[Click eStock] "SK Innovation Maintains Strong Product Margins... Target Price Raised"

"Original Performance Normalization Assumption Softened"

Eugene Investment & Securities raised its target price for SK Innovation from 171,000 won to 175,000 won on October 6, while maintaining its "Buy" investment rating.

Seonghyun Hwang, a researcher at Eugene Investment & Securities, stated, "Previously, we had assumed that in 2027, international oil prices would drop to around $50 per barrel and refining margins would rapidly normalize, resulting in a significant decline in operating profit compared to this year. However, despite the normalization of the Hormuz situation, margins for products such as diesel, gasoline, and base oil have remained stronger than expected, so we have moderated our previous assumption of a sharp normalization in performance."

For the third quarter of this year, SK Innovation’s sales are projected at 26.5 trillion won, with operating profit estimated at 2.7 trillion won, up 30% and 374%, respectively, year-on-year. Net profit is also expected to turn positive, reaching 1.9 trillion won. Hwang explained, "The base effect of the 1.2 trillion won PRS losses related to SK On and SK IE Technology (SKIET) and the 1.4 trillion won impairment loss for SK IE Technology, both reflected in the same period last year, will have a significant positive impact."

Operating profit in the energy segment is forecast to increase 140% year-on-year to 731 billion won. Despite negative inventory effects from the lower exchange rate, factors such as the base effect from regular facility maintenance and strong refining margins are expected to lift overall performance. Hwang noted, "We believe that robust product margins are largely being reflected in earnings," but also cautioned, "However, if elevated shipping costs are reflected in costs with a time lag, there remains a possibility that some margins could be eroded starting in the fourth quarter."

Operating profit in the lubricants segment is expected to soar by 334% during the same period to 741 billion won. Hwang said, "High-end base oil margins are being sustained at elevated levels due to supply disruptions among Middle Eastern competitors," adding, "Additionally, ongoing disruptions at Russian refineries are further boosting the current favorable supply and demand environment, making it highly likely that these favorable conditions will continue for the time being."

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