Demand for Prismatic/cylindrical Batteries Increases
The author is an analyst of KB Securities. He can be reached at cm.lee@kbfg.com. -- Ed.
Maintain BUY and TP of KRW830,000
We maintain BUY and TP of KRW830,000 for Samsung SDI. Derived using the DCF model and assuming 8.97% WACC (9.77% COE, 2.84% after-tax COD, 1.13 104w adj. beta), our TP implies 12m fwd P/E of 32.2x, P/B of 3.32x, and EV/EBITDA of 12.1x, and offers potential upside of 45.9% (vs. Jul 29 close).
Earnings in line with consensus thanks to strong small and EV battery sales
Samsung SDI posted 2Q22 revenue of KRW4.74tn (+42% YoY) and OP of KRW429.0bn (+45% YoY; 9.0% OPM), in line with consensus.
(1) EV battery: Sales grew 30% QoQ on increased shipment (est. +20% QoQ) and favorable FX rates. Strong shipment for Gen 5 batteries (20% in 2Q22 vs. 15% in 1Q22) contributed to volume growth.
(2) ESS battery: Sales grew 30% QoQ on greater sales for power projects in the Americas. Increased sales proportion of also high value-added products for homes/UPS bolstered margins.
(3) Small battery: Although sales for pouch-type batteries were hurt by contracting IT demand, strong sales for EV applications fueled double-digit sales growth (QoQ basis).
(4) Electronic materials: Contributions from OLED/semiconductor materials were solid, but sales retreated 8% QoQ as polarizer film shipment was undermined by slowing downstream (LCD TV) demand. OPM hit a historical high of 27.5% thanks to one-off gains.
Earnings uptrend to continue in 3Q22
We forecast 3Q22 revenue at KRW5.28tn (+54% YoY) and OP at KRW475.4bn (+27% YoY; 9.0% OPM). Electronics materials should contract QoQ given weak LCD TV demand, but increased demand for prismatic/cylindrical-type batteries for EV applications should bolster overall earnings. High value-added Gen 5 batteries, which have continued to see strong sales, should see its portion of prismatic-type batteries expand to 25% in 2H22 as shipments to new customers begin.