Cell Makers Outperforms Materials Makers
The author is an analyst of NH Investment & Securities. He can be reached at j.ko@nhqv.com. -- Ed.
In 4Q20, growth likely sustained for the rechargeable battery sector. However, uptrends were likely focused on specific areas of the value chain. Cell makers likely outperformed materials makers, with short-term slowdown at materials makers being attributed to higher metal prices and transportation costs. At this juncture, we advise focusing on representative players with high market dominance in the value chain.
4Q20 earnings growth at cell and materials makers likely diverged
We forecast combined 4Q20 sales of W7.8tn (+20% q-q) and OP of W291.9bn (+7% q-q) for the eight rechargeable battery players under our coverage. Cell and material makers’ earnings likely diverged, with cell makers standing out.
Combined sales and OP at cell makers are estimated at W7.3tn (+21% q-q) and W240.7bn (+8% q-q), respectively. In particular, strong earnings are expected at Samsung SDI and LG Energy Solutions. The main earnings driver for cell makers is a rising preference for Korean-made rechargeable batteries, led by European and US EV makers. In addition, local construction of production facilities near clients by cell makers likely boosted demand for Korean batteries as well. On the other hand, combined sales and OP at material makers are projected at W546.8bn (+6% q-q) and W52.8bn (+5% q-q), respectively. Despite the favorable demand environment, higher metal prices likely pushed up material makers’ cost burden in 4Q20. And, a shortage of transportation options likely led to freight rate expansion.
In the process of reviewing 4Q20 results, 2021F earnings will likely see adjustment by company. As the business environment (including price contract terms and production plant locations, etc) varies by firm, the pace and timing for earnings recovery should differ as well.
Focus on rechargeable battery players with leading competitiveness
We maintain a Positive rating for the rechargeable battery sector, presenting Samsung SDI, EcoPro BM, and Chunbo as our sector top picks. We believe these three cell/material makers are best positioned to benefit from industry growth thanks to their high exposure to leading global EV/rechargeable battery players. In addition, given their top-tier competitiveness, client loyalty should not be a problem, being secured via differentiated technological competency. Against this backdrop, we view our top picks as warranting further upward adjustments in earnings estimates as well as valuation re-rating.