[Click eStock] "SK Inno Removing Uncertainty, Focusing on Battery Separator"... Target Price Up

[Asia Economy Reporter Ji Yeon-jin] Kiwoom Securities announced on the 12th that SK Innovation had been relatively undervalued due to the battery lawsuit issue with LG Chem, and raised the target stock price to 340,000 KRW as the two companies reached an agreement.

SK Innovation and LG Chem (LG Energy Solution) agreed the day before to pay a settlement amount of 2 trillion KRW, withdraw domestic and international lawsuits, and not pursue additional lawsuits for the next 10 years. It is known that SK Innovation will pay LG Energy Solution 1 trillion KRW in cash and provide 1 trillion KRW in royalties from future US operations.

As a result of this agreement, the import ban imposed on SK Innovation by the US International Trade Commission (ITC) will not take effect, and the supply uncertainty to major customers such as Ford and Volkswagen has been eliminated. Additionally, the construction of the second plant in Georgia, USA, is expected to proceed rapidly. From a profit and loss perspective, the removal of one-time costs such as massive legal fees and legitimate lobbying incurred during the lawsuit is expected to accelerate the timing of reaching the breakeven point for the battery business compared to the original plan.

Researcher Dong-wook Lee of Kiwoom Securities said, "Despite excellent product stability and technology, the volume of separators sold to LG, which had been intentionally excluded from sales, is also likely to increase," adding, "Although there will be a short-term cash outflow of 1 trillion KRW, the resolution of uncertainty is expected to result in a market capitalization increase several times greater."

SK Innovation has already established itself as a top 5-6 global battery company through rigorous portfolio improvement, and its chemical sector competitiveness is expected to strengthen further. The EAA and PVDC businesses acquired from Dow in 2017 are showing clear performance improvements due to increased demand for packaging, and the acquisition effect of the high-performance polymer business from France's Arkema is estimated to be fully reflected in this year's performance.

Furthermore, SK Innovation's subsidiary SKIET is preparing for an IPO in the first half of this year. It is expected that the funds raised through this IPO will be used to expand investment in wet-process separators. On the 26th of last month, SKIET decided to invest 1.13 trillion KRW to build a separator plant in Silesian Voivodeship, Poland. This will enable an annual total production of 1.54 billion m2 of separators in Poland alone. Researcher Lee stated, "The separator business value of SK Innovation is estimated to exceed 14 trillion KRW," and added, "With Samsung Electronics' plans to expand the foldable device market share, demand for first-generation films such as FCW is also expected to increase."