KOSPIOil Refining096770

SK Innovation

₩152,100▲ 8.95%2026-10-02 close

Market Cap

₩26T

Turnover

₩176.9B

Volume

1.2M

Shares out.

170M

PER

—

PBR

0.9×

EPS

-₩7,801

Dividend Yield

0.00%

PER, EPS, PBR and BPS are calculated in-house from the last 4 quarters (2025Q3–2026Q2) · Dividend yield is based on ₩0 per share · Prices as of the 2026-10-02 close

Report overview

Refining Boom, Battery Profit, and the Non-Operating Drag

A Hormuz-driven surge in refining margins and SK On's swing to a quarterly operating profit lifted group operating income above KRW 3 trillion in a single quarter, yet derivative valuation losses and subsidiary impairments absorbed most of it before it reached the bottom line.

1
Second-quarter 2026 revenue was KRW 29.24 trillion with operating profit of KRW 3.49 trillion, yet net profit attributable to owners was only KRW 215 billion.
2
In 2025, revenue reached KRW 80.30 trillion but operating profit was just KRW 448.7 billion (0.6% margin) with a net loss attributable to owners of KRW 3.35 trillion, showing extreme earnings amplitude.
3
A large share of the profit came from inventory-related gains and lagging effects, which the company itself described as temporary book gains that can shrink or vanish if crude prices fall.
4
Battery unit SK On posted its first quarterly operating profit in seven quarters, but one-off customer compensation and tax credits contributed heavily, so durability remains to be confirmed.
5
The debt-to-equity ratio stood at 190.2% at end-2025, and first-half 2026 derivative losses plus separator-unit impairments weighed heavily on net income.

Business structure

SK Innovation is an energy intermediate holding company spanning refining (SK Energy), petrochemicals (SK Geo Centric, SK Incheon Petrochem), lubricants (SK Enmove), exploration and production (SK Earthon), batteries (SK On), separators (SK IE Technology) and LNG and power (SK Innovation E&S).

The vast majority of revenue comes from refining crude into gasoline, diesel and jet fuel and from crude and product trading, with chemicals, base oil, city gas and electricity layered on top.

Company-disclosed second-quarter 2026 affiliate results show SK Energy with revenue of KRW 13.21 trillion and operating profit of KRW 651.2 billion, versus SK Geo Centric at KRW 3.73 trillion and KRW 43.7 billion, a stark profitability gap between refining and chemicals.

In the same quarter, lubricants arm SK Enmove earned KRW 691.9 billion and the battery business SK On earned KRW 821.8 billion in operating profit, sharply raising the non-refining contribution.

In the first quarter of 2026, SK On Trading International booked revenue of KRW 15.11 trillion but only KRW 15.6 billion of operating profit, illustrating how trading inflates the top line while carrying thin margins.

The customer base is broad, spanning domestic service station networks, Asian and American export buyers, global automakers for batteries, and industrial lubricant users.

Domestically the company competes in a four-player refining oligopoly with S-Oil, GS Caltex and HD Hyundai Oilbank, and in a three-player battery race with LG Energy Solution and Samsung SDI.

The current restructuring agenda runs along two tracks: converting some electric-vehicle battery lines to energy storage system output, and rationalizing SK Geo Centric's Ulsan petrochemical assets.

Separately, the first LNG cargo from the Barossa gas field in Australia, in which the company holds a stake, arrived at the Boryeong LNG terminal, starting up its LNG value chain.

Earnings trend

Quarterly revenue · Operating profit

₩19.3T-₩417.6B25Q2₩20.5T₩573.5B25Q3₩19.3T₩337.4B25Q4₩24.2T₩2.2T26Q1₩29.2T₩3.5T26Q2

RevenueOperating profit

Annual revenue · Operating profit

₩78.1T₩3.9T2022₩77.3T₩1.9T2023₩74.7T₩315.5B2024₩80.3T₩448.7B2025

RevenueOperating profit

Quarterly results · Last 5 quarters
Quarter	Revenue	Operating profit	Op. margin
2025Q2	₩19.3T	-₩417.6B	−2.2%
2025Q3	₩20.5T	₩573.5B	2.8%
2025Q4	₩19.3T	₩337.4B	1.7%
2026Q1	₩24.2T	₩2.2T	8.9%
2026Q2	₩29.2T	₩3.5T	11.9%

Annual results
Year	Revenue	Operating profit	Net income (parent)	Op. margin	ROE	Debt-to-equity
2022	₩78.1T	₩3.9T	₩1.9T	5.0%	9.6%	189.2%
2023	₩77.3T	₩1.9T	₩256.3B	2.5%	1.2%	169.3%
2024	₩74.7T	₩315.5B	-₩2.3T	0.4%	−9.2%	178.8%
2025	₩80.3T	₩448.7B	-₩3.3T	0.6%	−15.4%	190.2%

Consolidated basis (financial statements including subsidiaries) · Final figures from DART filings · Net income attributable to owners of the parent · Data as of 2026-09-04

Earnings analysis

On confirmed figures, the operating margin fell for three straight years, from 5.0% in 2022 (operating profit of KRW 3.92 trillion) to 2.5% in 2023 (KRW 1.90 trillion), 0.4% in 2024 (KRW 315.5 billion) and 0.6% in 2025 (KRW 448.7 billion).

