[Click eStock] "SK Innovation, Attractive Both Short-Term and Long-Term"

Meritz Securities Report

[Asia Economy Reporter Minji Lee] Meritz Securities on the 4th gave SK Innovation a buy rating and a target price of 365,000 KRW.

Currently, the industry is facing heightened concerns over supply disruptions of crude oil, natural gas, and petroleum products due to prolonged geopolitical risks between Russia and Ukraine. Oil prices have reached $110 per barrel for the first time since 2014, and refining margins have also turned bullish to the highest level of the year.

Reflecting inventory gains from the strong oil prices, the company's operating profit is expected to reach 752.8 billion KRW and 878 billion KRW in the first and second quarters, respectively. Researcher Noh Woo-ho of Meritz Securities stated, "However, it is necessary to consider whether the strong industry indicators due to geopolitical risks are healthy for profitability," adding, "6% of refiners' cost of sales is fuel costs, which are linked to oil prices, and these costs are expected to be pressured by prolonged high oil prices."

In the mid to long term, the growth of SK On and leT is expected to drive an increase in the company's corporate value. This week, SK On's partner Ford EV division decided to spin off and revealed an aggressive electrification strategy. Accordingly, SK On is likely to raise its existing production capacity forecast of 220 GW by 2025. There is also a high possibility of Ford's investment in Europe in March, which is expected to lead to an upward revision of guidance.

Researcher Noh said, "In a phase where cell suppliers are scarce, OEMs' electrification plans and partnerships such as joint ventures with verified cell companies are key competitive factors."

Furthermore, the strong carbon business makes it possible to self-finance investment funds over the next two years, which is positive. The ongoing pre-IPO of SK On is expected to be completed in the first half of this year. Researcher Noh said, "The pre-IPO is likely to raise the estimated value of SK On (35 trillion KRW) and will be an opportunity to secure mid- to long-term investment funds and dispel IPO concerns."

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