Korean securities companies are predicting a turnaround in operating profit for SK Innovation, based on the back-to-normal movement of oil demand and the rebound in refining margins in the second half of this year.

In a report on March 22, Park Il-seon, a researcher of KTB Securities analyzed that “SK Innovation’s operating profit turnaround due to improved refining margins, achievement of Green Balance 2030 strategy and expanding of battery/material production capacity to reduce carbon” as positive points to invest and suggested a target stock price of KRW 280,000.

(*) Green Balance 2030: In 2019, SK Innovation announced that it will reduce the negative environmental impacts of existing businesses and eliminate negative environmental impacts by 2030 through the green Balance 2030′ strategy to offset negative environmental impact ​​through the development of eco-friendly business models.

In the same report, researcher Park said, “SK Innovation’s first quarter results of this year is expected to be KRW 9.99 trillion in sales and KRW 348.9 billion in operating profit, which is a turn from minus to plus and may significantly exceed the consensus operating profit of KRW 5.9 billion. Park added, “This is due to ▲ improvement of refining margins and inventory-related profits amid a sharp rise in international oil prices, ▲ lube oil sales in a favorable trend, ▲improvement of PP (polypropylene) and PX (paraxylene) spreads.”

Researcher Park continued, “SK Innovation’s 2021 results are expected to be KRW 40.3 trillion in sales (+17.2% compared to 2020) and KRW 1.3 trillion in operating profit (a turnaround with expected operating margin of 3.3%).” As for refining business, oil demand is expected to exceed supply. EV battery business is also expected to be able to achieve the existing guidance of a turnaround based on EBITDA due to the start of operation of Chinese factories.”

In the same report, Researcher Park said, “SK Innovation specifically suggested Green Balance 2030, a strategy to offset negative environmental impacts with environmental positive impacts by 2030 through the development of eco-friendly new products, improvement of existing processes, and expansion of EV battery and material business. In addition, another positive sign is that SK Innovation has recently participated in the EU REALISE project to secure its own capacity related to carbon capture and storage (CCS) technology, as in the case of the global (Western) petroleum majors.”

Meanwhile, researcher Roh Woo-ho of Meritz Securities said in a report on March 19, “SK Innovation is expected to see a year-round profit recovery rally starting in the first quarter of this year”. “This is because the demand for each main product of post-COVID-19 is expected to be improved considering the increase in inventory valuation gains and improved supply and demand for both refineries and petrochemicals throughout the year.”

Researcher Roh added, “SK Innovation’s operating profit in the first quarter is expected to reach KRW 287.8 billion (comparing to YoY and QoQ, turn to profit), which is expected to show a right upturn in the market consensus, and the gain from the inventory valuation (KRW 439.2 billion) is also expected due to the price increase of imported oil.” He also forecasts the profit trend of each business of SK Innovation as follows: ▲ refining: inventory valuation gains are expected to increase sharply, ▲ petrochemical: a turnaround is expected due to the improved PX supply and demand conditions, ▲ materials: a steady margin will be maintained due to the increase in the forward adoption rate, and ▲ lubricants: sales volume will increase according to the post-COVID-19 trend.