Samsung SDI (006400 KS) BUY (I) / TP: W165,000 (I)file.myasset.com/sitemanager/upload/2012/0410/18242038/110410_… · Samsung SDI (006400 KS) 6 TONGYANG Securities Inc. Chart 1

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KOREA Tech/tech parts

Samsung SDI (006400 KS)

BUY (I) / TP: W165,000 (I)

Share price (won, Apr 6) 139,000

Paid-in capital (Wbn) 241

Market cap (Wbn) 6,333

BPS (won) 116,882

Net debt to equity (%) 6.7

Shares outstanding 47,176,237

Avg daily T/O (2M, Wbn) 64

Avg daily vol (2M, shrs) 454,094

52-week high (won) 201,000

52-week low (won) 100,000

Foreign ownership (%) 16.80

Major shareholders (%)

Samsung Electronics and others 20.6

Stock performance (%)

1M 3M 12M

Absolute 0.4 3.4 (18.7)

Relative (1.1) (6.1) (14.8)

Abs (US$) (0.2) 6.1 (22.7)

0

50,000

100,000

150,000

200,000

250,000

Apr 2010 Apr 2011 Apr 2012

0

20

40

60

80

100

120

140

SAMSUNG SDI CO.,LTD.(LHS)

Rel. to KOSPI(RHS)

(won) (%)

Source: Datastream

Apr 10, 2012

www.tys.co.kr/english TONGYANG Research

Company Report

Earnings momentum, long-term potential strong Earnings to keep improving thru 2013 on rising battery demand

IT demand is recovering amid rising demand for mobile devices, and we expect the battery market to surge accordingly. In particular, demand for high-capacity lithium polymer batteries, in which SDI has a competitive edge, is growing rapidly. We believe structural earnings recovery already started in 1Q.

Offers total energy solutions

With its solar cell and ESS businesses, SDI can offer total solutions in the set-up of renewable energy systems, putting it in a favorable position in terms of productivity and winning more clients. SDI’s long-term outlook as an energy play is very bright.

Financials sound

SDI had a net cash position of W25.3bn at end-2011. For now, there are no large capex plans and strong battery sales are expected to boost cash inflows. Ample liquidity should allow SDI to invest whenever it needs, helping it to develop outstanding technologies.

Initiate at BUY with target price of W165,000

Battery demand is robust on growth of smartphones, tablets, and ultrabooks.

SDI boasts strong earnings momentum and great long-term growth potential.

Forecasts and valuations (Wbn)

FY ends Dec 2010 2011E 2012E 2013E 2014E

Sales 5,124.3 5,443.9 5,990.6 5,835.4 6,010.4

Chg (% y-y) 3.5 6.2 10.0 -2.6 3.0

Reported OP 286.8 203.7 305.9 372.7 417.6

Adjusted OP* 234.2 110.0 255.9 318.7 360.6

NP, CI 356.1 320.1 365.6 423.5 452.1

EPS, CI (won) 7,761.7 7,026.4 8,025.0 9,295.4 9,923.3

Chg (% y-y) 63.4 -9.5 14.2 15.8 6.8

P/E (x) 20.3 22.1 16.8 14.5 13.6

P/B (x) 1.2 1.2 1.0 0.9 0.9

EV/EBITDA (x) 11.8 11.6 8.8 7.4 6.7

ROA (%) 5.0 4.3 4.6 5.1 5.2

ROE (%) 6.5 5.3 5.8 6.4 6.4

Note: * Adjusted OP = reported OP (K-IFRS) – other operating profit/loss. CI = controlling interest Source: TONGYANG Securities

Brian Park [email protected] +822-3770-3562

2 TONGYANG Securities Inc.


Look far ahead Initiate at BUY with target price of W165,000

We initiate coverage of Samsung SDI at BUY with a target price of W165,000. We think its strength in the short term is earnings momentum, and in the long term, its strong growth potential.

Thanks to a recovery in IT demand worldwide, SDI’s sales should continue to improve until at least 2013. In 1Q12, its utilization ratio and sales both rose as setmakers began restocking inventories. From 2Q, we expect upbeat component demand as setmakers roll out a string of new models. In particular, we expect notebook PC demand to rise this year, which should boost battery sales until 2H. All in all, earnings momentum looks strong.

From a long-term perspective, SDI has big growth potential as an energy play. Its product portfolios now include not only the small lithium-ion batteries used in tech devices, but also for machine tools, “eBike,” and automobiles. It is also working to tap into energy supply systems (ESS) and doing R&D for thin-film solar cells. With the product portfolio including lithium-ion batteries, ESS, and solar cells, SDI should be able to offer total energy solutions based on renewable energy, and this why we are bullish about its long-term growth outlook.

We derive our target price using a sum-of-the-parts valuation. The operational value of the battery business is based on the average peer EV/EBITDA and SDI’s 2012 EBITDA. We used LG Chem, Panasonic, and Sony as peers. Although SDI is the number-one producer of small lithium-ion batteries in the world, we did not apply a valuation premium to SDI since these peers also have outstanding technology. Also, we only reflected the value of the battery business, as the PDP and CRT businesses are in decline and the solar cell business will likely take time to make money.

