SK Innovation, Bottoming Out... Recovery Expected in the Second Half of the Year

[Asia Economy Reporter Song Hwajeong] SK Innovation, which recorded the worst performance in its history due to a large-scale deficit in the first quarter of this year, is expected to gradually improve in the second half of the year.

According to Mirae Asset Daewoo on the 23rd, SK Innovation's stock price sharply declined due to large inventory valuation losses caused by the sharp drop in oil prices in the first half of the year and uncertainties related to batteries from litigation with LG Chem, then somewhat rebounded and has been showing a sideways trend. SK Innovation's stock price fell to the 50,000 KRW range during the March crash caused by the novel coronavirus infection (COVID-19) but recently settled around the 100,000 KRW level. It has risen 5.29% so far this month. Researcher Park Yeonju of Mirae Asset Daewoo said, "The reason SK Innovation experienced a large drop in stock price within the industry is presumed to be due to increased risk aversion as overall macro uncertainties expanded significantly because of the pandemic."

Although poor performance is expected to continue until the second quarter, it is forecasted to gradually improve from mid-second quarter on a monthly basis. Researcher Park explained, "Oil prices themselves have hit bottom and are gradually rebounding, and refining margins are also improving," adding, "From mid-second quarter, the Official Selling Price (OSP) of crude oil is expected to decline, leading to lower costs."

Opinions suggest that crude oil supply and demand will further improve toward the second half of the year. Researcher Park analyzed, "While crude oil demand is expected to gradually recover, OPEC's production cuts are continuing, and U.S. shale oil producers' production cuts are expected to be fully implemented from the fourth quarter."

Accordingly, SK Innovation's performance momentum has passed the bottom and is expected to improve in the second half of the year. Researcher Park said, "SK Innovation's operating profit is expected to be a deficit of 199 billion KRW in the second quarter but improve to 241 billion KRW in the third quarter," explaining, "The negative impact from the oil price decline will be removed, and margin improvement effects due to low OSP are expected."

However, the stock price's upward momentum is expected to be relatively weak compared to the recovery in performance. Researcher Park said, "This is because uncertainties related to batteries are expected to continue for the time being, and the benefits from low oil prices are also expected to be relatively limited."

This content was produced with the assistance of AI translation services.