SK Innovation (096770.KS) is expected to post more than 10 trillion won ($7.2 billion) in operating profit this year, according to a brokerage forecast. Concerns had emerged that recent restructuring moves, including the absorption of SK IE Technology (SKIET), would erode the company's value, but analysts said growth in refining and lubricants earnings should offset that impact.
SK Innovation traded at 138,100 won as of 8:32 a.m. on the 15th, up 1,500 won, or 1.10%, from the previous session, according to Nextrade. The gain contrasted with declines among other refiners, including S-Oil (down 2.15%) and GS (down 1.46%).
The share price momentum appears to stem from brokerage forecasts for full-year earnings. Yuanta Securities Korea said in a report the same day that it expects SK Innovation to post revenue of 102.2 trillion won and operating profit of 10 trillion won this year. The brokerage raised its target price to 200,000 won, about 18% above its previous target of 170,000 won.
Declines in corporate value tied to major restructuring were cited as a variable. SK Innovation announced last month that it would absorb SKIET, a move expected to dilute the share count by about 2.6%. In the fourth quarter, SK City Gas Holdings, the affiliate handling city gas operations, is scheduled to be sold to global private equity firm Kohlberg Kravis Roberts (KKR). The possible shutdown of a 660,000-ton naphtha cracking center (NCC) at chemical subsidiary SK Geo Centric next year was also flagged as a concern.
Still, analysts said the earnings impact from refining and lubricants could be larger than expected as global crude supply and demand is disrupted, including supply constraints from the prolonged conflict in the Middle East. "The earnings impact from refining and lubricants is expected to exceed the decline in corporate value from restructuring," said Hwang Kyu-won, an analyst at Yuanta Securities Korea. "Free cash flow generated from operations is estimated at 4.5 trillion won this year and 1.5 trillion won next year, marking a swing to positive territory for the first time in five years."