For non-operating value, we looked at the value of SMD, listed securities, and non-listed securities (we calculated SMD’s value separately given that it accounts for a large portion of SDI’s affiliate income). Since SMD is likely to be merged into Samsung Display, our calculation assumes that both have already merged. Meanwhile, we only reflected the book value of SBL, given its negligible earnings. We also applied a 35% discount to non-business value to reflect volatility in the value of listed securities and the lack of a clear basis to value the unlisted securities.

TONGYANG Securities Inc. 3

Company Report

Fair valuation based on sum-of-the-parts valuation (Wbn)

Operational value of battery division (1) 3,774

EBITDA 597 2012E

Target multiple (x) 6.8 2012E average peer EV/EBITDA

Premium (%) 0

Parent company ownership (%) 93

Operational value of “other” (2) 0

EBITDA 170 2012E

Target multiple (x) 0.0

Premium (%) 0


Non-operating value (3) 3,674

SMD value 3,140 Post-merger value

Investment securities, listed 1,775 Market cap

Investment securities, unlisted 737 2011 book value

Discount (%) 35 Given volatile value of listed securities and lack of valuation basis for unlisted securities

Net cash (4) 171

Net cash 178 2012E


Shareholders’ equity (1 + 2 + 3 + 4) 7,619

Common share portion (%) 98.8

Shareholder’s value of common shares 7,524

Common shares outstanding (‘000) 45,558

Target price (won) 165,000

Current price (won) 139,000

Upside potential (%) 19

Note: Peers in battery business taken as LG Chem, Panasonic, and Sony Source: TONGYANG Securities



Post-merger SMD worth W3.14tn to SDI

Since SMD will likely merge with Samsung Display, we calculated SDI’s investment value in SMD assuming that SMD had already been merged into Samsung Display. First, we calculated Samsung Display and SMD’s enterprise value per share and arrived at a merger ratio of 1 Samsung Display:0.802447 SMD. We estimated the number of outstanding shares assuming that SMD is merged into Samsung Display.

Taken together, SDI should end up with a 12.8% stake in post-merger SMD worth W3.14tn. This means that a post-merger SMD is worth almost the same to SDI as a pre-merger SMD. Initially, there were concerns that the merger would considerably lessen SMD’s value as an affiliate due to Samsung Display’s low profitability. However, Samsung Display’s profitability has improved since Samsung Corning Precision Materials became its consolidated affiliate. As such, a merger between SMD and Samsung Display should have limited impact on SDI’s affiliate value.

Table 2. Affilaite value: SMD

Samsung Display SMD Post-merger

entity

Asset value

Asset value/shr (won) (1) 103,687 84,067 90,631 2012E BPS

Earnings value

2012 EPS (won) (2) 8,500 15,334 9,871

2013 EPS (won) (3) 13,393 17,103 13,513

Weighted avg (won) (4) = (2)x0.6+(3)x0.4 10,457 16,042 11,328

Capitalization ratio (%) (5) 10% 10% 10% Capital Market Consolidation Act

Earnings value/shr (won) (6) = (4) / (5) 104,573 160,416 113,278

Enterprise value

Enterprise value/shr (won) (7) = (1)x0.4 + (6)x0.6 104,219 129,876 104,219 Likely merger ratio 1:0.802447

Shares outstanding (shares) (8) 150,000,000 67,823,565 234,520,910

SDI’s ownership (%) 35.6 12.8

Affiliate value (Wbn) 3,136 3,140

Source: TONGYANG Securities


Company Report

Investment points 1. Margin to improve on increase in battery sales portion

High-margin battery sales should increase and low-margin PDP and CRP sales should decrease. The solar cell division, which is posting losses, is expected to cut production for the time being. This will boost both margins and operating profit for SDI. Battery demand is likely to surge on robust sales of smartphones, tablets, and notebook PCs. In particular, demand for high-capacity lithium-polymer batteries, in which SDI has a competitive edge, is growing rapidly. We believe SDI’s battery sales will stay strong until at least 2013.

2. Battery demand to rise on growth in high-density products Globally, the mobile device sales portion of total tech devices continues to rise. Growth in high-density products especially is picking up fast as demand for compact design and longevity grows. This is especially good news for SDI, since it is very competitive in high-density products.

3. Great vision as total energy solution company While no palpable results have been produced yet, we see SDI’s ESS and solar cell businesses as important parts of the future energy system (eg, renewable energy development). Going forward, we believe SDI will be able to offer total energy solutions based on its expertise in solar cells and ESS. We think it will also be very competitive in terms of productivity and customer services. We are very bullish about SDI’s growth potential as an energy company.

