[Click eStock] "SK Innovation, Smooth Sailing in Both Refining and Battery This Year"

Slight Slowdown in Last Year's 4Q... Operating Profit Expected to Miss Consensus by 15%
Steady Progress in Refining and Battery This Year... Optimism for Battery Turning Profitable

Overview of SK Innovation Seosan Battery Plant

[Asia Economy Reporter Minwoo Lee] SK Innovation is expected to show performance improvement this year in its core businesses such as refining and secondary batteries, as well as growth businesses, leaving behind a somewhat sluggish fourth quarter last year.

On the 19th, Shinhan Financial Investment maintained its 'Buy' rating and target price of 380,000 KRW for SK Innovation based on this outlook. The closing price on the previous day was 272,000 KRW.

Last year's fourth-quarter results are expected to show consolidated sales of 13.6591 trillion KRW and operating profit of 608.8 billion KRW, representing an 84.6% increase in sales compared to the same period last year and a turnaround to profit. However, these figures are expected to fall short of market consensus estimates of 13.7756 trillion KRW in sales and 712.7 billion KRW in operating profit.

Refining margins rose by about 4 USD per barrel compared to the previous quarter, and significant performance improvement is expected due to inventory gains from the strong international oil prices. However, the chemical segment is estimated to see operating profit decline by about 68% from the previous quarter to 26.8 billion KRW. This is attributed to weak polymer spreads and a 42% decrease in paraxylene (PX) spreads compared to the previous quarter. Despite steady demand and increased sales volume, the lubricant segment is expected to see a 27% decrease in profit compared to the previous quarter due to spread declines. Battery sales are expected to reach 1 trillion KRW for the first time in a quarter, but profit growth is expected to be limited due to costs associated with the operation of the U.S. plant.

This year, performance improvement is expected in both core and growth businesses. Refining operating profit is forecasted to continue improving, reaching 1.38 trillion KRW. Favorable supply and demand conditions are anticipated due to demand recovery following the easing of the COVID-19 pandemic, limited supply increases, and low inventory levels. Refining margins this year are expected to rise by 4 USD per barrel compared to last year, reflecting a tight market situation, and the strong trend is likely to continue.

However, the chemical and lubricant segments are still expected to remain sluggish. This is due to anticipated weak spreads for major chemical products and spread deterioration caused by increased feedstock supply.

Battery sales are expected to grow by 96%, with operating profit turning positive at 10.2 billion KRW. Jinmyung Lee, lead researcher at Shinhan Financial Investment, stated, "With the start of commercial operations at the U.S. Plant 1 (for Ford F-150) and the operation of Plant 2 in Hungary, the scale will grow significantly. Profitability improvement is expected to gradually accelerate in the second half of the year due to the effect of fixed cost reduction."