By Kwanwoo Jun


SK Innovation's shares climbed on a possible merger with SK E&S, a profitable renewable-energy business affiliate of parent SK Group.

Shares of the South Korean oil-refining and battery company rose as much as 20% to 126,000 won in early trade, outperforming the benchmark Kospi's 0.4% gain.

The rally in SK Innovation, recently under pressure from its unprofitable electric-vehicle battery affiliate SK On, followed a Seoul-based Chosun Ilbo newspaper report that it seeks to merge with SK E&S, which profits from trade in natural gas and renewable energy sources, to strengthen its balance sheet.

Chosun, citing unnamed industry sources, expects SK Innovation executives could meet late June and approve the merger with SK E&S, which would result in a new energy business entity with more than KRW100 trillion ($72.3 billion) in assets.

SK Innovation, in response to the news report Thursday, issued a brief statement that it is considering various business strategies, including the merger, but no concrete decision has been made yet.

The company earlier posted a KRW97.62 billion net loss for the first quarter ended in March, with operating losses having widened sharply at its EV battery affiliate SK On.

SK On, spun off from SK Innovation in October 2021, has since been in the red due to increased capital expenditure and rising debt-financing costs. Recently, a slowdown in global demand for EVs has also been weighing on the company.

Seoul-based Eugene Investment & Securities analyst Sunghyun Hwang said in a research note he expects losses at SK On to narrow gradually this year.

Hwang remains upbeat on SK On's rising backlog order, which has topped KRW400 trillion. He keeps a buy rating and KRW200,000 target on SK Innovation.


Write to Kwanwoo Jun at kwanwoo.jun@wsj.com


(END) Dow Jones Newswires

06-20-24 0111ET