LS Securities lowered its investment opinion on SK Innovation(096770) to "hold," saying the merger with SKIET increased the share of the loss-making battery institutional sector. It also cut the target price to 126,000 won from 175,000 won. The previous trading day's SK Innovation closing price was 111,200 won.
Jung Kyung-hee, an analyst at LS Securities, said, "With this merger, the effective ratio for the loss-making battery business increased," and noted, "We change the existing multiple from a premium to a discount and present a hold investment opinion."
Earlier, SK Innovation said it would merge with its subsidiary SKIET, which manufactures separators. The merger ratio is 1 to 0.1174840, and it will issue 4.48 million new shares. As SKIET is already a consolidated subsidiary, there is no impact on consolidated operating profit, but since SKIET noncontrolling interests will be added to net income, it expects operating losses to continue for the time being.
Jung said, "The purpose appears to be to bolster the financial stability of SKIET, and by extension SK Innovation under consolidation, due to deteriorating profitability in the separator business," adding, "Having reached the limits of surviving independently, the parent chose to absorb it and normalize it, so the market seems to have read this as negative rather than a simple dilution."
The view is that competitiveness in the battery institutional sector will be weak. The analyst said, "We expect the high-margin environment in the refining industry to continue at least through 2027," but added, "In the battery industry, electric vehicle market share is falling and competition in U.S. ESS is intensifying. We change the multiple due to the increased share of the loss-making institutional sector."