[Click eStock] "S-Oil, Growing Inventory Losses... Poor Performance Expected in Q2"

[Asia Economy Reporter Minji Lee] Hana Financial Investment on the 28th assessed that S-Oil is expected to post poor performance again in the second quarter, maintaining a neutral investment rating and setting a target price of 75,000 KRW.

S-Oil recorded an operating loss of 1 trillion KRW in the first quarter, turning to a deficit compared to the same period last year. This figure is estimated to be 110% below the market's expected operating loss of 477.4 billion KRW. The refining business posted a large-scale loss due to inventory-related losses caused by the decline in oil prices and negative lagging margins.

The refining segment recorded an operating loss of 1.19 trillion KRW, with inventory-related losses amounting to 721 billion KRW. Petrochemical and lubricants operating profits were 66.5 billion KRW and 116.2 billion KRW respectively, showing signs of improvement; however, this is considered a temporary performance improvement due to the use of low-cost raw materials.

The operating loss for the second quarter is estimated at 107.5 billion KRW. The refining segment's operating loss is expected to be 214.7 billion KRW. Yoon Jae-sung, a researcher at Hana Financial Investment, explained, “In the first quarter, we assumed the Dubai crude oil price at 25 USD per barrel, and in the second quarter, it was estimated at 20 USD. Inventory losses related to oil prices are expected to occur at about 5 USD per barrel, making it difficult for refining margins to show significant improvement.”

Operating profits for petrochemical and lubricants are expected to decrease by 35% and 45% respectively compared to the first quarter, at 43.3 billion KRW and 63.9 billion KRW. This estimate reflects the partial offsetting effect of the oil price decline and product price adjustments.

Researcher Yoon said, “The operating rate in the U.S., a major oil-producing country, is around 60%, and gasoline inventories are at an all-time high,” adding, “Even assuming demand recovery, it will take some time to absorb accumulated inventory depletion and increased volume due to higher operating rates.”

He further explained, “The Ulsan integrated chemical facility (RUC/ODC), completed at the end of 2018, is currently judged to be unlikely to contribute to profits,” and added, “This facility will undergo scheduled maintenance until June.”

This content was produced with the assistance of AI translation services.