Samsung SDI target price raised to KRW 520,000, but Market-Perform rating maintained

Overview

This report is Bernstein's review of Samsung SDI Co Ltd's 1Q26 results and target price revision. The report believes the company has returned to revenue growth, narrowed losses, and turned net profit positive. ESS is the clearest growth highlight, benefiting from demand from AI data centers, U.S. localized energy storage production, and renewable energy projects. EV demand had previously been weak, but the European recovery, Mercedes-Benz orders, and increased EV attention driven by oil prices have improved market expectations. Despite the clear improvement in fundamental sentiment, the company still faces another challenging year, with losses expected in the first half, full-year operating profit possibly only near break-even, and free cash flow still negative.

Core views

The core views are: first, 1Q26 results were better than market expectations in both revenue and loss narrowing, supporting a target price increase; second, ESS demand, especially storage demand driven by U.S. AI infrastructure and data centers, is the most important catalyst in 2026; third, improving European EV demand and Mercedes-Benz orders validate Samsung SDI's competitiveness in high-nickel premium EV batteries; fourth, LFP is reaching commercial scale in ESS, supporting U.S. localization and a de-China supply chain; fifth, the rating remains Market-Perform because the current stock price is already above the target price, and there are still execution risks around margin recovery, positive free cash flow, and capacity ramp-up.

Analysis framework

The report uses a combination of earnings review, short-term operating outlook, long-term industry and technology roadmap analysis, order and supply chain tracking, and DCF valuation. In the short term, it focuses on assessing 1Q26 revenue, operating loss, net profit, cash, capex, and the path to profitability recovery in 2H26; in the medium to long term, it focuses on ESS, EV, LFP, large-format NCA batteries, 46-series batteries, solid-state batteries, U.S. IRA/AMPC policy benefits, and key customers and joint venture projects.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  Bernstein uses the DCF method for valuation, with a WACC of 9.3% and a terminal growth rate of 3.0% in the main text, while the appendix disclosure mentions 2.0%; the model is based on annual free cash flow forecasts through 2050 and terminal value estimation, resulting in a target price of KRW 520,000.

• RatingBernstein Market-Perform

  Relative market performance rating

  Bernstein-branded Market-Perform means the stock is expected to perform within plus or minus 15 percentage points relative to the applicable market index over the next 12 months.

• Industry analysisESS/AI demand mapping

  AI data center power demand drives energy storage growth

  The report incorporates rising U.S. data center power demand, UPS/BBU backup power demand, and renewable energy projects into the ESS demand framework, arguing that Samsung SDI's ESS business is a structural beneficiary of AI infrastructure expansion.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Samsung SDI Co Ltd / 006400.KS

  Research target; South Korean battery and ESS manufacturer

  Strengths

  1Q26 revenue beat expectations and losses narrowed; ESS is driven by AI data centers and U.S. localized production; Mercedes-Benz orders validate premium EV battery capabilities; LFP ESS, large-format NCA, 46-series, and solid-state batteries create a multi-technology roadmap.

  Weaknesses

  Losses are still expected in 1H26, and full-year operating profit may only be near break-even; free cash flow remains negative; the current stock price is above the target price.

  Comparison

  The report states that CATL and LGES dominate the energy storage business, but Samsung SDI still ranks among the world's top six battery makers and holds a leadership position in energy storage with a non-China supplier positioning.

  Risks

  EV adoption below expectations, automakers switching battery suppliers, insufficient cost declines, reduced U.S. IRA subsidies, capex financing pressure, and slower-than-expected ramp-up of U.S. localized capacity.

• ESS energy storage business

  Main growth catalyst

  Strengths

  The company expects ESS industry sales growth of 50%; U.S. ESS demand, AI data center power demand, UPS/BBU backup power, and renewable energy projects are all drivers.

  Weaknesses

  It requires a smooth ramp-up of U.S. localized capacity and converting LFP and NCA supply into improved profitability.

  Comparison

  Compared with the EV business, ESS has higher demand visibility and clearer catalysts in 2026.

  Risks

  There are execution risks around U.S. localized production coverage, LFP transition, AMPC realization, and customer project timing.

