Foreigners Flock to SK Innovation

Foreigners Sell Over 3 Trillion Won This Month
Net Buy of 250 Billion Won, Highest Net Purchase
Expectations for Refining Margin Increase Amid High Oil Prices
Battery Sector Expected to Reduce Losses

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Despite the consecutive market crashes, foreign investors continue to flock to SK Innovation. This is analyzed to be due to growing expectations of improved performance from the refining business segment and reduced losses in the battery business segment.

As of 10:40 AM on the 17th, SK Innovation was trading at 221,000 KRW, up 3.03% from the previous trading day. Although the major U.S. indices showed a sharp decline overnight, causing the stock to drop more than 1% early in the session, it successfully reversed to an upward trend. SK Innovation has maintained relative resilience despite the recent sharp downturn in the stock market. Its stock price has fallen about 0.4% since the beginning of this month, significantly outperforming the KOSPI return of -8.7%.

Net buying by foreigners has supported the current stock price level. Foreign investors sold approximately 3.3 trillion KRW worth of stocks in the KOSPI market this month but net purchased 247.2 billion KRW worth of SK Innovation shares. This is the largest net purchase amount among domestic stocks. Institutions also joined the buying trend with a net purchase of 25.2 billion KRW.

The basis for buying is the expectation for the refining segment. There is anticipation that refining margins will significantly improve due to rising international oil prices. Refining margin is a profitability indicator for refining companies, calculated by subtracting raw material costs such as crude oil from the prices of petroleum products like gasoline and diesel. The Singapore refining margin historically averaged around 6 USD per barrel, but this month it has hovered in the 20 USD range. Demand has increased, but since export controls on Russian petroleum products began in April, refining margins have more than tripled. Lee Dong-wook, a researcher at Kiwoom Securities, said, "With limited capacity expansions, demand improvement for petroleum products is expected to continue through next year, and considering jet fuel demand, the performance upswing is likely to persist next year."

Expectations also rise for reduced losses in the battery segment, which has been suppressing stock price gains. SK Innovation has entered the U.S. and European markets through a strategic partnership with Ford, a major U.S. customer, and there is a high possibility of new orders from domestic automakers. A turnaround to profitability is expected around 2023. Previously, LG Energy Solution, a battery cell company, surpassed its break-even point as its cumulative sales reached 2 trillion KRW, and SK On (ON) is predicted to follow a similar trajectory. The battery segment's sales in Q1 were 900 billion KRW, and cumulative sales are expected to exceed 2 trillion KRW by the second or third quarter of next year. Cho Hyun-ryeol, a researcher at Samsung Securities, said, "With the operating rate of new factories rising, the fixed cost burden has significantly decreased," adding, "The deficit will narrow close to the break-even point in the second half, prompting a revaluation of the battery segment."

In the securities industry, SK Innovation's operating profit for Q2 is estimated to reach 1.0144 trillion KRW, doubling compared to the same period last year. Some analyses predict profits could reach up to 1.6155 trillion KRW. Sales are expected to increase by 66% to 18.5087 trillion KRW during the same period.