SK innovation stock off nearly 40%, but may go lower on poor earnings outlook

Shares of SK innovation Co. have lost nearly 40 percent this year, but could be headed lower on worsening business and stock outlook for South Korea’s top refiner.

SK innovation shares closed at 156,000 won ($108.43) in Seoul trading on Oct. 21, down 37.1 percent from the first trading day this year. On the contrary, its U.S. peer Exxon Mobil surged 63.57 percent over the same period to end at $103.93 on Friday, according to the Korea Exchange and the New York Stock Exchange on Sunday.

During the period, the Kospi fell 25.95 percent this year, and the U.S. S&P 500 up 23.57 percent.

SK innovation has performed dismally despite stellar earnings earlier this year. It reported an operating profit of 3.98 trillion won in the first six months of this year, more than doubled from last year’s full-year profit of 1.75 trillion won.

The robust earnings were not reflected into its stock price this year largely due to concerns about the market debut of its spin-off battery maker SK on.

SK on initially was expected to go public on the stock bourse by 2027, but the schedule will likely be advanced with a possible pre-IPO step within this year.

SK innovation earns 68 percent of its revenue from the petrochemical business, 16 percent from the chemical business, and 7 percent from the battery business. In the operating income, the petrochemical business took up 94 percent. The battery business delivered an operating loss of 599.9 billion won in the first half.

Shinhan Investment recently revised down its stock price target for SK innovation to 230,000 won from 270,000 won, predicting third-quarter earnings to be a disappointment.

“SK Innovation’s third-quarter operating profit is forecast to reach 605.8 billion won, off 74 percent from a quarter earlier and below the market consensus of 755.1 billion won,” said Lee Jin-myeong, an analyst at Shinhan Investment. “Its operating profit from the refining business is projected to have fallen 84 percent to 348.4 billion won due to a surge in inventory losses and a plunge in refining margin from lowering oil prices.”

Operating loss at the battery business is expected to narrow to 175.8 billion won with sales gaining 65 percent to 2.1 trillion won, Lee added.

The consensus for the company’s target stock price was 253,200 won as of Sunday, according to Seoul-based financial data tracker FnGuide. Meritz Securities revised down its stock price target to 295,000 won from 365,000 won, Mirae Asset Securities to 222,000 won from 250,000 won, BNK Securities to 250,000 won from 300,000 won, Korea Investment & Securities to 240,000 won from 280,000 won, and Samsung Securities to 225,000 won from 255,000 won.

SK innovation shares closed down 0.64 percent at 155,000 won on Monday.