Revenue barely moved over the period, from KRW 78.06 trillion in 2022 to KRW 80.30 trillion in 2025, so the profit collapse clearly stemmed from refining margins and battery losses rather than volume.

The bottom line deteriorated further: net profit attributable to owners went from a KRW 256.3 billion profit in 2023 to losses of KRW 2.26 trillion in 2024 and KRW 3.35 trillion in 2025.

Quarterly, the group moved from an operating loss of KRW 417.6 billion in the second quarter of 2025 to profits of KRW 573.5 billion in the third and KRW 337.4 billion in the fourth, then jumped to KRW 2.16 trillion in the first quarter of 2026 and KRW 3.49 trillion in the second.

Notably, despite an operating profit in the fourth quarter of 2025, the net loss attributable to owners reached KRW 2.24 trillion, consistent with the roughly KRW 4.2 trillion of asset impairments the company disclosed at its January 2026 earnings briefing.

In the second quarter of 2026 as well, operating profit of KRW 3.49 trillion translated into only KRW 215 billion of net profit attributable to owners, with first-half derivative trading losses of KRW 1.22 trillion reported, mostly valuation losses on price return swaps referencing SK On and SK IE Technology, alongside roughly KRW 1.4 trillion of separator-related impairments booked in the quarter.

Earnings quality also warrants scrutiny: the company said group inventory-related gains were KRW 1.19 trillion in the second quarter of 2026, or 34.3% of operating profit, and that about KRW 780 billion of SK Energy's KRW 1.28 trillion first-quarter operating profit was inventory-related.

Operating cash flow declined from KRW 5.37 trillion in 2023 to KRW 2.23 trillion in 2024 and KRW 2.28 trillion in 2025, while the debt-to-equity ratio rose from 169.3% in 2023 to 190.2% in 2025.

In short, the operating rebound was dramatic, but much of it was accounting profit tied to the direction of crude prices, and one-off charges repeatedly offset it at the net income line.

Industry analysis

The 2026 refining cycle sits in an unusual phase driven by supply destruction rather than demand. Reuters and other outlets reported in early August 2026 that with the Strait of Hormuz effectively closed for months and Middle Eastern refineries under attack, gasoline, diesel and jet fuel cracks spiked to record levels.

The International Energy Agency estimated global refined product output in the second quarter of 2026 fell by roughly 5 million barrels per day year on year, while Ukrainian strikes on Russian refineries sharply curtailed diesel production.

In this setting Asian refiners capture margin upside while shouldering crude sourcing risk, and Korean players worry that Middle East crude premiums plus freight and war-risk insurance costs could erode the margin gain.

For the third quarter of 2026, the company guided that OPEC+ production increases and higher Asian run rates should moderate the rise in crude prices and refining margins.

Chemicals remain weak on delayed recovery in paraxylene demand, while the company indicated base oil spreads should gradually decline once competitors' supply disruptions are resolved.

In batteries, with electric vehicle demand still sluggish, energy storage has emerged as a new demand pool tied to AI data centers and renewables, and all three Korean cell makers are shifting weight toward storage and lithium iron phosphate chemistries.

Relative to peers, SK Innovation's breadth across refining, lubricants, chemicals, LNG and batteries is both a strength and a weakness, since cross-segment offsets reduce earnings visibility.

Outlook

For third-quarter 2026 refining, the company declined to give a precise margin forecast, saying volatility will hinge on Hormuz and Red Sea transit conditions and the extent of damage to Russian refineries, and that it will respond with flexible operations.

It guided chemicals to a level similar to the second quarter, with seasonal strength lifting benzene and other aromatics spreads even as paraxylene recovery lags, and expects base oil spreads to drift lower once competitors' supply disruptions ease.

In batteries, SK On said cost reductions and volume recovery should support gradual quarter-on-quarter profit improvement in the near term, and that it will tilt the portfolio further toward energy storage aimed at hyperscalers, utilities and AI data center projects.

Specifically, it is reviewing conversion of some electric vehicle lines at North American and domestic Seosan plants into storage lines, noting that approaches without form-factor changes carry limited capital expenditure.

