minority shareholders' share	[FACT]·[VIEW] 7-3
Regulatory/legal	Itron damages (USD 7.93m + amount of the US suit undetermined)	One-off −USD 7.93m (−KRW 11.9bn) or more (interest and litigation costs in both countries extra); larger if similar claims follow	[FACT] D1·D9

[VIEW] Exchange rate risk and defense and oil price risks can arrive together in the same direction (geopolitical easing → weaker dollar, lower oil prices, fading defense theme). So the shock is larger when they come at the same time than a simple sum suggests.

9-2. The strongest bear arguments (Steelman Negative — building the opposing case in its strongest form)

[VIEW] The bear arguments are built from the opposing side's standpoint, and the rebuttal column is analysis (S3 is the company's explanation).

#	Bear argument	Rebuttal	Can it be rebutted?
S1	Profit growth came from the exchange rate and raw materials — the won is already back in the 1,300s per US dollar (5-6), and if that holds, a quarter of profit disappears	The operating margin excluding one-offs held up, but that period also had a weak won	Cannot rebut
S2	Xylem's USD 126.34m (about KRW 180.2bn) is not on DART, first-half revenue from the largest customer is less than half the contract pace, and three past contracts were only 50.6–68.2% fulfilled	Bobbin-type revenue grew 9.1%, and a single half-year is too early to judge	Partly rebutted — no customer names or order data
S3	A specification non-conformity lawsuit, and another fire after 2017 — repeated quality and safety incidents at a company whose moat is reliability	Only the company's explanation: a warehouse fire, production normal, and no material impact from the lawsuits	Cannot rebut
S4	Thermal batteries +70% are goods made by an affiliate — the margin is thin, and expansion profit also goes to the holding company side	Purchases exceeded revenue in both periods, so the margin cannot be measured by comparing periods, and the pricing method is not disclosed	Cannot judge — insufficient evidence
S5	An expansion cycle, yet no revenue from new businesses	Five-year FCF conversion of 94% and net cash of around KRW 150bn (USD 107.1m) allow self-funding; profitability not confirmed	Partly rebutted
S6	No fire filing, final operating profit revised by −KRW 800m (−USD 0.57m) from the preliminary figure, delayed reporting of a disposal by the disclosure officer	Possibly below disclosure thresholds or within small-amount reporting deferrals	Partly rebutted — facts not yet confirmed

[VIEW] The bear case is closer to “growth and margins normalize” than to “the company breaks down”, and a large net cash position cushions the bear case.

Part 4. The road ahead

10. Outlook — three paths and their signals

Bottom line — [VIEW] Vitzrocell's next three to five years appear to depend first on “whether it can protect its accumulated supply history without lawsuits or accidents” rather than on “how many new markets it opens”, and on top of that, the pace of expansion in defense and drilling will decide the path.

10-1. Changes in market structure

[VIEW] Three currents are visible — ① growth drivers widening from “digital conversion of meters” to “electronification of weapons and more advanced drilling” (the mix shift in 2-4) ② drilling moving from cells to packs (the stated purpose of the Innova acquisition: “securing next-generation technology leadership in the battery pack field”, D10) ③ Chinese dual-use item controls appearing as a reason for contract reductions, so that origin and supply chain are weighed as much as price (4-2).

10-2. The company's response

[FACT] The dated actions run in this order: the Innova acquisition (2025-10-01, final purchase price fixed on 2026-01-20, D18) → the India BEL contract (2026-05-23) → the bobbin-type capacity expansion (2026-06-30) → the value-up plan filing (2026-07-01) → the target completion of the equipment plan (December 2026), with joint new-business projects spanning 2024-06–2028-12.

[COMPANY] The 2030 targets are revenue of KRW 600bn (USD 428.6m), operating profit of KRW 160bn (USD 114.3m), an operating margin of 26.7% and consolidated ROE (Return on Equity) of 25% or more; the directions are revenue and profit growth, higher share in each end market, new businesses in secondary-battery materials and lithium metal (11% of revenue in 2030), and a review of entry into batteries for AI data centers and loitering-munition drones (D13).

