SK Innovation eyes strong battery orders after returning to Q1 profit

SK Innovation Co., a major South Korean oil refiner and battery maker, has returned to an operating profit in the first quarter, boosted by gains in its refining and petrochemical business.

The company said in a regulatory filing on Thursday that it posted 502.5 billion won ($445 million) in first-quarter operating profit on a consolidated basis, a turnaround from a loss of 1.8 trillion won in the year-earlier period.

The profit, the first in five quarters, came as a surprise as it beat the market consensus by 30%.

However, it incurred 527.6 billion won in operating loss before tax, after reflecting hefty settlement costs for a battery lawsuit with its bigger rival LG Energy Solution Ltd.

Revenue came in at 9.24 trillion won, down 16.4% from a year ago.

SK Innovation, which owns the country’s top oil refiner SK Energy, said its mainstay oil refining business posted an operating profit of 416.1 billion in the January-March period, up 608.6 billion won from the previous quarter, on improved refining margins and higher inventory gains from rising oil prices.

Its lubricant business reported 137.1 billion won in operating profit, up 11.8 billion won from the three months earlier.

"While the mainstay petrochemical business is recovering in line with improving business environment from the pandemic-driven slump, the new growth drivers such as battery and material business keep growing," Chief Executive Kim Jun said in a statement.

“We’ll focus on eco-friendly business to sharpen our competitiveness.”

BATTERIES OFFER SILVER LINING

SK Innovation said its battery sales jumped 80% on year to a record 526.3 billion won as Hyundai Motor Co., one of its largest clients, began producing its latest electric SUV, the IONIQ5.

However, SK’s battery business posted a worse operating loss of 176.7 billion won due to increased costs related to new overseas plants.

The company reported a net loss of 368 billion won as it reflected one trillion won or half the battery dispute settlement cost in its first-quarter bottom line.

Last month, SK Innovation reached a 2 trillion-won settlement with LG Energy Solution, a spin-off of LG Chem Ltd. to end their two-year legal dispute in the US over trade secret infringement and battery-related patent violations.

Under the agreement, SK said it will pay half in cash compensation to LG through 2022 and pay the remaining one trillion won in royalties starting in 2023.

SK said the settlement will remove uncertainty clouding its US battery projects.

SK Innovation is currently constructing two battery plants in Georgia, which will supply EV batteries to Ford Motor Co. and Volkswagen AG. The first plant is set to begin operations in the first quarter of next year, with the second plant scheduled for mass production in 2023.

Once the two factories are fully operational, they will have a combined capacity of 21.5 GWh, second only to Tesla Inc.’s 35 GWh Gigafactory in the US. 

During a conference call with analysts on the first-quarter earnings on Thursday, SK said it currently has EV battery order backlog of about 600 GWh worth 80 trillion won.

Company executives said they expect the company’s battery business to reach the break-even point next year as announced earlier and start posting a single-digit profit margin in 2023.

The company plans on aggressive investments to expand its EV battery production capacity to 85 GWh a year by 2023 and 125 GWh by 2025.

Write to Kyung-Min Kang at Kkm1026@hankyung.com
In-Soo Nam edited this article.