After SK Innovation announced its Q3 results on October 29^th, various securities firms have evaluated that the company’s performance exceeded the market consensus, thanks to its outstanding results in long-established sectors and fast growth of battery business.

According to the reports by SK Innovation, its total sales in Q3 of 2021 recorded KRW 12.3 trillion, an increase of KRW 1.18 trillion QoQ, thanks to the improvement of oil prices and petrochemical product market conditions, along with the increase in battery sales. Q3 operating profit hit KRW 618.5 billion, an increase of KRW 672.2 YoY and KRW 112 billion QoQ.

More details about SK Innovation’s financial results in the third quarter of this year can be found here.

In this regard, Korea Investment & Securities researcher Choi Go-woon said in a report dated November 1, “SK Innovation’s operating profit in Q3 exceeded the consensus by 37% thanks to improved profits in the oil business.” “SK Innovation’s operating profit in the refining business sector increased 25% QoQ to KRW 290.6 billion.” “Even excluding inventory-related gains, the company succeeded in turning to a profit of KRW 44 billion,” Choi commented. He also highlighted that “the operating profit of the lubricants sector was KRW 84.4 billion, an increase of 45% compared to Q2, hitting a new record for high operation profit again.”

Researcher Choi continued by giving his predictions for the next quarter. “We expect SK Innovation’s operating profit to be KRW 809.3 billion in Q4,” and “most of the profit growth will be attributed to the refining business,” he said. Choi also expected that “The operating profit of refining business will increase by 74% to KRW 500 billion, thanks to improved refining margins.”

Regarding SK Innovation’s battery business, researcher Jeon Chang-hyeon of IBK Investment & Securities said in a report also released on November 1 that “SK Innovation’s battery business recorded the highest quarterly performance and maintained a steep growth due to an increase in the utilization rate of its new Chinese plant and an increase in mass production volume.”

In the same report, researcher Jeon expected, “2022 will be the first year of a turn-around for SK Innovation’s battery business,” with “sales are expected to double the number of this year.” “With the operation of two new factories in 2022, SK Innovation’s battery production in three major markets China, Europe and North America will be expanded in large scale.”

Researcher Jeon continued his report by emphasizing that “SK Innovation is accelerating the ESG portfolio transition from the existing carbon business to the green one, and its battery business is particularly growing rapidly.” “SK Innovation (subsidiary SK On)’s battery production capacity will be expanded from 40 GWh in 2021 to 85 GWh in 2023, and 220 GWh+α in 2025.” He concluded, “SK Innovation’s stock price is considered to be undervalued even considering the discount following the recent spin-off and future IPO of the battery business.”

From Shinyoung Securities, researcher Lee Ji-yeon commented “The battery order backlog revealed by SK Innovation in this earnings announcement recently increased to 1.6 TWh (terawatt hour) through a joint venture with Ford, and related sales have also been significantly increased to KRW 220 trillion.” Lee analyzed that “it is necessary to pay attention to the potential for sales and profit growth from SK Innovation’s first EV battery in the U.S. and the Plant 2 in Hungary, which will be fully operational from 2022.” She also selected SK Innovation as one of the industry’s top picks.

Previously, before SK Innovation announced its Q3 financial results, Oscar Yee, an analyst of Citi Bank also stated in a research dated October 12^th that they “rate SK Innovation as Buy with target price of KRW 380,000”, expecting “the stock to benefit from robust EV growth trend given its unique exposure in both separator and EV battery.” In addition, the City Research also pointed out that they “see stronger operating cash flow generation on GRM (gross refining margins) rebound / lower Chinese oil products export, which could ease concern of high gearing / capex burden.”