SK Innovation Anticipates Break-Even Moment in Second Half of 2023

SK Innovation Anticipates Break-Even Moment in Second Half of 2023

Explore SK Innovation’s robust Q1 2023 financial performance, optimistic EV battery market outlook, and strategies for solid refining margins. 

SK Innovation, the powerhouse behind South Korea’s premier battery-making unit, SK On, and top refiner, SK Energy, has shared optimistic financial results for the first quarter of 2023. 

The company announced on Monday a surprising leap in operating profit and maintained a steadfast goal of reaching a break-even point in the latter half of the year. 

This news propelled its shares upwards by nearly 6.5%.

Financial Overview

In the first quarter spanning January to March, SK Innovation posted an operating profit of 625 billion won ($454 million), a significant jump from 375 billion won the previous year. 

This figure surpassed the average analyst forecast of 466 billion won. 

However, the company noted a slight decrease in first-quarter revenue, which fell 1.5% to 18.9 trillion won.

EV Battery Market and Future Outlook

Despite declining electric vehicle (EV) battery shipments during the initial quarter, SK On’s Chief Financial Officer, Kim Kyunghun, remains positive. 

He highlighted the potential market uplift expected from the launch of new EV models in North America.

QuarterOperating Profit (billion won)Revenue (trillion won)
Q1 202362518.9
Q1 202237519.2

SK On, which counts giants like Ford MotorVolkswagen, and Hyundai Motor among its clients, reported a widened operating loss of 332 billion won in the first quarter, up from 18.6 billion in the previous quarter. 

Despite these challenges, the company is optimistic about a recovery, backed by forthcoming EV production increases in the U.S. by Hyundai Motor, which could enhance SK On’s EV battery shipments and increase tax credits under the U.S. Inflation Reduction Act.

Market Influences and Analyst Insights

The surge in SK Innovation shares was further supported by a broader market uplift, driven by a jump in Chinese property shares and expectations of new stimulus measures for the real estate sector. 

This speculation suggests a potential rise in demand for petrochemical products.

However, analysts express caution, pointing to near-term uncertainties over EV demand as car buyers prefer hybrid vehicles. 

SK On’s major automotive partner, Ford, has also delayed the launch of key EV models in Canada and its next-generation electric pickup truck in Tennessee.

Refining Margins and Strategic Moves

SK Innovation expects solid refining margins to continue into the second quarter, supported by firm demand. 

The company has a total refining capacity of 1.115 million barrels per day at its plants in Ulsan and Incheon. 

In preparation for potential disruptions, such as the blockade of the Gulf’s Strait of Hormuz—through which it sources over 70% of its crude oil—SK has developed contingency plans for alternative crude sourcing.

Additionally, maintenance for its No.5 crude distillation unit (CDU) is scheduled for the second quarter, ensuring operational efficiency and reliability.

Closing Remarks

As SK Innovation navigates through a mix of challenges and opportunities, the company’s strategic foresight and robust financial health appear to set a promising course for achieving its mid-year financial goals. 

The combination of solid refining operations and anticipated growth in the EV sector positions SK Innovation favorably in the dynamic global market.

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