Earnings Uptrend to Continue

The author is an analyst of KB Securities. He can be reached at cm.lee@kbfg.com. -- Ed.   

 

Maintain BUY and target price of KRW950,000   

We maintain BUY and our TP of KRW950,000 on Samsung SDI. We derived our TP, which is above the market consensus by 3%, using the DCF model, assuming 8.62% WACC (9.90% COE; 1.22% pre-tax COD; 1.25 52w adj. beta). It offers 36.1% upside potential (vs. Jun 30 close).   

2Q21 preview: Significant QoQ growth; EV battery business to turn profitable     

We forecast 2Q21 revenue at KRW3.4tn (+33% YoY, +15% QoQ) and OP at KRW230.0bn (+122% YoY, +73% QoQ; 6.7% OPM). The impressive earnings growth should be fueled by:

(1) EV battery operating income turning positive on growing downstream demand;

(2) earnings momentum from cylindrical batteries, which should benefit from product mix improvement, price hikes and growing demand;

(3) a 57% QoQ jump in ESS battery revenue fueled by rising shipments to North American clients; and 

(4) Electronic Materials posting better earnings for all mainstay products (e.g., polarizer film, semiconductor material, OLED material). 

Earnings uptrend to continue; operating environment positive for all business segments

Earnings should continue to grow in 2H21. We forecast 2021 revenue at KRW13.9tn (+23% YoY) and OP at KRW980.0bn (+46% YoY; 7.1% OPM); 2H21 should account for 54% of 2021 revenue and 63% of 2021 OP. We expect sales of cylindrical batteries, electronic materials and ESS batteries to remain brisk in 2H21, with particularly strong earnings growth for EV batteries. Profit margins should also improve, as: (1) European EV battery demand is likely to grow because of emission regulations and automakers’ expanding EV lineups and (2) production of fifth-generation batteries (nickel content at 88%) should commence. Also, Samsung SDI plans to begin shipping cylindrical EV batteries to Rivian and begin building a new EV factory in the U.S. in 2H21. These factors should act as stock catalysts. 

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