[Click eStock] "Samsung SDI, Highest Operating Profit Margin in Battery Industry"…Target Price 1.2 Million Won

NH Investment & Securities Raises Target Price to 1.2 Million Won

[Asia Economy Reporter Ji Yeon-jin] Samsung SDI is expected to see a significant improvement in its performance in the second quarter of this year due to the increase in electric vehicle sales and price hikes.

NH Investment & Securities stated in a report published on the 27th that it maintains a buy rating by reflecting the confirmed plan for the European plant and increased productivity, and raised the target price by 20% to 1.2 million KRW.

Samsung SDI's production capacity is expected to expand from 85GWh in 2022 (cylindrical 30GWh + medium and large prismatic 55GWh) to 141GWh in 2024 (cylindrical 51GWh + medium and large prismatic 90GWh). Accordingly, considering the current market capitalization of 37.8 trillion KRW, non-operating value (5.3 trillion KRW), net debt (3.2 trillion KRW), and electronic materials (5.3 trillion KRW), the value of secondary batteries is estimated to reflect 30.4 trillion KRW.

The enterprise value to EBITDA (EV/EBITDA) ratio of the secondary battery sector is 7.4 times in 2023 and 5.8 times in 2024, which is excessively undervalued compared to domestic competitors at 19 times and 15 times, respectively.

Sales in the second quarter of this year are expected to reach 5 trillion KRW, a 49% increase year-on-year, and operating profit is expected to grow 40% to 413.2 billion KRW, exceeding market expectations by 7% and 5%, respectively. Joo Min-woo, a researcher at NH Investment & Securities, said, "Rivian's production volume more than doubled from 2,533 units in the first quarter, and the price increase of over 10% for cylindrical batteries is expected to boost small battery sales by 59% year-on-year to 1.7 trillion KRW." He added, "With the full-scale increase in BMW Gen5 shipments, medium and large battery sales are also expected to rise 52% year-on-year to 2.4 trillion KRW." He explained, "In terms of profitability, although there is a cost burden due to rising metal and energy prices, price pass-through linked to metal prices is possible, and profitability can be defended with the increasing proportion of Gen4 and Gen5."

Kim Ji-san, a researcher at Kiwoom Securities, also said on the same day, "Samsung SDI is expected to achieve the highest operating profit margin in the battery industry in the second quarter due to the expansion of the high-value-added Gen 5 battery proportion, market dominance of high-output products based on advanced cylindrical battery technology, line optimization by production bases, and high utilization rates."

The operating profit margins of global battery companies in the second quarter are expected to be 6.5% for Samsung SDI, 6.0% for CATL, and 4.2% for LG Energy Solution. Researcher Kim added, "Competitors inevitably face production disruptions for Tesla and European OEMs due to the Shanghai lockdown in China in the second quarter," and "the sales proportion of Gen 5 in automotive batteries is expected to rise to 20% in the second quarter and 25% in the second half of the year."