Second Battery Stocks Slipped by COVID-19 After Booming, What Is the Future Investment Strategy?

[Asia Economy Reporter Song Hwajeong] The secondary battery stocks, which had continued their strong performance at the beginning of the year, could not avoid a sharp decline caused by the novel coronavirus disease (COVID-19). Although the drop was greater than what fundamentals would suggest, there is an expectation of a rapid stock price recovery once the spread of COVID-19 subsides.

According to Samsung Securities on the 21st, the market reacted almost like a sell-off by assuming various scenarios regarding the impact of COVID-19 on the secondary battery value chain. In the case of Samsung SDI, the stock price plummeted sharply in March, resulting in a market capitalization reduction of about 10 trillion KRW compared to the February peak. Researcher Jang Jeonghoon of Samsung Securities explained, "This means a decrease of 500 billion KRW in net profit for 2020 when reverse-calculated with a price-earnings ratio (PER) of 20 times," adding, "Initially, the expected business value for this year combining Samsung SDI’s small and medium-large battery divisions was estimated at 14 trillion KRW, but assuming the business value of the electronic materials division remains constant, the market now only recognizes 4 trillion KRW for the battery business."

This stock price decline is analyzed to be due to the full-scale spread of COVID-19 in Europe. Researcher Jang said, "The impact of COVID-19 on the secondary battery business can be considered through two channels," explaining, "One is production disruption at overseas manufacturing bases due to border closures and other reasons, and the other is sluggish sales caused by weakened consumer demand sentiment."

The impact on the performance of secondary battery companies will vary depending on the speed of the ripple effect and the timing of containment. Researcher Jang stated, "If the COVID-19 issue is resolved within the first half of the year, demand from key downstream industries such as smartphones and electric vehicles will recover in the second half, limiting the annual performance decline of secondary battery companies this year." However, if the COVID-19 issue prolongs, not only will demand decline during the period, but the ripple effect may spread due to a global economic recession, and there is also a possibility that eco-friendly policies in major countries could be changed or delayed. This is considered a risk that could significantly reduce the long-term growth slope of secondary battery companies.

Researcher Jang emphasized, "I place more weight on the former scenario than the latter," and predicted, "If the former is weighted, favorable policies within downstream industries and recovery of consumer sentiment will add postponed demand toward the end of the year." He added, "Market participants will compare the actual impact on the fundamentals of secondary battery companies with the extent of stock price adjustments and will quickly buy stocks of companies whose prices have fallen excessively."

This content was produced with the assistance of AI translation services.