SK Materials’ shares fly high on rosy business outlook

Shares of SK Materials Co., the industrial gas manufacturing affiliate of South Korea’s SK Group, are hovering around all-time high levels amid expectations that its earnings will rise to a record on the back of its industrial gas business.

The company’s stock listed on the Kosdaq market has risen for a fifth straight session to finish 6.9% higher at a record 427,400 won on Wednesday, outperforming the broader market’s 0.2% fall. SK Materials has risen 21.4% so far this month.

The stock remained in the 300,000 won range throughout the first half of this year but began rising from last week on a rosy business outlook.

It gained further momentum particularly after its announcement earlier this week that it is launching a joint venture with US battery materials startup Group14 Technologies to tap into the lithium-ion battery material business.

SK said it will invest 70 billion won ($60.9 million) in the JV for a 75% stake. The JV to be launched in Korea next year will produce silicon anodes used in electric vehicle batteries to increase energy density and battery capacity.

SK Group, the country’s third-largest conglomerate, has been ramping up investment in the battery business to gain a greater share of the EV battery market.

Last year, SK Materials invested 14 billion won in Group14 Technologies to become its third-largest shareholder with a 10.3% stake.

SK Innovation Co., the petroleum and battery unit of SK Group, said earlier this month that it will invest 30 trillion won in green projects by 2025 to turn into an eco-friendly company.

SK Materials has been aggressive with its research and development spending to diversify its business portfolio.

It mainly produces nitrogen trifluoride (NF3), used to remove any residues on the internal walls of chemical vapor deposition chamber; and silane (SiH4), which is used to deposit silicon on semiconductor wafers and flat-panel glass substrates.

The company’s R&D spending increased to 14.8 billion won last year from 3.4 billion won in 2019.

RECORD 2021 EARNINGS FORECAST

SK Materials has posted a decent business performance so far this year, providing a tailwind for the gains of its share prices.

In the second quarter, it posted an operating profit of 68.1 billion won on revenue of 280.1 billion won, up 20.3% and 23.1%, respectively, from a year ago.

For the full year, the company is forecast to post a record operating profit of 290.1 billion won on the back of rising demand for industrial gases, according to the market consensus.

Analysts say SK Materials’ stock has further upside potential despite its sharp gains in recent weeks.

Seven of eight local brokerages that issued stock reports on the company in the past couple of days have raised their target prices to 482,500 won on average.

SK Materials’ 12-month forward price-to-earnings ratio stands at a historic high of 22 times, but still below the average multiple of 27 for global chip and battery materials makers, analysts said.

“SK Materials is among the local companies with the most aggressive R&D investments. The company’s valuation will rise further from the current level once its business diversification efforts start to yield positive results,” said Lee Seung-woo, head of research at Eugene Investment & Securities.

Write to Hyung-gyo Seo at seogyo@hankyung.com
In-Soo Nam edited this article.