SK Innovation Co. Ltd.

Overview Key strengths Key risks Strong market position in Korea's oil refining and marketing industry. Earnings and cash flow highly exposed to oil-price fluctuations. Large and vertically integrated oil refinery complex, with good operating efficiency. Aggressive expansion in EV batteries, which carries execution and leverage risks. Diversification into electric vehicle (EV) battery business and specialty chemical products. Negative free cash flows and rapid increase in debt. We estimate the company's debt-to-EBITDA ratio could rise to 3.9x-4.7x in 2023-2024, from 3.3x in 2022 and 3.6x in 2021. The forecast is close to, or exceeds, our downside threshold of 4x for the 'BBB-' rating. The likely increase in leverage is on the back of elevated capital expenditure (capex) plans. We estimate SKI

...Aggressive investments will likely weigh on SK Innovation Co. Ltd.'s (SKI) financial metrics over 2023-2024. We estimate the company's debt-to-EBITDA ratio could rise to 3.9x-4.7x in 2023-2024, from 3.3x in 2022 and 3.6x in 2021. The forecast is close to, or exceeds, our downside threshold of 4x for the '###-' rating. The likely increase in leverage is on the back of elevated capital expenditure (capex) plans. We estimate SKI will spend Korean won (KRW) 9.0 trillion-KRW10.0 trillion in 2023 and KRW6.0 trillion-KRW8.0 trillion in 2024, compared with KRW7.0 trillion in 2022 and KRW3.3 trillion in 2021. The capex is to build EV battery production capacity in the U.S., Hungary, and China. The company targets to increase its EV battery production capacity to over 220 gigawatt hour (GWh) in 2025, from 88GWh at end-2022. We estimate SKI's free operating cash flow will remain negative during the investment phase, and adjusted debt could increase to KRW20 trillion-KRW22 trillion in 2023-2024, from...

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