10-3. Three paths

Path	Picture	Confirming signals
High	Smart-meter contracts fulfilled close to their amounts, and defense and drilling grow together so the three end markets fill each other's gaps	① Xylem and Badger Meter contracts listed in the order status of the 2026 annual report (March 2027) ② thermal battery expansion completed in July 2027 ③ North American rig count at 750 or more ④ Itron lawsuits concluded within USD 7.93m (KRW 11.86bn) including interest and costs, with no finding of specification non-conformity
Middle	Smart meters uneven with customers' installation pace; defense and drilling fill the gap only partly	① fulfilment rates spread between 50–110% across customers ② customers' water business revenue stagnant around 0% ③ whether a follow-on BEL contract arrives around October 2027 ④ prolonged Itron litigation
Low	Quality disputes and safety accidents shake the supply-history barrier, combined with a drilling downturn and normalization in defense	① a finding of Itron specification non-conformity, or similar suits by other customers ② filings on fire losses, administrative sanctions or further accidents ③ US rig count below 526 ④ the customer with a 10%+ share disappearing from the major-customer disclosure

[VIEW] High requires all four signals to be met at the same time; for Middle, customers' quarterly results serve as a thermometer that leads by one or two quarters; for Low, the core is loss of trust rather than falling demand, so it is taken to be when event-type signals (①②) and cyclical signals (③) light up together.

10-4. Overall outlook

[VIEW] For now it appears to sit between the Middle and High paths, but while High needs four conditions to be met together, Low can open with a single event such as a court outcome or an accident, so the two paths are given equal weight. The signals that will answer first within a year are ① what the Q3 report says about the fire ② filings on the progress of the Itron lawsuits ③ smart-meter long-term contracts in the order status of the 2026 annual report.

11. Scenarios in numbers

11-1. How the two scenario frameworks relate

[VIEW] The High/Middle/Low paths in Section 10 are divided by signals (3–5 years), while the Bull (optimistic), Base (base) and Bear (pessimistic) cases in this section are divided by 2027 numbers. The main driver of the Low path is loss of trust and the main driver of Bear is the exchange rate, so Bear has no case of the lawsuits spreading to other customers' orders (only KRW 10bn (USD 7.1m) for litigation is reflected in net cash — it could be larger with interest and costs, 4-4), and the Low-path signals do not include the exchange rate — the two negative paths do not substitute for each other, so they need to be read together.

11-2. Starting point — 2026 estimates

[VIEW] 2026E: revenue of about KRW 300bn (USD 214.3m), operating profit of about KRW 84.5bn (USD 60.4m), and normalized net profit excluding fire losses of about KRW 76.6bn (USD 54.7m).

11-3. Bull / Base / Bear (based on 2027 results)

Case	Bear	Base	Bull
Assumptions	Won 10% stronger, high-temperature cells −15%, Xylem orders at 50% of the contract pace, gap in new defense orders	Exchange rate around 1,450 won per US dollar, bobbin-type +8%, high-temperature cells + packs +15%, defense +25%, new businesses negligible	US defense thermal battery supply confirmed, drone and AI data center revenue totaling KRW 20bn (USD 14.3m) or more, Xylem orders recover
2027 revenue	KRW 270bn (USD 192.9m) (−10% vs 2026E)	KRW 335bn (USD 239.3m) (+12%)	KRW 380bn (USD 271.4m) (+27%)
Operating margin	23% (exchange rate headwind + higher depreciation)	28.4%	30%
Operating profit	KRW 62bn (USD 44.3m)	KRW 95bn (USD 67.9m)	KRW 114bn (USD 81.4m)
After-tax operating profit (tax rate 23%)	KRW 47.7bn (USD 34.1m)	KRW 73.2bn (USD 52.3m)	KRW 87.8bn (USD 62.7m)
Net cash (mid-2027)	KRW 140bn (USD 100.0m) (net fire loss of KRW 30bn (USD 21.4m) — assumes zero insurance recovery; litigation of KRW 10bn (USD 7.1m) reflected)	KRW 170bn (USD 121.4m)	KRW 200bn (USD 142.9m)

[VIEW] All assumptions and figures are estimates.

