Meeting the market expectations, SK Innovation achieved an operating profit of more than KRW 500 billion for two consecutive quarters of 2021, surpassing the KRW 1 trillion won mark of operating profit in the first half of the year.

Many Korean securities firms gave positive assessment of SK Innovation’s performance in the second quarter, which was announced on August 4^th, saying that the results met the market consensus. In addition, the securities industry evaluated that SK Innovation’s growth potential is still valid, saying that the decision to split the battery and E&P business announced on the same day had little effect on SK Innovation’s fundamentals.

In this regard, Baek Young-chan, a researcher of KB Securities, summarized in a report on the 4^th that “SK Innovation’s revenue and operating profit in Q2 are higher than Q1 and the same quarter of last year.” “The background of SK Innovation’s earnings improvement is attributed to ▲a rise in gasoline profitability and positive inventory gains and losses, ▲a sharply reduced operating loss in the battery business, and ▲a widening spread of lube base oil.”

According to SK Innovation’s Q2 earnings announcement, the lubricant business recorded an operating profit of KRW 226.5 billion, up KRW 89.4 billion from the previous quarter, due to a sharp increase in margins due to tight supply and demand conditions such as a reduction in the utilization rate of refineries. This is the highest quarterly operating profit ever achieved since it became a subsidiary of SK Innovation in 2009. The industry also evaluates that the lubricant business has driven SK Innovation’s Q2 performance.

The battery business recorded sales of KRW 630.2 billion due to the expansion of new sales, an increase of about 86% compared to the same period of the previous year. Moreover, it is recording a continuous increase in sales. Operating profit reached KRW 630.2 billion in Q2, following the record of KRW 523.6 billion in Q1, breaking the 500 billion won mark for two consecutive quarters.

In the same report, researcher Baek Young-chan pointed out, “If we consider the long-term enhancement of corporate value, SK Innovation’s physical spin-off is clearly positive.” In addition, researcher Baek said, “Securing the battery market preemptively through active investment over the next two to three years will determine the battery enterprise value.” “Through the spin-off, the investment in expanding battery business is possible under the support of the parent company (SK Innovation), and raising investment funds through an IPO will be positive enough for corporate value,” Baek added.

On July 1^st, SK Innovation announced that it aims to grow into a global top based on the order backlog of “1 terawatt + α” EV batteries. SK Innovation has already secured a total annual battery production capacity of 40GWh in Korea, China, Hungary, and the U.S. This number is planned to increase rapidly to 85GWh in 2023, 200GWh in 2025, and more than 500GWh in 2030. In addition, SK Innovation’s battery business is growing in many ways, which can be seen through activities such as the decision to build a joint venture with Ford, which was announced in May.

Park Yeon-joo, a researcher of Mirae Asset Securities, said in a report on the 4^th, “Recently, global automakers are speeding up the conversion into electric vehicles (EV).” “While high-quality EV battery makers are limited, SK Innovation’s proven technology and strong will to invest more in the battery business are good indications for the increase of its battery business’s value.” In addition, Park analyzed, “Considering the oil refining and chemical businesses and the value of SK IE Technology’s stake, the current share price of SK Innovation is excessively undervalued.”

In a report on the same day, Cho Hyun-ryeol, a researcher of Samsung Securities commented, “Even with the spin-off news, SK Innovation’s battery business value is discounted at a rate of more than 60% compared to competitors, so the discount rate of such highly undervalued business value will be cleared by catalysis of battery profit improvement.” Jeon Yoo-jin, a researcher of Hi Investment & Securities, also said in a report on the 4^th, “The current share price of SK Innovation does not reflect the battery business value at all.” Researcher Jeon pointed out, “There are still many positive factors, such as the expected improvement of refinery business improving in the second half of this year, the continued boom of lubricant business, and the battery business where the loss will be drastically reduced.” Jeon continued by proposing a target price of KRW 400,000 for SK Innovation’s stock.

On a report released on the 5^th, analyst Jeon Chang-hyun of IBK Investment & Securities said, “SK Innovation’s spin-off of battery business and E&P business is a decision for mid- to long-term development of the company.” “The green growth strategy will be accelerated, and we expect new growth engines such as the metal recycling business for waste batteries,” he added.