SK Innovation Co Ltd
KRX:096770
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SK Innovation Co Ltd
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Good morning. I am [ Chung Soo Yung ], Investor Relation PL of SK Innovation. Thank you for participating in this Earnings Conference Call for the First Quarter of 2024. On today's call, we have SK Innovation's CFO, Kim, Jinwon; and also Head of the IR Office, Lee Woo-Hyun, and other officers from each of our subsidiaries. We will start today's call with a presentation on the Q1 performance by the CFO, Kim, Jinwon, after which we will have a Q&A session.In addition, please note that today's presentation is unaudited so the contents may be subject to change based on the results of the external audit.Now, let me hand it over to the CFO, Kim, Jinwon for the presentation on our first quarter results.
Good morning. I am SK Innovation's CFO, Kim, Jinwon. First, let me begin by thanking all the shareholders, investors, and analysts for your interest in SK Innovation and let me begin by going over the Q1 2024 business highlights.In general, the business environment for the EV value chain has been unfavorable, but nevertheless SK On has been able to acquire more orders from existing and new customers. As a result, the backlog has gone from KRW 290 trillion as of the end of 2022 to KRW 400 trillion plus as of the CAGR of 2023, representing a strong CAGR of 67% since 2016. As mentioned during the 4Q earnings call, in order to fulfill large orders acquired recently, the company is optimizing production lines to enhance the utilization of existing capacity. From the second half of this year, we expect these efforts to increase our shipments. In the first quarter, SK On's profitability dropped as customers adjusted their inventory, but the company continued to focus on optimizing operations in order to improve profitability and address the aforementioned large-size orders. So we expect an improvement in the top and bottom lines as the utilization of global capacity improves and AMPC increases. Moreover, in order to flexibly deal with changes in customer demand, SK On has decided to be flexible in timing capacity expansions. We believe this will enable the company to focus more on improving profitability during the downturn in the industry.Second, let me discuss the energy and petrochemical business. Higher oil prices resulted in better inventory-related gains and stronger refining margins. This, coupled with an increase in sales volume, led to better Q-o-Q operating profits across all businesses resulted in solid performance in Q1. In particular, in the E&P business, we expect commercial production for the China 17/03 block, which started last quarter, to increase sales volume, which should generate consistent revenue growth in the future. To discuss our short-term outlook, in the second quarter, due to strong trends in the real economy and the fact that we are entering into a high season, the energy/petrochemical business backdrop should be positive. In addition, we expect China 17/03 block production will reach its peak in the third quarter. This consistent increase in production volume should contribute to better sales and profits. This wraps up the company's highlights for Q1.Next, let me go over more detail about our performance numbers. In terms of revenue, though sales volume increased as Q4 petrochemical TAs were completed and AMPC sales volume grew on the back of more production from new blocks, a decline in ASP and also sales volume in the battery business led to sales dropping KRW 674.2 billion quarter-over-quarter to KRW 18,855.1 billion. For operating profit, stronger Q-o-Q refining margins for the petroleum business, stronger inventory-related gains driven by higher crude and naphtha prices, and an increase in E&P production volume resulted in a KRW 552.1 billion gain versus the fourth quarter at KRW 624.7 billion. Non-operating profit declined Q-o-Q by KRW 481.4 billion, driven by FX-related losses stemming from a weaker won and commodity derivative losses linked to higher crude prices. The non-operating rise was KRW 606.5 billion. To break it down, FX-related losses were KRW 150.9 billion, commodity derivative losses KRW 125.4 billion, net interest expenses KRW 217.2 billion, equity method losses KRW 49.3 billion and other losses KRW 63.7 billion.Now, let me go over our financials. Assets as of the first quarter end totaled KRW 86,384.1 billion. The biggest change is the tangible assets increased by KRW 3 trillion due to CapEx investments that were made for our new overseas battery production sites that are in progress. In addition, inventory assets and account receivables are up by KRW 1.1 trillion and KRW 0.6 trillion each, driven by higher crude oil prices. Liabilities were KRW 55,061.8 billion, while borrowings to fund CapEx and account payables driven by crude prices increased by KRW 3 trillion and KRW 1.5 trillion, respectively. The debt/equity ratio was 176%, 7% points higher than the end of 2023.Now, let me go over the performance of each of our business areas. For the refining business, strong refining margins and an increase in inventory-related gains driven by higher crude prices resulted in an operating profit increasing KRW 756.3 billion quarter-over-quarter to KRW 591.1 billion. In the second quarter, we expect the U.S. Fed to keep rates higher for longer and there are some concerns that higher crude prices may dampen refining demand. But solid real economic