[VIEW] The Base operating margin of 28.4% assumes that a better product mix offsets higher depreciation from new capacity.
[VIEW] The US defense thermal battery and AI data center supply in Bull are still at the stage of press reports of “talks” and “discussions”. [VIEW] The risk that thermal battery manufacturing profit accrues to Vitzro Miltech (7-3) is also embedded in Bull.

12. Conclusion — three questions

12-1. What would invalidate the thesis

[VIEW] The thresholds were set with reference to a floor equal to the 2025 operating margin of 28.5% minus the exchange rate headwind (−3–5 percentage points), and to losses of around 5% (about KRW 18bn (USD 12.9m)) of equity at the end of the half (KRW 358.8bn (USD 256.3m)) (these differ from mandatory disclosure thresholds).

#	Invalidating event (numbers)	How to check
X1	Quarterly operating margin excluding one-offs below 24%	Consolidated income statement in quarterly reports + expenses-by-nature note
X2	Net fire loss (after insurance) of KRW 20bn (USD 14.3m) or more confirmed, or a disaster occurrence filing	DART disaster occurrence filing; other expenses and insured assets notes in quarterly reports
X3	Bobbin-type revenue down year on year for two consecutive quarters	II-4 sales tables in quarterly and half-year reports
X4	Loss of USD 7.93m (KRW 11.86bn) or more including interest and costs from an Itron judgment or settlement, or a filing of a similar lawsuit by another meter customer	“Judgment or decision in litigation” filings, contingent liabilities note
X5	A 25% payout ratio not adopted for 2027 + all treasury shares disposed of to employees, or a rights offering or convertible bond issue	Cash dividend decision in 2027-02, material event reports

12-2. Three closing questions

Question	Answer
Conditions for success	[VIEW] The won returning to the 1,400s per US dollar (1,368.6 on the as-of date, 5-6), or 10%+ annual growth confirmed excluding exchange rates; a net fire loss at or below the KRW 10bn (USD 7.1m) range / (Bull) a US defense contract filing / a 25% payout ratio confirmed and treasury shares cancelled
Conditions for failure	[VIEW] Simultaneous weakness in the exchange rate, oil prices and defense (Bear), fewer orders from large customers due to loss of trust (Low path), higher depreciation without new businesses, growth profit flowing out to affiliates
Evidence that would change the view	[VIEW] A Q3 net fire loss of KRW 10bn (USD 7.1m) or less + an operating margin excluding one-offs of 28% or more, double-digit bobbin-type growth, improved attribution of thermal battery profit / any one of X1–X5

Checkpoints — what to watch, and when, that would change the view

13. Catalyst calendar

13-1. Dated catalysts

Date	Event	What to check
By 2026-11-16	Filing deadline for the Q3 report	Fire loss and insurance income, operating margin excluding one-offs, bobbin-type and high-temperature cell revenue (X1–X3)
Monthly · quarterly	Baker Hughes rig count · results of customers such as Badger Meter	North America 750 or more / US below 526 · change in water business revenue
2026-12	Target completion of the capex plan	Execution rate, transfers from construction in progress
Late 2027-02	Year-end dividend decision and filing on change in profit structure (as in prior years)	Outcome of the 25% payout ratio “review”, final booking of the fire loss (X2·X5)
2027-03	2026 annual report · deadline for treasury share disposal (day before the annual general meeting)	Whether the Xylem and Badger Meter contracts appear in the order status · whether the 191,318 shares are cancelled
2027-07	Vitzro Miltech thermal battery expansion target [VIEW]	Completion of the expansion and the size of Vitzrocell's purchases
2027-10-29 · 2028-12-31	BEL contract ends · new Xylem and Badger Meter contracts end	Fulfilment rates, follow-on contracts

13-2. Items without dates

[VIEW] The confirmed fire loss and insurance proceeds, the schedule for discovery (the pre-trial exchange of evidence) in the Itron litigation, a US defense thermal battery contract and supply to Delta Electronics were used only as assumptions in the Section 11 scenarios.

