SK Innovation, Refining Division Performance Improvement... Q2 Deficit Expected to Narrow

Daishin Securities Report, Target Stock Price Up 23%

[Asia Economy Reporter Minji Lee] SK Innovation is expected to reduce its deficit in the second quarter compared to the first quarter. Accordingly, on the 7th, Daishin Securities maintained a buy rating on SK Innovation and raised the target price by 23% from the previous level to 160,000 KRW.

In the second quarter, SK Innovation is expected to record an operating loss of 127.8 billion KRW, narrowing the deficit compared to the previous quarter and surpassing market expectations of 387.4 billion KRW.

Researcher Sangwon Han of Daishin Securities said, “Since the deterioration of refining margins due to the global spread of COVID-19 began in earnest from March, the poor refining margin trend has continued up to the present, as meaningful demand recovery has not yet appeared.”

However, the refining sector is expected to improve its performance. This is because the negative lagging effect will disappear, and positive effects are expected to be reflected from May. The lagging margin in May is expected to recover to pre-COVID-19 levels. The effect of the sharply reduced Saudi (Middle East) crude oil procurement cost (OSP) is also gradually reflected from May, which is positive.

The chemical and lubricant sectors are also expected to see a significant increase in profits due to the disappearance of large inventory losses from the previous quarter. In the case of Exploration & Production (E&P), profits are expected to decrease due to deteriorating profitability caused by falling oil prices.

For the electric vehicle battery (EVB) business, sales are expected to increase due to the operation of new plants, but the large-scale deficit trend is likely to continue.

Researcher Sangwon Han said, “In the previous quarter, a large loss of about 1.1 trillion KRW (940 billion KRW in refining, 140 billion KRW in chemicals, and 30 billion KRW in lubricants) was reflected along with the sharp drop in oil prices, but in the second quarter, the scale of inventory losses is expected to be significantly reduced compared to the previous quarter.”

He added, “The market capitalization compared to S-Oil is still only 1.4 times, and if a smooth resolution is reached before the final ITC lawsuit ruling (in October), the value of the electric vehicle-related business could be reflected in the stock price.”

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