Concerns about Samsung SDI spin-off lead to Thursday's price drop

By Anna J. Park

Samsung SDI's stock price fell by 3.33 percent on Thursday, reflecting the market's concerns over the possible spin-off of the firm's lucrative battery business unit.

The stock price finished at 725,000 won ($618), down 3.33 percent from the previous session, as foreign and institutional investors net sold the stock on Thursday. The share price fell as low as 710,000 won at one point in morning trade on Thursday.

Thursday's drop was due mainly to recent news coverage that reported that the company's key officials had allegedly started discussions about whether the spin-off would be a good option for the company to attract sufficient investment funding required for the battery business unit's further growth.

Regarding the rumor, Samsung SDI officially denied the report on Thursday afternoon through an official filing to financial authorities, stating that it is not true that the company has started to examine the option of the battery unit's spin-off.

Following the announcement, Samsung SDI's stock price rose up to 735,000 won in afternoon trade, but closed at 725,000 won.

While the firm officially denied the spin-off rumor, the rumor itself was not the only factor that negatively affected the company's stock price on Thursday. An analysis report published on Thursday stated that Samsung SDI's third quarter operating profit is expected to be lower than market consensus, triggering concerns about the company's future profitability.

"Samsung SDI's operating profit in the third quarter is expected to be 321.1 billion won, which is lower than the market consensus of 350.9 billion won," Park Kang-ho, analyst at Daishin Securities, said, adding that the firm's third quarter revenue is expected to be 3.52 trillion won, which is a 14.1-percent increase from the same period last year.

"While small batteries and electronic materials are expected to see enhanced profit margins in the third quarter, the operating profit from medium to large batteries for electric vehicles (EV) is expected to be more sluggish than the consensus, due to semiconductor chip shortages," the analyst explained.

Although the analyst added that Samsung SDI's sluggish operating profit from medium to large EV batteries could be offset by positive earnings from small batteries and electronic materials, market watchers in general view that Samsung SDI lacks annual investments in its battery business units compared to two other competitors. While LG Energy Solution and SK Innovation invested around three to four trillion won each year into their battery business, Samsung SDI's annual investment still hovers at only around two trillion won a year.

Faced with the need to significantly increase the annual investment into the unit, the company has to secure ways to navigate its finances wisely to gain a solid footing amid fierce competition. Samsung SDI has been focusing on two main pillars of business: batteries and electronic materials. While the battery unit provides 77 percent of the firm's revenue, the rumored option of a spin-off could trigger strong opposition from investors, as the electronic materials business unit is not expected to see a rapid revenue growth anymore.

Meanwhile, EcoPro BM, one of the world's few global producers of cathode materials, which is a key ingredient of lithium ion secondary cells, saw its stock price rise on Thursday, amid expectations that the company will further benefit from the hot EV battery market.

The stock price increased 2.32 percent, finishing at 455,200 won on Thursday on net buying by foreign and institutional investors. The company's share price has been on a winning streak for eight consecutive trading days since September 7. This month alone, the stock price rose 48 percent from 307,400 won logged on September 1.

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