[Click e-Stock] "Samsung SDI, Short-Term Earnings Slump Inevitable Until Mid-Year... Target Price Down"

On the 17th, KB Securities downgraded the target price of Samsung SDI from 800,000 KRW to 650,000 KRW, anticipating short-term earnings weakness until the first half of this year. The investment rating was maintained as 'Buy.'

Lee Chang-min, a researcher at KB Securities, explained, "Considering the slowdown in the electric vehicle market growth, we have lowered the compound annual growth rate (CAGR) forecast for Samsung SDI's medium-to-large electric vehicle (EV) battery sales over the next seven years from 17.5% to 15.4%. Additionally, the company's average operating profit margin estimate for the same period was revised down from 8.0% to 7.6%, resulting in a 19% reduction in the target price compared to the previous level."

Samsung SDI's fourth-quarter earnings last year are expected to fall short of consensus (the average forecast by securities firms). KB Securities estimated Samsung SDI's Q4 sales to be 5.79 trillion KRW, a 3% decrease year-on-year, and operating profit to be 381.5 billion KRW, down 22%. The researcher stated, "The performance of medium-to-large EV batteries, which was expected to hold up well against the market conditions, is likely to fall short of expectations. This is due to the sharp drop in lithium prices and changes in product mix, which are estimated to cause the average selling price (ASP) to decline by 10% compared to the previous quarter. The continued decline in lithium prices leads to lower cathode material prices, which in turn reduces battery prices, causing cautious demand and inventory policies among downstream customers." Furthermore, demand for small batteries for power tools is weakening due to sluggish U.S. housing market conditions, and Samsung SDI's position in the energy storage system (ESS) market is weakening amid increasing adoption of lithium iron phosphate (LFP) batteries.

Despite the earnings weakness, the valuation (stock price relative to earnings) is still considered cheap. The researcher said, "Samsung SDI's stock price has fallen 45% over the past six months due to concerns over weakening downstream demand and resulting earnings weakness. The price-to-earnings ratio (PER) and price-to-book ratio (PBR) stand at 14.2 times and 1.4 times respectively, both significantly lower than the industry average. Although short-term earnings weakness is inevitable until the first half of this year due to weak demand for electric vehicles and IT sets, we recommend a buying approach considering the valuation attractiveness."