[Click eStock] "SK Inno, Disappointing 4Q Results... Target Price ↓"

[Asia Economy Reporter Kwon Jaehee] NH Investment & Securities maintained its 'Buy' rating on SK Innovation on the 18th but lowered the target price by 8%, from 250,000 KRW to 230,000 KRW.

SK Innovation is expected to record disappointing results in the fourth quarter. Sales are projected at 21.1 trillion KRW, with an operating loss of 458.7 billion KRW. This significantly underperforms market expectations.

By business segment, the petroleum division is expected to incur the largest loss. Petroleum segment sales are estimated at 14.1 trillion KRW, with an operating loss of 535.1 billion KRW.

Choi Young-kwang, a researcher at NH Investment & Securities, analyzed, "Despite solid refining margins in Q4, the operating loss is expected due to negative lagging effects from declines in oil prices and exchange rates, expanded inventory valuation losses, and increases in OSP (Official Selling Price of crude oil)."

The chemical division's sales are forecasted at 2.5 trillion KRW, with an operating loss of 9.3 billion KRW. This is attributed to a 19.6% decline in paraxylene (PX) spreads compared to the previous quarter and a general weakening of spreads across products.

The lubricants division is estimated to have sales of 1.2 trillion KRW and an operating profit of 245.3 billion KRW. However, profitability is expected to weaken compared to the previous quarter due to decreased sales volume in the Q4 off-season.

The battery division is expected to record sales of 2.8 trillion KRW and an operating loss of 224.5 billion KRW. The commercial operation of the Georgia Plant 2 in the U.S., originally scheduled for Q1 2023, was advanced, leading to increased depreciation expenses and deteriorated profitability.

However, with early recognition of initial operating costs, a gradual improvement in profit margins is expected starting from Q1 this year.

Choi Young-kwang of NH Investment & Securities stated, "Considering the slower-than-expected profitability improvement of SK On, we have lowered the operating margin forecasts for 2023 and 2024 from 1.5% and 4.0% to 0.8% and 3.5%, respectively. However, the gradual improvement trend in profit margins due to increased utilization rates of new plants and yield improvements at overseas factories remains valid, so we maintain our 'Buy' rating."