Inventory Losses Rise Due to Falling Oil Prices
Poor Performance Continues Amid Battery Oversupply
Expectations for SK Innovation's performance are declining. For the first time since 2020, there are concerns that the company may return to an operating loss. This is due to continued inventory loss pressure resulting from falling international oil prices, as well as sluggish earnings caused by an oversupply in the battery market.
On July 4, Yuanta Securities lowered its target price for SK Innovation by 11.8% to 150,000 won for these reasons. The previous day's closing price was 119,300 won.
Yuanta Securities projected SK Innovation's second quarter results this year at 18.2824 trillion won in revenue and an operating loss of 442.9 billion won. Compared to the same period last year, revenue is expected to decrease by 2.7%, and losses are expected to continue. The size of the loss is projected to be more than twice the market consensus. Although the battery segment's losses have somewhat narrowed, the poor performance in the refining business is a significant factor.
The Singapore refining margin rose to $5.5 per barrel from $3.1 per barrel in the first quarter, but oil prices fell by about $9 per barrel. In addition, the won-dollar exchange rate dropped by about 50 won, leading to an expected inventory loss of 450 billion won.
With the operation of Hyundai Motor’s Meta Plant for electric vehicles in the United States, battery sales are expected to grow by 10-15% compared to the previous quarter, and U.S. production subsidies are projected to increase to 221 billion won. The estimated profit and loss by segment are as follows: refining, a loss of 544.6 billion won; batteries, a loss of 171.1 billion won; E&S, a profit of 171.2 billion won; and others, a profit of 101.6 billion won. Due to the continued decline in oil prices, it is assessed that it will be difficult for the company to return to profitability in the third quarter as well.
Accordingly, the full-year results are expected to be 75.2749 trillion won in revenue and an operating loss of 296.3 billion won. The net loss attributable to controlling shareholders is projected at 775.6 billion won. This would mark the first operating loss in five years since 2020.
Hwang Kyuwon, a researcher at Yuanta Securities, explained, "The scale of capital expenditures is about 6.5 trillion won, but the net cash generated from operations is only around 1.3 trillion won, resulting in a shortfall of 5.2 trillion won. By the end of this year, net borrowings will increase to 35 trillion won, and in addition to net borrowings, there are remaining repayment obligations totaling 8.3 trillion won, which represents a significant financial burden."
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