LG Energy Solution and Samsung SDI Race Ahead While SK Innovation Shareholders Feel Anxious

LG Energy Solution and Samsung SDI Soar Over 30% in Three Months
SK Innovation Declines Over 6% in Same Period
Oil Price Weakness and SK On Funding Issues Suppress Stock Prices

[Asia Economy Reporter Minji Lee] "Are they really the top three battery companies? They are competing in market capitalization with their partner POSCO Chemical (15.57 trillion KRW)."

As Samsung SDI and LG Energy Solution (LG EnSol) have risen more than 30% in the past three months, SK Innovation's sole decline has drawn complaints among shareholders.

According to the Korea Exchange on the 28th, SK Innovation, one of the top three battery companies, fell more than 6.8% from 182,500 KRW to 170,000 KRW over the past three months (July 27 to October 27). Compared to the high price recorded on August 17 (213,500 KRW), it plunged more than 20%, with a market capitalization evaporation of 1 trillion KRW (from 168.7 trillion KRW to 157 trillion KRW) over three months. In contrast, Samsung SDI and LG EnSol showed starkly different stock price trends. Samsung SDI rose 30.7% from 556,000 KRW to 727,000 KRW, and LG EnSol increased 37% from 393,000 KRW to 540,000 KRW. Foreign and institutional investors drove the stock prices by net buying 784.3 billion KRW and 520.1 billion KRW worth of Samsung SDI and LG EnSol shares, respectively, ranking them first and second in net purchases.

Recently, secondary battery companies have seen expanded investor sentiment, buoyed by expectations of growth in the U.S. electric vehicle market following the enactment of the IRA (Inflation Reduction Act), increasing shipment volumes, and favorable exchange rate effects. Additionally, LG EnSol and Samsung SDI responded with strong third-quarter performances, supporting stock price gains. LG EnSol recorded an operating profit of 521.9 billion KRW and sales of 7.6482 trillion KRW in the third quarter, achieving record-high sales and raising its annual sales forecast from 22 trillion KRW to 25 trillion KRW. Samsung SDI also posted sales of 5.368 trillion KRW and an operating profit of 565.9 billion KRW, continuing its record-breaking performance streak.

[Image source=Yonhap News]

On the other hand, SK Innovation is expected to report weak third-quarter results. The ongoing weak oil price trend is anticipated to significantly reduce profits in the refining and chemical sectors. This is due to expanded inventory valuation losses and a sharp drop in refining margins, making profit decline inevitable. The average international oil price (Dubai crude) in the third quarter was $98 per barrel, down 10% from the previous quarter. The securities industry's estimated operating profit is 712 billion KRW, which is over 400 billion KRW lower than the consensus profit of 1.1075 trillion KRW two months ago. The lowest operating profit estimate came from Mirae Asset Securities, projecting 438.1 billion KRW. Besides the oil price decline, the profitability improvement of SK On, the battery subsidiary spun off physically, has been slow. Jin-ho Lee, a researcher at Mirae Asset Securities, said, "SK On's operating loss is expected to be around 160 billion KRW," adding, "The loss widened due to decreased yield at the Hungary Plant 2."

Negative news also came from reports that SK On is struggling to raise funds before its IPO (pre-IPO). This is attributed to institutional investors' reluctance to invest in companies amid rising interest rates. SK On was initially expected to borrow about 2 trillion KRW externally but is now projected to barely secure 1 trillion KRW. Hyun-ryeol Cho, a researcher at Samsung Securities, said, "If external borrowing becomes difficult, the possibility of SK Innovation participating in a capital increase cannot be ruled out," adding, "Low corporate valuation and funding process setbacks are further worsening investor sentiment."

However, experts generally agree that the stock price decline will not continue in the mid to long term. Although the stock price may be weak in the short term, the third quarter is expected to mark the bottom, followed by performance improvement. The basis for performance growth is the normalization of the refining market. Jin-myung Lee, a researcher at Shinhan Financial Investment, explained, "Refining margins are expected to normalize from the third quarter as limited capacity expansions have continued despite increased demand," adding, "In the battery sector, gradual increases in the operating rates of new plants could enable a turnaround to profitability next year."

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