Concerns are growing about the performance of Korean oil refining companies as rapidly falling oil prices are biting into their profits. Some market experts said oil refiners could post operating losses.
Heungkuk Securities Co. lowered the target stock price of SK Innovation Co. and S-Oil Corp. to 240,000 won (US$214) and 110,000 won (US$98), respectively, on Jan. 9. Hyundai Motor Securities Co. also downgraded the target prices of the two oil refining companies.
Recently, expectations for oil refiners’ earnings are getting lower in the securities industry. Market researcher FnGuide estimated the operating profit of SK Innovation in the fourth quarter of last year at 336.60 billion won (US$300.08 million), down 60 percent from a year ago. The operating profit of S-Oil for the fourth quarter is expected to plunge by 44 percent to 206.80 billion won (US$184.36 million).
Some securities companies said oil refining firms are highly likely to record an operating loss. Mirae Asset Daewoo Co. estimated on Jan. 7 SK Innovation’s fourth-quarter operating profit at minus 157.20 billion won (US$140.14 million) and S-Oil at minus 117.50 billion won (US$104.75 million). It suggested the possibility of oil refiners delivering an earnings shock as various one-time costs were reflected in the fourth quarter. Accordingly, the annual operating profits of SK Innovation and S-Oil last year are estimated to have fallen by 17.17 percent and 16.49 percent, respectively.
The sharp decline in oil prices is the main reason for the rapid decrease in profits. The international price of West Texas crude oil, which remained at the US$76 (85,000 won) level per barrel in October last year, plummeted to around US$42 (47,000 won) at the end of last year. The figure still stays below US$50 (56,000 won). This leads to lower refining margins, which is the key of oil refiners’ profits.
However, the securities industry still maintains a positive outlook for SK Innovation’s new battery business and high dividends. SK Innovation’s end of year dividends are forecast to be some 4 percent. The price of SK Innovation and S-Oil shares decreased by 20 percent and 30 percent, respectively, from the highest point of last year.