Expected to Win More EV Battery Orders
The author is an analyst of KB Securities. He can be reached at yc.baek@kbfg.com. -- Ed.
Maintain BUY and revise up our target price to KRW375,000
We maintain BUY and raise our TP by 10.3% to KRW375,000 for SK innovation as we revise up 2021E Petroleum OP by 50.6% and company-wide NP attributable to controlling interests by 18.6% to accommodate our raised projections for global oil and gasoline prices.
Settlement of battery dispute heralds more EV battery order wins
We believe the final settlement reached between SK innovation and LG Energy Solution regarding battery-related legal disputes has removed uncertainty and paved the way for SK innovation winning more EV battery orders. Cumulative battery order backlog as of end-2020 is estimated at around KRW70tn. We expect the company’s battery business to post substantial top-line growth this year (of 96.0% YoY to KRW31.56tn), while operating loss should narrow YoY to KRW268.3bn. Battery production capacity should rapidly ramp up from 30GWh in 2020 to 40GWh in 2021, and 65GWh in 2022.
Summer driving season kicking off in June-July to bode well for gasoline prices
We expect refining margins to see an upturn after June, as the arrival of the summer driving season alongside an acceleration in COVID-19 vaccinations should drive up gasoline prices. U.S. gasoline inventories for the second week of April (at 20.8mn barrels) are down by 7.8% YoY and well below the average for the past five years. The continuation of low inventory levels alongside a surge in demand expected in June and July should translate into a spike in gasoline prices.
1Q21 earnings to beat market consensus
For 1Q21, we estimate revenue at KRW9.42tn (-15.6% YoY) and OP to turn to profit YoY at KRW424.6bn—above market consensus of KRW361.8bn (FnGuide, Apr 14). Complex refining margin for the quarter has risen by USD2.5 QoQ to USD6.9/bbl, given lag effect of increased global oil prices as well as stronger gasoline margins. Meanwhile, the company’s battery division should post revenue of KRW611.6bn (+111.8% YoY, +23.0% QoQ). As of 4Q20, commercial production has begun at two new factories in China. We expect the business to see top-line growth in 1H21, followed by marked bottom-line improvement in 2H21.