NH Investment upholds ‘buy’ rating for Samsung SDI and LGES

[Courtesy of Samsung SDI, LGES]

NH Investment & Securities on Wednesday maintained its investment opinion on South Korean EV battery maker Samsung SDI as ‘buy’, saying it expects the company to take away from its conservative expansion strategy next year, expecting its capital expenditures to surpass EBITDA for the first time since 2020.

The stock brokerage also upheld a ‘buy’ recommendation for another EV battery manufacturer LG Energy Solution, saying it expects next year’s earnings to be slower than expected, but attention should be paid to the stock price movement as external conditions change.

“Following the battery investment cycle that took off in earnest in 2020, Samsung SDI’s projected CAPEX for next year ($4.4 billion) is expected to surpass its anticipated EBITDA scale ($3.17 billion) for the first time,” analyst Joo Min-woo highlighted in a report.

“As a result, the company’s conservative expansion strategy is likely to be broken and the anticipation of new orders from BMW, Hyundai Motor, and others next year could relieve the thirst for expansion.”

He forecasted Samsung SDI’s operating profit for 2024 to reach 2.2 trillion won, up 26 percent from this year, which is slightly below market consensus. Joo also expected the company’s sales volume to grow by 24 percent next year. However, the battery segment’s sales growth is estimated to be only 7 percent, attributable to a potential drop of 10 percent in the average selling price adjusted for metal prices.

Joo left unchanged his target price of 600,000 won and a buy rating for Samsung SDI.

In a separate report published, NH Investment & Securities said that LG Energy Solution might find its performance falling short of market expectations in 2024, with the stock price becoming highly volatile due to external factors. In his forecast, Joo estimated LG Energy Solution’s operating profit for the upcoming year to be 3.7 trillion won, surging 70 percent from this year’s but still falling short of the market forecast of 4.1 trillion won.

“In 2024, the shares of LG Energy Solution are anticipated to demonstrate heightened sensitivity to various triggers, including fluctuations in interest rates, a re-surge of lithium prices, a revision in the guidance on original equipment manufacturing (OEM) for plug-in vehicles, and favorable policy developments,” the analyst said, who advised taking a proactive stance in response to these factors.

NH Investment & Securities has upheld its price target of 530,000 won per share and maintains a buy rating for LG Energy Solution.