EV Battery Business Likely to Turn Around in 3Q20

The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.

 

EV battery earnings to turn positive in 3Q20

Samsung SDI is expected to post operating profit of KRW72bn (+33.2% QoQ, -54.3% YoY) on sales of KRW2.52tr (+5.1% QoQ, +4.8% YoY) for 2Q20, slightly topping the market consensus of KRW62.4bn. Despite the lack of growth of EV batteries on weak seasonality, sales of the secondary battery division should increase QoQ thanks to robust sales of cylindrical cells and ESS batteries. EV battery earnings should turn positive in3Q20 with sales expected to surge 78.9% QoQ to KRW1.28tr.

Global EV battery production bases → future growth driver

The Volkswagen Group (Volkswagen, Audi, FAW-Volkswagen SAIC-Volkswagen) sold 51,913 EVs in the first four months of this year, up 86% from 2019’s 27,914 units, coming in second place behind Tesla (87,385 units). Samsung SDI’s share in the global EV battery market increased 1.9%p YoY to 5.6% during the four months. The company is set to mass produce Gen5 EV batteries in 2021. Using NCA (nickel-cobalt-aluminum) cathode materials, Gen5 batteries offer 20% higher energy density levels and driving ranges in excess of 600 km per charge.

Samsung SDI signed a USD3.5bn deal with the German automaker BMW to supply Gen5 batteries. Based on its EV battery production bases in Korea (Ulsan), China (Xian), Europe (Hungary) and the US (Michigan), the company is expected to supply a wide range of battery types to global automakers.

Retain BUY and raise target price by 12.5% to KRW450,000

We raise our target price for Samsung SDI by 12.5% to KRW450,000 on forecasts for: 1) full-year operating profit of KRW663.8bn (+43.6% YoY); and 2) turnaround of secondary battery business in 3Q20. The Hungarian unit (sales of KRW336.4bn, net profit of KRW11.7bn) turned to profits in 1Q20, indicating that the company’s efforts over the past 12 years are bearing fruit. We recommend focusing on the company’s future growth driver instead of the burdensome valuation after the recent rally. Samsung SDI should deliver the steepest sales growth among the affiliates of Samsung Electronics, with the adoption of IT technologies in autos becoming mainstream.

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