Bullish Operating Conditions for All Divisions
The author is an analyst of KB Securities. He can be reached at cm.lee@kbfg.com. -- Ed.
Maintain BUY and TP at KRW950,000
We maintain BUY and our TP of KRW950,000 for Samsung SDI. Our TP (5% above consensus), derived using the DCF valuation method, is based on WACC of 8.62% (COE 9.90%, after-tax COD 1.22%, 52w adj. beta 1.25) and offers upside of 38.7% (vs. Apr 27 closing price).
1Q21 earnings miss consensus on off-peak sales and delayed exports on surging trade volume
Samsung SDI reported 1Q21 revenue of KRW2.96tn (+24% YoY) and OP of KRW133.2bn (+147% YoY, 4.5% OPM). Despite substantial YoY improvements, results fell slightly short of consensus. Earnings were bolstered by a higher ASP for cylindrical batteries due to supply shortages, as well as robust results for polarizing films catalyzed by solid demand for LCD products. Earnings missed consensus, however, due to: (1) lower EV battery and OLED material sales during the off-peak season; (2) deferral of a substantial proportion of ESS battery export volume due to a surge in U.S.-bound maritime cargo traffic; and (3) weaker pouch battery results on softer demand from overseas clients.
Earnings to improve towards 2H21; Bullish operating conditions for all divisions
We anticipate quarterly earnings will begin improving towards 2H21. Specifically, 2Q21 revenue and OP should amount to KRW3.4tn (+33% YoY) and KRW230bn (+122% YoY, OPM 6.7%), respectively, and 2H21 OP should surge 70% HoH to KRW617bn (vs. KRW363bn in 1H21), given the following:
(1) Cylindrical battery earnings should continue to grow on product mix improvements and higher selling prices backed by firming demand.
(2) Electronic materials (OLED and semiconductor materials, polarizing films) earnings should improve.
(3) EV battery demand should ramp up in Europe given more stringent regulations on emission gases and the expansion of EV lineups. Of note, the company’s EV battery division should become profitable for the first time this year and serve as the key driver of improvements in company-wide earnings going forward (i.e., OP contribution to grow from -15% in 2020 to 50% in 2025).