Domestically it won 284MW of the 565MW offered in the second central-contract storage auction, a 50.3% share, with delivery due by end-2027 and profit contribution expected from 2027. The company has also cited a target of more than 20GWh in new storage orders for 2026.

On the balance sheet, asset separation from the US joint venture with Ford was flagged as reducing borrowings, and reports dated 31 July 2026 said the debt-to-equity ratio had fallen to around 170% as of the end of the second quarter, on a preliminary basis.

Still, structural items such as the final plan for SK Geo Centric's Ulsan petrochemical reorganization and SK On's financial-investor agreements and listing timetable await confirmed announcements.

Valuation

PER

—

PBR

0.9×

ROE

-4.9%

EPS

-₩7,801

BPS

₩154,804

Dividend per share

₩0

Because the sum of net profit attributable to owners over the most recent four quarters is still negative, no price-to-earnings multiple can be calculated, so earnings-based multiple comparison simply does not apply in this window.

Asset-based metrics therefore serve as the reference point, but the direction differs by calculation basis: on the in-house basis the share price sits below reported book value per share, while on the Korea Exchange basis it screens slightly above net assets.

That gap stems from the large non-controlling interest share within consolidated equity, and further impairments at the battery and separator units could move net assets themselves.

No per-share cash dividend is confirmed in the latest filings, so dividend appeal is limited, in contrast with some refining peers that have maintained payouts.

For reference, KB Securities said in a 15 July 2026 report that it maintained a buy rating and a target price of KRW 180,000, and iM Securities was reported to have upgraded its rating in May 2026 with a target price of KRW 190,000; these are those brokerages' views, not the judgment of this report.

Ultimately, because earnings swing with the crude and refining margin cycle and with one-off items, the core of any valuation discussion here is which level of normalized profit one chooses as the baseline.

PER, EPS, PBR and BPS are all calculated in-house (the same method as Naver and Toss) · Dividend yield = cash dividend per share from DART filings (supplemented by KRX) ÷ current price · As of 2026-09-04

Bull factors

Supply-Destruction-Led Margin Cycle

Global refined product supply has been structurally reduced by the Hormuz closure and damage to Middle Eastern and Russian refineries. The IEA estimated second-quarter 2026 global refined output fell about 5 million barrels per day year on year, and July 2026 reports placed US and European cracks near record highs.

A cycle where supply rather than demand drives margins favors owners of refining capacity. SK Energy accordingly posted operating profit of KRW 1.28 trillion and KRW 651.2 billion in the first and second quarters of 2026.

SK On's First Quarterly Profit in Seven Quarters

SK On swung to an operating profit of KRW 821.8 billion in its battery business in the second quarter of 2026. That marks a sharp improvement from a KRW 349.2 billion operating loss in the prior quarter, driven by higher Asian volumes, cost cuts and larger Inflation Reduction Act tax credits.

On the earnings call, management said profit improved quarter on quarter even excluding one-off items and that it expects more visible results in the second half. A narrowing battery loss eases the single biggest drag on consolidated net income in recent years.

Pivot to Storage and Lighter Balance-Sheet Load

SK On is converting some electric vehicle lines to storage lines and has set a target of more than 20GWh in new storage orders for 2026.

Domestically it took 284MW of the 565MW offered in the second central-contract storage auction, a 50.3% volume share, and its contract with US developer Flatiron opens the door to up to 7.2GWh of supply. Management has also flagged debt reduction from the asset separation with Ford in the United States.

Reports dated 31 July 2026 that the debt-to-equity ratio had eased to around 170% at quarter-end, on a preliminary basis, point in the same direction.

Bear factors

A Third of Profit From Inventory Gains

The company said group inventory-related gains reached KRW 1.19 trillion in the second quarter of 2026, or 34.3% of operating profit. In the first quarter, roughly KRW 780 billion of SK Energy's KRW 1.28 trillion operating profit was likewise inventory-related.

Management itself characterized lagging effects and inventory gains as book figures that can shrink or disappear when crude prices fall. Indeed, it disclosed that the refining business swung to a monthly loss in June 2026 as crude prices declined.

Wide Gap Between Operating and Net Income

Second-quarter 2026 operating profit was KRW 3.49 trillion, yet net profit attributable to owners came to only KRW 215 billion. Filings show first-half derivative trading losses of KRW 1.22 trillion, which the company said were mostly valuation losses on price return swaps referencing SK On and SK IE Technology.

Reports also indicate roughly KRW 1.4 trillion of separator-related impairments were booked in the quarter. With the fourth quarter of 2025 having produced a KRW 2.24 trillion net loss attributable to owners despite an operating profit, operating improvement does not automatically flow through to shareholders.

