Nothing Left to Worsen... Samsung SDI Expected to Narrow Losses [Click e-Stock]

Smaller-than-Expected Deficit in Q4 Last Year
ESS Growth Helps Defend Results... Rebound Expected from Second Half

There are forecasts that Samsung SDI has hit the bottom in terms of performance and will rebound. While shipments of automotive batteries were minimal, compensation from automakers and energy storage systems (ESS) helped the company defend its fourth-quarter results last year. From the second half of this year, battery demand is expected to recover, leading to improved performance.

On February 3, Hanwha Investment & Securities raised its target price for Samsung SDI by 22.9% to 4.3 million won, maintaining its 'buy' recommendation. The previous day's closing price was 3.56 million won.

In the fourth quarter of last year, Samsung SDI recorded sales of 3.8587 trillion won and an operating loss of 299.2 billion won. Compared to the same period the previous year, sales increased by 2.8%, while the size of the deficit grew by 16.3%. Nevertheless, the results exceeded all market expectations (consensus).

Although the increase in automotive battery shipments was minimal, the amount of compensation from automakers was significant. However, since this was a one-time provision, the extent of profit improvement was limited, and the small battery segment continued to post double-digit losses due to weak demand. On the other hand, the ESS division achieved record-high sales thanks to the operation of a joint venture with Stellantis, and profits from the U.S. Advanced Manufacturing Production Credit (AMPC) rebounded. The electronic materials division was also evaluated as maintaining solid profitability, mainly due to semiconductor materials.

For the first quarter of this year, the company is expected to post sales of 3.516 trillion won and an operating loss of 289.6 billion won (or a loss of 386.7 billion won excluding AMPC). In the automotive battery segment, sales are expected to decline and losses to widen due to the base effect from the previous quarter's compensation. In contrast, the ESS division is projected to see similar shipment volumes, but profitability is expected to improve as one-off costs disappear. The electronic materials division is forecast to see sales decline by more than 10% as it enters the off-season.

This year, the company is anticipating a rebound in the second half, driven by ESS growth. ESS shipments are expected to increase by about 24% year-on-year. The sharp 70-80% surge in U.S. ESS demand compared to the same period last year is cited as the main driver of overall growth. In Europe, BMW and Audi will continue to launch low-cost electric vehicles equipped with Chinese batteries, but there are still expectations that Samsung SDI will enter the low-cost EV segment for Hyundai Motor and Kia. Notably, in the fourth quarter, mass production of the U.S. LFP line is set to begin, which is expected to maximize the AMPC effect and could enable the company to return to quarterly profitability.

Lee Yongwook, a researcher at Hanwha Investment & Securities, explained, "Despite uncertainties in the European market, there are expectations for entry into mid- to low-priced models for Hyundai Motor and Kia, and the ESS division is seeing a sharp increase in orders, while a rebound in cylindrical batteries has also been confirmed. By reducing the scale of capital expenditures, the company is securing financial soundness, so there is nothing left to worsen."