Yuanta Lifts SK Innovation Target Price to 200,000 Won, Sees 10 Trillion Won Operating Profit

Yuanta Securities has raised its target price for SK Innovation (096770) from 170,000 won to 200,000 won, arguing that the profit boost from its refining and lubricants businesses will outweigh any value erosion tied to ongoing corporate restructuring.

Analyst Hwang Gyu-won said the scale of this year's earnings recovery will be "far bigger than expected," projecting full-year revenue of 102.2 trillion won, operating profit of about 10 trillion won and net profit attributable to shareholders of 3.6 trillion won, implying an operating margin near 9.8%.

Hwang attributed the improvement to what he called a "triple tsunami" of global supply disruptions: prolonged conflict in Iran squeezing crude oil supply, delayed restarts at Middle East petrochemical plants damaged by fighting, and lingering damage to energy infrastructure from the Russia-Ukraine war. Together, he estimates these factors have removed roughly 14% of global supply from the market.

By segment, Yuanta expects refining to post operating profit of 6.2 trillion won, sharply up from 349.9 billion won last year, while lubricants profit is seen more than tripling to 2.2 trillion won from 607.6 billion won. The energy and solutions (E&S) unit is projected to grow to 954.4 billion won from 681.1 billion won, and the battery division's loss is expected to narrow to 96.4 billion won from a 923.5 billion won loss a year earlier.

The brokerage also flagged a wave of restructuring expected to run from the second half of this year through 2027, including SK Innovation's merger with SK IE Technology announced in August, which will dilute shares by about 2.6%. Other steps include a planned fourth-quarter sale of SK City Gas Holdings to private equity firm KKR, which involves settling 3.2 trillion won worth of redeemable convertible preferred shares issued five years ago, and the possible mothballing or closure in 2027 of a 660,000-ton naphtha cracking unit at SK Geocentric as part of a government-led overhaul of general-purpose petrochemicals in Ulsan.

Despite these one-off costs, Yuanta believes the earnings upswing from refining and lubricants will more than offset them. The firm projects free cash flow will turn positive for the first time in five years, reaching 4.5 trillion won in 2026 and 1.5 trillion won in 2027, while consolidated net debt is expected to decline steadily from 29 trillion won in 2024 to 18 trillion won by 2027.