4. Financials sound As of end-2011, SDI had a net cash position of W25.3bn. For now, there are no large capex plans and strong battery sales should boost cash inflows further. We expect net cash to grow to W577.3bn by end-2013. Ample liquidity should allow it to invest in energy solutions whenever it needs. SDI is advantageously positioned in this segment as it is heavily focused in batteries, while rivals have more diverse business portfolios and have net debt.



Chart 1. Samsung SDI: P/B band Chart 2. Samsung SDI: EV/EBITDA band

0

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2007 2009 2011 2013

A dj price 1 .5x1.3x 1 .0x0.8x 0 .5x

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100,000

150,000

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2007 2009 2011 2013

A dj price 14 .0x11.3x 8.5x5 .8x 3.0x

(won)

Source: TONGYANG Securities Source: TONGYANG Securities

Chart 3. Samsung SDI: sales outlook Chart 4. Samsung SDI: operating margin outlook

5.05.1

5 .4

6.05.8

4

5

6

7

09 10 11 12E 13E

(Wtn)

2%

6%

5%

4%

6%

1%

2%

3%

4%

5%

6%

7%

09 10 11 12E 13E

Source: Samsung SDI, TONGYANG Securities Source: Samsung SDI, TONGYANG Securities

Chart 5. Samsung SDI: utilization outlook for battery Chart 6. Market shares in small lithium-ion batteries

70%

75%

80%

85%

90%

95%

100%

1Q 11 1Q 12 1Q 13

15.1%18.4%

19.8%

24.7%23.6%

18.3%18.6%

9.7%

0%

5%

10%

15%

20%

25%

30%

2008 2009 2010 2011 2012E

Samsung SDISanyoLG C hemSony

(%)

Source: TONGYANG Securities Source: IIT


Company Report

Table 3. Peer group analysis

SDI LG Chem Panasonic Sony A123 Systems NEC GS YUASA

Country Korea Korea Japan Japan US Japan Japan

Currency KRW KRW JPY JPY USD JPY JPY

Share price 137,000 371,000 762 1,704 1.16 174 453

Market cap 6,241.5 24,586.6 1,869.2 1,711.9 0.170 453.2 187.3

P/E (x) 2011 22.1 12.4 N/A N/A N/A 122.1 15.6

2012E 17.3 10.7 N/A N/A N/A N/A 15.6

2013E 14.9 9.2 15.2 25.9 N/A 14.2 12.2

EPS 2011 7,026 29,069 35.75 -259 -2 -4.82 28.4

2012E 8,025 33,792 -324.65 -216 -1 -39.01 28.1

2013E 9,295 39,372 47.09 63 -1 11.72 35.7

P/B (x) 2011 1.2 2.5 0.6 0.7 0.3 0.6 1.7

2012E 1.0 2.3 0.8 0.7 0.9 0.7 1.6

2013E 0.9 1.9 0.8 0.7 0.5 0.6 1.4

EV/EBITDA (x) 2011 11.6 6.2 4.7 4.0 N/A 5.8 6.7

2012E 9.0 6.4 7.5 6.6 N/A 7.2 8.3

2013E 7.7 5.6 5.2 3.5 N/A 6.2 6.3

ROE (%) 2011 5.3 24.8 2.8 -9.4 -74.2 -1.6 11.2

2012E 5.8 22.3 -33.6 -8.8 -88.1 -13.9 10.6

2013E 6.4 21.3 5.4 3.2 -36.7 4.9 12.3

Sales (bn) 2011 5,443.9 22,675.6 8,692.7 7,181.3 0.2 3,115.4 272.5

2012E 5,990.7 24,945.3 7,970.0 6,413.3 0.2 3,085.3 291.5

2013E 5,835.4 27,232.8 8,024.0 6,770.0 0.4 3,154.9 324.4

Operating profit (bn) 2011 203.7 2,816.5 305.3 199.8 -0.2 57.8 17.6

2012E 305.9 3,091.9 30.6 -92.8 -0.2 69.6 17.3

2013E 372.7 3,563.3 244.6 166.9 -0.1 95.2 21.1

Net debt (bn) 2011 25.3 1,128.9 550.5 -633.5 0.0 470.4 29.3

2012E 178.3 675.9 1,097.7 -279.2 0.1 489.5 40.5

2013E 577.3 38.2 993.2 -419.4 0.0 503.9 29.9

Source: Datastream, TONGYANG Securities



Conditions turning favorable for battery market Ultrabooks and mobile device boom to boost battery demand

After the ECB’s active intervention, concerns about Europe’s debt problems are receding. As macro uncertainties dissipate, the global IT industry is likely to regain momentum. We believe demand will rise not only for new mobile devices such as smartphones and tablets, but also for conventional IT devices such as PCs and TVs.

Intel’s “Ivy Bridge”-based ultrabooks are slated to launch from end-2Q. Ultrabooks are designed to be more mobile and smaller than existing notebooks, and are expected to grow rapidly as an alternative to tablets. Notebook shipments should grow 11% in 2012 on ultrabook launches and IT industry recovery.

