SK Innovation (096770 KS) (Neutral) - Upgrade to Neutral

Research evidence excerpt

SK Innovation (096770 KS) (Neutral) - Upgrade to Neutral

Global Markets Research

SK Innovation 096770.KS 096770 KS 11 June 2026

EQUITY: OIL & GAS/CHEMICALS

RatingUpgrade to Neutral Up from Reduce Neutral

Target priceExport refining margins/LNG power to support earnings, Increased from KRW 118,000but reopening of the Strait of Hormuz is a key risk KRW 90,000

Upgrade to Neutral – earnings likely to remain resilient due to high energy prices Closing11 June price2026 KRW 103,200

We upgrade SK Innovation (SKI) to Neutral, given: (1) we expect its earnings strength to continue

in 2Q26F – amid a high refining/chemical margin environment – which we estimate will contribute Implied upside +14.3%

to ~100% of 2Q26F EBIT; (2) the LNG-related business (import of LNG and sale of electricity

based on LNG) should generate resilient profit due to higher prices and shipments; SKI has set Market Cap (USD mn) 11,384.9

its growth strategy around “electrification” to leverage its diverse power assets (oil, LNG, nuclear) ADT (USD mn) 55.5

– which we think fits into the globally popular AI chain theme; and (3) the investment in

TerraPower (unlisted), a nuclear SMR company (co-investment of USD250mn with SK Inc. Relative performance chart

[034730 KS, NR]). Despite these positives, we remain cautious about: (1) a potential earnings

decline from 3Q26 if the Strait of Hormuz reopens and closed refining capacities come back on

stream; and (2) losses from the battery business persisting. Other risks include the complexity of

SKI’s business structure making it challenging for investors to analyze the company.

Our view on the oil refining industry outlook

Asia average gross refining margin (GRM) in 2Q26 jumped to USD28.5/bbl (1Q26:

USD8.1/bbl) with the current GRM level at USD18.7bbl.