The author is an analyst of NH Investment & Securities. He can be reached at firstname.lastname@example.org. — Ed.
Despite continued setbacks in finished car production in 1H22, sound EV battery earnings are expected thanks to Gen 5 effects.
Lower TP to W1,000,000
We maintain a Buy rating on Samsung SDI, but lower our TP by 23% from W1,300,000 to W1,000,000. While we cut our OP forecasts for 2023 and 2024 (the base years for our TP calculation) by less than 5%, we slash our target multiples due to falling share prices at peers. We note CATL (a competitor to the rechargeable battery business) has seen its P/E drop from 32x to 22x, while Duksan Neolux (a competitor to the electric material business) has seen its P/E decline from 15x to 10x. We calculate Samsung SDI’s operating value at W67tn (rechargeable batteries W61tn + electronic materials W6.6tn), non-operating value at W5.1tn, and net borrowings at W3.8tn.
Along with its 4Q21 results, the firm also disclosed its 2022~2024 shareholders’ return policy. Going forward, the company plans to pay out dividends based on ‘common stock DPS of W1,000 + 5~10% of annual FCF’. Assuming it pays out 7.5% of FCF, we forecast DPSs of W1,050 in 2022, W1,150 in 2023, and W1,760 in 2024.
Sustaining in 1H22 thanks to Gen 5 effects
Samsung SDI posted 4Q21 sales of W3.8tn (+17% y-y, +11% q-q), missing consensus by 6%. OP came in at W265.7bn (+8% y-y, -29% q-q), falling 35% wide of the market projection. Profitability at firm’s EV battery business was sapped by production disruptions for finished vehicles. The company booked one-time special incentives of around W80bn.
Looking at 1Q22, we see OP of W295.8bn, about 6% light of consensus (W315bn). With supply-demand disruptions for automotive semiconductors likely to continue through 1H22, earnings at the EV battery business are to be somewhat affected. Unlike existing projects, sales for new models using Gen 5 technology should continue to expand. From 2H22, Gen 5 supply to Audi will be added, with volume anticipated to increase in earnest. It is estimated that Gen 5 will account for 20% of automobile battery sales in 2022. Given Gen 5 effects, Samsung SDI’s EV battery earnings should stand out most among the three domestic battery makers in 1H22.