As the mobile device portion of IT devices rise, the Li-ion battery (LiB) market continues to grow. Ultrabook launches, as well as the spread of smartphones and tablets, are creating favorable conditions for the battery market.

LiPB market to surge

SDI’s Li-ion battery division is enjoying market share gains on economies of sale and product competitiveness. Of note, with the spread of smartphones, demand for Li-ion polymer batteries (LiPB) is rising steeply. Most smartphone makers, except for Samsung Electronics (SEC), have opted for LiPB, as have tablets and ultrabooks. We are bullish about the growth of LiPB given the high growth potential of mobile devices using LiPB.

SDI is the world’s number-one small LiB maker and has an edge in LiPB. We expect it to benefit the most from the growing LiPB market for the following reasons:

1. Facility automation After automating cylindrical LiB production, SDI also automated LiPB production. Facility automation improves safety, the most vital factor in batteries.

2. Technical expertise Samsung SDI has accumulated technical expertise through years of R&D. Of note, it has established a technological entry barrier as raw material compounding technology requires years of experience.

3. Continued capacity additions SDI is ramping up capacity the most aggressively among peers. With economies of scale, it can bolster partnerships with clients and trim costs.


Company Report

Chart 7. Global smartphone shipment outlook Chart 8. Global tablet shipment outlook

180

307

482

654

801

0

200

400

600

800

1,000

09 10 11 12E 13E

(mn units )

18

68

111

146

0

30

60

90

120

150

10 11 12E 13E

(mn units )

Source: iSuppli, TONGYANG Securities Source: iSuppli, TONGYANG Securities

Chart 9. Global notebook PC shipment outlook Chart 10. Ultrabook portion outlook

170

204214

237250

100

200

300

09 10 11 12E 13E

(mn units )

15%28%

38% 43%

2%0%

20%

40%

60%

80%

100%

2011 2012 2013 2014 2015

Non-U ltrabooks

U ltrabooks

Source: iSuppli, TONGYANG Securities Source: iSuppli, TONGYANG Securities

Chart 11. SDI Li-ion battery shipment forecast Chart 12. SDI Li-ion battery sales forecast

566

756

1,004

1,249

1,523

400

600

800

1000

1200

1400

1600

09 10 11 12E 13E

(mn units )

2.0

2 .3

2 .7

3.4

3.8

1

2

3

4

09 10 11 12E 13E

(Wtn)

Source: TONGYANG Securities Source: Company data, TONGYANG Securities



Growing into total energy solution provider Diversifying business portfolio based on small LiB technology

SDI is seeking to diversify its business portfolio based on small IT LiB technology, expanding into LiB for eBikes, machine tools, and electric vehicles; energy storage system (ESS); and solar cells. Currently, machine tool LiB accounts for 20% of SDI’s total LiB sales; eBike/electric vehicle LiB, ESS, and solar cell are still in R&D.

Subsidiary SB LiMotive is handling the electric vehicle LiB business. We expect it to do R&D projects in partnership with automakers and generate sales from 2013. For ESS, SDI participated in the smart-grid projects in Jeju and Daegu. The company should post full-fledged ESS sales in 2014~2015, when solar power generation costs should be equal to thermal power/nuclear power generation costs.

Solar cells are bringing in sales, but continue to remain in the red on sharp ASP cuts and lack of economies of scale. Amid cheap crystalline solar cell imports from China, SDI is shifting to thin-film solar cells. Currently, it is developing thin-film technology whose energy conversion efficiency should be close to that of crystalline technology.

Solar power, one of the most promising new and renewable energies, should post capacity CAGR of 13% until 2035. Given the strong growth potential of thin-film solar cells, we need to keep an eye on SDI’s ongoing thin-film technology development.

Chart 13. New and renewable energy portion outlook Chart 14. Solar cell market outlook, by segment

80%66%

59% 54% 49% 45%

13%

23%26%

28%29%

31%

2%6% 8% 10% 12% 14%

0%

20%

40%

60%

80%

100%

2009 2020 2030

O ther

Solar power

Wind power

Hydro power

4 7

2018

19

30

0

10

20

30

40

50

2011 2015 2020

C rys talline

Thin film

(US$bn)

Source: IEA Source: Company data


Company Report

Table 4. Power generation capacity outlook, by segment (GW)

2009 2015 2020 2025 2030 2035 CAGR

Thermal power 3,310 4,007 4,238 4,382 4,571 4,793 1%

Nuclear power 393 431 495 546 591 633 2%

New & renewable 1,253 1,758 2,207 2,665 3,131 3,613 4%

Hydro 1,007 1,152 1,297 1,439 1,548 1,629 2%

Wind 159 397 582 752 921 1,102 8%

Solar power 22 112 184 272 385 499 13%

Biomass 53 75 109 148 193 244 6%

Solar thermal 1 7 14 25 45 81 18%

Geothermal 11 15 20 27 33 41 5%

Tidal - - 1 2 6 17 na

Source: IEA



To differentiate itself as total energy solution play SDI is seeking to grow into a total energy solution provider, differentiating itself from competitors. A majority of LiB makers are developing ESS, but only SDI and Panasonic are also engaged in new and renewable energy.

