SK Innovation (096770.KS) Q1 2026: ₩2.16T Profit on Hormuz Spike
Operating profit hits ₩2.16 trillion in a single quarter — 4.8x last year's full-year figure — yet operating cash flow turns negative as receivables balloon 52.8%.
Source: Quarterly Report (1Q of the 6th Fiscal Year) — Filed 2026-05-15 with DART | Consolidated Financial Statements | Unit: ₩ billions
A company that posted a record consolidated net loss of ₩5,436.4 billion in 2025 turned around the following quarter to deliver operating profit of ₩2,162.2 billion. That single-quarter figure is 4.8 times the entire ₩448.7 billion of operating profit generated in FY2025. Yet operating cash flow for the very same quarter was negative ₩438.1 billion — surging crude prices inflated revenue and reported earnings, but trade receivables ballooned from ₩6,103.5 billion to ₩9,326.2 billion (+52.8%) in three months, leaving cash collection trailing far behind reported income. The trigger was the US-Iran conflict and the Strait of Hormuz blockade, which drove Dubai crude from $61 to $127 per barrel within the quarter, producing a one-off cycle peak rather than a structural reset. Refining and petrochemicals are inherently a five-to-ten-year cyclical business, and SK Innovation remains in the midst of corporate restructuring following the November 2024 absorption of SK E&S and the 2025 consecutive mergers of SK Enmove, SK Entum, and SK Trading International.
Balance Sheet
Asset Composition
| Item | Prior YE (2025.12.31) | Q1 2026 (2026.03.31) | Change |
|---|---|---|---|
| Cash & cash equivalents | ₩16,091.6 bn | ₩14,003.3 bn | -13.0% |
| Trade receivables | ₩6,103.5 bn | ₩9,326.2 bn | +52.8% |
| Inventories | ₩9,558.6 bn | ₩9,540.3 bn | -0.2% |
| Property, plant & equipment | ₩47,195.0 bn | ₩48,954.1 bn | +3.7% |
| Goodwill & intangibles | ₩2,339.4 bn | ₩2,427.9 bn | +3.8% |
| Total assets | ₩105,608.5 bn | ₩110,123.7 bn | +4.3% |
The dominant balance sheet move is the ₩3,222.7 billion jump in trade receivables. A 50%+ single-quarter expansion is the signature pattern of a crude price spike — when unit prices rise, the receivable balance inflates in proportion even before any volume change. Until collection cycles normalize back to a 60-to-90-day rhythm, this overhang weighs directly on operating cash flow, and it is the primary reason Q1 2026 OCF moved in the opposite direction of operating profit.
Property, plant and equipment of ₩48,954.1 billion looks like a modest recovery on its face, but stepping back, this is more than 14% below the ₩56,719.6 billion level at year-end 2024. Across calendar 2025, ₩9,524.7 billion was stripped out — a combination of held-for-sale reclassifications, the absorption of SK Enmove, and accumulated impairment review of battery subsidiary SK On. During the current quarter alone, an additional ₩9.795 billion of PP&E impairment and ₩27.796 billion of held-for-sale reclassification were recorded.
Cash of ₩14,003.3 billion declined ₩2,091.1 billion in the quarter, driven by the negative operating cash flow combined with bond and long-term borrowing repayments of ₩3,479.6 billion (against ₩1,755.5 billion of new long-term borrowings).
Debt Structure — Financial vs. Operating Liabilities
| Category | Prior YE | Q1 2026 | Change |
|---|---|---|---|
| Short-term borrowings | ₩7,201.7 bn | ₩8,239.4 bn | +₩1,037.7 bn |
| Bonds & long-term borrowings | ₩22,764.5 bn | ₩22,232.6 bn | -₩531.9 bn |
| Lease liabilities (current + non-current) | ₩2,326.0 bn | ₩2,314.0 bn | -₩12.0 bn |
| Financial liabilities subtotal | ~₩32,292.2 bn | ~₩32,786.0 bn | +₩493.8 bn |
| Trade payables | ₩9,140.0 bn | ₩9,342.0 bn | +₩202.0 bn |
| Provisions (current + non-current) | ₩1,508.0 bn | ₩1,613.0 bn | +₩105.0 bn |
Financial liabilities are effectively flat. The repayment of ₩3.48 trillion in long-term debt was offset by ₩1.04 trillion of additional short-term borrowings plus ₩1.76 trillion of new long-term borrowings — a maturity reshuffle rather than deleveraging. Net cash outflow from financing activities was ₩1,727.8 billion in the quarter. Separately, ₩27.0 billion of hybrid security interest was paid out; because these instruments are classified as equity, the coupon flows directly through equity reduction rather than the income statement.
