[Click eStock] SFA, Improved Earnings and Continued Orders

[Asia Economy Reporter Lee Seon-ae] BNK Investment & Securities announced on the 16th that it maintains a buy rating and a target price of 54,000 KRW for SFAC, based on the expectation that performance will improve from the 4th quarter and order growth will continue.

Minhee Lee, a researcher at BNK Investment & Securities, stated, "The high backlog of secondary battery orders will be reflected in full-scale performance starting from the 4th quarter, and delayed domestic OLED orders and SK On secondary battery orders are expected," adding, "The stock price will break away from the sluggish trend it has experienced so far."

SFAC's 3rd quarter sales amounted to 417.8 billion KRW, a 7% increase compared to the same period last year. Operating profit decreased by 7% from the same period last year to 46.4 billion KRW. Due to derivative transaction losses from foreign exchange hedging, pre-tax profit recorded 26.5 billion KRW, down 35% from the same period last year.

The researcher explained, "Although SFAC's 3rd quarter performance fell short of market estimates, it recorded figures higher than our expectations," and added, "This was thanks to the effect of the rising exchange rate, which led to a separate basis operating profit margin growth of 4.2 percentage points from the previous quarter to 13.2%."

Attention is also drawn to the continued strong secondary battery orders. Overseas orders in the 3rd quarter amounted to 183.1 billion KRW, and starting from the 4th quarter, the previously delayed orders for SK On's U.S. factory are expected to begin in earnest. Accordingly, SFAC's secondary battery order amount for this year is expected to reach 654.9 billion KRW, a 191% increase compared to the previous year. The company's total new orders are also expected to exceed the target of 1.1 trillion KRW, reaching 1.2 trillion KRW.

The researcher emphasized, "Since the period from order to revenue recognition for secondary batteries is about 12 months, the pace of performance improvement has been slow compared to the high backlog of orders, but full-scale revenue recognition is expected from the 4th quarter," and added, "Furthermore, delayed orders for Samsung Display's OLED fab are expected in the 4th quarter, which will contribute to profitability improvement in the first quarter of next year." Sales for the 4th quarter of this year are projected at 482.5 billion KRW, with operating profit at 51.1 billion KRW.