SK Innovation expected to post better earnings in Q3

An SK Innovation researcher holds the company's electric vehicle batteries in this file photo. / Courtesy of SK Innovation

By Nam Hyun-woo

SK Innovation has been highly appreciated by investors for its seamless efforts to renovate its business portfolio amid favorable market conditions.

The appreciation has been reflected in the firm's stock prices that have shown bullish runs throughout last week, which indicates investors expect the refining and battery company to enjoy better earnings in the third quarter.

SK Innovation ended at 203,500 won on Friday, rising 5.7 percent from 192,500 won on Sept. 7.

The rise came after the optimistic view that improving refining margins will buoy the company's performance in the coming quarters.

“Expansion in paraxylene margins and improving refining margins will benefit SK Innovation in the third quarter,” Mirae Asset Daewoo analyst Park Yeon-ju said. “In the third quarter, the company's operating profit will reach 719.1 billion won, which is well above the market consensus.”

SK Innovation's Sept. 3 announcement that it will expand the production of low sulfur fuel oil on an oil-blending tanker also pumped up the stock price.

This blending business will help companies save on oil delivery costs, but is technically challenging, with only a few companies in the world doing it. SK Innovation is the only Korean refiner operating a massive vessel in waters off Singapore as an oil-blending tanker.

In Ulsan, SK Innovation is building a new 40,000-barrel a day vacuum residue desulfurization (VRDS) unit. It is expected to add 240 billion won a year to the company's operating profit, according to Samsung Securities analyst Cho Hyun-ryul.

SK Innovation's battery business also looks promising given its sharp growth in recent months. According to SNE Research, a battery market tracker, SK Innovation rolled out 315.4 megawatt-hours of electric vehicle (EV) batteries in the first seven months of this year.

It represented 134.8 percent growth during the period, which was the highest among the world's top 10 battery makers. SK Innovation's market share also grew to 2 percent from 1.3 percent during the period.

“SK Innovation plans to enhance its EV battery capacity to 20 gigawatt-hours per year by 2020,” Hyundai Motor Securities analyst Kang Dong-jin said. “Based on its battery technology and stable cash flow of its other businesses, SK Innovation can nurture its battery business in the long term.”