Shinhan Investment Corp. announced on May 14 that it has raised its target price for SK Innovation from 130,000 won to 170,000 won, an increase of 30.8%, citing strong refinery market conditions and a recovery in the battery business. The firm maintained its "buy" rating on the stock.
Lee Jin-myung, an analyst at Shinhan Investment, stated, "Despite concerns over global demand slowing, the current impact of supply disruptions is more significant, suggesting that tight supply and demand conditions will persist for the time being." He added that the battery business is expected to recover, driven by robust electric vehicle (EV) sales in Europe and growing order expectations in the North American energy storage system (ESS) sector.
According to Shinhan Investment, SK Innovation's operating profit for the first quarter of this year reached 2.2 trillion won, a 190% increase from the previous quarter, aligning with market consensus of 2 trillion won.
The refinery segment is estimated to have recorded an operating profit of 1.7 trillion won, benefiting from significant inventory valuation gains due to rising international oil prices and strong refining margins. The chemical segment also turned profitable, posting an operating profit of 332.6 billion won, aided by inventory valuation gains from soaring raw material prices.
In the battery business, revenue increased by 23% from the previous quarter to 1.8 trillion won, driven by higher shipments from European factories. Despite a reduction in production tax credits (AMPC), the company managed to narrow its losses thanks to sales recovery in certain regions and efforts to improve profitability.
Lee noted that while international oil prices and refining margins, which surged due to the blockade of the Strait of Hormuz, may face downward risks, supply disruptions are currently a more significant variable, suggesting that refining margins are likely to remain strong.
He further stated, "The battery sector is securing a growth foundation for ESS through line transitions in the U.S. and is expected to see a seasonal pattern of stronger sales in the second half of the year, recovering market share in Europe. Despite various concerns surrounding the industry, the positive factors outweigh the negatives."
* This article has been translated by AI.
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