EV Battery Earnings Likely to Turn around in 3Q20

The author is an analyst of Shinhan Investment Corp. He can be reached at yjjung86@shinhan.com. -- Ed.

 

Positives: Tesla’s rising Model 3 sales, Volkswagen’s accelerating shift to EV

In February, Tesla’s Model 3 sales jumped 163.7% YoY from 10,101 to 26,637 units, thanks to increased capacity utilization at the company's Gigafactory in the US and resumed production in Shanghai. Model 3 sightings in Seoul are on the rise with the EV appealing to consumers seeking new technologies and sleek designs. Tesla's Model 3 is expected to remain the unrivaled market leader in EVs in the near term.

Meanwhile, key announcements during Volkswagen's recent media conference included the 2H20F launch of the ID.3 EV and the following release of ID.4 electric SUV, with both models based on the company's Modular Electrification Toolkit (MEB). The automaker plans to release MEB-based EV models in all major segments by 2022.

Samsung Display considering withdrawing from large-size LCD market

The number of 10.5G LCD lines in China is expected to increase to a total of five in 2021 vs. two in 2019, with total production capacity to climb from 200K/month in 4Q19 to 430K/month by 4Q21. As a result, we believe 8G LCD lines in Korea are no longer competitive. Samsung Display is considering shutting down its domestic LCD lines and is expected to flexibly increase investment into OLED lines depending on market conditions. We expect to see a sharp rise in OLED demand for use in notebooks and monitors as the displays offer optimal contrast ratios and response times for gaming and multimedia applications.

Retain BUY for a target price of KRW400,000

Our operating profit forecast for 2020 has been revised down from KRW921bn to KRW711.5bn to reflect negative impact expected from the COVID-19 pandemic. However, we retain our BUY rating for a target price of KRW400,000 with: 1) EV battery earnings likely to turn around in 3Q20; and 2) company-wide operating profit expected to reach KRW711.5bn (+53.9% YoY) in 2020. Despite the sharp decline in oil prices, global automakers continue to focus on strengthening their EV businesses to ensure longer-term survival. We thus believe Samsung SDI stands to enjoy growth in earnings from its EV battery business for the next 10 years, and recommend actively accumulating shares at current price levels.

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