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2025 OP to soar 70% YoY

Maintain Buy and TP of W660,000; solid earnings relative to peers

We maintain our Buy rating on Samsung SDI with a target price of W660,000. We expect the company to report stronger 2Q24 earnings than peers. Furthermore, from next year, the advanced manufacturing production credit (AMPC) should contribute full swing to earnings as North America lines begin full operation. While 2024 operating profit should be largely flat YoY amid an overall market slowdown, we forecast 2025 operating profit to surge 70% YoY to W2.8tr. We also highlight the stock’s attractive valuation (2025F P/E of 10x and EV/EBITDA of 7x). We maintain Samsung SDI as our top pick in the sector.

1Q24 review and outlook

For 1Q24, Samsung SDI reported revenue of W5.1tr (-8% QoQ) and operating profit of W267.4bn (-14% QoQ). Despite a weaker-than-expected performance from the core business, operating profit slightly exceeded our estimate (W253bn) thanks to AMPC recognition (US$10/kWh; credits for 1Q23-1Q24 shipments US battery pack subsidiary SDIABS estimated to have been recognized retroactively).

For 2Q24, we forecast Samsung SDI to report revenue of W5.2tr (+1% QoQ) and operating profit of W439.4bn (+64% QoQ). We revised up our operating profit forecast by 25% (from W352bn), as we see profitability improving gradually across all businesses and expect the small battery business to see a one-off profit of roughly W90bn (customers’ compensation for failure to meet the minimum purchase commitment).

Like the overall sector, we expect the firm to deliver stronger earnings in 2H24 than in 1H24. In addition, with a new North American facility set to come online in 2025, we forecast 2025 operating profit to climb 70% YoY to W2.8tr (including AMPC recognition of W619bn).

Valuation gap to eventually narrow

We expect the valuation gap between Samsung SDI and global rivals to eventually close, in light of the firm’s: 1) expansion into mass model-focused customers (e.g., GM, Stellantis, Hyundai Motor Group); 2) AMPC recognition following the operation of the new North American line (2025); and 3) diversification into 46xx cylindrical (GM) and solid-state batteries. We also believe that the firm has solid funding capabilities thanks to its dividends from Samsung Display and relatively low debt ratio (around 70%). We continue to recommend Samsung SDI as our top pick in the sector.