Capital Quality
| Capital Item | Prior YE | Q1 2026 | Change |
|---|---|---|---|
| Paid-in capital | ₩876.1 bn | ₩876.1 bn | 0 |
| Retained earnings | ₩4,304.3 bn | ₩5,287.6 bn | +₩983.3 bn |
| Total equity (controlling + non-controlling) | ₩36,391.5 bn | ₩38,110.0 bn | +₩1,718.5 bn |
| Debt-to-equity ratio | 190.20% | 188.96% | -1.24 pp |
The ₩983.3 billion quarterly increase in retained earnings reflects net income of roughly ₩896.1 billion (income before tax from continuing operations ₩1,394.9 billion, less income tax ₩497.4 billion, less ₩1.4 billion of loss from discontinued operations). However, paid-in capital of ₩876.1 billion has expanded from ₩509.5 billion at year-end 2023 to ₩786.0 billion at year-end 2024 to ₩876.1 billion at year-end 2025 — roughly 72% over two years. This is the cumulative footprint of new shares issued for the SK E&S merger and subsequent capital raises.
A 189% debt-to-equity ratio is essentially unchanged. Equity grew but debt grew alongside it, leaving the ratio nearly static. Korean refiner peers typically run at or above 200% at cycle lows, so SK Innovation is not in danger territory, but the capital structure is materially heavier than it was five years ago, when the company sat in the low 100s.
Income Statement
Core Revenue and Margin Metrics
| Item | FY2023 | FY2024 | FY2025 | Q1 2026 |
|---|---|---|---|---|
| Revenue | ₩76,755.7 bn | ₩74,269.6 bn | ₩80,296.1 bn | ₩24,212.1 bn |
| Cost of sales | ₩71,830.2 bn | ₩70,256.2 bn | ₩75,996.2 bn | ₩21,011.2 bn |
| SG&A | ₩3,661.9 bn | ₩3,950.1 bn | ₩4,569.8 bn | ₩1,117.7 bn |
| Operating profit (loss) | ₩1,880.6 bn | ₩355.7 bn | ₩448.7 bn | ₩2,162.2 bn |
| Operating margin | 2.45% | 0.48% | 0.56% | 8.93% |
| Net income (loss) | ₩554.9 bn | (₩2,372.5 bn) | (₩5,436.4 bn) | ~₩896.1 bn |
| Basic EPS (common) | ₩2,808 | (₩21,531) | (₩21,502) | ₩5,729 |
(The ₩80,296.1 billion FY2025 revenue figure incorporates a full year of SK E&S integration, while FY2024 captures only two months — the merger closed on November 1, 2024. The headline +8.1% revenue growth from FY2024 to FY2025 is therefore driven more by the SK E&S effect than by organic expansion.)
Operating margin leaping from below 1% to nearly 9% in a single quarter is a textbook expression of refining-cycle mechanics. Average Dubai crude tracked $81 per barrel in Q1 (starting the period at $61 and exiting late March at $127), and a roughly 4.3 million-barrels-per-day reduction in Middle Eastern refinery throughput — caused by the Hormuz blockade — sharply widened global refining margins. On a standalone basis, SK Energy alone reported Q1 2026 revenue of ₩11,978.6 billion and operating profit of ₩1,283.2 billion, figures the company disclosed directly in the filing.
Separating one-off from recurring earnings: a significant portion of the ₩2.16 trillion in headline operating profit almost certainly stems from inventory revaluation gains — a structural feature of refining accounting in which rising crude prices lift the carrying value of held inventory faster than the cost-of-sales pass-through. The mirror image plays out in falling-price environments, where quarterly operating profit can drop by several hundred billion won in a single quarter from inventory write-downs. A "normalized" operating profit run-rate would therefore sit materially below ₩2.16 trillion.
