"SK Innovation, International Oil Prices Plunge... Q1 Turns to Deficit"
Reflecting Expanded Inventory Valuation Losses and Decline in Complex Refining Margins
KB Securities Sets Target Price Down 40% to 108,000 Won
[Asia Economy Reporter Minji Lee] SK Innovation is expected to turn to a loss in the first quarter due to the sharp drop in international oil prices. On the 21st, KB Securities maintained a buy rating on SK Innovation, citing expected earnings decline, and set a target price of 108,000 won, about 40% lower than the previous target.
The sharp drop in international oil prices is negative for refining companies in the short term. This is because the decline in refining margins due to crude oil input from the previous month and inventory valuation losses are reflected.
Currently, the price of West Texas Intermediate (WTI) crude oil is around $20, which has plummeted about 67% compared to around $63 on January 3rd. This is due to concerns about oversupply following Saudi Arabia's decision to increase oil production and forecasts that oil demand may decrease due to economic recession.
SK Innovation's expected sales for the first quarter are 10.5132 trillion won, down 18% compared to the same period last year. Operating loss is expected to turn to 830.2 billion won in the red.
Baek Young-chan, a researcher at KB Securities, said, "SK Innovation's performance will significantly decline due to expanded inventory valuation losses and a drop in complex refining margins caused by the sharp fall in international oil prices," adding, "The first quarter complex refining margin is estimated at $3.1, down $3.6 compared to the same period last year."
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However, a rapid recovery in performance is expected in the second half if international oil prices stabilize. Researcher Baek Young-chan explained, "Referring to the cases of the 2008 financial crisis and the 2014 oil price crash, after international oil prices stopped falling and stabilized, a rapid recovery in performance was observed," and "The refining margin in the second half is expected to rise by more than $3 compared to now."
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