[Click eStock] "SK Inno, Refining 'Stable', Battery 'Improving'"

[Asia Economy Reporter Kwon Jae-hee] Shinhan Investment Corp. maintained a 'Buy' rating on SK Innovation on the 20th, setting a target price of 230,000 KRW.

SK Innovation's operating profit for the third quarter is expected to be 605.8 billion KRW, down 74% from the previous quarter and below the consensus of 755.1 billion KRW. Refining operating profit is forecasted to drop 84% during the same period to 348.4 billion KRW. A significant decline in profit compared to the previous quarter is inevitable due to inventory valuation losses caused by falling international oil prices and a sharp drop in refining margins.

Lubricant operating profit for the third quarter is expected to increase 25% quarter-on-quarter to 319.8 billion KRW. Amid declining raw material costs, the spread improvement due to rising base oil prices is expected to sustain favorable business conditions. Chemical operating profit is projected to fall 16% quarter-on-quarter to 44.4 billion KRW. While olefins continue to weaken due to prolonged sluggish market conditions, the aromatic (PX) spread remains strong, partially offsetting additional performance declines.

Battery performance is expected to improve both in scale and profit due to price increases and shipment volume growth. Battery sales are anticipated to reach 2.1 trillion KRW (a 65% increase), with an operating loss narrowing to 175.8 billion KRW.

Jinmyung Lee, a researcher at Shinhan Investment Corp., analyzed, "The recent refining margin trend appears to be a normalization phase following a sharp rise and fall in the 2nd and 3rd quarters, and upward factors are expected to expand toward the end of the year. Although concerns such as financing and initial operating costs have increased in the battery business, recovery is expected due to gradual increases in operating rates and yield improvements at new plants, with a significant scale growth next year leading to a turnaround to profitability."

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