Operating leverage in action: from FY2024 to FY2025 the relationship was modest — revenue up 8.1% drove operating profit up 26.1% (a ₩93.0 billion absolute gain). In Q1 2026, quarterly revenue of ₩24.21 trillion ran roughly 21% above the FY2025 quarterly average of ₩20.07 trillion, yet operating profit jumped multiples higher. This is the classic refining operating leverage: the fixed cost base does not move, so incremental margin per barrel flows almost entirely to the bottom line during cycle recovery phases.
Cost Structure and Segment Mix (Consolidated, ₩ millions)
| Segment | FY2024 Revenue | FY2025 Revenue | Q1 2026 Revenue | FY2024 Op P/L | FY2025 Op P/L | Q1 2026 Op P/L |
|---|---|---|---|---|---|---|
| Energy/Chemicals | 65,456,185 | 61,314,030 | 18,871,892 | 1,886,846 | 1,119,858 | 2,368,574 |
| Battery/Materials | 6,399,948 | 7,062,217 | 1,805,735 | (1,409,527) | (1,165,078) | (421,705) |
| E&S | 2,353,734 | 11,863,100 | 3,518,485 | 123,377 | 681,085 | 281,879 |
| Other | 59,780 | 56,707 | 15,947 | (244,999) | (187,281) | (66,583) |
| Total | 74,269,647 | 80,296,054 | 24,212,059 | 355,697 | 448,684 | 2,162,165 |
(E&S segment results reflect the post-November 2024 merger period only.)
The Energy/Chemicals segment alone delivered ₩2,368.6 billion of Q1 2026 operating profit — 2.1 times the segment's full-year FY2025 result of ₩1,119.9 billion — in a single quarter. The Battery/Materials segment, anchored by SK On, remained in deficit at ₩421.7 billion, but the loss narrowed roughly ₩85.5 billion versus the FY2025 quarterly average of ₩291.3 billion. The E&S segment, with its LNG and power generation backbone, contributed quarterly operating profit of ₩281.9 billion, providing a partial cushion against the cyclical volatility of the legacy refining and battery businesses.
Cash Flow
Cash Flow Statement Snapshot
| Item | FY2023 | FY2024 | FY2025 | Q1 2026 |
|---|---|---|---|---|
| Operating cash flow | ₩5,367.9 bn | ₩2,232.5 bn | ₩2,283.1 bn | (₩438.1 bn) |
| PP&E additions (capex) | ₩11,238.1 bn | ₩10,027.9 bn | ₩5,367.2 bn | ₩1,076.0 bn |
| Intangible additions | ₩256.8 bn | ₩182.3 bn | ₩283.4 bn | ₩113.5 bn |
| Free cash flow (OCF − capex) | (₩5,870.2 bn) | (₩7,795.4 bn) | (₩3,084.1 bn) | (₩1,514.1 bn) |
| Bond & LT borrowing proceeds | ₩7,718.5 bn | ₩8,326.4 bn | ₩12,460.5 bn | ₩1,755.5 bn |
| Bond & LT borrowing repayments | ₩4,864.3 bn | ₩4,314.0 bn | ₩7,876.9 bn | ₩3,479.6 bn |
| Ending cash balance | ₩13,074.4 bn | ₩15,865.1 bn | ₩16,091.6 bn | ₩14,003.3 bn |
Quality of earnings: the OCF-to-net-income ratio was 9.67x in FY2023 (a profitable year), while FY2024 and FY2025 net losses make the ratio meaningless. In Q1 2026, OCF of negative ₩438.1 billion against operating profit of ₩2,162.2 billion produces an OCF-to-operating-profit ratio of -0.20 — an extreme single-quarter divergence. The ₩3,222.7 billion build in trade receivables flowed straight through as a negative working capital movement in the cash flow statement, preventing the reported earnings from converting into cash.
