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SK Innovation’s stock price plunged nearly 4% on news of the physical spin-off of its battery business and oil development business. The concern that the company’s value would decrease as the battery business with high growth potential was removed as a new company was put into action. In the securities market, although there are some uncertainties such as the occurrence of discount factors for holding companies, an analysis of the physical spin-off is rather positive if considering the long-term enhancement of corporate value.
The decline ended on the news of the battery split… It may have plunged more than 7% during the day
In the stock market on the 4th, SK Innovation finished trading at 245,500 won, down 9,500 won (3.75%) from the previous day. At the beginning of the day, the share price plunged nearly 8%, but the decline was partially reduced.
The sharp drop in the stock price seems to be the result of SK Innovation’s decision to split. SK Innovation announced on the same day that it had decided to separate the battery business and the oil development business. After the approval of the extraordinary general meeting of shareholders on the 16th of next month, the company plans to officially launch the new corporations ‘SK Battery Co. This direction was first revealed at SK Innovation’s Story Day on the 1st of last month.
The split of the two businesses is a simple and physical split method in which SK Innovation owns the total number of issued shares of the newly established corporation. SK Innovation will each own 100% of the shares of the new corporation, and assets and liabilities belonging to the businesses subject to the spin-off will be transferred to the newly established company respectively. SK Battery Co., Ltd. specializes in medium and large-sized batteries for electric vehicles, BaaS (Battery as a Service), and ESS (energy storage system) business, while SK ENP Co., Ltd. is engaged in petroleum development, production and exploration business, and CCS (Carbon Capture & Storage). Each business will be run. SK Innovation, the parent company, will focus on the role of a holding company in charge of developing an eco-friendly portfolio in the future.
Similar to LG Chem, which took off LG Energy Solution last year… stock price too?
It is evaluated that SK Innovation’s decision to split this time is similar to LG Chem, which announced plans to split up and establish LG Energy Solution in September last year. If so, what kind of share price did LG Chem show?
At the time LG Chem announced its plan to split, its share price plunged as it faced strong opposition from shareholders. On September 16, last year, when the news of the actual spin-off was announced, the share price of LG Chem plummeted by more than 5%, and the next day also fell by more than 6%.
SK Innovation’s share price trend is similar. On the 1st of last month, when SK Innovation officially announced its plan to split the battery business, its share price fell by nearly 9%, and it also showed a sharp decline on the same day that the division was announced.
However, looking at LG Chem’s case, it seems unlikely that SK Innovation’s share price will trend downward. LG Chem’s share price was pushed from 700,000 won to 600,000 won right after the split announcement, but recovered to 700,000 won in about a month and a half, and exceeded 1 million won at the beginning of this year. The share price of LG Chem has risen 32.7% from the announcement of the spin-off in September last year to the day before.
| Photo courtesy of SK innovation |
“Uncertainty will be short-lived… rather positive”
The uncertainty surrounding the stock market is also expected to be short-lived. It is evaluated that the division of the battery division has laid the foundation for an increase in corporate value in the mid- to long-term.
Baek Young-chan, a researcher at KB Securities, said, “The purpose of this physical spin-off is to improve management efficiency and prepare active investment resources.”
In addition, he said, “Preemptive market security through active battery expansion investment over the next two to three years will determine the battery enterprise value.” Fundraising is expected to be positive enough for the corporate value, and at this point in time, since active investment determines the battery corporate value, this physical spin-off is considered positive.
Jeon Woo-je, a researcher at Hanwha Investment & Securities, also said, “In the case of SK Innovation, the impact should be less than that of LG Chem, and the possibility of a physical split was mentioned since the end of last year, which was a factor that suppressed the share price. Although it reached ~70%, SK Innovation is undervalued at only 20-30%, so the valuation is less damaged when the same discount rate is applied. On the contrary, if the battery division is re-evaluated through a spin-off or IPO, the valuation will be raised.”
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