Appendix A. Source list

A-1. Filings (DART)

Code	Document	Filing no. · date
D1	Vitzrocell half-year report 2026	20260812000200 · 2026-08-12
D2	Vitzrocell annual report 2025	20260317000858 · 2026-03-17
D3	Vitzrocell half-year report 2025	20250813000391 · 2025-08-13
D4	Supply contract (amended, Xylem Inc. · contract termination)	20251231900641 · 2025-12-31
D5	Supply contract (amended, Badger Meter, Inc. · contract termination)	20251231900706 · 2025-12-31
D6	Supply contract (amended, ARAD LTD. · contract termination)	20251231900769 · 2025-12-31
D7	Supply contract (amended, EDMI Limited)	20250331902239 · 2025-03-31
D8	Supply contract (voluntary filing, BHARAT ELECTRONICS LTD.)	20260526900576 · 2026-05-26
D9	Filing or application of a lawsuit (Itron, Inc.)	20260514900792 · 2026-05-14
D10	Decision to acquire shares of another company (Innova)	20250909000162 · 2025-09-09
D11	Change of 30% or more in revenue or profit structure	20260224900413 · 2026-02-24
D12	Preliminary operating results (fair disclosure)	20260709900508 · 2026-07-09
D13	Corporate value-up plan (voluntary filing)	20260701900248 · 2026-07-01
D14	Vitzrocell annual report 2023	20240320001245 · 2024-03-20
D15	Cash and in-kind dividend decision, and amendment	20260224900442 · 2026-02-24 / 20260225900861 · 2026-02-25
D16	Decision to cancel shares	20260630900485 · 2026-06-30
D17	Bonus issue decision	20251126000177 · 2025-11-26
D18	Completion report on merger, etc. (Innova)	20260120000321 · 2026-01-20
D19	Decision to dispose of treasury shares	20260625000526 · 2026-06-25
D20	Large-holding reports (5% filings) — Fidelity / Morgan Stanley / J.P. Morgan	20260305000544 · 20260403003275 · 20260428000273 / 20260714000317 · 20260907000206 / 20260720000043
D21	Ownership reports by executives and major shareholders — Jang Seung-kook	20251215000054 · 20260701000133 · 20260716000060 · 20260803000218
D22	Ownership reports by executives and major shareholders — Kim Gil-joong	20260106000290 · 20260706000194

A-2. News and external sources

Code	Document	Date
N1	Company press release — three-year USD 126.34m (about KRW 180.2bn) supply contract with Xylem · newswire.co.kr	2025-05-07
N2	Company press release — three-year USD 29.64m (about KRW 43.6bn) long-term supply contract with Badger Meter · newswire.co.kr	2025-12-24
N3	Company press release — 2026 earnings outlook (as carried by Global Economic) · g-enews.com	2026-08-13
N4	Newswire list of company press releases (DAPA KRW 16.6bn (USD 11.9m), etc.) · newswire.co.kr · newswire.co.kr (DAPA)	Accessed 2026-09-17
N5	Korea Economic TV — thermal batteries entering the US · wowtv.co.kr	2026-09-03
N6	Sidae (sidae.com) — defense, AI and earnings · sidae.com	2026-09-03
N7	Badger Meter Form 8-K (Q2 2026 results) · sec.gov	2026-07-22
N8	Rigzone — Baker Hughes North American rig count · rigzone.com	2026-09-15
N9	Petroleum News — Baker Hughes US rig count 588 · petroleumnews.com	2026-09-13
N10	PacerMonitor — Itron Inc v. Vitzrocell (2:25-cv-00358) · pacermonitor.com	Filed 2025-09-15
N11	Wikipedia — Hwaseong battery factory fire · en.wikipedia.org	Incident on 2024-06-24
N14	Etoday — Dangjin plant warehouse fire · etoday.co.kr (08-31) · etoday.co.kr (09-01)	2026-08-31–09-01
N15	Korea Economic TV — fire damage estimate and defense talks (same article as N5) · wowtv.co.kr	2026-09-03
N17	The Korea Economic Daily — Delta Electronics discussions · hankyung.com	2026-08-28
N19	Financial News — Vitzrocell fire · fnnews.com	2026-09-01
N20	Asia Economy (asiae.co.kr) — won-dollar daytime close of 1,368.6 · asiae.co.kr	2026-09-16