Punters come back to battery makers after settlement

Shares of SK Innovation jumped nearly 12 percent to close at 266,500 won ($237) on Monday after the company settled a battery trade secrets dispute with LG Energy Solution on Sunday.

SK headquarters in Seoul [NEWS1]

Shares of SK Innovation jumped nearly 12 percent to close at 266,500 won ($237) on Monday after the company settled a battery trade secrets dispute with LG Energy Solution on Sunday.

SK Innovation shares started strong at 275,500 won and grew by over 18 percent to reach as high as 282,000 won during intraday trading. The shares ended the day 11.97 percent higher than the previous trading day.

On Sunday, SK Innovation agreed to pay LG Energy Solution a total of 2 trillion won -- 1 trillion won in cash and the remainder in royalty payments. The two also agreed not to fight over issues related to electric car battery technology for the next 10 years and drop all patent-related litigation pending in courts in the United States and Korea.

While SK 's battery making arm needs to pay 2 trillion won to the LG affiliate, analysts say the SK unit benefited more than it lost through the agreement.

"We retain our BUY rating on SK Innovation for a target price of 330,000 won," said Lee Jin-myung, an analyst at Shinhan Investment. "The company should see a turnaround in sentiment with the dispute settlement removing legal risks, which have been its biggest drawback."

Lee said investor sentiment had soured towards electric car battery makers from the beginning of the year due to uncertainties related to the legal battle between SK and LG and also after Volkswagen announced recently that it plans to gradually internalize battery supply. But investors should come back as the legal dispute has been resolved.

"SK Innovation plans to sharply expand its battery production capacity from 30 gigawatt-hours (GWh) in 2020 to 85GWh in 2023 and more than 125GWh in 2025," Lee added. "Strong battery earnings growth can be expected with aggressive capacity expansion, unhindered by litigation costs."

"We expect the settlement to have a favorable impact on SK Innovation shares as there would have been huge risk if the settlement failed, and the agreed upon settlement money is smaller than expected," said Park Yeon-ju, a research fellow at Mirae Asset Securities.

Daishin Securities analyst Han Sang-won also projected a steep rise in SK Innovation's stock price, and upped the brokerage's target price for the company in six months time to 400,000 won, in a report Monday.

However, Kang Dong-jin, an analyst from Hyundai Motor Securities, said SK Innovation still has a lot of work to do as the company may need to borrow more or securitize assets to invest in the battery business and to cover the settlement. Its battery business is still in the red.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]