EV Battery Earnings to Swing to Profit in 2021
The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.
Battery business to benefit from all-out EV push by US automakers
Tesla, seeing explosive sales of EVs produced at its Gigafactory in China, has doubled its sales target to 1mn vehicles for 2022 vs. 0.5mn in 2020. Apple, seeking sustainable growth, is highly likely to enter the market for self-driving EVs going forward. GM, at CES 2021,unveiled its all-electric van EV600 and the Cadillac EV Celestiq. The automaker also announced plans to release 30 new EVs models through 2025 and invest USD27bn into the development of EVs and self-driving technology. The all-out push for EVs by US automakers should prompt German rivals (Volkswagen, BMW, Mercedes-Benz) to take on a more aggressive approach in expanding their self-driving EV businesses going forward.
EV battery earnings to swing to profit in 2021
For 2021, we project EV battery sales at KRW5.79tr, marking 48.9% YoY growth from KRW3.89trin 2020. Operating earnings should swing to a profit of KRW262bn in 2021 vs. losses in 2020. By 2024, we expect EV battery sales to reach KRW10.33tr and operating profit to grow to KRW771bn.
2021 company-wide OP forecast at KRW1.39tr (+78.1% YoY)
Operating profit from small-size batteries should grow 34.1% YoY to KRW474bn in 2021, backed by global economic recovery. Total operating profit from batteries (small-size, automotive and ESS) is forecast at KRW892bn for 2021, up 175.3% YoY from KRW324bn in 2020. Company-wide operating profit will likely climb 78.1% YoY to KRW1.39tr for the full year.
Retain BUY and raise target price by 20% to KRW900,000
We raise our target price for Samsung SDI by 20% to KRW900,000 from KRW750,000, with: 1) benefits expected from increasing global competition for leadership in EVs; 2) EV battery earnings likely to swing to profit this year; and 3) company-wide operating profit forecast at KRW1.39tr (+78.1% YoY) for full-year 2021. Our valuation of Samsung SDI's battery business is based on an EV/EBITDA of 27.7x, marking a55% discount to CATL’s 61.6x. Further upside may look limited as the company's share price has tripled over the past one year. However, we believe focus needs to be placed on benefits expected from structural changes in the auto industry, driven by the stronger-than-expected push into the EV market by US automakers.