SDI offers total energy solutions and should generate sales growth, trim costs through synergies created between divisions, and solidify its customer base thanks to its offering of one-stop service.

The solar power market is expected to grow with the start of small- to mid-size power generation and home power generation, segments for which energy storage systems (ESS) based on LiB are more suitable. we believe SDI’s solar cell and ESS will be competitive from the initial growth phase of the new and renewable energy market. We are bullish on its long-term growth potential in total energy solutions.

Chart 15. SDI’s future energy solutions

Source: Company data


Company Report

Strong battery sales to boost earnings by 2013 1Q preview: operating profit estimated at W58.6bn (+428% q-q)

We think operating profit rose considerably q-q in 1Q thanks to a sound battery business, dividend income, and base effect (one-off costs in 4Q11). SDI’s utilization rate climbed from the mid-70% in 4Q11 to the 90% level in 1Q12, as setmakers increased their battery purchases in 1Q12 after inventory adjustment in 4Q11. We estimate 1Q battery operating margin at 8.3%, up 2%p q-q thanks to lower costs from larger output and higher utilization.

SDI booked W11.0bn in one-off costs in 4Q11 (loss from impairment of inventory of raw materials, bonus payment), but likely suffered no such one-offs in 1Q12. Also, 1Q dividend income is estimated at W18.0bn.

Operating profit to rise further in 2Q

Battery orders are likely to grow in 2Q thanks to the release of ultrabooks. Of note, the portion of high-margin polymer battery sales is rising. We expect 2Q battery shipments to rise 8% q-q and ASP 1% q-q. As a result, battery utilization should increase further and operating margin should hit 10%.

Meanwhile, due to the lack of one-off gains (such as dividend income booked in 1Q12), operating losses from “other” businesses are likely to widen, but should be offset by strong battery business. SDI’s total 2Q operating profit is expected to recover to W70.5bn (+20% q-q).

Earnings growth, driven by battery business, to continue into 2013

The battery market is expected to continue to grow, given the increasing importance of mobile devices in IT environments. Considering the rising portion of polymer battery sales, we think SDI is well positioned to benefit from the growing battery market. Meanwhile, the PDP and CRT businesses, which are in decline, seem unlikely to grow, but should break even thanks to no more depreciation and the exit of rivals.

Therefore, we expect SDI to grow thanks to the strong battery business until 2014, when ESS and solar cell business should emerge as new growth drivers. Given its edge in the battery business, we think its market share will expand further and its margins will grow.



Table 5. Earnings forecast by business (Wbn, won)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 2011 2012E 2013E

Rev 1,209 1,349 1,448 1,438 1,422 1,481 1,563 1,524 5,444 5,991 5,835

OP 60 89 43 11 59 70 91 86 204 306 373

RP 112 131 136 100 113 125 122 117 478 477 555

NP 83 95 112 61 94 104 101 97 351 396 455

EPS (Won) 1,728 1,899 2,194 1,206 1,895 2,111 2,057 1,962 7,026 8,025 9,295

OPM (%) 5.0 6.6 3.0 0.8 4.1 4.8 5.8 5.6 3.7 5.1 6.4

Pre-tax (%) 9.2 9.7 9.4 7.0 8.0 8.4 7.8 7.7 8.8 8.0 9.5

NPM (%) 6.9 7.0 7.7 4.3 6.6 7.0 6.5 6.4 6.4 6.6 7.8

Sales 1,209 1,349 1,448 1,438 1,422 1,481 1,563 1,524 5,444 5,991 5,835

Battery 568 715 764 697 754 833 913 913 2,745 3,413 3,803

PDP 520 526 539 622 562 552 558 521 2,207 2,194 1,715

CRT 105 94 98 83 77 68 63 61 380 270 197

Other 16 13 46 36 29 27 29 29 112 114 120

OP 60 89 43 11 59 70 91 86 204 306 373

Battery 43 81 77 45 62 83 99 96 245 340 400

PDP -4 8 1 7 4 3 6 4 13 17 10

CRT 5 1 0 0 0 0 1 0 6 2 2

Other 17 -1 -35 -41 -8 -16 -15 -14 -61 -53 -39

OPM (%) 5.0 6.6 3.0 0.8 4.1 4.8 5.8 5.6 3.7 5.1 6.4

Battery 7.5 11.3 10.1 6.4 8.3 10.0 10.9 10.5 8.9 10.0 10.5

PDP -0.7 1.6 0.1 1.2 0.6 0.6 1.0 0.8 0.6 0.8 0.6

CRT 4.6 1.5 0.1 0.1 0.4 0.5 1.0 0.5 1.7 0.6 0.8

Other 103.0 -10.6 -74.9 -112.9 -26.2 -59.8 -50.9 -49.6 -54.0 -46.4 -32.2

Note: “Other” includes one-offs and gains/losses from solar cell and ESS Source: Company data, TONGYANG Securities


