Market Environment Expected to Improve

The author is an analyst of NH Investment & Securities. He can be reached at j.ko@nhqv.com. -- Ed.

 

Although Samsung SDI’s 1Q21 earnings are to show a q-q fall as expected, we view this drop as being temporary, noting the presence of off-seasonality. Believing that demand for its batteries from the industries that are showing high growth will continue to pick, we expect Samsung SDI to solidify its market position. We advise maintaining an overweight position on the stock.

Maintain upbeat view

We maintain a Buy rating and a TP of W970,000 on Samsung SDI, expecting improvements in the market environment that will conducive to the company’s battery business growth.

We anticipate that Samsung SDI’s mid/large sized EV battery earnings will expand going forward in line with the releases of new EV models. Major client BMW plans to launch 13 new EV models by 2023, including rolling out the i4 and iX this year. In addition, BMW has recently expressed its intention to strengthen cooperation with existing battery suppliers (rather than producing batteries itself), a development which suggests that the carmaker will maintain a high level of dependence on Samsung SDI.

The company’s earnings growth should be further spurred by a preference among some new EV makers for small-sized cylindrical batteries. For example, new EV market entrant Rivian is to use Samsung SDI’s cylindrical batteries. With Samsung SDI standing amongst the top three (production capacity basis) in the global cylindrical battery market, accompanying business opportunities should continue to climb.

Earnings are also primed to rise going forward at Samsung SDI’s mid/large sized ESS battery domain, driven by support for renewable energy—with many countries strengthening their renewable energy policies, it is clear that the direction of the renewable energy market is towards expansion. We point out that the firm has been at the top of the pantheon in terms of share of the global ESS battery market (shipments basis) for multiple years.

1Q21 preview: Earnings to show q-q drop, as expected

On a consolidated basis, we estimate 1Q21 sales of W 2.83tn (-13% q-q) and OP of W132.5bn (-46% q-q). With the firm’s battery and electric materials domains unable to shrug off the effects of off-seasonality, earnings are to arrive tepid, with battery business earnings in particular missing our previous projection due to ESS transportation disruptions.

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