trends continue and there are expectations that supply will moderate due to the OPEC+ production cutback and better demand from emerging markets. As a result, we expect refining margins to remain strong. In addition, mobility demand is expected to increase as we enter the driving season while inventory gains are expected due to the rise in crude prices since March. Lastly, Saudi Arabia continues to maintain low OSP levels, which is also expected to be positive for the company's actual refining margins.Now, I will move on to discuss the petrochemical business. The chemical business saw an increase in volume following the completion of regular TAs for NCC and polymer in Q4 of 2023. Key product spreads, including PX, declined, but was offset by benzene spread improvements. Also, rising naphtha prices led to inventory gains, which all in all resulted in an operating profit of KRW 124.5 billion, up KRW 124.1 billion quarter-on-quarter.Moving on to Q2 market outlook for PE and PP. Spreads are expected to stay flat backed by improved demands following Chinese government's policy to shore up domestic consumption. For PX, it is anticipated that spreads will gradually improve driven by positive factors such as seasonal gasoline blending demand due to the arrival of the summer driving season, and increased demand with the startup of a new PTA capacity in the region.Next is Lubricants Q1 performance. The lubricant business saw a slight decrease in base oil margins, including unrealized profit. But due to factors such as increased sales volume driven by steady demand and reduced fixed costs, Q1 operating profit amounted to KRW 220.4 billion, up KRW 3.4 billion Q-o-Q. We anticipate our positive profitability will continue in Q2 as demand increases with the onset of the peak season.Next is E&P business performance in Q1. Despite a decline in quarterly average oil and gas prices, the China Sea block 17/03, where successful oil production was announced during the Q3 earnings call last year, continued to post an increased output. This led to increased sales volume and subsequently higher composite selling prices. As a result, our E&P operating profit recorded KRW 154.4 billion, up KRW 47.3 billion. Furthermore, a new block in China is on track to achieve its target of maximum production capacity in Q3 of this year. Accordingly, we anticipate a growth in both top and bottom line in the next quarter. In addition, we are focusing our efforts on the development of and successful production from additional exploration blocks in Vietnam and Malaysia, and we are making efforts to ensure uninterrupted progress to that end.Next, let me move on to the battery business and its performance in Q1. In Q1, the battery business posted sales of KRW 1.683 trillion, down to KRW 1.395 trillion quarter-on-quarter due to decreased sales volume and selling prices. The productivity issues concerning overseas subsidiaries identified during the initial operation last year have been resolved, but utilization rates fell due to customers' inventory adjustments. As a result, operating loss rose to KRW 331.5 billion. In Q2, we anticipate a gradual increase in shipments backed by customer inventory restocking demand and ongoing optimization of line operations. Moreover, in response to significant headwinds, we are flexibly adjusting the timing of capacity expansions in Europe and China, and we anticipate profitability to improve accordingly.Next, let's take a look at SKIET's Q1 performance. SKIET recorded an operating loss of KRW 64.4 billion due to increased fixed costs resulting from a decrease in sales volume to customers and a decline in operation rates compared to the previous quarter. We anticipate a gradual improvement in sales volume and profitability driven by increased demand from key customers.Lastly, I want to mention the recent media coverage regarding our business portfolio restructuring. In response to the shifts in the business landscape, including ongoing high interest rates and a slowdown in green industry growth, we're adjusting the pace of our carbon to green strategy and reviewing our overall business portfolio for rebalancing. In this process, we acknowledge that certain ideas which were either preliminary or not thoroughly discussed have been reported in certain articles, resulting in heightened concerns among investors. The purpose of the ongoing review of our portfolio is rooted in the premise that transition to green business is inevitable. Our objective is to identify and focus on promising ventures among our past investments and business portfolios while adjusting our pace to ensure momentum for future growth.The EV value chain is faced with significant changes as the EV growth prospects initially anticipated failed to meet our expectations. But by leveraging this opportunity to further sharpen our capabilities, we believe we can successfully navigate the chasm and stay ahead of the competition once the market begins its upward trajectory. It is for this purpose that we are currently conducting a portfolio review with the aim of addressing areas for improvement and optimizing operations. We appreciate your understanding and we commit to providing transparent explanations to investors as the result of our efforts unfold. We kindly request the attention and support of our shareholders, investors, and analysts for the company's efforts to overcome the current chasm, secure growth momentum, and achieve long-term shareholder value enhancement. Thank you.