Capex character: the ~₩10 trillion annual capex of FY2023 and FY2024 was overwhelmingly directed at SK On battery capacity expansion across the US, Hungary, and China. The decline to ₩5,367.2 billion in FY2025 was a direct response to the EV demand chasm, with battery investment cadence deliberately slowed. Capex intensity (capex/revenue) compressed from 13.5% in FY2024 to 6.7% in FY2025. Q1 2026 capex of ₩1,076.0 billion annualizes to roughly ₩4.3 trillion, hinting at further deceleration.
Cumulative free cash flow: SK Innovation has generated cumulative negative free cash flow of ₩16,749.7 billion over the past three years. The shortfall has been funded by net borrowings — FY2025 alone saw ₩4,583.6 billion of net bond and long-term debt proceeds — which is precisely how the year-end balance of ₩22,764.5 billion in long-term debt accumulated. Q1 2026 reversed direction with roughly ₩1,727.8 billion of net debt repayment, signaling intent to redirect windfall cycle earnings toward deleveraging rather than reinvestment.
Key Findings
Crude Prices and Refining Margins — How Long Does This Cycle Last?
The Q1 2026 average Dubai crude price of $81 is misleading without the distribution. Crude opened January at $61, broke above $100 in February following the outbreak of the US-Iran conflict, and reached $127 by the end of March. Late-quarter ceasefire speculation produced a brief retreat, but the price held in the $100+ range. The Hormuz blockade cut off roughly 20 million barrels per day of crude and product flow, while Middle Eastern refiner throughput losses of about 4.3 mb/d propelled global refining margins higher. In this environment, SK Energy delivered standalone operating profit of ₩1,283.2 billion, and SK Incheon Petrochem produced standalone operating profit of ₩1,321.0 billion.
The unresolved question is duration. If a US-Iran ceasefire takes hold or the Hormuz route normalizes, crude prices will retrace quickly, and refiners typically absorb inventory revaluation losses in a concentrated single-quarter hit. Past episodes — 2014, 2015, and 2020 — saw SK Innovation post quarterly operating losses ranging from several hundred billion to over ₩1 trillion in the quarter immediately following refining margin collapse. Treating the Q1 2026 9% operating margin as a normalized run-rate is a structural mistake.
SK On — Narrowing Losses, Structural Burden Intact
SK On revenue reached ₩1,791.2 billion in Q1 2026 (₩3,076.3 billion pre-consolidation elimination). The ₩421.7 billion operating loss is a meaningful improvement against the FY2025 quarterly average loss of ₩291.3 billion and the FY2024 quarterly average of ₩352.4 billion — though direct quarter-over-quarter comparisons are obscured by seasonality and the SK Enmove restructuring. The operating loss margin still runs at -23.4% of revenue, leaving a long road to breakeven. The filing's disclosure on raw material pricing shows cathode material averaged ₩35,792 per kilogram in Q1 2026, up 16.5% from FY2025's ₩30,717 — a cost pressure point, though the more material variables are LFP/NCM product mix shift and US IRA Advanced Manufacturing Production Credit (AMPC) eligibility.
The company targets 179 GWh of annual production capacity by year-end 2026, the threshold at which cumulative SK On losses theoretically begin to reverse. The risk is that without EV demand recovery, utilization rates remain depressed and the operating leverage continues to work against the business rather than for it.
SK E&S Integration — A ₩280 Billion Quarterly Earnings Floor
The November 2024 absorption of SK E&S brought in LNG imports, power generation, and city gas distribution — businesses with structurally lower cyclicality than refining or batteries. Q1 2026 segment revenue was ₩3,518.5 billion with operating profit of ₩281.9 billion. FY2025 segment revenue was ₩11.86 trillion against operating profit of ₩681.1 billion. The segment provides a partial offset to the cyclical swings of refining and batteries. LNG-fired power assets at Gwangyang, Paju, Yeoju, Hanam, and Wirye, combined with the city gas subsidiary network (which contributed roughly ₩1,813.0 billion of Q1 2026 segment revenue per the segment notes), establish a ~15% revenue floor for the consolidated group.
