Likely to Aggressively Ramp up Capacity
The author is an analyst of NH Investment & Securities. He can be reached at minwoo.ju@nhqv.com. -- Ed.
While Samsung SDI has been conservative in expanding its production capacity thus far, the firm is likely to aggressively ramp up capacity down the road on the securing of additional orders from main clients. Further orders from other clients are also expected.
Boasts solid client base, including Stellantis and Rivian
We suggest a Buy rating and TP of W1.3mn for Samsung SDI. While the firm has been conservative in expanding production capacity thus far, it is expected to aggressively ramp up capacity down the road on the securing of additional orders from main clients. Thus, we raise our earnings estimates for the company.
1) Stellantis and Rivian: SDI should secure production capacity of 30GWh in the US by 2025. After which, the firm is likely to establish production lines for its next-generation cylindrical batteries (46mm in diameter; height undecided).
2) BMW: Having already used SDI’s Gen 5 batteries, BMW is likely to place orders for the firm’s Gen 6 batteries. Gen 6 cells should come in both prismatic and cylindrical form factors. Though its move to meet EV demand came later than peers’, SDI should accelerate its efforts going forward.
3) VW: While VW’s MEB platform is mainly used to produce EVs featuring pouch cells, the focus of the firm’s next-generation MPE platform will shift to EVs running on prismatic cells. In this case, SDI is likely to become a vendor for the new platform. Also, there is a chance that the company will receive orders from VW for its next-generation cylindrical batteries.
4) HMC: SDI is unlikely to supply lithium-ion batteries to HMC in the near future. But, their participation in an all-solid-state battery development project should help bring the two companies closer together from 2027.
Growth driver to be EU until 2025 and then US
We expect SDI’s earnings growth to be driven by the EU market until 2025 and then the US market. We advise paying particular attention to the profitability of the company’s cylindrical batteries. Once its cylindrical batteries are used for EVs in earnest, starting with Rivian’s models, structural margin improvement is expected. We also predict that the cylindrical battery portion out of SDI’s OP will climb from 63% in 2021 to 86% in 2025, driving its earnings improvement. We project that the firm’s 2022 and 2023 OP will surpass consensus by 6% and 9%, respectively.