Eugene Investment & Securities raised its target price for SK Innovation from 160,000 won to 171,000 won on July 31, citing strong second-quarter results that exceeded market expectations. The firm maintained its 'buy' rating.
Analyst Hwang Seong-hyun noted, "The second-quarter operating profit recorded a significant earnings surprise, surpassing our estimates. While one-time factors will inevitably lead to a decline in future profits, the reduction in fixed costs following the termination of the Blue Oval SK (BOSK) joint venture and the continued strength in lubricant market conditions have set the stage for sustained strong performance."
He added, "Second-quarter revenue reached 29.2 trillion won, with operating profit at 3.5 trillion won, driven by improvements across SK On, SK Enmove, SK Trading International, and SK Incheon Petrochemical. However, net profit was weaker due to non-operating losses related to SK On and SKIET, as well as impairment losses at SKIET."
Hwang also highlighted that the lubricant business benefited from supply disruptions among competitors in the Middle East, leading to increased margins for high-quality base oils, which contributed to the overall strong performance. He stated, "With the largest global production capacity for Group-III base oils, SK Innovation achieved differentiated results even amid supply disruptions, and the impact of the shutdown of Russian refining facilities suggests that favorable market conditions may persist for an extended period."
Regarding the battery sector, Hwang remarked, "SK On returned to profitability for the first time in seven quarters, thanks to increased sales volume, customer compensation, and a rise in AMPC. The transition of the Tennessee plant to a wholly-owned subsidiary of SK On following the end of the BOSK joint venture will allow for cost reductions and a more agile response to local demand for electric vehicles (EVs) and energy storage systems (ESS)."
Looking ahead, he predicted, "In the third quarter, a lagging effect from raw material input and a base effect from compensation are expected to lead to a decline in profits compared to the previous quarter. However, the entry of SK E&S into its peak season and the continued strength in the lubricant market will help maintain a differentiated performance trend."
* This article has been translated by AI.
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