Joint Ventures And New Battery Tech Will Define Future Of Energy Storage

Key Takeaways

• Joint ventures and ESS expansion in the U.S. market are driving long-term growth, impacting future revenue and profit margins positively.
  
• New battery technology and ESG initiatives are enhancing revenue potential and market valuation, while advancing semiconductor and OLED materials boosts net margins.
  
• Weak market demand and high debt levels challenge profitability, while unpredictable EV policy shifts and slow recovery in key markets threaten future growth.

Catalysts

Manufactures and sells batteries in South Korea, Europe, China, North America, Southeast Asia, and internationally.

• Samsung SDI is focusing on mid
• to long-term growth with strategic joint ventures, such as the finalized JV with GM for prismatic batteries, which is expected to bring significant orders and revenues starting from 2027. This will positively impact future revenue and earnings.
  
• Expansion of ESS (Energy Storage System) sales in the U.S. market is becoming a long-term demand trend, driven by increased electricity needs for AI industry growth and renewable power generation, improving both sales volumes and profit margins.
  
• The development and introduction of new battery technology, such as the 46-phi battery and large-sized LFP cells with the goal of mass production by 2026, are expected to tap into new markets, enhancing revenue streams and potential earnings.
  
• Samsung SDI is leveraging environmental, social, and governance (ESG) initiatives to gain a competitive edge, which can bolster their reputation and attractiveness to investors, potentially improving financial performance and market valuation.
  
• The Electronic Materials business is set for growth by securing future engines through new materials for semiconductors and OLEDs, which are expected to drive revenue growth as markets demand advanced materials, thereby improving revenue and net margins.

Samsung SDI Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Samsung SDI's revenue will grow by 12.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.7% today to 8.3% in 3 years time.
• Analysts expect earnings to reach ₩2300.4 billion (and earnings per share of ₩34197.28) by about December 2027, up from ₩1289.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩3401.1 billion in earnings, and the most bearish expecting ₩1330.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.4x on those 2027 earnings, up from 13.2x today. This future PE is lower than the current PE for the KR Electronic industry at 25.8x.
• Analysts expect the number of shares outstanding to grow by 0.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.12%, as per the Simply Wall St company report.

Samsung SDI Future Earnings Per Share Growth

Risks

• The significant decline in revenue and operating profit across key segments, such as a 31% Y-o-Y drop in battery business revenue and an 85% Y-o-Y decline in operating profit, indicates a challenge in maintaining financial performance; this affects overall earnings and profitability.
  
• Persistent sluggish market demand for small batteries and continued inventory destocking indicate weakening market conditions, potentially impacting future revenue and net margins.
  
• Uncertainty surrounding North American and European EV policies, particularly with the upcoming U.S. election, may result in unpredictable shifts in demand, impacting future sales and revenue growth.
  
• Although expanding in the ESS sector, slower recovery in key EV battery markets like Europe and the ongoing one-off profit base effect can adversely affect projected earnings and net margins.
  
• High debt-to-equity ratio, which rose to 80%, may pose a financial risk, affecting profitability and the ability to finance future growth or strategic initiatives, potentially influencing long-term net margins.

Valuation

• The analysts have a consensus price target of ₩434224.14 for Samsung SDI based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩600000.0, and the most bearish reporting a price target of just ₩217000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₩27601.5 billion, earnings will come to ₩2300.4 billion, and it would be trading on a PE ratio of 16.4x, assuming you use a discount rate of 9.1%.
• Given the current share price of ₩255000.0, the analyst's price target of ₩434224.14 is 41.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.