[Click eStock] "SK Inno, Battery Yield Improvement Delayed... Target Price Down"

[Asia Economy Reporter Hwang Yoon-joo] Kiwoom Securities evaluated on the 16th that SK Innovation is unlikely to face a significant weakness in condensate prices compared to crude oil, and that improvements in battery yield may be delayed for the time being. Accordingly, they maintained a 'Buy' investment rating but lowered the target price to 199,000 KRW.

Shin Daehyun, a researcher at Kiwoom Securities, stated, "At a time when efforts should be focused on improving battery yield, potential defects were raised during preliminary inspections," adding, "While the financial burden has increased due to large-scale CAPEX (approximately 7.5 trillion KRW for the battery sector in 2023), uncertainty regarding the timing of turning profitable has somewhat increased."

Ford has halted operations at its Dearborn plant in Michigan, which assembles the F-150 Lightning, since last week. This is reportedly due to the discovery of potential defects during the 'Pre-delivery Inspection' stage. As this issue was raised as a preliminary check, the possibility of a recall related to this appears to be low at present.

Researcher Shin pointed out, "If the suspension of operations on the Ford line, one of the top three customers by order backlog, is prolonged or if the strategic relationship changes, uncertainty regarding SK Innovation's core growth strategy in batteries will increase."

He also emphasized, "Despite the U.S. Inflation Reduction Act (IRA), it is important to note the recent announcement by Ford to establish a 35GWh annual capacity LFP battery plant in Michigan in partnership with CATL, making it difficult to rule out the possibility of the Chinese battery value chain entering the U.S. market."

Regarding the refining sector, it is unfortunate that condensate prices continue to be strong compared to WTI. Previously, Kiwoom Securities judged that an increase in the operating rate of the CFU (Condensate Fracking Unit) could lead to increased product output without additional facility investment, which was seen as a positive factor.

Researcher Shin predicted, "Despite the increase in NLG production, transportation difficulties due to drought along the Mississippi River seem to have had an impact," adding, "The strength of condensate prices and the low likelihood of CFU operating rate improvement for the time being suggest that production increases are unlikely in the near term."