On Monday, SK Innovation Co. Ltd said its battery-making unit is on target to breakeven in the second half of this year after it posted a forecast-beating operating profit in the Q1. The SK Innovation profit declaration sent its shares up over 6.0%. SK Innovation, which also owns South Korea’s top refiner SK Energy, said it expects solid refining margins to continue in the Q2 backed by firm demand.
SK Innovation earning
SK Innovation posted an operating profit of 625 billion won ($454 million) for the January-March period, versus a 375 billion won profit a year earlier. That compared with an average analyst forecast of 466 billion won.
SK Innovation Q1 revenue fell 1.5% to 18.9 trillion won from the same period a year earlier.
“While we saw drops in EV battery shipment in the first quarter caused by customers’ battery inventory adjustment, we expect to see improved market environment backed by launches of new EVs in North America,” SK On Chief Financial Officer Kim Kyunghoon said in a post-earnings conference call.
Analysts say rising oil prices benefited the company’s petrochemical business, helping to offset losses from its battery unit SK On, which has been facing weaker electric vehicle (EV) battery demand.
Increasing operating loss
SK On, which supplies to Ford Motor Co, Volkswagen and Hyundai Motor among others, widened its operating loss to 332 billion won in the first quarter from 18.6 billion won in the previous quarter due to fewer EV battery shipments. However, it maintained its previously announced target to breakeven in the second half of this year.
“When SK On’s major automaker client Hyundai Motor kicks off EV production in the United States later this year, it would help raise SK On’s EV battery shipment and amount of tax credit received under the U.S. Inflation Reduction Act,” said Kang Dong-jin, an analyst at Hyundai Motor Securities.
SK Innovation outlook
Analysts are hopeful that SK On’s battery shipment would increase later this year, but note persistent near-term uncertainty over EV demand due to car buyers’ preference for gas-electric hybrid vehicles.
SK, which has total refining capacity of 1.115 million barrels per day at its plants in Ulsan and Incheon, said it expects to see solid refining margins in the second quarter backed by continued cuts by OPEC+ and improved travel demand.
The refiner said it has secured contingency plans to source crude oil for its oil products in case of the blockade of the Gulf’s Strait of Hormuz. SK said it sources more than 70% of crude oil through the Strait, through which a fifth of the volume of the world’s total oil consumption passes through.
SK added that it plans to carry out maintenance work for its No.5 crude distillation unit (CDU) in the second quarter.
SK Innovation EV demand slowdown
SK On’s major automaker customer Ford earlier this month said it delayed the planned launches of three-row EVs in Canada and its next-generation electric pickup truck built in Tennessee. Ford executives have said they will not launch the next generation of EVs until its EV business is profitable.
Last week, SK On’s cross-town rival LG Energy Solution said it planned to minimize capital expenditure this year due to slowing global EV demand, after reporting a 75% drop in quarterly profit.
SK Innovation shares
Shares in SK Innovation, which rose as much as 6.4% after the earnings release, were trading up 6.3%, versus the benchmark KOSPI’s 0.8% rise as of 0336 GMT.
