By Heekyong Yang and Joyce Lee

SEOUL (Reuters) – SK Innovation said on Monday its SK On battery-making unit is still on target to break even in the second half of this year after a forecast-beating first-quarter operating profit, sending its shares up nearly 6.5%.

The company, which also owns South Korea’s top refiner SK Energy, said it expects solid refining margins to continue in the second quarter, backed by firm demand.

It posted operating profit of 625 billion won ($454 million) for the January to March period, versus 375 billion won a year earlier and an average analyst forecast of 466 billion won. First-quarter revenue fell 1.5% to 18.9 trillion won.

“While we saw drops in EV battery shipment in the first quarter… we expect to see an improved market environment backed by launches of new EVs in North America,” SK On Chief Financial Officer Kim Kyunghun said in a post-earnings conference call.

SK On, whose clients include Ford Motor, Volkswagen and Hyundai Motor, widened its operating loss to 332 billion won in the first quarter from 18.6 billion won a quarter before as EV battery shipments fell. However, it maintained its target to break even in the second half.

“When… Hyundai Motor kicks off EV production in the United States later this year, it would help raise SK On’s EV battery shipment and amount of tax credit received under the U.S. Inflation Reduction Act,” said Hyundai Motor Securities analyst Kang Dong-jin.

Shares in the company, which rose as much as 6.5%, closed up 5.6% against a 1.2% rise in the benchmark KOSPI.

Kang said Monday’s jump in Chinese property shares had helped lift SK Innovation, amid speculation that more stimulus measures for the battered real estate sector could be unveiled this week, potentially lifting demand for petrochemical products.

Analysts are hopeful that SK On’s battery shipments will increase later this year, but note persistent near-term uncertainty over EV demand due to car buyers’ preference for hybrid vehicles.

SK On’s major automaker customer Ford earlier this month said it had delayed the launches of three-row EVs in Canada and its next-generation electric pickup truck built in Tennessee.

Last week, SK On’s cross-town rival LG Energy Solution said it planned to minimise capital expenditure this year due to slowing global EV demand, after reporting a 75% drop in quarterly profit.

SK, which has total refining capacity of 1.115 million barrels per day at its plants in Ulsan and Incheon, said it expects to see solid refining margins in the second quarter.

The refiner said it has secured contingency plans to source crude oil for its products in case of the blockade of the Gulf’s Strait of Hormuz, through which it sources more than 70% of its crude oil.

SK added that it plans to carry out maintenance work for its No.5 crude distillation unit (CDU) in the second quarter.

($1 = 1,376.4300 won)

(Reporting by Heekyong Yang and Joyce Lee; Editing by Himani Sarkar, Shri Navaratnam and Jan Harvey)

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