[Click eStock] Samki, Expected Re-rating as Secondary Battery Parts Supplier 'Coverage Initiated'

[Asia Economy Reporter Lee Seon-ae] On the 14th, Daishin Securities newly recommended a buy rating for Samgi, expecting its growth potential as a secondary battery parts company, and set a target price of 9,000 KRW for the first time. This is based on the 2022 expected earnings per share (EPS) of 653 KRW and a target price-to-earnings ratio (PER) of 14 times. Although the average PER for secondary battery parts companies is around 20 times, a 30% discount was applied considering Samgi's transition from its core automotive parts business to secondary battery parts.

Han Kyung-rae, a researcher at Daishin Securities, stated, "Samgi's eco-friendly vehicle parts sales are expected to grow at an average annual rate of 207% from 2018 to 2022. Following LG Group, it is scheduled to supply reducers to Hyundai Motor Group's electric vehicle models in 2022. Considering the positive impact of increased engine and transmission parts sales due to Hyundai Motor Group's global vehicle sales expansion," he added, "As the customer's large-scale secondary battery expansion continues, mid- to long-term stock price re-rating is expected."

Samgi is a manufacturer of vehicle die-casting products such as engine parts, transmissions, chassis, and electric vehicle parts. It owns 71 casting facilities ranging from 350t to 3500t. Having established an integrated production system capable of producing aluminum parts from scrap materials, it ensures stable supply. It has also built an automated production system, offering relatively fast product delivery with higher production efficiency compared to competitors. The expected sales composition by customer for 2021 is Hyundai Motor Group 59%, Volkswagen 16%, LG Group 19%, and others 5%.

High growth in electric vehicle parts sales continues. Samgi's main electric vehicle parts are motor housings and end plates. The end plate is a part that holds the battery module frame and protects the outer wall. Motor housings are supplied to LG Magna, and end plates to LG Energy Solution. Notably, the end plate is understood to be the main supply part to the customer. Sales of end plates are growing rapidly in line with LG Energy Solution's large-scale expansion. These parts are mainly supplied to the customer's European plants, where production capacity has increased more than fourfold from 15 GWh in 2018 to 70 GWh in 2021. Accordingly, the half-year sales of electric vehicle parts in 2021 reached 52.2 billion KRW, already surpassing the full-year sales of 45.9 billion KRW in 2020. With the customer's European plant production capacity expected to expand to 100 GWh in 2023, mid- to long-term high growth is assured.

From 2022 onwards, motor reducers will be supplied to Hyundai Motor Group's electric vehicle models. Hyundai is rapidly transitioning to electric vehicles. Considering that once applied to a model, supply continues according to the platform's usage period, mid- to long-term supply growth is expected in line with the expansion of electric vehicle sales.

Sales of 612.1 billion KRW (+68.8% YoY) and operating profit of 20.5 billion KRW (turning positive YoY) are expected for 2021. After the increase in Hyundai Motor Group's vehicle sales post-COVID-19 and securing multiple parts orders for the 3rd generation powertrain, significant sales growth is occurring this year.

For 2022, sales of 702.1 billion KRW (+14.7% YoY) and operating profit of 34.4 billion KRW (+68.2% YoY) are forecasted. With accelerated transition to eco-friendly vehicles by automakers and increased parts supply due to customers' secondary battery expansions, the proportion of eco-friendly vehicle parts sales is expected to expand to 28.6%.