With that, we conclude today's presentation and we'll now proceed to the Q&A session. Before taking live questions, we would like to first address pre-submitted questions collected through our company website.For today's earnings call, we have compiled various questions from investors and analysts pertaining to our business, including battery. To facilitate effective communication, we have selected the most pertinent questions related to our 5 key businesses and the respective officers will address them via simultaneous interpretation.So let us begin and the first question is on the refinery business. The question asked were, recently middle distillates have been weak and light distillates strong. Can you explain the situation and how does the company see the current market and future outlook?In addition, there was a question, what plan does the company have to address the crude supply issues that are stemming from recent Middle East risks?So about this, let me ask [indiscernible], Head of Corporate Planning Office at SK Energy to answer.
As introduced, I am [indiscernible], Head of the Corporate Planning Office at SK Energy. First, let me answer about the first quarter refining market and second quarter outlook, and then talk about how the company is addressing possible crude supply issues that may result from geopolitical risks in the Middle East.So first, if we talk about the Q1 refining market, it was impacted by the abnormally cold weather that continued in mid-February in North America that led to a suspension of U.S. capacity. In addition, there were also supply issues stemming from the hit on Russia refining facilities by Ukrainia (sic) [ Ukraine ], which led together to a Q-o-Q better market backdrop because of tight supply. However, if we look at the middle distillates, from March, it seems to be moderating. But in the case of light products focused on gasoline, from January and February levels, it is continuing and maintaining strong levels to this level. The reason why middle distillates have been a bit weak in March is because demand recovery in China has been a bit slow. And if we look at the overall export quarters, there has been an increase in exports from China. And in addition to that, because of the Middle East situation, if we look at the stock that is passing through the Red Sea, there has been issues there. So as a result of that, there has been a weaken in the middle distillates market. However, on the flip side of that, in the case of the gasoline market, in February and January, there was a very solid market situation. And that is because on a relative basis, the U.S. economy has been strong. Gasoline demand has been strong. And also, if we look at the overall portion of regional refineries which have a slightly larger portion of light distillate, the overall issues there have led to a tight supply which have led to a better backdrop.Now, let me talk about the market outlook for the second quarter. We expect the weak market for middle distillates to continue into April. However, if we look at May and then in June, we will be entering into the driving season. So we do believe that gasoline demand is expected to increase. In addition, prior to the summer vacation season starts, the kerosene market is expected to improve due to stocking demand for jet fuel. In addition, we do think that there will continue to be high inventories that will come down and which will lead to recovery in the middle distillates market and leading to a better market backdrop.And lastly, to address your question about the crude sourcing in light of Middle East geopolitical risks and talk about how the company is dealing with this. At the company level of the imported crude that we have, approximately 70% passes through the Red Sea and the Strait of Hormuz. The geopolitical risks in the Middle East has recently increased due to the level of a possible shutdown of the Strait, which is leading to stronger concerns about the crude supply chain. However, that has been said, if we look at similar past precedents and there are a lot of such, there has not been a case in which the Strait of Hormuz has actually been closed. So as a result, we do not believe that it actually will be closed down. But nevertheless, we do believe that we need to ensure that we have a stable supply of crude even in such a situation, so we have -- we secured an alternative route and even if the Hormuz Strait is closed, then we do have a contingency plan that would enable us to quickly source alternative crude. Not only that, but during the minimum time required to import alternative crude, we prepared a wide variety of options to ensure that our production remains stable. Thus, based upon our high operational flexibility, we would be able to activate the contingency plan in a timely manner to minimize the impact on our profits. Thank you.