Contingent Liabilities and PRS Exposure — SK On Financial Investor Agreements
Within the consolidated ₩889.2 billion derivative liability balance, ₩606.9 billion (before offset of ₩175.0 billion in derivative assets) relates to equity option positions. This is the mark-to-market liability arising from shareholder agreements (Price Return Swap and related structures) with the financial investors backing SK On — and the liability rises or falls with SK On's enterprise value. The filing notes specifically value the "Green Initiative No. 2" call option and joint sale right at fair value of negative ₩1.6 billion (liability). If SK On's operating losses persist, additional PRS revaluation losses could be recognized in future periods.
The consolidated 188.96% debt-to-equity ratio runs somewhat above the Korean refining peer average, and the ₩27.0 billion of quarterly interest on hybrid securities — which flows directly through equity — adds modest incremental burden to the effective debt service profile.
Outlook
What worked this quarter — the refining business absorbed the full impact of the Hormuz-driven crude and refining margin co-expansion, producing in a single quarter nearly five times the entire prior-year operating profit. The SK E&S integration is now embedded as a stable cash-generation layer contributing roughly ₩280 billion of quarterly operating profit from LNG and city gas, structurally diversifying the earnings base. The ₩983.3 billion recovery in retained earnings begins the process of repairing the balance sheet damage from the record FY2025 loss.
Where the risks sit — the 9% Q1 2026 operating margin is a cycle peak signal rather than a normalized run-rate. A US-Iran de-escalation or restoration of Middle Eastern refinery throughput would compress refining margins quickly, and the inventory revaluation tailwind would reverse into a headwind that could erase ₩500 billion to over ₩1 trillion of quarterly operating profit in the transition. The OCF result of negative ₩438.1 billion against ₩2,162.2 billion of operating profit is its own warning — trade receivables grew 52.8% from ₩6.10 trillion to ₩9.33 trillion, and cash collection has not yet caught up with reported earnings. SK On's ₩421.7 billion quarterly loss leaves breakeven timing unresolved, and the PRS derivative position can magnify losses if SK On's enterprise value continues to drift.
Capital allocation posture — of the roughly ₩26.6 trillion in cumulative capex deployed across FY2023 to FY2025, the dominant share went into battery capacity expansion. Q1 2026 reversed course with ₩1,727.8 billion of net debt repayment and capex slowing to ₩1,076.0 billion for the quarter — the windfall is being redirected toward balance sheet repair. With ₩22,232.6 billion of long-term debt and ₩8,239.4 billion of short-term borrowings totaling ₩30,472.0 billion, meaningful deleveraging would require two or three consecutive quarters of refining strength. No new dividend or share buyback signals appear in the current quarterly disclosure.
Cycle positioning — at the filing date of May 15, 2026, refining sits in a clearly elevated, short-duration peak. A US-Iran resolution within one to three months would likely drive a rapid reversion of refining margins toward 2024–2025 levels (quarterly operating profit of ₩100–120 billion). Conversely, a protracted conflict could sustain windfall earnings for another two to three quarters, but at the cost of a broader demand contraction that would weigh on the same business in subsequent quarters.
Footnote Highlights
Accounting policies: refining inventory is measured under weighted-average costing in line with industry standard practice. K-IFRS prohibits LIFO, creating a structural margin-timing difference relative to US refining peers.
Segment information: Q1 2026 mix is Energy/Chemicals 78% of revenue, E&S 15%, and Battery/Materials 7%. Operating profit attribution is roughly 110% to Energy/Chemicals, with the other segments' losses absorbing the excess.
Debt detail: ₩22,232.6 billion of bonds and long-term borrowings plus ₩8,239.4 billion of short-term borrowings sum to ₩30,472.0 billion. Quarterly interest paid was ₩351.0 billion (annualized ₩1,404.0 billion), implying an effective average rate of roughly 4.6%.
Contingent liabilities: SK On-related PRS and equity option derivative liability of ₩606.9 billion is the principal item, with valuation linked to SK On enterprise value.
Executive compensation: not analyzed in this report; refer to the "Executives and Employees" section of the filing.
Disclaimer: This report is prepared for informational purposes based on SK Innovation's quarterly report (1Q of the 6th Fiscal Year, filed May 15, 2026, with DART) and the DART OpenAPI consolidated financial statements (corp_code=00631518). It does not constitute investment advice or a solicitation to trade securities. Source: DART filing, 2026-05-15.