Company Report

Table 6. Basic assumptions for our earnings forecast (mn units, US$)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 2011 2012E 2013E

Battery

Global notebook ship 50.1 48.6 53.5 61.8 53.9 53.8 60.8 68.6 214.0 237.1 250.1

% q-q -10 -3 10 16 -13 0 13 13 5 11 6

Global smartphone ship 106.0 115.6 125.3 134.9 150.4 160.3 166.8 176.6 481.8 654.1 801.4

% q-q 15 9 8 8 12 7 4 6 57 36 23

SDI’s utilization (%) 88 89 89 75 90 92 93 86 85 90 91

% q-q 5%p 1%p 0%p -14%p 15%p 2%p 1%p -7%p -2%p 5%p 1%p

SDI’s shipment 217.8 268.3 276.2 241.6 261.1 298.7 339.9 349.1 1,003.9 1,248.8 1,523.4

% q-q 5 23 3 -13 8 14 14 3 33 24 22

SDI’s ASP 2.3 2.5 2.6 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.6

% q-q -7 6 4 -2 1 0 -1 0 -5 2 2

PDP

SDI’s shipment 1.7 1.6 1.7 1.8 1.7 1.8 1.9 1.8 6.8 7.2 6.9

% q-q -2 -1 4 8 -7 5 5 -3 6 6 -5

SDI’s ASP 281.3 296.3 293.6 293.9 288.1 279.4 276.6 273.9 291.4 279.3 256.4

% q-q 0 5 -1 0 -2 -3 -1 -1 -4 -4 -8

CRT

SDI’s shipment 3.3 3.1 3.0 2.8 2.7 2.5 2.4 2.4 12.2 10.0 8.6

% q-q -5 -6 -3 -7 -4 -7 -4 0 -18 -18 -14

SDI’s ASP 28.4 28.1 30.2 25.6 25.1 24.9 24.6 24.4 28.1 24.8 23.5

% q-q 3 -1 7 -15 -2 -1 -1 -1 -5 -12 -5

Source: Company data, TONGYANG Securities



[Appendix]

Samsung SDI related glossary Items Details

Rechargeable battery

Cylindrical

High capacity density and power density

Mostly for products consuming much energy (eg, notebook, machine tool, electric scooter)

Jelly roll mounted into metal can

Square

Mostly used for handsets and digital cameras

Customized battery; diverse sizes and capacity, depending on customer/application

Both poles and separator mounted into flat metal can

Polymer

Mostly used for smartphones, MP3, and tablet PC

Polymer uses aluminum film pouch (cylindrical/square batteries use aluminum can)

Applied to notebooks (recently used for Ultrabook)

Machine tool

Machine tool LiB accounts for 20% of SDI’s total LiB sales

PDP & CRT

PDP module

Plasma display panel; flat display panel using plasma

Neon- or argon-injected gas tubes arranged between two glass plates

Losing market share to larger-sized LCD screens

CRT

Cathode ray tube; vacuum tube device using electron gun and shadow mask

Relatively simple manufacturing and working process; rich color and wide viewing angle

Lost ground due to appearance of light, thin LCD

Solar photovoltaic

Cell

Basic unit of solar cell battery that converts light energy into electricity

Based on photovoltaic effect (light falling on two-layer semicon device produces potential difference between layers; this voltage can drive current through external circuit,producing useful work)

Module

While cell is basic unit to generate electricity, module is basic unit to supply electricity

Multiple cells connected in series or in parallel

System

Generator combining multiple modules and devices.

ESS (energy storage system)

ESS

Energy storage system to store electricity for use at appropriate time and place

Designed to resolve unstable electrical power supply of renewable energy and demand concentration by time slot, and generate profit from unused electricity


Company Report

Other

Battery

Device that converts energy, created from chemical or physical reaction, into electrical energy

Divided into chemical cell using chemical reaction and physical cell using physical reaction

Chemical cell usually refers to storage battery, physical cell to solar cell and thermobattery

Rechargeable battery

Charging/discharging repeatedly by transforming chemical energy into electrical energy

Chemical energy changed into electrical energy through process of oxidation/reduction

Discharged through oxidation; charged through reduction

Key raw material of rech battery

80% of total raw material costs (eg, cathode/anode material, separator, electrolyte)

70% of cathode material used in Korea comes from domestic sources, 10% for anode material, 30% for separator, and 80% for electrolyte

Lithium-ion battery

Currently major product of rechargeable battery Graphite used as cathode active material, lithium compound as anode active material, organic solvents as electrolyte

Light weight, high density, large output, high-speed charging, low self-discharge

Lithium polymer battery Advanced type of Li-ion battery; gel-type polymer electrolyte instead of liquefied electrolyte

Ultra thin, flexible product possible, as aluminum film used as exterior material