Next is on the petrochem business. What are the financial projections in Q2 and Q3 as we enter the summer season? Also, what is the driver behind maintaining robust profitability compared to other chemical companies?With that, I invite Mr. Kim [indiscernible], Head of Management and Planning Office at SK geo centric.
I am Kim [indiscernible], Head of SK geo centric Management and Planning Office. So I would like to provide you an overview of Q2 and Q3 prospects. For aromatics, we anticipate a gradual improvement in spread for our aromatics products as demand for gasoline blending recover from Q2 onwards as we enter the summer season. Furthermore, our key product, PX, is expected to benefit from tight supply due to improved downstream demand driven by sustained higher operating rates in polyester and new PTA operations, leading to a positive impact on spreads.For benzene, the price in the U.S. has been rising since the beginning of the year due to strong downstream demand leading to tighter supply conditions in the region. This situation is expected to persist in the second and third quarters. Also, increased gasoline blending demand appears to have indirect impact and keep spread wide compared to the previous year.For olefins, demand failed to outstrip expectations in Q1 due to capacity buildup in the region, but demand is expected to improve in Q2 and Q3 as the Chinese government props up domestic consumption.Next, I would like to talk about the strength that we have in our portfolio compared to our peers. Aromatics accounted for around 70% of 2023 sales, and the ratio of olefin chain products experiencing delayed demand recovery due to capacity buildup in the region is lower compared to our competitors. In particular for PX, which sees a solid downstream demand and tight supply due to gasoline blending demand, we have the largest production capacity in Korea with around 2.9 million tons a year. We expect gasoline blending and PX downstream chain demand to continue in 2024.
And thirdly, now let us move on to the lubricants business. The first question is, what is the performance outlook for the lubricants business, which is entering a high season?And secondly, could the company please explain the current status and future strategy of the oil-based immersion cooling systems, which has recently received a lot of attention?So let me ask [ Ho Jung wook ], Head of the Corporate Planning and Development Office at SK Enmove to answer.
I am [ Ho Jung wook ], Head of Corporate Planning at SK Enmove and let me address the 2 questions. So first to talk about our outlook. In the case of the replacement time for lubricants in the spring and the summer driving season which is arriving, we believe that overall demand will increase. So Q1 performance was similar to the previous quarter and during the summer season, we expect the solid performance to continue going forward. So competition in certain markets is increasing. But in the case of SK Enmove, because we have been able to secure a stable demand based upon its high-quality Group III products. In addition, with various environmental regulations, we expect the high-end lubricant market to continue to grow and therefore, we do think that the Group III market will continue to be sound and our position with the end market also expected to be stable.Maybe to talk about the immersion cooling and also our business expansion strategy and our current progress to date. So as of the current time, the company is jointly developing technology required to standardize immersion cooling systems, acquiring certification on the cooling performance of fluids developed and exploring areas of application outside of data centers via cooperation with group member companies and outside partners. So we are currently reviewing commercial possibilities. The market of immersion cooling applications is expected to develop at different speeds, so therefore at the company level, we will focus on data center applications since we can address synergies within the group and also, we'll gradually expand into the e-mobility area, focusing on EV batteries for which we expect very high-growth in the future. In addition, the company will continue to generate stable profits from the base oil and lubricants business, and immersion cooling using the base oil that we are producing is expected to be valuable in the future as a stable demand source.
Question #4 is about the E&P business. Tell us about the revenue generated from the 17/03 block in China where full-scale production has commenced and a progress update on new block exploration?For this question, I invite Mr. [ Chi Ho Minh ], SK Earthon Head of Planning and Support Office to provide answers.
