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Samsung SDI: EV Battery Momentum Still Solid


  • 1Q20 results beat consensus estimates.
  • Cylindrical batteries are becoming more widely adopted.
  • Tesla is aggressively beefing up its capacity.

Investment highlights

1Q20 results beat the prematurely lowered consensus estimates. EV battery earnings were stronger than anticipated. 2Q20 earnings are unlikely to increase much QoQ because of the coronavirus pandemic but earnings from EV batteries should remain on the rapid growth track throughout the year. Strengthening European environmental laws work to accelerate major OEMs' efforts to convert to EVs. Mass production of Gen 5 batteries is scheduled to begin next year. Samsung SDI (OTCPK:SSDIY) continues to excel its Chinese peers with the technological gap widening even further. We continue to view SDI in a positive light, and maintain BUY and our KRW380,000 target price.

sdiMajor issues and earnings outlook

SDI reported higher-than-expected results for 1Q20, with sales of KRW2.4tn (-15% QoQ, +4.1% YoY) and operating profit of KRW54bn (+168% QoQ, -55% YoY). Small battery earnings were weak due to anemic demand for cylindrical batteries, COVID-19 and unfavorable seasonality. We do not see earnings meaningfully recovering QoQ in 2Q20. Margins remain low compared with the past. Cylindrical batteries are becoming more widely adopted, and Tesla (TSLA) is aggressively beefing up its capacity. We expect to see cylindrical batteries increasingly used in EVs going forward. Panasonic (OTCPK:PCRFF) remains cautious, while there are no Chinese players capable of mass-producing cylindrical batteries. EV battery earnings were better than expected in 1Q20 thanks to: 1) 82% growth in EV sales during the quarter in Europe; 2) Prospect of quarterly sales breaching above KRW1tn in 2H20 after the coronavirus pandemic is contained, although 2Q20 sales will likely remain flat QoQ due to COVID-19; 3) Expectations that 2020 EV battery sales will surge 67% YoY with the business turning to profit in 3Q20.

Major OEMS, having invested heavily in EV conversion, are against the idea of relaxing environmental regulations. Through energy conversion, Europe plans to secure growth momentum and boost investments. ESS

This article was written by

HYUNDAI MOTOR SECURITIES Co., Ltd. is the investment banking arm of the Hyundai Motor Group. It is a Korea-based company specialized in the provision of securities and financial services. The Company mainly engages in the securities dealing and brokerage businesses, covering stocks, futures, options, government bonds, corporate bonds, foreign exchanges and financial derivative products. It also engages in the provision of investment consulting services, Internet banking services, corporate financing services, corporate analysis services, as well as operation of trust business.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Hyundai Motor Company is a passive shareholder in our bank.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

hi, can you tell me how did you get the revenue breakdown of Energy solution business. I couldnt find it in the annual report or earnings call.
This is an article about Samsung batteries. Why do we care if Tesla is ramping up batteries for its cars? Of course they are. No one mentions that Tesla’s largest battwry construction in Australia was with Samsung batteries, not their own
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

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