What Synergies Will 'Integrated SK Innovation' Create?

Improving Financial Structure and Completing Energy Portfolio
Targeting AI-Driven Energy Solution Market

Park Sang-gyu, President of SK Innovation, is delivering a greeting at the extraordinary general meeting held on the 27th at the SK Seorin Building in Jongno-gu, Seoul. Photo by SK Innovation

The 'Integrated SK Innovation,' which has become the largest private energy company in Korea, is expected to improve its financial structure and accelerate its market penetration as a provider of artificial intelligence (AI) energy solutions.

SK Innovation & SK E&S Achieve Combined Operating Profit of 1.2 Trillion KRW in First Half

According to industry sources on the 27th, the combined operating profit of SK Innovation and SK E&S for the first half of this year reached 1.2288 trillion KRW. Although SK Innovation turned to a loss in the second quarter (operating loss of 46.8 billion KRW) due to increased losses at its battery subsidiary SK On, SK E&S maintained steady profitability, posting operating profits in the trillion KRW range for both the half-year and cumulative periods. In particular, SK E&S recorded an operating profit of 649.9 billion KRW in the first half, making it highly likely to achieve the '1 trillion KRW operating profit' club for the third consecutive year. SK E&S posted operating profits of 1.7111 trillion KRW in 2022 and 1.3317 trillion KRW in 2023.

This highlights the synergy potential from the merger between SK Innovation and SK E&S. SK Innovation has continuously raised substantial funds for facility investments in SK On. Despite a deteriorated financial structure, it still requires investment capacity worth several trillion KRW. The integration with SK E&S, which is regarded as having put the liquefied natural gas (LNG) integrated value chain on a solid track, strengthens its investment capacity.

External evaluations have also changed. International credit rating agency S&P upgraded SK Innovation's credit rating outlook from stable (BB+ Stable) to 'BB+ Credit Watch Positive.' S&P noted, "The business scale and portfolio are expanding, and cash flow volatility may decrease," adding, "The stable surplus operating cash flow of SK E&S can be utilized as investment funds for SK Innovation, which requires large-scale facility investments."

AI-Driven Energy Demand Surge... 'Integrated SK Innovation' to Provide Renewable, Hydrogen, and SMR Solutions

The energy portfolio for the AI industry, which is expected to experience explosive growth, will also be comprehensively established. This is a point emphasized by SK Group Chairman Chey Tae-won. One of the main reasons for deciding on this merger was to provide energy solutions for the AI business. Integrated SK Innovation will build a business portfolio encompassing energy (oil, LNG, etc.), future energy (renewable energy, hydrogen, SMR, etc.), as well as electrification business value chains such as batteries and energy storage systems (ESS). Chairman Chey plans to strengthen cooperation not only with big tech companies and high-bandwidth memory (HBM) but also in businesses providing energy solutions. At the Icheon Forum on the 21st, Chairman Chey said, "Big tech companies require massive energy at AI data centers, so there was a common understanding that nuclear power will need to be used in the future," adding, "If there is a change in the energy mix, it will become a new opportunity for us." SK Innovation, together with SK Inc., invested 250 million USD (approximately 332.8 billion KRW) in TerraPower, a small modular reactor (SMR) company founded by Microsoft (MS) co-founder Bill Gates in 2022, securing a leading investor position.

Furthermore, by integrating overlapping organizations, it is expected to contribute to organizational efficiency. Integrated SK Innovation is expected to operate as a company-in-company (CIC) system with a horizontal integration approach rather than vertical integration, but the possibility of integrating some overlapping organizations remains. Although the nature of major businesses such as petrochemicals and LNG differs, some integrated organizations are necessary to pursue the overall energy business more comprehensively and efficiently.