DB Securities announced on July 20 that it has raised its target price for SK Innovation from 100,000 won to 150,000 won, a 50% increase, citing improved performance and financial stability due to strong results in the refining and lubricants sectors. The investment rating was also upgraded from 'hold' to 'buy.'
Han Seung-jae, a researcher at DB Securities, noted that while the pace of financial improvement may be slow following restructuring in the battery business, the unexpectedly strong performance in refining and lubricants has changed the investment outlook.
He stated, "With the surge in refining and lubricants profits, we expect a resumption of debt reduction after the normalization of soaring oil prices and working capital in the second half of the year. SK Innovation possesses the largest refining facility in the country and stands to benefit significantly from the shortage of lubricants, while its existing energy portfolio outside the Middle East will also come into focus."
DB Securities forecasts that SK Innovation's consolidated operating profit for the second quarter will reach 1.4 trillion won, a 35% increase from the previous quarter, aligning with market expectations. Although profits related to inventory in the refining sector are expected to decline, refining margins are projected to rise from $16 per barrel in the first quarter to $34 per barrel in the second quarter, leading to an anticipated operating profit of 1.1 trillion won.
The lubricants business is expected to achieve record results due to indirect benefits from supply disruptions of Group III base oils in the Middle East, with an estimated operating profit of 569.8 billion won for the second quarter. In contrast, the E&S business is expected to perform poorly due to the off-season and scheduled maintenance, while the chemical sector is projected to turn to a loss.
For the third quarter, operating profit is expected to temporarily decline to 635.4 billion won due to falling average oil prices. However, this is seen as a result of inventory valuation losses, and the strong refining margins are expected to continue.
Han added, "To resolve the refining supply shortage, normalization of the Strait of Hormuz, comprehensive export permits from China, and domestic price adjustments are necessary, but the likelihood of these occurring in the short term is low. Additionally, the prolonged shortage of Group III supply from the Middle East is expected to mean that the second quarter results will peak without a sharp decline, reflecting the ongoing supply shortage risks."
* This article has been translated by AI.
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