Yuanta Securities Korea said on the 15th that SK Innovation(096770)'s operating profit this year could reach 10 trillion won. It said refining and lubricants are benefiting from rising international oil prices and supply disruptions, and the magnitude of the earnings improvement will be larger than initially expected. It maintained a "Buy" rating and raised its target price to 200,000 won from 170,000 won.
Hwang Gyu-won, an analyst at Yuanta Securities Korea, forecast SK Innovation's 2026 consolidation results at 102.2 trillion won in revenue and 10 trillion won in operating profit. The operating margin is 9.8%, and net profit attributable to controlling shareholders is 3.6 trillion won.
Hwang said the "triple tsunami effect" surrounding the refining industry will make the 2026 windfall far larger than expected. He said prolonged war in Iran is causing crude supply disruptions (4%–6%), damage to and delayed restart of petrochemical facilities in the Middle East (2%–3%), and damage to energy facilities from the Russia-Ukraine war (3%–4%), which together are worsening the global refined products supply-demand balance by 14%.
By business, he saw the largest improvement in the refining segment. He estimated petroleum refining operating profit would surge from 349.9 billion won in 2025 to 6.2 trillion won this year. He also expected lubricants operating profit to rise from 607.6 billion won to 2.2 trillion won over the same period. E&S operating profit is projected to increase from 681.1 billion won to 954.4 billion won, and the battery unit's loss is expected to narrow sharply from 923.5 billion won to 96.4 billion won.
However, he said further restructuring is needed to lift SK Innovation's corporate value. Hwang said that following the 2024 merger of SK E&S and the 2025 downsizing at SK On, three restructuring steps remain from the second half of this year through 2027.
First, the merger procedure for SK IE Technology announced in Aug. is set to proceed. As SK Innovation pursues a small-scale merger, the number of shares outstanding is expected to increase by about 2.6%.
In the fourth quarter, the sale of SK City Gas Holdings to global private equity firm KKR could take place. Hwang expected that an in-kind settlement method would be used for 3.2 trillion won in redeemable convertible preferred shares (RCPS) issued five years ago. As a result, SK Innovation's corporate value could decline somewhat.
In 2027, he also raised the possibility that SK Geocentric's 660,000-ton naphtha cracking center (NCC) facility could become a target for restructuring. Under the government's ongoing restructuring of the Ulsan commodity petrochemical industry, the facility could be idled or shut down. Hwang estimated the related book value at about 1 trillion won.
Hwang estimated SK Innovation's free cash flow from operating activities (EBITDA – corporate tax – interest expense – capital expenditures) at 4.5 trillion won this year and 1.5 trillion won in 2027. With free cash flow turning positive for the first time in five years, he said balance sheet improvement will gather pace.
In fact, he projected net debt on a consolidation basis would gradually decline from 29 trillion won in 2024 to 24 trillion won in 2025, 20 trillion won in 2026, and 18 trillion won in 2027.
Hwang said the effects from refining and lubricants will outweigh any decline in corporate value from restructuring, and he raised SK Innovation's fair price target to 200,000 won from 170,000 won.