Advancements In Battery Technology And US Stellantis Venture Will Strengthen Future Prospects

Key Takeaways

• Strategic partnerships and new product offerings in EV and battery sectors are projected to boost revenue and technological edge.
  
• Optimized investment plans and expanded production efficiencies are expected to improve margins and long-term earnings.
  
• Challenges in revenue, declining profits, high liabilities, and external pressures signal significant risks to Samsung SDI's financial performance and strategic flexibility.

Catalysts

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

• Samsung SDI has successfully initiated early operations at the Stellantis joint venture in the U.S., resulting in high yield and laying the foundation for expanding their EV business, which is expected to boost future revenue.
  
• The expansion of strategic partnerships and securing orders for premium prismatic batteries from major OEMs in Europe and Asia are anticipated to increase sales in the automotive battery sector, enhancing future revenue growth.
  
• Advancements such as the development of next-generation premium prismatic batteries and the commercialization of differentiated LFP batteries are expected to heighten the company's technological edge, potentially leading to higher net margins due to improved product offerings.
  
• The expected steady growth in the ESS market, driven by increased demand from AI data centers in the U.S., alongside enhanced efficiency and expanded production capacity, is positioned to uplift revenue and improve earnings.
  
• Revisiting and optimizing investment plans, including using existing lines for production, are set to improve investment efficiency and lower costs, likely contributing to better net margins and earnings over the long term.

Samsung SDI Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Samsung SDI's revenue will grow by 13.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.3% today to 8.3% in 3 years time.
• Analysts expect earnings to reach ₩2000.4 billion (and earnings per share of ₩33217.35) by about March 2028, up from ₩544.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩2867.0 billion in earnings, and the most bearish expecting ₩1005.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, down from 23.6x today. This future PE is lower than the current PE for the KR Electronic industry at 15.9x.
• Analysts expect the number of shares outstanding to grow by 2.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.92%, as per the Simply Wall St company report.

Samsung SDI Future Earnings Per Share Growth

Risks

• The discontinuation of the polarizer film business has led to negative effects on revenue and operating profit, indicating challenges in managing product diversification and potentially affecting future revenues.
  
• Despite some growth areas, the overall annual revenue decline of 23% Y-o-Y and a 77% drop in operating profit signal underlying issues in demand across key business units, impacting net margins and earnings.
  
• The negative impact of high interest rates and reduction of EV subsidies has led to decreased demand for EV batteries, suggesting potential vulnerability to macroeconomic conditions and policy changes, which could affect future earnings.
  
• The company's substantial increase in liabilities due to increased debt might place a strain on financial flexibility, affecting net margins and the ability to fund operations or growth initiatives effectively.
  
• With ongoing policy uncertainty in the U.S. affecting the EV market and weak demand persisting in other areas like power tools and micromobility, there is concern about continued pressure on revenues and profitability.

Valuation

• The analysts have a consensus price target of ₩294525.0 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 ₩480000.0, and the most bearish reporting a price target of just ₩127000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩24028.0 billion, earnings will come to ₩2000.4 billion, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 8.9%.
• Given the current share price of ₩191900.0, the analyst price target of ₩294525.0 is 34.8% 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.