[Click eStock] SK Inno, Clear Earnings Improvement and IRA Benefit Expected

On the 23rd, IBK Investment & Securities maintained a buy rating and a target price of 236,000 KRW for SK Innovation. This is based on the expectation that the company's performance will improve this year due to benefits from the U.S. Inflation Reduction Act (IRA), as well as a clear improvement in the chemical aromatic sector's performance.

SK Innovation's operating loss for the first quarter of this year is expected to be 142.4 billion KRW, falling short of market expectations. Although the lubricating base oil segment continues to record high profitability, a large inventory valuation loss in the refining division is occurring due to falling oil prices. Additionally, production disruptions, performance-based bonus payments, and the off-season impact are expected to widen losses in the battery division. The separator subsidiary is also projected to maintain losses following the previous quarter, due to continued deficits at FCW.

However, performance improvement is anticipated going forward. Dongwook Lee, a researcher at IBK Investment & Securities, stated, "The yield and operating rate of the battery plants in Hungary and the U.S., which were expanded last year, have recently shown improvement. In particular, the previously low yield at the Hungary plant now appears to exceed 80%." He added, "Starting from the first quarter low point, from the second quarter onward, with the expansion of new car launches and improvements in yield and operating rates, operating profit is expected to show signs of improvement." He also noted, "Considering the effects of the IRA, additional profit increases are expected," forecasting benefits amounting to 4 trillion KRW from this year through 2025.

Further increases in aromatic margins are also expected. The PX spread has recently strengthened, positively impacting the chemical sector's performance. Gasoline crack spreads remain robust, and with strong operating rates in downstream polyester, regular maintenance is underway for regional PX companies and crackers. Lee pointed out, "With the driving season arriving after the second quarter, further improvements in gasoline spreads are anticipated. Alongside expanded regular maintenance by competitors, a clear improvement in the chemical aromatic sector's performance, including PX and benzene, is expected."