UBS Maintains Buy on Samsung SDI with Target Price of KRW 850,000

Overview

This report analyzes Samsung SDI’s recent business progress and future outlook based on management commentary during UBS’s 2026 Asia Investment Conference (AIC). The core view is that Samsung SDI is experiencing a clear near-term earnings reversal, driven by the ramp-up of U.S. Energy Storage System (ESS) capacity and surging demand for Battery Backup Units (BBU). Although electric vehicle (EV) battery revenue may remain flat and still incur losses, cost discipline at the Hungarian plant combined with contributions from high-growth segments are expected to deliver year-over-year revenue growth and a significant reduction in operating losses for full-year 2026. UBS maintains a 'Buy' rating with a target price of KRW 850,000.

Core views

Demand Side: ESS and BBU emerge as primary growth engines. Management indicated that to meet robust ESS demand, the company has repurposed 8GWh of NCA capacity from its Stellantis joint venture for ESS production. Additionally, a new 22GWh LFP production line will come online in Q4 2026 and Q1 2027, accelerating ESS revenue growth. In the small battery segment, BBU performance stands out—Samsung SDI held approximately 50% global market share in 2025, accounting for 10% of its total cylindrical battery sales. With rising global demand for bridging power solutions in data centers during outages, the global BBU market is projected to grow 70% YoY to 4GWh in 2026, reaching 10GWh by 2030. Supply and Profitability: Clear path to narrowing losses. Modest improvements in both revenue and operating loss are expected in Q2 2026. While EV battery revenue may decline sequentially, cost management initiatives at the Hungarian plant will narrow operating losses. For the full year, EV battery revenue is expected to be flat YoY, with an operating loss in the mid-single digits; ESS revenue is forecast to grow ~50% YoY, achieving an operating profit margin (OPM) in the mid-to-high single digits; small battery revenue is projected to increase ~30% YoY, though it may still incur a low-single-digit operating loss. Management aims to raise utilization to 70% by Q4 2026 to reach breakeven. New Technology Roadmap: Solid-State Batteries. The company plans small-scale commercial production of solid-state batteries for humanoid robots by end-2027, showcasing its next-generation battery technology pipeline. Valuation Logic: UBS applies a Sum-of-the-Parts (SOTP) valuation to derive a target price of KRW 850,000. This implies 14x 2027E EV/EBITDA, 38x P/E, and 2.8x P/B. In comparison, the current share price trades at 10.2x 2027E EV/EBITDA, 29x P/E, and 2.1x P/B, indicating upside potential.

Analysis framework

UBS employs a hybrid analytical approach combining top-down industry trend assessment with bottom-up business segment analysis. First, guidance on short-term (Q2 2026) and medium-term (FY2026) revenue and profitability across business segments (EV, ESS, small batteries) was gathered directly from management during investor meetings. Second, the timing of capacity additions in high-growth segments (ESS and BBU) was matched against downstream demand trends to identify the core drivers of the earnings inflection. Finally, a Sum-of-the-Parts (SOTP) valuation was used to compare current market valuation against implied target multiples, establishing both a margin of safety and upside potential. This methodology emphasizes identifying structural growth pockets—such as BBU demand from AI data centers—to capture turning points amid cyclical troughs.

Methodology notes

• Valuation MethodSOTP Valuation

  Sum-of-the-Parts (SOTP) Valuation

  Separately valuing distinct business segments (e.g., EV batteries, ESS, small batteries) and summing them up. Suitable for diversified companies where segments exhibit different growth profiles and risk characteristics, enabling more accurate reflection of underlying value.

• Industry/Market Analysis FrameworkSupply-demand framework

  Supply-Demand Framework Analysis

  Analyzing the alignment between supply-side capacity rollouts (e.g., LFP batteries, BBU) and downstream demand growth (e.g., data centers, energy storage projects) to assess pricing trends and revenue trajectory.

• Company Fundamentals & Financial FrameworkOperating/Financial Leverage Analysis

  Capacity Utilization and Breakeven Analysis

  Focusing on how improved capacity utilization in capital-intensive manufacturing reduces per-unit fixed costs and enhances margins—e.g., targeting 70% utilization in small battery operations by Q4 2026 to achieve breakeven, up from below 50%.

Asset mapping & comparison

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

• Samsung SDI (006400.KS)

  Direct beneficiary; ESS capacity expansion and leading BBU market share directly drive revenue growth and profit recovery

  Strengths

  Impending U.S. ESS capacity ramp-up, ~50% global BBU market share, solid-state battery technology pipeline

  Weaknesses

  EV battery segment still incurs operating losses; cost pressures at Hungarian plant remain to be fully absorbed

  Comparison

  Offers diversification advantage over pure-play EV battery makers through ESS and small battery buffers

  Risks

  Slower-than-expected EV demand recovery, raw material price volatility, regulatory risks

Key data

• 12-Month Target PriceKRW 850,000Based on SOTP valuation, implying 32.4% upside
• 2026 ESS Revenue Growth Forecast~50% YoYDriven by U.S. NCA and subsequent LFP capacity ramp-up
• 2026 Small Battery Revenue Growth Forecast~30% YoYPrimarily driven by BBU volume growth
• 2025 Global BBU Market Share~50%Represents 10% of company's total cylindrical battery sales
• Q4 2026 Small Battery Utilization Target70%Aimed at achieving segment breakeven
• Current Valuation (2027E EV/EBITDA)10.2xTarget implies 14x, indicating room for multiple expansion

Impact & implications

The report posits that Samsung SDI is at a pivotal juncture, transitioning from reliance on EV batteries toward diversified battery applications (ESS, BBU). Rapid deployment of U.S. ESS capacity and penetration of BBU solutions in AI data centers provide a second growth curve independent of EV cycles. This not only mitigates earnings volatility from EV demand fluctuations but also improves overall profitability through higher plant utilization. Investors should shift focus from EV unit sales to ESS delivery timelines and BBU customer acquisition progress.

Risks

• Government regulatory risks and EV battery raw material price volatility
• Adjustments in smartphone shipment volumes from key customers
• Changes in EV penetration rates in automotive markets
• Shifts in OLED materials business progress
• Oil price fluctuations and Chinese regulatory risks
• Planned or unplanned outages at petrochemical facilities
• Battery safety risks (e.g., rupture, spontaneous combustion) potentially leading to litigation, recalls, and order cancellations

What to watch

• Ramp-up and delivery performance of U.S. ESS LFP production lines in Q4 2026
• Whether small battery utilization reaches 70% and achieves breakeven by Q4 2026
• Progress on small-scale mass production of humanoid robot solid-state batteries by end-2027
• Pace of EV battery demand recovery and acquisition of new OEM customers