Bernstein: Samsung SDI’s energy storage business lifts margins, but subsidies and cash flow remain tests

How solid was the third-quarter profit improvement?

Samsung SDI’s third-quarter revenue was 4.686 trillion won, up 53% year on year and 21% quarter on quarter; operating profit was 408 billion won, double the second-quarter level, and the operating margin rose from 5.4% to 8.7%.
Excluding the US Advanced Manufacturing Production Credit (AMPC), operating profit was 286 billion won, above Bernstein’s previous forecast of 170 billion won. The corresponding margin was 6.3%, above the firm’s forecast of 4.0% and the second-quarter level of 2.5%.
AMPC for the quarter was 122 billion won, higher than 108 billion won in the second quarter but below Bernstein’s expectations. The firm therefore believes the upside came mainly from operational improvement outside subsidies. Net profit was 295 billion won, up 514% year on year but down 14% quarter on quarter.

Growing demand from US utility-scale energy storage and AI data centers, together with improved European electric vehicle sales, supported results. Bernstein estimates global battery shipments in the third quarter at about 13 GWh and capacity utilization at 52%, compared with about 11 GWh and 49%, respectively, in the second quarter; higher utilization helps operating leverage take effect.
As of October 2026, the company had secured more than 60 GWh of energy storage orders, mainly from the US utility market. Its first US lithium iron phosphate energy storage production line began mass production in early October and started shipping cells in mid-month; finished products are scheduled for delivery in December. Two other converted lines have secured orders and are scheduled to begin operating in phases from the first half of 2027.
Bernstein expects the company’s energy storage shipments, including data centers, to rise from 12 GWh in 2025 to 22 GWh in 2026, more than offsetting the decline in electric vehicle battery shipments from 29 GWh to 25 GWh over the same period. US electric vehicle demand is weak, while improved shipments for new European models provide a partial offset.

Bernstein expects fourth-quarter revenue excluding AMPC of 4.99 trillion won and operating profit of 329 billion won, above the respective third-quarter figures of 4.563 trillion and 286 billion won. It expects the operating margin to rise from 6.3% to 6.6%; even if the gross margin is broadly flat, utilization and operating leverage can still drive improvement.
Capacity expansion also brings funding pressure: cash and cash equivalents rose from 1.5 trillion won at the end of the second quarter to 2.4 trillion won at the end of the third quarter; however, Bernstein forecasts negative free cash flow of 795 billion won and 82 billion won in 2026 and 2027, respectively. The company plans to use proceeds from a partial sale of its stake in Samsung Display to support investment in growth projects and debt repayment.
Over the longer term, it remains uncertain how long the growth cycle in data center demand can last, and industry capacity is also expanding. AMPC benefits will decline after 2030; whether margins can be sustained depends on whether utilization, manufacturing efficiency and product mix can offset the reduction in subsidies. Management is discussing long-term pricing with customers that reflects the phase-down of subsidies.

The firm raised its earnings-per-share forecasts for 2026 and 2027 from 10,279 won and 18,889 won to 12,061 won and 20,284 won, respectively, to reflect third-quarter results and an improved energy storage outlook.
Bernstein raised its target price from 560 thousand won to 570 thousand won and maintained its “Market-Perform” rating. The firm believes energy storage and data center demand will support near-term earnings growth, but that the market has already priced in a considerable recovery.