[Click eStock] "SK Innovation, The Year to Resolve Battery Undervaluation"

On the 30th, IBK Investment & Securities maintained its investment opinion of 'Buy' and target price of 236,000 KRW for SK Innovation.

IBK Investment & Securities evaluated that SK Innovation's yield normalization will accelerate toward the second half of this year, making this year the first year to resolve undervaluation. Although doubts about SK Innovation's battery plant yield still exist in the market, this appears to be due to SK Innovation's aggressive and simultaneous expansion of investments in response to the rapidly growing upstream market. Additionally, labor procurement issues in Hungary and the United States, both in full employment states, are also understood to have affected the yield. However, considering cases such as Panasonic 2170 and LG Energy Solution's Poland plant, where top-tier companies also require 2 to 3 years for new lines to reach normal yield, the yield issue is not unique to SK Innovation. Furthermore, the battery industry's yield stabilization period is gradually shortening, and SK Innovation's new expansion plants are expected to accelerate yield normalization toward the second half of this year, similar to the existing Hungary Plant 1 and China Yancheng Plant 1, due to learning effects and normalization of labor procurement.

It is also analyzed that SK Innovation's battery value needs to be fully reflected. Although a gap in sales and operating profit with existing business divisions is still expected, considering the capital expenditure (Capex) plan, this year is likely to be the first year when assets in the battery and materials divisions surpass existing assets. In the past, LG Chem and Hanwha Solutions also saw the value evaluation of non-chemical sectors such as solar power and batteries fully reflected after asset proportion reversal.

SK Innovation's market capitalization is 15.3 trillion KRW, assuming the value of chemicals, refining, and lubricants is equal to competitors with smaller profit scales, and considering SK IE Technology (SKIET)'s market cap, the battery value is estimated at about 1.4 trillion KRW.

Lee Dong-wook, a researcher at IBK Investment & Securities, analyzed, "Considering that SK Innovation's battery production capacity maintains 40% of LG Energy Solution's, it appears to be excessively undervalued," and added, "Also, when operating plants 3 to 4 times larger at 30?40 GWh next year and the year after, a reduction effect of over 20% is expected in terms of depreciation and labor costs, which is positive for performance improvement."

The researcher added, "It is also time to consider that the Inflation Reduction Act (IRA) benefits are greatest relative to market capitalization."