[Edaily Reporter Park Jung-Soo ] SK Innovation(096770)is on the rise. This is believed to be driven by buying interest following a securities firm’s analysis that the impact of the absorption merger with SK ie technology on the company’s fundamentals will be limited, and that the recent decline in its stock price has been excessive.
According to MP Doctor on the 27th, as of 9:13 a.m., SK Innovation is trading at 113,500 won, up 2.07% (2,300 won) from the previous trading day.
Previously, on the 25th, SK Innovation decided to merge with SKIET, its battery separator subsidiary, through an absorption merger. Once the merger is complete, SKIET will cease to exist as a separate legal entity, and its separator business will be integrated into SK Innovation. The company cited the battery separator business, a deteriorating business environment, limitations on improving SKIET’s own profitability and cash generation, and restricted financing capacity as the reasons for the merger. The company also took into account the possibility that risks, such as default, could increase if SKIET were to remain an independent entity.
Shin Hong-ju, an analyst at ShinyoungSecurities, stated, “This merger is a preemptive measure to prevent a decline in SKIET’s creditworthiness from spreading to the entire SK Innovation Group as a financial risk, and it is part of the battery business restructuring that began late last year,” adding, “The impact on SK Innovation’s overall fundamentals will be limited.”
The analyst projected that the merger would improve financial stability and business efficiency. While consolidated debt is expected to remain unchanged, interest cost savings are anticipated as SKIET will be rated based on its parent company’s creditworthiness. Combined with reductions in fixed and operating costs resulting from the integrated operation of the separator business and the consolidation of organizational functions, it is estimated that consolidated EBITDA will improve by 60 billion won immediately upon the merger. The firm also viewed the dilution effect on earnings per share (EPS) resulting from SKIET’s non-controlling interests as negligible.
The turnaround point for the separator business was projected for 2029. The firm anticipated that cost reductions and growth in the ESS separator business—driven by SK On’s expansion of its energy storage system (ESS) business—would lead to improved earnings. It also noted that further earnings improvement is possible if the electric vehicle market recovers more quickly.
The plan for handling SKIET’s price-to-earnings swap (PRS) has not yet been determined. ShinyoungSecurities projected that settling the matter through the exercise of the right to demand share repurchase would be the most realistic scenario. In this case, SK Innovation’s cash payment is estimated to be up to 146.7 billion won, and the payment amount is expected to decrease as SKIET’s stock price rises.
ShinyoungSecurities estimated that the merger would reduce SK Innovation’s enterprise value by up to 770 billion won. This figure combines 570 billion won—representing a 2.6% dilution of existing shareholder value resulting from the issuance of new shares for the merger—with 200 billion won, the value of SK Innovation’s existing stake in SKIET.
In contrast, SK Innovation’s market capitalization has fallen by 2.3 trillion won since the merger was announced. Analyst Shin concluded, “Considering that the reduction in enterprise value resulting from the merger is estimated to be at most 770 billion won, the recent decline in the stock price is extremely excessive.”