[Click eStock] "SK, Earnings, Dividends, and Share Buybacks... Sufficient Undervaluation Merit"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jaehee] Ebest Investment & Securities maintained a 'Buy' rating on SK on the 22nd, setting a target price of 360,000 KRW.

SK's consolidated sales for the second quarter of this year reached 33.3 trillion KRW, and operating profit was 3.6 trillion KRW, representing increases of 43.5% and 191.3% respectively compared to the same period last year. This marks the highest consolidated performance ever. The significant improvement in the performance of subsidiaries such as SK Innovation, SK Telecom, SKC, SK E&S, SK Siltron, and SK Materials contributed to this result. In particular, despite a decline in operating rates due to maintenance at power plants including Paju, SK E&S recorded sales of 2.2 trillion KRW and operating profit of 446.4 billion KRW, representing increases of 43.5% and 739% respectively compared to the same period last year, supported by strong electricity wholesale prices (SMP).

Additionally, growth potential is expected from unlisted subsidiaries. SK Pharmteco is expanding its synthetic CMO capacity and bio CMO business. SK Biotek's Sejong plant M3 and M4 lines are scheduled to start operations in the third quarter of this year and from next year respectively, with sales expected to increase from 150 billion KRW in 2021 to 300 billion KRW in 2024. SK Siltron plans to mass-produce SiC wafers at its Gumi plant. Since it procures SiC ingots from DuPont, which it acquired in 2020, it also has cost competitiveness, so long-term profit growth is expected to become visible once SiC wafer production fully ramps up in 2023.

Researcher Lee Seungwoong of Ebest Investment & Securities stated, "Subsidiaries' strong performance is expected to continue in the second half, with consolidated operating profit for 2022 projected to exceed 10 trillion KRW," adding, "Given that this is based on high profit growth from SK Innovation, SK E&S, and SK Telecom, which are sources of dividend income, there is strong expectation for dividend expansion. Along with the consideration of share buybacks announced last March, downside price rigidity is secured, making the undervaluation merit sufficient."

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