In a research note published on 15th September 2026, Yuanta Securities raised its target price for SK Innovation (Korea Stock Exchange: 096770) from 170,000 won to 200,000 won, while reaffirming its "Buy" recommendation. Based on the closing price of 136,700 won on 14th September, the implied upside is 46%.

An extraordinary earnings recovery

Yuanta forecasts full-year 2026 operating profit of more than ten trillion won—specifically, revenues of 102.3 trillion won, operating profit of 10.06 trillion won (an operating margin of 9.8%), and net profit attributable to controlling shareholders of 3.6 trillion won. The comparison with 2025's operating profit of 449 billion won is striking: the projected improvement represents roughly a 22-fold increase in a single year.

By division, the broker expects petroleum refining to contribute 6.17 trillion won (up from 350 billion won in 2025), lubricants 2.18 trillion won (up from 608 billion won), energy and services 955 billion won (up from 681 billion won), and batteries a loss of 96 billion won (sharply narrowed from a loss of 924 billion won). Refining and lubricants, in other words, are doing the heavy lifting, while the battery division remains in the red but is bleeding far less.

The "triple tsunami"

The catalyst for this dramatic turnaround is what Yuanta calls a "triple tsunami" of supply disruptions. The delayed resolution of the Iran conflict has crimped crude supply by an estimated 4–6%; damage to Middle Eastern petrochemical facilities and their slow restart has removed a further 2–3% of capacity; and destruction of energy infrastructure in the Russia-Ukraine war accounts for another 3–4%. Taken together, Yuanta estimates that global refining supply has been curtailed by roughly 14%, and it expects this shortfall to persist through the first half of 2027.

The numbers bear this out. Singapore complex refining margins—the benchmark for Asian refining conditions—averaged $15.2 per barrel in the first half of 2026 and are forecast to rise to around $20 in the second half. To put that in context: the full-year average in 2025 was just $3.6 per barrel, and the peak during the previous refining boom, triggered by Russia's invasion of Ukraine in the second quarter of 2022, reached $18. The current trajectory is, by historical standards, exceptional.

Lubricants revalued

A second driver behind the target price upgrade is a reassessment of SK Innovation's lubricants business. Yuanta argues that damage to Shell's base-oil facilities in Qatar has pushed the market for Group 3 base oils—the high-quality feedstock used in premium lubricants—into a pronounced upcycle. Accordingly, the broker has raised the EV/EBITDA multiple applied to the lubricants division from 11.5 times to 12.5 times.

Three restructuring tasks

SK Innovation faces three significant corporate actions in 2026 and 2027. First, the company announced in August its absorption of SK IET, a battery separator subsidiary, through a small-scale merger that will dilute the share count by 2.6%. Second, SK Innovation is in negotiations to sell SK City Gas Holdings, its city-gas distribution unit, to global private equity firm KKR in the fourth quarter; the transaction will be settled in kind through the repayment of 3.2 trillion won in redeemable convertible preference shares (RCPS) issued in 2021–22, reducing consolidated EBITDA by approximately 300 billion won per year. Third, by mid-2027 the company is considering suspending or permanently closing 660,000 tonnes of naphtha cracking capacity at subsidiary SK Geo Centric, as part of a broader restructuring of the commodity petrochemicals industry in Ulsan; the assets are carried on the books at roughly one trillion won.

Cash flow turning positive for the first time in five years

On the financial side, Yuanta estimates free cash flow (defined as EBITDA less taxes, interest and capital expenditure) of 4.5 trillion won in 2026, falling to 1.5 trillion won in 2027. The significance lies not in the magnitude but the direction: this would mark the first positive free cash flow in five years. Net debt, which stood at 29 trillion won in 2024, is projected to decline steadily to 24 trillion won in 2025, 20 trillion won in 2026, and 18 trillion won in 2027.

Cheap, but not without reason

On 2026 earnings estimates, SK Innovation trades at a price-to-earnings ratio of 6.4 times, a meaningful discount to the global integrated oil and refining peer average of roughly 8–10 times. Its price-to-book ratio of 0.91 times is well below the 1.2–1.8 times the stock commanded during previous refining booms, reflecting persistent drag from the loss-making battery division and the company's heavy debt load.

Investors should note several risks. The bullish scenario rests squarely on the assumption that geopolitical supply disruptions continue as expected; an earlier-than-anticipated ceasefire, or the return of Iranian crude to global markets, could cause refining margins to fall sharply. Faster-than-expected capacity additions by Chinese refiners could similarly revive fears of oversupply. Meanwhile, net debt remains above 20 trillion won, and obligations to redeem preference shares and perpetual bonds total 8.5 trillion won through 2027—a liability overhang that is likely to keep the valuation discount in place until there is greater clarity on the company's financial trajectory.