Samsung SDI Earnings: Revenue In Line but Margin Missed Despite Resilient EV Battery Growth

Samsung SDI’s 006400 sales for the September quarter were in line with Refinitiv consensus but operating profit missed by about 7%. Strong sales in medium and large electric vehicle, or EV, batteries and recovery of the electronic materials segment lifted top-line growth by 11% year over year and offset sluggish cylindrical battery and energy storage battery sales. We lower our 2023-27 revenue estimates by 2%-8% due to a reduced outlook for energy storage and power tool battery demand. To factor in a prolonged margin weakness in small-size battery sales and semiconductor materials, we reduce our 2023-27 operating income forecast by 3%-11%. We reduce our fair value estimate to KRW 700,500 from KRW 802,000, which corresponds to 23 times P/E and 9 times EV/EBITDA on a 2024 basis.

We think SDI remains attractive at the current share price. Looking ahead, while demand for many applications, such as consumer electronics products, remains under pressure, we expect SDI to achieve incremental growth, driven by: 1) the robust EV battery demand and 2) recovery of the electronic materials segment, given customers’ normalizing inventory and new product launches.

We remain positive on SDI’s battery business outlook and margin expansion. The company is well-positioned to benefit from robust EV battery demand, driving 17% revenue CAGR in 2022-25, in our estimate. In fact, we estimate sales for large-size EV batteries expanded approximately 35%-40% year over year this quarter due to further penetration of high-density P5 batteries and ramp-up of the new production line at the Hungary plant. We forecast SDI’s sales from large EV batteries and cylindrical batteries for autos will grow 25% and 31% per year in 2022-25, respectively. We expect gradual margin expansion for EV batteries will continue as SDI ramps up the shipment of P5 batteries and forecast operating margin for mid- to large-size EV batteries to improve to 7.6% in 2023, up from 4.2% in 2022, due to improving product mix.