[Click eStock] "SK Innovation's Entry into U.S. ESS Market Encouraging, but Scale Remains Limited"

On November 3, iM Securities raised its target price for SK Innovation to 148,000 won. However, the investment opinion was maintained at Neutral (Hold), citing reasons such as the company’s relatively conservative stance on securing mid- to long-term energy storage system (ESS) facilities compared to domestic competitors.

Jang Ho, a researcher at iM Securities, stated, “We are raising the target price from 120,000 won to 148,000 won, reflecting changes to earnings estimates and applying the average for 2025-2026.” He added, “Based on EV/EBITDA calculations, the fair value of each business segment is 10.5 trillion won for refining, 8.2 trillion won for lubricants, 4.7 trillion won for batteries, and 10.5 trillion won for E&S.”

Researcher Jang commented, “The company posted better-than-expected third-quarter results due to higher refining margins and rising oil prices. Recently, refining margins have remained strong due to sanctions imposed by Europe, the EU, and the United States on Russia.” He emphasized, “However, for meaningful changes in the company’s earnings, financial structure, and stock price, normalization of the On (battery) segment is more important than the traditional legacy businesses such as refining, chemicals, and lubricants.”

He continued, “From 2025, operating losses in the On segment are expected to narrow, and from the second half of 2026, LFP-ESS supply will also begin, which is an encouraging development.” However, he explained, “The scale is still not large, remaining around 1GWh, and it is somewhat disappointing that the company maintains a conservative approach to securing mid- to long-term ESS facilities compared to domestic competitors.”

Researcher Jang added, “Whether through expanded EV sales or securing additional large-scale ESS supply contracts, we will consider upgrading our investment opinion when there are meaningful changes that can lead to SK On’s turnaround and improvement in its financial structure.”

Researcher Jang assessed SK On’s entry into the U.S. ESS market as encouraging, but somewhat lacking in scale. In September, SK On signed a 1GWh ESS supply contract with Flatiron, a U.S. renewable energy company, and plans to supply ESS products equipped with pouch-type LFP batteries for Flatiron’s Massachusetts project scheduled for 2026.

Researcher Jang explained, “No decision has been made yet on how much of SK On’s U.S. EV production facilities will be converted for ESS production. Given that the company’s secured supply contract volume is not large, its approach to securing future production capacity (CAPA) is expected to remain conservative compared to domestic competitors.”

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