SK Innovation, Battery Business Value Expected to Reflect in Stock Price... Target Price Up 18%

KB Securities Report
Q3 Operating Profit ... Turned to Black

[Asia Economy Reporter Minji Lee] SK Innovation's stock price is expected to rise further based on the rapid external growth of its battery business. It is analyzed that the business value could be gradually reflected in the stock price as it is expected to record significant operating profit in 2023. Accordingly, on the 26th, KB Securities maintained a buy rating on SK Innovation and raised the target price by 18.8% from the previous level to 190,000 KRW.

SK Innovation's sales in the third quarter are expected to increase by 28% from the previous quarter to 9.2403 trillion KRW. Operating profit is forecasted to turn positive, reaching 111.7 billion KRW. This is expected to exceed the market consensus operating profit of 61 billion KRW.

The petroleum business operating profit is predicted to turn positive to 65.6 billion KRW compared to the previous quarter. The third quarter complex refining margin is estimated at 3 dollars per barrel, down 1 dollar from the second quarter. Although the refining margin alone suggests an operating loss, it is expected to record an operating profit due to improved inventory gains and losses from the rise in international oil prices in the third quarter. The chemical business operating profit is estimated to decrease by 4.6% from the previous quarter to 65.1 billion KRW. The average PX spread in the third quarter is observed to be 165 dollars per ton, below the break-even point (BEP). The operating loss in the aromatic segment is presumed to have had an impact.

Baek Young-chan, a researcher at KB Securities, said, “Reflecting the increase in petroleum business performance due to the easing of movement restrictions from 2021 to 2022 and the improvement in battery business performance, the ROE rose from the previous 7.5% to 8.8%. In the case of the battery business, through aggressive capacity expansion, it is expected to reach the BEP level in 2022 and show significant operating profit in 2023.”

The battery business is growing rapidly. Sales, which were 288.8 billion KRW in the first quarter, are expected to increase to around 700 billion KRW in the fourth quarter. The effective operating rates of the Hungary Plant 1 and the Changzhou Plant in China, which started commercial operation in the first half of the year, are judged to be around 80%. Battery production capacity is also expected to expand rapidly. According to expansion plans, capacity is scheduled to increase to 27GW in 2020, 40GW in 2021, 62GW in 2022, and 84GW in 2023. Researcher Baek Young-chan said, “Considering that most of the expanded volume has already been ordered, the pace of performance improvement is also expected to proceed rapidly.”

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