Left Hand Helping Right
The stock price of SK innovation has recovered to the 200,000 won (US$152.89) range in the Korean stock market. Even in a bull market for secondary batteries at the beginning of this year, burdens from its subsidiary SK on impeded the rise of SK innovation’s stock price. However, as parent company SK innovation solved SK on’s problems one by one, SK innovation’s stock price has risen sharply, analysts say.
SK innovation closed up 6,800 won (US$5.20), or 3.41 percent, to 206,500 won (US$157.93) on June 7. Its stock price has climbed by 19.3 percent since May 2. The stock price of its preferred share also rose 8.31 percent over the same period. SK innovation outperformed not only the KOSPI (4.54 percent) but SK innovation’s major competitors such as LG Chem (0.81 percent), LG Energy Solution (3.96 percent), and Samsung SDI (6.37 percent).
This change in investors’ evaluations of SK innovation stocks has been made as problems at its subsidiary SK on have been solved one by one. SK on needed to improve its U.S. battery plant’s yields and utilization rates, turn out operating profit, and attract investment of more than 10 trillion won (US$7.6 billion) for new facilities. But until late last year, it was unclear whether or not SK on would be able to address these problems.
SK on, which posted an operating loss of 1 trillion won (US$765 million) in 2022 and 345 billion won (US$264 million) in the first quarter of this year, is expected to turn a profit in the second half of this year. The company is expected to significantly slash its deficit in the second quarter and post a surplus in the second half of this year, thanks to productivity gains through improved yields at its Georgia plant in the United States and subsidies from the U.S. Inflation Reduction Act (IRA). The Georgia plant started its first commercial production in the first quarter of last year. According to Samsung Securities, SK on is expected to receive about 670 billion won (US$513 million) in advanced manufacturing production credits (AMPCs) thanks to the IRA. A battery plant that SK energy will set up with Hyundai Motor Group in Georgia, the United States will receive an incentive of US$700 million (about 900 billion won) from the local state government, according to media reports.
Securities firms are also reflecting this in appraising the value of SK innovation’s stocks, raising its target price. Hi Investment & Securities raised its price target to 250,000 won (US$191.32) on May 5, up 13.6 percent from 220,000 won (US$168.36).
SK innovation invested 2 trillion won (US$1.5 billion) in SK on, solving the problem of SK on’s need to attract big investment money. As a downturn in the initial public offering (IPO) market delayed SK on’s entry into the stock market, making it difficult for SK innovation to raise large amounts of funds like LG Energy Solution, SK innovation attempted a pre-IPO for SK on, which had been canceled early last year, and successfully completed it at the end of last year and in the first half of this year.
In December 2022, SK innovation confirmed the 2 trillion won capital increase in SK on, so a consortium led by Korea Investment PE and East Bridge contributed 1.2 trillion won (US$918 million) to SK on and a consortium led by MBK Partners with overseas investors confirmed an additional investment of 1 trillion won (US$765 million) in SK on in May. Hyundai and Kia, partners of SK on in the electric vehicle battery business, also decided to lend 2 trillion won to SK on. “The IPO market has been showing a sign of a recovery recently, and SK innovation has resolved market concerns that arose from a split-off, which will be able to speed up the listing of SK on,” said an insider of the Korean financial investment industry.