EV

Electric vehicle Categorized into HEV (hybrid EV), PHEV (plug-in hybrid EV), EREV (extended-range EV), BEV (battery EV), FCEV (fuel-cell EV)




Samsung SDI (006400 KS) pro forma financial statements (K-IFRS, consolidated)

Statement of financial position Statement of comprehensive income (K-IFRS)

FY to Dec (Wbn) 2010 2011E 2012E 2013E 2014E FY to Dec (Wbn) 2010 2011E 2012E 2013E 2014E

Non-current assets 5,482 6,163 6,327 6,375 6,477 Sales 5,124 5,444 5,991 5,835 6,010

Investment in affiliate 1,149 1,899 2,084 2,274 2,468 Cost of sales 4,334 4,761 5,130 4,927 5,043

LT financial assets 2,262 2,050 2,050 2,050 2,050 Gross profit 790 683 861 908 968

Tangible assets 1,727 1,827 1,796 1,660 1,553 SG&A 556 573 605 589 607

Other non-current 206 192 219 229 252 Reported op prof 287 204 306 373 418

Current assets 2,452 2,364 2,526 2,780 3,025 Adjusted op prof 234 110 256 319 361

Cash & equivalent 1,066 758 761 1,060 1,254 Other op prof/loss 53 94 50 54 57

ST financial assets 73 29 29 29 29 Non-operating prof 136 274 172 183 193

Accts rec & other 725 844 929 905 932 Interest income 41 22 22 26 29

Inventory 484 584 642 626 644 Interest expense 27 19 20 20 16

Other current 104 150 165 161 165 Forex gain/loss -36 -17 -16 -17 -18

Total assets 7,934 8,527 8,853 9,154 9,501 Equity-meth gain/loss 151 284 185 190 194

Non-current liabilities 604 463 466 465 466 Other -42 -163 0 4 4

LT financial liabilities 228 0 0 0 0 Pre-tax from cont op 423 478 478 555 610

Other non-current liab 351 431 435 433 434 Income tax 38 127 81 100 122

Current liabilities 1,098 1,750 1,699 1,571 1,453 Net profit 385 351 396 455 488

Accts payable & other 555 524 576 561 578 NP for controlling int 356 320 366 424 452

ST financial liabilities 130 761 611 511 361 Total comprehensive inc 1,106 157 372 431 464

Other current 413 465 512 498 513 TCI for controlling int 1,070 125 340 398 427

Total liabilities 1,703 2,213 2,166 2,036 1,919 EBITDA 610 549 717 796 844

Equity for controlling int 6,051 6,118 6,458 6,856 7,283 Free cash flow 48 -130 189 435 381

Paid-in capital 241 241 241 241 241 EPS 7,762 7,026 8,025 9,295 9,923

Capital surplus 1,256 1,258 1,258 1,258 1,258 Book value/share 132,039 133,305 140,516 148,955 158,000

Retained earnings 3,391 3,611 3,976 4,400 4,852 Dividend/share 1,600 1,500 0 0 0

Equity for non-control int 180 196 229 262 299 EBITDA/share 12,924 11,629 15,199 16,880 17,888

Total equity 6,231 6,315 6,687 7,118 7,582

Net debt -781 -25 -178 -577 -922

Cash flow statement Valuation

FY to Dec (Wbn) 2010 2011E 2012E 2013E 2014E FY to Dec 2010 2011E 2012E 2013E 2014E

Operating cash flow 446 279 564 718 700 Gross margin (%) 15.4 12.6 14.4 15.6 16.1

Net profit 385 351 396 455 488 Operating margin (%) 4.6 2.0 4.3 5.5 6.0

Depreciation & amortization 376 439 461 478 483 Net margin (%) 7.5 6.5 6.6 7.8 8.1

Forex translation gain/loss -2 -8 16 17 18 EBITDA margin (%) 11.9 10.1 12.0 13.7 14.0

Affiliate invest gain/loss -151 -284 -185 -190 -194 Sales (% y-y) 3.5 6.2 10.0 -2.6 3.0

Inc (dec) in net working cap -135 -275 -72 22 -22 Operating profit (% y-y) 118.6 -53.1 132.7 24.5 13.2

Other -54 -152 19 -4 7 Net profit (% y-y) 79.4 -8.8 12.9 14.9 7.2

Investing cash flow -184 -840 -391 -299 -339 EPS (% y-y) 63.4 -9.5 14.2 15.8 6.8

Disp (acq) of tangible asst -347 -407 -408 -321 -361 EBITDA (% y-y) 4.5 -10.0 30.7 11.1 6.0

Inc (dec) in intang asst -1 -23 -5 -5 -7 ROE (%) 6.5 5.3 5.8 6.4 6.4

Inc (dec) in ST/LT finl asst 0 0 0 0 0 ROA (%) 5.0 4.3 4.6 5.1 5.2

Other 164 -411 22 26 29 Accts rec turnover (x) 8.0 7.3 7.2 6.8 7.0

Financing cash flow -648 251 -170 -120 -166 Inventory turnover (x) 12.0 10.2 9.8 9.2 9.5