• EV battery business

  Source of recovery and order validation

  Strengths

  European EV demand is expected to improve, Mercedes-Benz multi-year orders validate the high-nickel NCM positioning, and related Hyundai/Kia and GM/Stellantis projects provide a medium- to long-term capacity foundation.

  Weaknesses

  The report says EV demand had previously been disappointing, U.S. EV demand is expected to be weaker than Europe, and Samsung SDI is more focused on premium EVs rather than the mass market.

  Comparison

  The push toward lower-cost chemistries is reflected more in LFP for ESS rather than in mass-market EV projects.

  Risks

  Changes in automaker strategies, weak end-market EV demand, competitor price cuts, and customers switching suppliers.

Key data

• RatingMarket-PerformRating maintained.
• Target priceKRW 520,000Raised from KRW 330,000.
• Closing priceKRW 638,000Closing price on April 27, 2026.
• Expected upside/downside(18)%Based on target price versus closing price.
• 1Q26 revenueKRW 3,576bnUp 13% YoY, above consensus of KRW 3,177bn.
• 1Q26 operating profitKRW -156bnLoss was smaller than consensus of KRW -270bn, with an operating margin of -4.4%.
• Battery business revenueKRW 3,354bn1Q26 battery sales, with an operating loss of KRW 177bn.
• Electronic materials business revenueKRW 237bn1Q26 electronic materials business operating profit was KRW 21bn.
• 2026 revenue growth forecast16.0%The report raised its near-term revenue growth forecast.
• 2025-2030 revenue growth forecast22.9% CAGRThe main text summary describes it as about 23%.
• WACC9.3%Core DCF valuation assumption.
• Terminal growth rate3.0%The DCF table and valuation discussion use 3.0%, while the appendix disclosure separately mentions 2.0%.
• CashKRW 1.7tnCash at end-1Q26.
• Net debt-to-equity ratio39%Flat versus 4Q25.
• U.S. ESS contractKRW 1.5tnSigned on March 16, 2026, with supply through 2029.
• LFP cathode material agreementKRW 1.6tnSigned with L&F on March 24, 2026, for StarPlus Energy ESS batteries in Indiana.

Impact & implications

From an investment perspective, Samsung SDI is evolving from a pure cell manufacturer into a battery solutions provider spanning ESS, AI infrastructure backup power, advanced materials, software-based safety management, and solid-state batteries. ESS demand and U.S. localized production are the main drivers behind the target price increase, but the stock price has already risen substantially and the target price remains below the current price, implying the risk-reward has not yet turned into a clear buy. If ESS demand, AMPC realization, European EV orders, and solid-state battery commercialization progress exceed expectations, there could still be upside to long-term margins and DCF valuation; if loss narrowing, capacity utilization, free cash flow, and subsidy realization fall short of expectations, valuation support will weaken.

Risks

• The company may still remain loss-making in 1H26, and full-year operating profit may only be near break-even.
• Free cash flow is still expected to be negative, and the company is evaluating capex financing options.
• The EV demand recovery is uncertain, especially as U.S. market demand may be weaker than Europe.
• If U.S. IRA/AMPC subsidies are reduced, Samsung SDI's profit improvement will weaken.
• There are execution risks in U.S. localized ESS production, LFP capacity conversion, and the ramp-up of the Indiana project.
• Changes in automaker strategies or OEMs switching battery suppliers could lead to lost sales.
• Whether long-term margins can reach or exceed the roughly 7% assumption remains a key valuation debate.

What to watch

• Whether operating losses continue to narrow in 2Q26, and whether profitability can recover in 2H26 as management expects.
• Whether ESS revenue can approach 50% YoY growth, especially demand from U.S. data centers, UPS, BBU, and renewable energy projects.
• The progress of StarPlus Energy's Indiana lines shifting from EV to ESS and mass production of LFP in Q4 2026.
• The delivery pace of the KRW 1.5tn U.S. ESS contract, the KRW 1.6tn LFP materials agreement, and Mercedes-Benz EV battery orders.
• Whether AMPC/IRA policy benefits can translate into profit as U.S. local production scales up.
• The recovery of the European EV market, and the orders and capacity ramp-up of Mercedes-Benz and Hyundai/Kia-related projects.
• The commercialization progress of solid-state batteries in 2027, especially in robotics and Physical AI applications.
• When free cash flow will turn positive, and alternative capex financing solutions.