SK Innovation, Target Price 'Raised' Despite Losses

Expectations for a Turnaround Due to Rising Oil Prices and Highlighting Battery Value

[Asia Economy Reporter Kum Boryeong] SK Innovation continued to post losses in the second quarter following the first quarter of this year, but securities firms have instead raised their target stock prices one after another. Expectations for a turnaround due to rising oil prices and improvements in the battery sector have driven up the target prices.

According to SK Innovation on the 30th, the operating loss for the second quarter of this year was 439.742 billion KRW, turning to a deficit compared to the previous year. Sales decreased by 44.71% year-on-year to 7.199583 trillion KRW. The scale of inventory valuation losses, which reached 301.4 billion KRW due to the shock from the decline in oil prices, had a significant impact on the performance.

Despite posting losses for two consecutive quarters, securities firms raised SK Innovation's target stock prices. Korea Investment & Securities raised its target from 130,000 KRW to 155,000 KRW, Meritz Securities from 145,000 KRW to 165,000 KRW, and Kyobo Securities from 110,000 KRW to 150,000 KRW.

The biggest reason securities firms raised the target prices is the momentum remaining in the second half of the year. First, a turnaround is expected due to rising oil prices and refining margins. In the second quarter, oil prices rose compared to the first quarter, significantly improving SK Innovation's operating loss from 1.7752 trillion KRW in the first quarter. Accordingly, BNK Investment & Securities estimated SK Innovation's operating profit at 321.2 billion KRW for the third quarter and 165.3 billion KRW for the fourth quarter. Although negative variables remain due to the aftermath of COVID-19, the industry is judged to have passed the bottom.

Kim Hyuntae, a researcher at BNK Investment & Securities, explained, "Most of the fluctuations in operating profit occur in the refining sector, with refining profits expected to be 299.3 billion KRW in the third quarter and 121.1 billion KRW in the fourth quarter," adding, "Inventory valuation gains of about 200 billion KRW will occur in the third quarter, and the average refining margin will slightly increase compared to the second quarter."

Battery profitability is also expected to improve. As the electric vehicle market grows rapidly and orders increase, momentum in the secondary battery business is expected to gradually emerge. Although litigation with LG Chem remains, SK Innovation stated at the second quarter earnings conference call held yesterday that it is "making every effort to achieve a favorable outcome regarding the lawsuit with LG Chem."

Lee Doyeon, a researcher at Korea Investment & Securities, said, "Considering the rapidly increasing orders from major automakers such as Hyundai Motor, Ford, and Volkswagen, the possibility of withdrawing the lawsuit through mutual agreement has increased," adding, "The electric vehicle battery production capacity, which was only 5 GWh last year, has expanded to 28 GWh this year, and considering the order backlog, the annual production capacity will soon exceed 85 GWh."

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