The local oil refinery industry hit by a sharp drop in oil prices suffered an earnings shock.
S-OIL announced on July 26 that the company posted 117.3 billion won (US$105 million) in operating profit in the second quarter. The figure was a 64.8% decrease from the previous quarter and a year on year drop of 81.7%. The result was more than 30% lower than expected by the most conservative market consensus
The market including securities firms lowered S-Oil's operating profit forecast from 380 won billion (US$342 million) on June 8 to the 200 billion won (US$180 million) level this month. The average market consensus for one month was 218.5 billion won (US$196 million), and recent reports downgraded it to the 170 billion won (US$153 million) level.
There is concern about an earnings shock from SK Innovation scheduled to announce earnings on July 27. At the end of last month, the market expected that SK Innovation will post 620 billion won (US$558 million) in operating income at the end of last month but several reports came out, lowering the consensus to the 470 billion won (US$423 million) level this month.
The oil refinery industry expects that it is highly likely that SK Innovation will record an earnings shock which will fall short of the most conservative consensus (470 billion won or US$423 million) taking into consideration the weak performances of S-Oil released on the same day. SK Innovation’s quarterly operating profit exceeded 1 trillion won (US$900 million) in the previous quarter, but it was halved in one quarter.
In the market, it is expected that both GS Caltex and Hyundai Oilbank will record sharp declines in operating profit compared to both the previous quarter and the same quarter of last year. Refining companies' 2Q earnings shocks are attributable to the more than expected lagging effects stemming from a drop in international oil prices.