Release Date: November 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SK Innovation Co Ltd (XKRX:096770, Financial) successfully completed its merger with SK E&S, which is expected to strengthen its energy portfolio and enhance competitiveness in the global market.
- The company announced corporate value enhancement plans targeting a 10% ROE and a 35% total shareholder return by 2027.
- Despite internal and external uncertainties, SK Innovation reached break-even on an operating profit basis due to improved profitability and reconciliation activities with customers.
- The battery business showed improvement in profitability, with a turnaround in quarterly profit driven by cost structure improvements and client payments.
- SK Innovation plans to leverage synergies from its integrated LNG value chain to maintain competitive fuel supply and generate stable profits.
Negative Points
- The company's total sales declined by KRW1,142.2 billion quarter-on-quarter due to weaker sales from the refinery business driven by lower oil prices.
- Operating profit fell by KRW377.5 billion quarter-on-quarter, resulting in a loss of KRW423.3 billion, primarily due to inventory-related losses and weaker petrochemical spreads.
- The petroleum business faced a challenging macroeconomic backdrop, with decreased refining margins and inventory-related losses leading to a significant drop in operating profit.
- The battery business experienced a decline in revenue due to a downward trend in battery ASP guided by metal price declines.
- The materials business saw its losses widen due to a decline in sales volume to major customers, although gradual improvement is expected in the fourth quarter.
Q & A Highlights
Q: What is the outlook for SK E&S in the second half of 2025, and what are the growth strategies for the LNG business?
A: The merger between SK Innovation and SK E&S was completed on November 1, and SK E&S is expected to sustain solid performance due to profit enhancement efforts. The electricity and LNG business saw high demand due to a heatwave, and the city gas business is expected to maintain solid earnings. The global LNG market faces tight supply, and SK E&S plans to secure low-cost LNG supply from Australia to drive cost competitiveness. The company aims to integrate its LNG value chain and generate steady profits.
Q: What is SK On's CapEx outlook for 2025 and 2026?
A: SK On is monitoring EV market growth and customer demand to manage CapEx flexibly. The major part of 2024 CapEx has been invested, so 2025 CapEx is expected to be significantly lower. The company is securing financing from various sources and adjusting project timelines based on market conditions to enhance investment efficiency and financial soundness.
Q: What is the short-term and mid-to-long-term forecast for the LNG market, and what synergies does SK E&S expect from its full LNG value chain presence?
A: In the short term, LNG supply may be limited due to delays in North American projects, while demand could be volatile due to geopolitical factors and China's economic situation. In the mid-to-long term, supply and demand are expected to balance. SK E&S has a competitive edge due to its integrated LNG value chain, allowing it to address supply chain constraints and generate stable profits.
Q: What is the outlook for the EV market, and how might the US elections impact SK Innovation's business?
A: SK On believes that while EREV technology is gaining interest, it will not replace pure electric vehicles. The company is strengthening its position in the hybrid vehicle market. Regarding the US elections, potential changes in EV subsidies and regulations could slow EV adoption, but SK On plans to diversify its product offerings and maintain its competitive edge.
Q: What are SK Innovation's plans for refinery capacity and crude oil sourcing?
A: Global refining capacity is expected to see limited net additions post-2027, which should support favorable margins. SK Energy sources 20-30% of its crude from North America, which currently offers better economics than Middle Eastern crude. The company aims to maximize margins through diversified sourcing while monitoring geopolitical risks.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