Inc (dec) in ST/LT finl liab -586 355 -150 -100 -150 P/E (x) 20.3 22.1 16.8 14.5 13.6

Inc (dec) in equity 24 6 0 0 0 P/B (x) 1.2 1.2 1.0 0.9 0.9

Dividend payout -60 -77 0 0 0 EV/EBITDA (x) 11.8 11.6 8.8 7.4 6.7

Others -25 -34 -20 -20 -16 Div yield (com shr, %) 1.0 1.1 0.0 0.0 0.0

Inc (dec) in cash & eq -367 -309 3 299 195 Debt-to-equity (%) 27.3 35.0 32.4 28.6 25.3

Beginning cash & equiv 1,434 1,066 758 761 1,060 Net debt-to-equity (%) -12.5 -0.4 -2.7 -8.1 -12.2

Ending cash & equiv 1,066 758 761 1,060 1,254 Net fin cost/sales (%) -0.3 -0.1 0.0 -0.1 -0.2

OP/financing cost (x) 8.6 5.7 12.9 16.3 22.0

Note: EPS, BPS, P/E and P/B are based on controlling interest For valuation metrics such as P/E, historical figures are based on annual averages, estimates on current price For ROA or ROE, assets and equity are averages of end-of-year figures for given year and year prior Data to 2010 based on K-GAAP and from 2011, K-IFRS Source: TONGYANG Securities


Company Report

Samsung SDI (006400 KS) ratings and target price history

(won)

0

50,000

100,000

150,000

200,000

250,000

A pr 2010 O ct 2010 A pr 2011 O ct 2011

C urrent price

Target price

Date Rating TP (won)

2012/04/09 BUY 165,000

Analyst changed


Disclosures & disclaimers

This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an offer to buy or sell any securities or other financial instruments. The information and data contained in this report have been obtained from sources we consider reliable; however, we make no representation that the information provided in this report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in any manner without the prior written consent of TONGYANG Securities Inc.

As of the publication date of this report, TONGYANG Securities Inc. does not own a stake in excess of 1%, nor does it have any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by TONGYANG Securities Inc. to any institutional investors or third parties prior to its publication. As of the date of publication of this report TONGYANG Securities Inc. is an issuer and liquidity provider for equity linked warrants backed by the shares of the subject company. The analyst (s) of this report or the analyst (s)’ spouse does not have any financial interest in the securities of the subject company (ies) mentioned herein, nor financial interest of any nature related to the subject company (ies) (including without limitation, whether it consists of any option, right, warrant, future, long or short position), as of the publication date of this report. Analyst certification

I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this report accurately reflect my/our personal views about the subject securities discussed in this report.

Stock and sector ratings

Stock ratings include an Investment Rating (Buy, Hold, Sell) as well as a Volatility Risk Rating (High, Low) that are based on the expected absolute return of a stock over the next 6 -12 months.

- Buy: Low Risk if a stock is expected to return 10% or more; High Risk if a stock is expected to return 20% or more

- Hold: Low Risk if a stock is expected to return between -10 and +10%; High Risk if a stock is expected to return between -20 and +20%

- Sell: Low Risk if a stock is expected to decline by 10% or more; High Risk if a stock is expected to fall by 20% or more

Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market capitalization weighting.

- Overweight: Investment weighting is higher than the market capitalization weighting - Neutral: Investment weighting is equal to the market capitalization weighting - Underweight: Investment weighting is lower than the market capitalization weighting



TONGYANG Securities International Network

Research Center TONGYANG Securities Building #32 Gookjegeumyoongro 2-gil Youngdeungpo-gu, Seoul, Korea Tel: +822-3770-3436

Seoul

Head Office TONGYANG Securities Building Euljiro 76 Jung-gu Seoul, Korea 100-845 Tel: +822-3770-3454 Corporate website: www.tys.co.kr/english Hong Kong

TONGYANG Securities Hong Kong Limited Unit 3208-09, 32/F, Alexandra House 18 Chater Road, Central, Hong Kong Tel: +852-3980-6000 New York

150 East 52nd Street 25th Floor New York NY 10022, U.S.A. Tel: +1-212-415-1008 Tokyo

803-3-4-1, Shin-Kokusai Building Maronouchi, Chiyoda-ku Tokyo, Japan 100-0005 Tel: +81-3-6269-9720 Ho Chi Minh

Suite 2905, Saigon Trade Center 37 Ton Dou Thang Street District 1, Ho Chi Minh City, Vietnam Tel: +84-8-910-6711 Manila

TONGYANG Savings Bank Ground Floor, Chantham House 116 Valero Corner, Herrera Street Salcedo Village, Makati City Metro Manila, Philippines Tel: +63-2-845-3838 Phnom Penh

#138, Norodom Boulevard Sangkat Tonle Bassac Khan Chamkarmorn Phnom Penh, Cambodia Tel: +855-23-224-125

Documents

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