I am the SK Earthon Planning and Support Office Head, [ Chi Ho Minh ]. The E&P business reported a solid operating profit of KRW 150 billion in Q1, up 36% year-on-year and 44% Q-o-Q. Oil prices remain similar compared to the previous quarter, but sales volume increased 7% Q-o-Q backed by increased production from block 17/03 in China and this contributed to a higher OP. Amid rising geopolitical tensions in the Middle East, in light of the recent confrontation between Israel and Iran, Brent oil is trading in the mid- to high-$80 range per barrel and dollar continues to stay strong due to uncertainties around the timing of the U.S. Fed interest rate cuts. With the increase in production from block 17/03 in China and the impact of higher oil prices and strong dollar, we anticipate this year's pretax profit to exceed KRW 500 billion. Block 17/03 started production in September last year and as of Q1 this year, it accounts for around 50% of the pretax profit generated by our company. Once the production well drilling for the block is completed coming July, we expect daily peak production will amount to 30,000 barrels.Last year, the Vietnamese government granted FDP or field development plan approval for block 15/01 and 05, and LDV structure development is currently underway. The block holds approximately 86 million barrels of crude oil reserves and oil production is expected to commence as early as 2026. Also, block 16-2 in Vietnam is under review to delineate additional adjacent structures and determine optimal development options. We plan to drill 2 exploration wells this year and they are for block 15-1/05 and block 15-2/17 in Vietnam. Last week, we closed a deal to sell our 20% stake in Peru LNG. We plan to strengthen our upstream portfolio and accelerate overseas resource development using the capital secured through this deal.
Last question is on the battery business. What are the reasons for the decline in profitability in Q1? And on what basis does the company believe that it is possible to achieve its growth turnaround to peak in the second half of the year? Also, what detailed plans do you have to procure funds?For that, I invite Mr. Kim, Kyung-Hoon, CFO of SK On to offer answers.
I am SK On's CFO, Kim, Kyung-Hoon. First of all, let me address the first part of the question. In our last earnings call, we shared our goal to reach BEP in the second half of 2024, but due to customers' inventory adjustments, the profitability deteriorated compared to the previous quarter. In 2024, there still remains macroeconomic uncertainties, but we believe that shipments will rise as customers complete inventory adjustments. AMPC will increase with rising sales in the U.S. and also market conditions will improve with the expansion of new Carolina. In response to the possibility of delayed recovery in EV demand, we're proactively improving our cost structure through global pipeline, optimization, and tighter management so as to cut cost and reinforce fundamentals for future demand recovery. We anticipate sales volume in the U.S. will improve as shipments to U.S. customers pick up in the second half, which will in turn result in a significant increase in AMPC. Therefore, the target to reach BEP in the latter half will stay unchanged.Second, a large question related to funding. A large investment is scheduled for BOSK, which is a JV with Ford and also JV with Hyundai Motor Group in 2024. For BOSK project, we've secured a conditional commitment under the Advanced Technology Vehicles Manufacturing loan program of the U.S. Department of Energy and we are in the negotiation phase to work out final financing agreement. We believe most of the funds required for the project can be covered using ATVM loan program. Well, the JV with Hyundai Motor Group in the U.S., we're carefully reviewing diverse third-party financing options, including loans from OEM partners. We are exploring various options, including policy funds to come up with the optimal financing method. And we are currently reviewing APC monetization and we are considering various options for funding. Once details are decided, we will make sure to share that with our investors.
This completes the answers for the previous questions. And now we are going to collect live questions. We are now going to switch over to consecutive interpretation. And before you ask your question, please let us know your name and affiliation.
[Interpreted] [Operator Instructions]The first question will be provided by [ Byeongsu Kim ] from Shinhan Investment and Securities.
[Interpreted] There are 2 questions that I would like to ask you. First is, with regards to the OSP situation, what would be the current market backdrop and your expectations or outlook for the future?And the second question is that, in recent news reports, I've seen that for Ford at the F-150 production plant that they are cutting back on their production resources. So if that is the situation, do you actually believe that there will be a decrease in our shipments to Ford?