High Leverage and Subsidiary Risk

At end-2025, liabilities stood at KRW 69.22 trillion and the debt-to-equity ratio at 190.2%, up from 169.3% in 2023. Over the same span, operating cash flow shrank from KRW 5.37 trillion in 2023 to KRW 2.28 trillion in 2025.

Of KRW 36.39 trillion in consolidated equity, KRW 14.60 trillion is non-controlling interest, so subsidiary earnings do not accrue fully to the parent's shareholders. Should further impairments or capital needs arise at the battery and separator units, the burden could again transfer to the parent's balance sheet.

Risk factors

Crude Sourcing and Geopolitics

Korea imports most of its Middle Eastern crude through the Strait of Hormuz, a route carrying roughly 27% of global seaborne crude. Domestic refiners typically hold 30 to 40 days of inventory, and reports noted that a prolonged re-closure could create supply disruptions from around September 2026.

The company said it responded by diversifying crude sources, but alternative routes lengthen voyages and raise freight and war-risk insurance costs. Even in a rising-margin environment, higher procurement costs can compress the actual profitability gain.

Regulation and Price Controls

A domestic maximum price scheme for petroleum products has constrained pass-through of cost increases, and the company said settlement under the scheme will be verified through a defined procedure at a later date.

How the scope of loss compensation and cost recognition is finalized could change both the timing and the size of recognized earnings. In the United States, policy variables around the reduction or removal of electric vehicle tax credits have persisted. Because regulation lies outside the company's control, it reduces earnings visibility.

Subsidiary Listing Commitments and Structure

SK On is reported to have committed to financial investors, in connection with convertible preferred shares issued in 2022 and 2023, to complete a qualified listing by end-2026, with contractual protections such as drag-along rights discussed if that is missed.

SK Innovation management has previously told shareholders that the listing timing could be adjusted depending on market conditions. However the matter is resolved, it could entail funding needs or ownership changes at the parent.

Because the contract terms are only partially disclosed, investors cannot precisely gauge the outcome in advance.

What to watch next

September to October 2026
Whether transit through the Strait of Hormuz resumes and on what terms Middle East crude is contracted from September. Industry sources noted that sourcing risk grows once pre-secured cargoes run down in September, so run-rate adjustments and crude premiums will determine how much of the third-quarter margin is real.
Late October to early November 2026
Third-quarter 2026 results. The key items are the level of underlying profit once inventory-related gains fade, whether SK On stays profitable, and whether further derivative valuation swings or impairments appear.
Fourth quarter of 2026
Start-up of SK On's storage-dedicated lithium iron phosphate production and progress on new orders. Watch the fulfillment rate against the stated 2026 target of more than 20GWh and whether line conversions in North America and at Seosan are confirmed.
End of December 2026
The qualified-listing deadline under SK On's agreements with financial investors. Whether the company proceeds with a listing, extends the deadline, or exercises call options could change parent-level funding needs and ownership structure.
Late 2026 to early 2027
SK Geo Centric's final Ulsan petrochemical restructuring plan and the 2026 year-end dividend decision. The scale of the chemicals overhaul and whether payouts resume will indicate underlying earnings capacity and the direction of shareholder returns.

Overall view

The first half of 2026 was a period of dramatic rebound for SK Innovation in both scale and operating profit. Operating profit of KRW 2.16 trillion in the first quarter and KRW 3.49 trillion in the second stands in an entirely different league from the KRW 448.7 billion recorded for all of 2025.

Much of that rebound, however, came from the crude price spike triggered by the Hormuz crisis and the resulting inventory-related gains, which the company explicitly described as temporary profit that can disappear if prices fall.

At the same time, as the KRW 215 billion of second-quarter net profit attributable to owners shows, non-operating items such as derivative valuation losses and subsidiary impairments continue to erode earnings.

In batteries, SK On's first quarterly profit in seven quarters and its pivot toward energy storage mark a change in direction, but with one-off customer compensation contributing heavily to second-quarter profit, durability still needs verification.

On the balance sheet, the 190.2% debt-to-equity ratio at end-2025 and reduced operating cash flow remain burdens, and reports of improvement as of the second quarter of 2026 are still preliminary.

Ultimately, the underlying profit level once inventory gains are stripped out, and the repeatability of battery profitability, will be the two yardsticks for assessing this company in coming quarters. This report is for information purposes only and does not contain any buy or sell recommendation.

Sources

Korea Exchange (KRX) — Prices · Market Cap · Volume
FSS electronic disclosure system (DART) — Financial statements · Dividend filings

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Report written 2026-09-05 · Data as of 2026-09-04

This content is AI analysis of market data and web search results, provided for information only. It is not a solicitation or recommendation to invest. Investment decisions and their consequences are the investor's own responsibility. Data may be delayed or contain errors.