[Click eStock] "SK Innovation Turns Legal Uncertainty, Secondary Battery Expectations Intensify"

1Q Operating Profit Expected at 372.6 Billion KRW... Strong Performance Exceeding Consensus
Positive Outlook for Secondary Batteries, Refining, and Chemicals

The petrochemical complex where SK Innovation Ulsan Complex is located [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] SK Innovation's value as a secondary battery manufacturer is being highlighted as it resolves uncertainties related to litigation with LG Chem. With its core business in the refining sector also performing well, there are expectations for significant improvement in this year's earnings.

On the 15th, Shinhan Financial Investment maintained a 'Buy' rating on SK Innovation, raising the target price by about 15% to 380,000 KRW. The closing price the previous day was 276,500 KRW.

For the first quarter results this year, consolidated sales are expected to be 9.2291 trillion KRW, down 17.3% year-on-year but up 20.2% quarter-on-quarter. Operating profit is forecasted at 372.6 billion KRW, turning positive compared to both the previous quarter and the same period last year. This exceeds the market consensus of 345.8 billion KRW.

The refining segment is expected to show particularly strong performance. Refining operating profit is projected at 236.2 billion KRW, an increase of 428.7 billion KRW compared to the previous quarter. Jinmyung Lee, a senior researcher at Shinhan Financial Investment, explained, "This is due to large inventory valuation gains from rising oil prices and a slight increase in refining margins." The chemical segment's operating profit is also expected to reach 80.1 billion KRW, up 126.2 billion KRW from the previous quarter. This is attributed to the elimination of one-time costs from the previous quarter and strong market conditions. Lubricants are also expected to see operating profit of 154.7 billion KRW, a 23.4% increase quarter-on-quarter, supported by supply shortages.

Secondary batteries are expected to see increased sales but an operating loss of 108 billion KRW, similar to the previous quarter, due to initial operating costs of new plants. Nevertheless, the outlook is positive. As of 2023, secondary battery production capacity is estimated at 85 gigawatt-hours (GWh), growing at an average annual rate of 42%. This represents the steepest growth expected among domestic secondary battery companies. The U.S. plant accounts for 25%, benefiting from the expansion of the U.S. electric vehicle market. As of the fourth quarter of last year, the order backlog stood at 550 GWh (approximately 70 trillion KRW), and the possibility of additional orders delayed due to litigation with LG Chem has increased.

Lee said, "Ultimately, with the elimination of litigation-related costs and aggressive expansion of production capacity, the breakeven point for secondary batteries will be reached sooner. Refining is expected to rebound in the second half due to demand recovery from expanded vaccination, and chemicals and lubricants will record strong performance due to increased demand from global economic recovery."