[Interpreted] Yes. This is the Head of Corporate Planning Office at SK Energy, and maybe I can address your first question about the current OSP and also the future outlook.So if we look at the current market in the first quarter in the case of Middle East OSP, if we look at the current average, it's around $0.5 and on a Q-o-Q basis, this has been decreased by $1.40. And if we look into the reasons why this has been done is, because in the actual region, there has been an inflow from outside region refineries. And in addition to that, the Asian refineries have gone into ATA. So as a result of that, from China, if you look at the overall demand for Middle East crude, there has been a decrease in that. So as a result, if we look at the Aramco's and also other Middle East players, they have actually and we expect that they have decreased their OSP for these reasons.So in the case of the second quarter, we do believe that for the second quarter OSP in April to May, we do expect that there will continue to be geopolitical risks that were prevailed in the Middle East area. And also there was the announcement from the OPEC+ that they would discretionarily cut back on their production.So in the non-regional areas, if you look at the crude supply, there has been some issues there so that will lead to higher price levels. And in addition to that, the overall demand for Middle East crude is also going to increase. So we do believe that the Middle East OSP as a result of all of these factors will be slightly higher than what we have seen in the first quarter.However, if we look at the second quarter as a whole, we do actually believe that the lower OSP level trends of the first quarter will continue into the second quarter. So if we look at the second quarter average OSP on a Q-o-Q basis, we do actually believe that the levels will be slightly more moderate. And so, that should have a positive impact on our overall profits situation. [Interpreted] So this is [ Anna Park ], the IR Head at SK On.So it is our understanding that if you look at the recent reports, that there have been some production resource adjustments at our U.S. clients, that this is actually not new news, but a re-report of existing news that had been released before. So as a result, this is already something that has been incorporated into our business plan from a conservative perspective.So as a result of that, we actually do not believe that this plan in itself would represent a downside to our current business plan.
[Interpreted] The following question will be presented by Jin Ho Lee from Mirae Asset Securities.
[Interpreted] There are 2 questions that I would like to ask you. First is that, if you look at your international credit rating from the international credit rating agencies, recently there was an adjustment in that. So as a result of that, how is that going to change your overall cost of funding and how is the company going to address this situation would be the first question.And the second question is on your battery business. We do understand that adjustments at your client level are taking place in the U.S. and as a result of that, that there are some line conversions that you are currently looking into. So what would be the process of those line conversions? And if you could provide some updated numbers on the AMPC levels that you expect to receive, that would be appreciated.
[Interpreted] Yes, this is the CFO of SK Innovation, Kim, Jinwon. Maybe I can address your first question about our credit rating movement, and for the second question about the battery business, I'll ask SK On to address that.So as you are probably aware, S&P recently downgraded our credit rating and the motivation behind that is due to the fact that we have been making investments into our green business areas, including our battery business, which has put a financial burden or increased burden on the company. However, if you actually look at the battery business market backdrop, it is moderating. And so, there has been concerns about weakening profitability and we do think that this is something that was preemptively reflected into their decision-making.However, in the case of credit rating agencies, in actuality, their rating methodology is different from company to company. So unfortunately, in the case of S&P, for the overall convertible preferred shares that SK On issued last year, as a result of trying to recap its overall situation through a pre-IPO investment. S&P does not recognize this as capital. So as a result of that, this is a more conservative view than is reflected in the accounting policies or accounting standards or the methodology that is used by other credit rating agencies. So we do believe that on a relative basis, this acted as a bigger factor behind their decision to take action. However, if we look at the likes of maybe Moody's or the domestic credit rating agencies, in actuality, they do recognize the pre-IPO investment as capital and as a result of that, in the case of Moody's, the overall credit rating that we have is a Baa3 stable. We are maintaining that level. We do have an upcoming annual review with Moody's that is coming in June and during that situation, we will be discussing this topic and explaining our position.So that has been said, to talk about the actual impact from the change in the rating, right now at the SK Innovation level, we actually do not have any outstanding foreign currency bonds that have been issued based upon our international credit rating. So in actuality, we think that the impact will be limited for this situation. And as of now, we don't have any plans to issue any such bonds. If we look at our subsidiaries, of course, each of the companies has their own credit rating. So as a result of that, any direct impact we also believe will be limited and they have been funding through the domestic market. However, that has been said, we do believe that the financial soundness of the company and the assessments that we get from the credit rating agencies accordingly is very important. So as a result of that, the efforts that we're making at a company-wide level to rebalance our portfolio is also an initiative that we're taking with this in mind. So going forward, we will continue to focus on strengthening our financial position and also securing better positions for the future. And also, at the credit rating agency level, any concerns that they may have, also credit actions, or any communications or comments is something that we will, of course, address accordingly as those interactions take place.
