Aggressively Increasing Battery Output Capacity
The author is an analyst of KB Securities. He can be reached at yc.baek@kbfg.com. -- Ed.
Maintain BUY and target price of KRW400,000
We maintain BUY and our TP of KRW400,000 for SK innovation, our Refineries/Chemicals top pick. Our positive view is based on: (1) anticipation for rapid top-line growth resulting from aggressive battery capacity increases; and (2) growing enterprise value fueled by increases in battery order intake. Our TP implies 55.2x 2021E P/E, 2.45x P/B.
2H21 investment points: (1) Top-line growth via battery capacity increases; (2) Increase in battery order intake
SK innovation has been aggressively increasing its battery output capacity, which should jump from 30GWh in 2020 to 40GWh in 2021, 85GWh in 2023, and 128GWh in 2025. Considering the company’s policy for increasing order intake first, then production capacity, we expect a rapid rise in its Battery earnings going forward. Battery revenue should jump 96.0% YoY, from KRW1.61tn in 2020 to KRW3.16tn in 2021. For 2023, Battery should report revenue of KRW7.12tn and OP of KRW71.2bn. SK innovation recently announced a battery partnership with Ford, which may bring in more battery orders from the U.S. Along with accelerating top-line growth, SK innovation’s influence within the global EV battery market should deepen as its share of global EV battery output continues to climb (1.0% in 2019→5.3% in 2021→8.3% in 2025).
2Q21 earnings to be in line with market consensus
We forecast 2Q21 revenue of KRW9.89tn (+37.4% YoY, +7.1% QoQ) and OP of KRW360.6bn (turn to black YoY, -28.4% QoQ), which is in line with the market consensus of KRW389.9bn (FnGuide; May 31). The complex margin (with input lag reflected) should drop USD1.4/bbl QoQ to USD5.6/bbl. Meanwhile, the average price of Dubai Crude for 2Q21 and June should be higher than in 1Q21 and March, respectively, adding some gains on inventory valuation. We expect the battery business to post revenue of KRW657.9bn (+25.0% YoY) and reduce its operating loss to KRW120.0bn (remain in red QoQ) as the new Chinese plant increases its utilization rate and boosts battery profit margins.