SK Securities said on the 19th that SK is expected to see a resilient share-price rise as its subsidiaries' stocks climb. It maintained a Buy rating and raised the target price to 660,000 won from 530,000 won. SK's closing price in the previous session was 530,000 won.
Choi Gwan-soon, an analyst at SK Securities, said, "SK Square, the largest shareholder of SK hynix, has room for additional share-price gains on the back of upward earnings revisions at SK hynix and the issuance of American depository receipts (ADR)," adding, "SK Innovation is also likely to swing to a full-year profit following a first-quarter turnaround, raising the likelihood that the equity value of SK's listed subsidiaries will increase."
On top of that, as SK ecoplant's earnings improvement gathers pace this year, a full-year reassessment of SK's equity value is expected. By equity value weight, SK currently stands at 51% for SK Square and 12% for SK Innovation.
Earlier, SK said it posted consolidated revenue of 36.7513 trillion won and operating profit of 3.6731 trillion won in the first quarter of this year. Revenue rose 19% and operating profit jumped 760% from a year earlier. SK Innovation's swing to an operating profit supported the results. SK ecoplant, which absorbed SK materials performance, SK trichem, SK Lenox, and SK materials JNC, saw revenue and operating profit increase 99% and 1,229%, respectively.
In particular, SK last month bought part of SK ecoplant's common and convertible preferred shares held by a financial investor (FI) for 400 billion won, lifting its stake to 71.2% from 66.7%. With ecoplant's earnings improvement gathering pace, this larger stake is expected to positively affect equity value.
SK Securities assessed that SK's current discount to net asset value (NAV) is 56.4% and this year's price-to-book ratio (PBR) is 0.6 times, offering ample valuation appeal. It also said expectations remain intact for shareholder returns, including a minimum dividends policy and the cancellation of treasury shares held.
Choi added, "SK has announced the cancellation of 20.3% of its treasury shares, which are subject to separate taxation on dividend income, and this is a time when the discount could keep narrowing through portfolio rebalancing—such as acquiring additional equity in ecoplant and pursuing the sale of SK Siltron."