[Click eStock] "SK Innovation, 4Q Still in Loss but... Revaluation Soon"

Existing Businesses Like Refining and Chemicals Still in Deficit
Corporate Value Expected to Rise Due to Battery Business Growth Potential

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] SK Innovation is expected to continue posting losses in the fourth quarter of last year. However, as the value of not only the refining business but also the battery business is highlighted, it is analyzed that a revaluation of the company's value will take place in the future.

On the 5th, Daishin Securities forecasted that SK Innovation would record sales of 8.394 trillion KRW and an operating loss of 189.1 billion KRW in the fourth quarter of last year. This is below the market expectation of an operating loss of 133.7 billion KRW. However, it is expected to exceed the previous Daishin Securities estimate of a 243.3 billion KRW loss.

In the refining sector, sales of 5.538 trillion KRW and an operating loss of 149 billion KRW are expected, marking a return to losses compared to the previous quarter. Although inventory-related gains and losses are 30 billion KRW, exceeding previous estimates, this is a significant decrease compared to 300 billion KRW in the previous quarter. The weighted average method is applied, so the oil price increase in November and December is expected to be reflected later. However, even excluding inventory-related gains and losses, poor performance could not be avoided. Refining margins still remain below the break-even point, so the loss trend continues.

The chemical and lubricant businesses are expected to perform at the previous quarter's level. Chemicals are estimated to have sales of 1.389 trillion KRW and an operating loss of 30 billion KRW, while lubricants are expected to have sales of 664 billion KRW and an operating profit of 71 billion KRW. In the petroleum exploration and production (E&P) business, profitability recovery is expected thanks to the rise in international oil prices. Sales of 124 billion KRW and operating profit of 37 billion KRW are anticipated. The electric vehicle battery (EVB) business continues to benefit from increased volume, but due to negative effects from exchange rate declines, sales are expected to be 522 billion KRW with an operating loss of 123 billion KRW.

However, future growth prospects are evaluated as considerable. The corporate value by business segment used to calculate the target stock price is estimated at 9 trillion KRW for refining, 6.8 trillion KRW for chemicals/lubricants, 13.8 trillion KRW for EVB/materials, and net debt of 10.8 trillion KRW. Sangwon Han, a researcher at Daishin Securities, explained, "For existing businesses, this is the same result as applying a 20% premium compared to the corporate value of S-Oil, a pure refining company," and added, "The battery business value was calculated based on 2023, when a turnaround to profitability is expected."

Against this backdrop, Daishin Securities maintained a 'Buy' investment opinion on SK Innovation and raised the target stock price to 240,000 KRW. The closing price the previous day was 190,000 KRW. Researcher Han said, "As the most undervalued battery cell company, we expect a sharp stock price rise along with a revaluation of corporate value once uncertainties related to the lawsuit with LG Chem are resolved," and added, "It is difficult to predict the final verdict, but we believe there is a high possibility of an agreement between the two companies after the ruling."