SK Innovation Co. Ltd.

Overview Key strengths Key risks Strong market position in Korea's oil refining and marketing industry. Earnings and cash flows highly exposed to oil-price fluctuations. Good track record of high operating efficiency in its large and vertically integrated oil refinery complex. Aggressive expansion in electric vehicle (EV) batteries carries execution risks and heighted leverage. Diversification into battery business and specialty chemical products. We estimate SK Innovation Co. Ltd (SKI)?s annual EBITDA will increase to around Korean won (KRW) 3.3 trillion-KRW3.7 trillion in 2021-2022, from negative EBITDA of KRW1.1 trillion in 2020. The company recognized sizable inventory related gains in 2021 on oil-price recovery. Benchmark brent oil prices went up to over US$70 per barrel, compared with US$40 per barrel for 2020.

...Oil prices and refining margin recovery to support earnings over the next 12 months. We estimate SK Innovation Co. Ltd (SKI)'s annual EBITDA will increase to around Korean won (KRW) 3.3 trillion-KRW3.7 trillion in 2021-2022, from negative EBITDA of KRW1.1 trillion in 2020. The company recognized sizable inventory related gains in 2021 on oil- price recovery. Benchmark brent oil prices went up to over US$70 per barrel, compared with US$40 per barrel for 2020. We estimate the prices will come down in 2022-2023, but do not assume a significant drop. Our base case assumes the refining margin will stay around current levels. The benchmark Singapore oil refining margin recovered to its 10-year average of US$5.0-US$6.0 per barrel (bbl) during 2021 from US$3.0-US$4.0 in 2020. We note that the recovery in spreads...

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