Focus on Cylindrical Battery Business
The author is an analyst of KB Securities. He can be reached at cm.lee@kbfg.com. -- Ed.
Maintain BUY and TP of KRW950,000
We maintain BUY and TP of KRW950,000 for Samsung SDI. Our TP is 6.1% below consensus. Derived using the DCF model, our TP assumes 10.21% WACC (12.03% COE, 1.22% after-tax COD, 1.50 52w adj. beta) and offers 25.8% upside (vs. Nov 5 close).
EV and cylindrical batteries to lead 2022E earnings improvements
For 2022, we forecast revenue at KRW16.02tn (+17% YoY) and OP at KRW1.54tn (+26% YoY; 9.6% OPM). As vaccination rates increase and COVID-19 treatment options expand, polarizer film sales should decrease YoY. Company-wide revenue, however, should see a substantial increase next year, thanks to: (1) a surge in EV battery sales (29% YoY) on expanded capacity (40GWh at end-2021 → 52GWh at end-2022) and a growing proportion of high value-added Gen 5 batteries; as well as (2) continued strength in cylindrical battery demand from EV manufacturers (e.g., Rivian, Lucid Motors) and micromobility companies (electric kickboards, e-bikes).
Focus on cylindrical battery business; Upside catalysts include expansion of customer base, Rivian listing
We recommend focusing on Samsung SDI’s cylindrical battery business. While cylindrical batteries have been used mostly in small IT devices, demand in recent times has become more diversified to include non-IT (e.g., power tools, micromobility) as well as EV applications, which have been growing at a rapid clip. Global EV makers Rivian and Lucid Motors in addition to Tesla have adopted cylindrical batteries, as they are compact in size compared to rectangular/pouch-type batteries, making them easier to stack, and more competitively priced than other battery form factors due to the standardized size. We expect shares in Samsung SDI to benefit as: (1) aside from U.S. startups, major auto OEM companies (e.g., BMW, Hyundai Motor Company) are also expected to adopt cylindrical batteries for their EVs going forward; and (2) Rivian, which uses Samsung SDI’s cylindrical batteries, is scheduled to list on Nov 10 (based on U.S. local time).