Shares of SK Innovation, the South Korean energy company, saw a substantial increase on Monday as investors remain hopeful for an earnings rebound in the coming months, despite the company's disappointing second-quarter results. The stock surged by 14% to close at 216,000 won ($169.64), outperforming the benchmark Kospi's 0.9% gain for the day. This marks SK Innovation's largest daily percentage gain in over two years.
Foreign and institutional investors displayed confidence in SK Innovation by becoming net buyers of the company's shares. SK Innovation is the parent company of SK On, a major electric-vehicle battery maker and a joint-venture partner of global automakers like Ford Motor and Hyundai Motor. This suggests that these investors have a positive outlook on SK Innovation's earnings potential, despite the company reporting below-consensus quarterly results on Friday.
For the April-June quarter, SK Innovation posted a net loss of KRW120.44 billion, which was wider than expected. This was primarily due to weaker oil-refining margins and the ongoing unprofitability of its battery business. FactSet had previously forecasted a net profit for the company.
However, analysts remain optimistic about SK Innovation's future performance. S.J. Han, an analyst at DB Financial Investment, stated in a research note that he believes SK Innovation will be able to achieve an earnings recovery starting from the third quarter. This is expected to be driven by widening oil-refining margins, which have been tight since July.
Furthermore, analysts from Kiwoom Securities noted that the spread for gasoline, diesel, and kerosene has been improving significantly since the second quarter. This is likely to boost SK Innovation's third-quarter earnings.
Nomura analyst Cindy Park also weighed in on SK Innovation's prospects. In a note she mentioned that the company's EV-battery business has the potential to become profitable by the first half of 2024. This anticipated turnaround is expected to be driven by improvements in output scale and productivity at SK On's U.S. factory. As a result, Park has increased her valuation of SK On from KRW14.9 trillion to KRW19.2 trillion.
In conclusion, despite SK Innovation's recent second-quarter results falling short of expectations, investors and analysts remain optimistic about the company's future earnings potential. The positive outlook is supported by expectations of improved oil-refining margins and the anticipation of SK On's EV-battery business becoming profitable in the near future.