[Interpreted] So this is [ Anna Park ] from SK On, and maybe I can address your second question about the line conversions that have been taking place in North America.So, in addition to the overall market conditions, we do continue to monitor closely the demand that we have at our clients. So based upon profitability for our line management, we try to be very flexible and also respond accordingly.However, that has been said, about the changes that are taking place in detail at our independent or individual production sites, please understand that it would be difficult for us to comment about that in light of the relationship that we have with our customers.
[Interpreted] Yes, this is the SK On CFO, Kyung-Hoon Kim and maybe I can talk about the AMPC guidance.So if we look at the first quarter in terms of the overall performance, we actually believe that it was a bit weaker than we had expected because of the issue of our clients trying to deplete the inventory that they had.However, going -- so as a result of that, the AMPC profits that we had in Q1 was KRW 38.5 billion. However, going into the second quarter, we actually believe that U.S. volume will increase. And so, we do believe that there will be an uplift in the AMPC credits.
[Interpreted] So this is [ Anna Park ] again, and maybe I can add some comments about why we believe that the sales volume in the second half will increase, including in the U.S.So, taking into consideration the overall decrease in battery stocks that our customers hold, and also in light of the pass-through of metal prices on the battery prices, which is actually being moderated at a more lower level, we do think that at the end of the day, this could lead to lower ASPs at the vehicle level. And also, in terms of the overall ultimate end demand for EVs and restocking demand for batteries, we think that this could be positive.In addition towards the second half of the year, our customers are planning to launch new vehicles. And as there are more options that are available, we actually believe that this can drive higher demand within the market.So if we go through the list of new cars that would actually have our batteries and are being planned to be launched in the second half, including in the U.S., it would be as follows.So first of all, there is IONIQ 5, which is going to be launched with a facelift version. On the Ford side, there is the Transit cost. And then on Audi, there is the Q6 e-tron.So if we look at the next 1 to 2 years, there is the Ford Explorer. From HMC, there's the IONIQ large-size SUV, a North American version. And from Polestar, there's also the Polestar 5, that is also being planned. So we do think that these new cars that will have our batteries in them would be driving our short-term demand.
[Interpreted] The last question will be presented by Hyunryul Cho from Samsung Securities.
[Interpreted] And I have 1 question that I would like to ask about your battery business. So this year, there is going to be new capacity that is going online, or expected in terms of your Hungary #3 factory and also Yancheng factory. So could you talk about the current status of these sites and also the short-term outlook that you have? When I'm asking about the current status, I would be asking about what type of yield, also utilization and ramp-up cost you have for this capacity?
[Interpreted] So this is [ Anna Park ] and maybe I can address your question. For the new sites that we're currently in construction for, this is based upon the demand that we see or have been receiving from our customers and we're trying to be flexible on how we address that. So in terms of sourcing the material, also the operational resources that are required and the equipment, all of this is taking place without any issues across all of the production.To go into a bit detail about the Hungary factory that you asked about, in the case of the Hungary Ivancsa factory, in the second quarter, we are actually preparing for commercial operations to take place. To ensure that we can actually build the capacity that is needed locally, we have actually hired resources or personnel very early on, and we have been training them at our neighborhood Komarom factory. So right now, we do have more seasoned personnel that have been fostered to be training teachers. And as a result of that, for any new hires that we have, there will continuously be training that is provided.So by using the know-how that we have accumulated at the Komarom factory and also by using the existing already site as a benchmark since it has been stabilized, we will continue to increase our overall productivity.As a result of these efforts, if we look at the overall yield that we have across all of our production sites in 2023, it has been showing an upward trend. And in specifically if we look at the first quarter yield, it's been in the lower to mid 90% levels.So across all of our processes, again, and all of our capacity, the yield is very stable and we do believe that this will continue to create a very good foundation to increase our cost competitiveness.
[Interpreted] So with this, we will wrap up the Q&A session and also the earnings conference call for SK Innovation's Q1 2024. Once again, thank you for everyone who has participated and taken time out of your busy schedule to be with us, and we hope to see you again. Thank you.[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]