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SK Gas Shows Plunge in Operating Margin
Profits Sharply Dropped
SK Gas Shows Plunge in Operating Margin
  • By Jung Min-hee
  • February 22, 2018, 02:30
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SK Gas Co. showed a slump in its liquefied petroleum gas (LPG) business and a fall in its operating profit margin to some 1 percent.
SK Gas Co. showed a slump in its liquefied petroleum gas (LPG) business and a fall in its operating profit margin to some 1 percent.

 

According to the Financial Supervisory Service on Feb. 21, SK Gas recorded a consolidated operating profit margin of 1.87 percent in in 2017. Its earnings rate decreased to some 1 percent as well.

The company posted 6.69 trillion won (US$6.19 billion) in sales last year, up 27.3 percent from 2016, while it posted 125.4 billion won (US$115.88 million), down 30.6 percent from the same period a year ago.

SK Gas has an incompetent sales capacity compared to its competition E1. E1 made an every effort to carry out restructuring and improve efficiency so it saw its sales and operating profits grow 10.3 percent and a whopping 745 percent, respectively.

In particular, SK Gas’ operating profit margin continuously increased from 2.04 percent in 2014, 2.43 percent in 2015 and 3.44 percent in 2016 but plunged to some 1 percent last year after SK CEO Lee Jae-Hoon took office in December 2016. As a result, its operating profit margin dropped 1.57 percent point on-year in 2017.

However, SK Gas has an unfavorable business environment to overcome the situation. The company showed a poor performance largely due to its main LPG business. The international price of LPG surged along with the rise in international oil prices but it wasn’t reflected into the domestic LPG prices, resulting in a lower profitability. Moreover, it showed a smaller size and lower profit in intermediate trades, leading to the drop in operating profits.

SK Gas can find a little bit of positive factors through the diversification of its businesses including propane dehydrogenation (PDH) as its market is mature enough to be a future growth engine. In addition, the Moon Jae-in administration’s move to ease regulations on LPG-powered vehicles is another “green signal.” This is because the areas that the company jumped into by diversifying businesses, including PDH, in order to secure a new growth engine in the LPG industry evenly make profits.

The Moon Jae-in government is continuously seeking to lift regulations on LPG cars according to its stronger eco-friendly policies and five-passenger recreational vehicles (RVs) to be released as early as from the second half of this year is expected to boost the consumption of LPG. However, market watchers say that it will take time for SK Gas to completely overcome the business depression even when the government eases regulations on LPG cars.

All eyes are on SK Gas’ next move as the demand of LPG is highly unlikely to show a significant growth owing to the development of new energy sources and hydrogen powered cars.