[Into the Stocks] Samsung SDI, Which Had Hesitated, "The Time of Harvest Comes"

Electric Vehicle Market Growing Faster Than Expected... Increased Optimism for US Expansion
Battery Segment Expected to Surpass Materials Segment in Operating Profit for the First Time
"Significant Milestone Expected to Be Passed"

Samsung SDI Giheung Headquarters

[Asia Economy Reporter Minwoo Lee] Samsung SDI is expected to achieve solid results in the second quarter of this year as anticipated. The quality of the strong performance is also highly regarded, with improvements across all business divisions and a turnaround to profitability in the medium-to-large battery segment. Due to the growth of the electric vehicle market, it is predicted that stable profitability will be maintained in the second half of the year, which is the seasonal peak period.

2Q Performance OK... All Divisions Growing Strongly

According to financial information provider FnGuide on the 16th, Samsung SDI's consolidated market consensus for the second quarter of this year is sales of KRW 3.3596 trillion and operating profit of KRW 251.1 billion. Compared to the same period last year, sales increased by 31.31% and operating profit by 11.87%. It is analyzed that profitability improved as shipments increased in both the battery and electronic materials divisions.

In particular, sales of batteries for electric vehicles (EV) and energy storage systems (ESS) are estimated to have increased by approximately 12% and 47% respectively compared to the previous quarter, both turning profitable. Profitability in electronic materials and small batteries is also expected to normalize. Sungryul Kwon, a researcher at DB Financial Investment, explained, "Medium-to-large batteries have entered a significant phase of achieving profitability for the first time due to sales growth in EV batteries, product portfolio improvements, and an increased proportion of packs. Small batteries have seen improvements mainly in cylindrical batteries, and electronic materials are estimated to have exceeded expectations in demand for large-inch polarizing plates."

Continuous Improvement... "The Second Half Looks Even Brighter"

On April 19th, the Volkswagen exhibition hall at the 19th Shanghai Motor Show, which opened at the National Exhibition and Convention Center (NECC) in Shanghai, China.
Volkswagen prominently showcased its electric vehicle-exclusive 'ID.' series. [Image source=Yonhap News]

Positive factors remain for the second half of this year. These include the ongoing review of a new EV battery plant construction in the United States and the possibility of securing new EV battery orders. The US is scheduled to implement the new United States-Mexico-Canada Agreement (USMCA) starting July 2025. Accordingly, finished vehicle manufacturers must secure at least 75% domestic production (regional production) to qualify for tariff exemptions. Therefore, automakers are expected to accelerate efforts to source EV batteries, which account for about 40% of production costs, domestically in the US. This could serve as a catalyst for Samsung SDI’s expansion of its US plant.

Volkswagen plans to conduct bidding for new EV battery orders for platforms such as MPE and SSP, which are scheduled for mass production from 2023 to 2024, in the second half of this year. Volkswagen has already announced at its 'Power Day' event that it will standardize in-house batteries to prismatic cells and expand their application to 80% of all vehicles starting in 2023. This increases the likelihood of new orders for Samsung SDI, which produces prismatic batteries. Wonseok Jung, a researcher at Hi Investment & Securities, said, "Considering that Volkswagen may find it difficult to internalize a large volume immediately, Samsung SDI is expected to secure battery supply volumes for Europe or North America. Attention should be paid to whether there will be changes in new expansion plans alongside the increase in new orders."

The difficulty for competitors such as CATL and other Chinese companies to expand in the US is also a positive factor. According to major foreign media, although CATL and Apple are in the early stages of discussing secondary battery supply, CATL is reportedly reluctant to build a plant in the US. Dongjin Kang, a researcher at Hyundai Motor Securities, explained, "Even if the Apple Car is launched in the future, domestic companies will supply secondary batteries for electric vehicles destined for the US. This means the US market is an opportunity for domestic companies, and Samsung SDI will expand its global market share based on its expansion."

Passing a Meaningful Milestone

Amid these expectations, foreign investors’ sentiment is also returning. According to the Korea Exchange, foreign investors have net purchased KRW 182 billion worth of Samsung SDI shares this month up to the previous day, ranking first among all foreign net purchases. On May 31, when Morgan Stanley in the US lowered Samsung SDI’s target price to KRW 550,000 and recommended reducing exposure due to expected intensified competition among EV secondary battery manufacturers, the stock price fell about 3.9% in one day. However, buying momentum has returned recently, and as of 2:42 PM on the day, the stock price stood at KRW 748,000.

Given the undeniable steep growth potential of the electric vehicle market, Samsung SDI is still considered to have significant mid- to long-term stock price appreciation potential. In particular, it is analyzed that a favorable environment will be created with ▲ new orders from automakers ▲ easing of vehicle semiconductor supply shortages ▲ new facility investments and expansions by battery cell manufacturers ▲ gradual performance improvements by battery cell and material companies.

DB Financial Investment forecasts that Samsung SDI’s operating profit will increase by 66% year-on-year to KRW 1.011 trillion this year. Researcher Kwon said, "With EV secondary batteries turning profitable in the second quarter, this year will see the largest increase in sales and operating profit. It will be the first year when operating profit from energy sectors such as small and medium-to-large batteries surpasses that of electronic materials."