Reflecting the expectation of improved refinery margin and increased EV battery orders, Korean securities firms raised the target stock price of SK Innovation massively on the prospect of favorable performances.

Researcher Baek Young-chan of KB Securities announced in a report dated April 19 that they will raise the target stock price by 10.3% to KRW 375,000, reflecting “▲ The expectation of an increase in 2021 operating profits of refining business by 50.6% due to the prospect of increased global oil prices and petrol prices, ▲ an 18.6% increase in net profits of company-wide governing shareholders, and ▲ increase in orders from resolving uncertainties of EV batteries.”

In this report, Baek said, “An increase in refining margin is expected after June”, “This is mainly because of the bullish market prices of petroleum upon the expectation that the driving season will begin in the US after the vaccination of COVID-19.” He analyzed, “The inventory level of petroleum in the US stays around 208,000 barrels as of the second week of April, which is 7.8% lower year-over-year, and lower than 5-year average”, “If the demand surges in June to July while such low inventory level continues, a short-term surge in petrol prices is inevitable.”

He emphasized, “The sales and operating profits of SK Innovation in Q1 this year recorded KRW 9.4236 trillion and 424.6 billion respectively (shifted to surplus year-over-year), which is a great improvement from last year, well beyond the consensus.” He added, “The composite refining margin in the Q1 was USD 6.9 per barrel, which is up USD 2.5 from the previous quarter”, and analyzed that “The composite refining margin increased because of both the timing lag effect from the rise in the global oil prices and the rise in profitability of petrol.”

In the same report, Baek said, “As of the end of last year, the cumulative order balance of SK Innovation’s EV battery was estimated around KRW 70 trillion”, and estimated, “As they resolved uncertainties, they will be able to take additional orders from car makers.” As such, Baek highlighted, “A massive external growth is expected with the sales amount of the EV battery business sector this year increasing by 96% year-over-year to KRW 3.156 trillion.” He also added, “The EV battery production capacity will also swiftly increase from 30 GWh in 2020 to 40 GWh in 2021 and 65 GWh in 2022.”

Meanwhile, Lee Jin-myung, a researcher at Shinhan Investment Corp., stated, “SK Innovation’s stock prices will be re-rated as the EV battery’s business values increase (from KRW 12 trillion to 17 trillion) with the resolution of uncertainties,” and proposed the target stock price of KRW 380,000, up by 15%.

Lee emphasized, “The steepest growth among Korea’s battery cell producers is expected of SK Innovation’s EV battery production capacity to 85 GWh (annual average + 42%) as of 2023, among which the US factory will account for 25%, and the performance growth from the expansion of the U.S. EV market is also anticipated.” He stated, “SK Innovation’s EV battery order balance as of Q4 last year was 550 GWh (approximately KRW 70 trillion), and there is high potential for additional orders”, “The break-even point (BEP) for EV battery will be fast-forward with the measures such as aggressive extension of production capacity.”

In this report, Lee predicted, “The main business fields of SK Innovation are expected to see a massive improvement in performance”, “The refining business is expected to make a turnaround in the second half of the year upon the recovery of demand after the expansion of vaccination against COVID-19, and the chemical and lubricants business are expected to break records when the demand increases after the global economy recovers.”