[Click eStock] "SK Innovation, Slow Profitability Improvement... Target Price Down"
NH Investment & Securities on the 12th downgraded the target price for SK Innovation from 190,000 KRW to 170,000 KRW, citing a slow pace of profitability improvement. The investment rating was maintained at 'Buy.'
Choi Young-kwang, a researcher at NH Investment & Securities, explained, "The target price was lowered by 11%, reflecting the decline in comparable companies' stock prices and adjusting the target multiple for the battery segment to 6.55 times (previously 7.8 times). Although the slow pace of profitability improvement is disappointing, unlike competitors, SK Innovation continues to show a direction of profitability improvement despite the deteriorating external environment, so we maintain the investment rating."
SK Innovation's fourth-quarter results for last year are expected to fall significantly short of market expectations. NH Investment & Securities forecasts SK Innovation's Q4 revenue to decrease by 5.1% quarter-on-quarter to 18.9 trillion KRW, and operating profit to drop by 92.4% to 118.1 billion KRW. Researcher Choi stated, "The oil segment is expected to record an operating loss of 283 billion KRW due to falling oil prices and lagging refining margins, while the chemical segment's operating profit is estimated to decline by 45.7% quarter-on-quarter to 128.8 billion KRW due to a decrease in spreads across products. The battery segment is expected to continue operating losses of 12.6 billion KRW; however, despite price and utilization rate declines, advanced manufacturing production tax credits (AMPC) of 227.5 billion KRW are anticipated due to increased sales in the U.S., and excluding AMPC, the operating margin is expected to slightly improve quarter-on-quarter through yield improvements," he analyzed.
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The battery segment is expected to turn to quarterly operating profit in the first quarter of this year. Researcher Choi said, "Although expansions in Hungary and China are scheduled this year, due to price declines and slowing demand growth, battery segment sales are expected to be similar to the previous year. The timing of the quarterly operating profit turnaround is expected to be delayed to the first quarter of this year."
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