[Click eStock] "SK Inno, Oil Business Unit Profit Increase... Target Price Up 10%"

KB Securities Report

[Asia Economy Reporter Minji Lee] KB Securities maintained a buy rating on SK Innovation on the 19th and raised the target price by 10% from the previous level to 375,000 KRW. It is estimated that the operating profit of the petroleum division has been revised upward by 50.6% compared to the previous estimate due to the rise in international oil prices and gasoline prices.

The petroleum division is expected to benefit from rising refining margins after June. This is because the U.S. driving season has started following COVID-19 vaccinations, leading to expectations of strong gasoline prices. In the second week of April, U.S. gasoline inventories stood at 20 million barrels, 7.8% lower than the same period last year. Baek Young-chan, a researcher at KB Securities, explained, “Inventory levels are significantly below the average of the past four years,” adding, “With low inventory levels persisting, a short-term surge in gasoline prices is expected during the demand spike in June and July.”

First-quarter sales are estimated at 9.4236 trillion KRW, down 15% from the same period last year. Operating profit is expected to turn positive at 424.6 billion KRW, exceeding the market consensus of 361.8 billion KRW. The first-quarter composite refining margin improved by $2.5 per barrel from the previous quarter to $6.9 per barrel. The margin increase reflects a lag effect from rising international oil prices as well as improved gasoline profitability.

The electronics division's first-quarter revenue is expected to rise 111.8% year-on-year to 611.6 billion KRW. Commercial production started at two factories in China from the fourth quarter of last year, and after growth in the first half, significant profit improvement is also anticipated in the second half.

The battery division is expected to expand EV battery orders following the final settlement of the battery lawsuit with LG. As of the end of last year, the cumulative order backlog is estimated at around 70 trillion KRW. With the removal of litigation uncertainties, additional orders from automakers are expected. This year, the battery division's revenue is projected to grow 96% year-on-year to 3.156 trillion KRW. The operating loss is expected to narrow to 268.3 billion KRW. Researcher Baek stated, “Battery production capacity is expected to rapidly increase from 30 GWh last year to 40 GWh this year and 65 GWh next year.”