[Click eStock] "SK Innovation Likely to Struggle with Performance Improvement in Q3"

Hana Financial Investment Report, Neutral Investment Opinion
Q3 Operating Loss Expected at 176 Billion KRW... Continued Deficit

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a neutral investment opinion and a target price of 120,000 KRW for SK Innovation on the 30th, based on the judgment that it will be difficult to improve performance in the second half of the year due to the demand cliff caused by the novel coronavirus infection (COVID-19).

SK Innovation recorded an operating loss of 439.7 billion KRW in the second quarter, turning to a deficit compared to the same period last year and continuing the deficit from the previous quarter. This was about 30% worse than the market-expected operating loss of 338.6 billion KRW.

SK Innovation Vietnam 15-1 Block.

Inventory-related losses amounted to 300 billion KRW, with significant impacts from poor refining margins and PX margins. The petroleum business operating loss was 432.9 billion KRW, increasing by 1.2 trillion KRW compared to the previous quarter. Excluding inventory-related losses of 190 billion KRW, margin-related losses are estimated to be around 240 billion KRW.

Chemical operating profit recorded 68.2 billion KRW despite inventory-related losses of 73 billion KRW, improving by 158 billion KRW compared to the previous quarter. The improvement in olefins had a significant impact, and aromatics are estimated to have reached the break-even point (BEP).

Lubricant base oil operating profit increased by 29% from the previous quarter to 37.4 billion KRW. However, due to inventory-related losses of 41 billion KRW, the improvement was minimal compared to the previous quarter.

The third quarter operating loss is expected to continue at 176 billion KRW. Jaesung Yoon, a researcher at Hana Financial Investment, said, "This is because the petroleum business operating loss is expected to be 224.2 billion KRW and remain sluggish," adding, "Despite the reflection of deferred inventory-related gains (190 billion KRW), considering the reduction in OPEC+ (Organization of the Petroleum Exporting Countries and non-OPEC member countries) production cuts after August, the rise in Middle Eastern crude oil prices (OSP), and the sluggish spot margins, it will be difficult to expect a dramatic performance improvement."

Petrochemical operating profit is expected to slightly improve to 73.7 billion KRW due to the reversal of inventory-related losses. PT and BTX (Benzene B, Toluene T, Xylene X) have also fallen below the BEP level due to supply pressure from Chinese capacity expansions, so the only hope lies in the strong performance of olefins.

Researcher Jaesung Yoon explained, "Although the U.S. refinery utilization rate remains in the 70% range, petroleum product inventories exceed the upper limit of the six-year band," adding, "To resolve the oversupply, two steps must be passed: inventory depletion and absorption of increased utilization rates."

He continued, "With the utilization rate of Chinese small and medium-sized refineries, known as Teapots, approaching an all-time high and export quotas also granted, the possibility of an expansion in China's net exports of petroleum products in the second half cannot be ruled out," adding, "At least until the second half, a conservative view should be maintained."

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