Fading Expectations for Secondary Battery Stocks... Target Prices Revised Downward

Q4 Earnings Shock Expected
Samsung SDI·POSCO Holdings
Target Price Below 600,000 KRW

After a soaring run last year, the outlook for secondary battery stocks is becoming more cautious as the adjustment period lengthens. Securities firms have been lowering their target prices for secondary battery-related stocks one after another this year. This is because most companies are expected to report earnings shocks in the fourth quarter of last year due to price declines and weakening front-end demand.

According to financial information providers on the 18th, KB Securities and Ebest Investment & Securities lowered their target prices for Samsung SDI the previous day. KB Securities cut the target price from 800,000 won to 650,000 won, while Ebest Investment & Securities lowered it from 680,000 won to 590,000 won. Lee Chang-min, a researcher at KB Securities, explained, "Considering the slowing growth trend in the electric vehicle market, we revised down Samsung SDI's compound annual growth rate (CAGR) forecast for medium- and large-sized electric vehicle (EV) battery sales over the next seven years from 17.5% to 15.4%. At the same time, the company's average operating profit margin estimate for the same period was lowered from 8.0% to 7.6%, resulting in a 19% reduction in the target price compared to the previous estimate." Lee Ju-young, a researcher at Ebest Investment & Securities, said, "The downward revision of the target price reflects the lowered earnings estimates due to the decline in average selling price (ASP) and the slowdown in the global EV market growth."

Due to the downward revision of the target price amid poor earnings prospects, Samsung SDI fell to 379,000 won on the 17th, marking a 52-week low. Since the beginning of this year, Samsung SDI's stock price has continuously declined without a single day of gains.

Not only Samsung SDI but also other secondary battery-related stocks have seen their target prices lowered. On the 16th, Hi Investment & Securities lowered the target price for POSCO Holdings from 620,000 won to 590,000 won, citing an expansion of short-term uncertainties. Earlier, SK Securities also revised its target price down from 650,000 won to 600,000 won. LG Chem's fourth-quarter earnings last year were also expected to fall short of expectations, leading securities firms to lower their target prices one after another. L&F also saw its target price cut due to poor fourth-quarter earnings and uncertainty over this year's performance.

The main reasons for the downward revision of target prices for secondary battery stocks are poor earnings due to declining front-end demand and price drops. Lee Anna, a researcher at Yuanta Securities, said, "The domestic secondary battery sector is expected to report weak fourth-quarter earnings due to decreased electric vehicle battery sales volume, ASP declines, and one-time costs," adding, "Most companies are expected to fall significantly short of consensus (average securities firm forecasts)."

In December last year, domestic exports of cathode materials decreased by 13.9% in value and 10.9% in volume compared to the previous month. Cathode material export volume fell for four consecutive months, hitting the lowest level since November 2021. The export price of cathode materials dropped by 3.4%. Lee Yong-wook, a researcher at Hanwha Investment & Securities, explained, "The price of cathode materials was $34.1 per kilogram based on provisional data from January 1 to 10, down 7% from the previous month, and is expected to fall an additional 10-15% in the first quarter of this year. Due to inventory valuation losses caused by product price declines, cathode material companies are estimated to have recorded significant losses in the fourth quarter of last year." He added, "Cathode material prices are expected to decline further in the first quarter, making additional inventory valuation losses unavoidable through the first quarter."

As expectations lower, there are opinions that short-term trading remains valid. Researcher Lee Anna said, "With sector expectations already lowered, favorable external conditions such as a full ban on short selling until June this year and expectations of interest rate cuts will create buying opportunities when stock prices adjust after the fourth-quarter earnings announcements," adding, "However, due to high sector uncertainty, it is advisable to approach with short-term trading."