"SK Gas to Benefit from LPG-LNG Price Gap as Middle East Crisis Drags On; Earnings to Normalize in Second Half"

[Financial News] NH Investment & Securities said SK Gas could benefit from the price gap between LPG and LNG caused by the prolonged Middle East war and other factors, with earnings likely to normalize from the third quarter. The brokerage maintained its "Buy" rating, but lowered its target price from KRW 330,000 to KRW 315,000 to reflect its revised operating profit forecast for this year.
Lee Min-jae, an analyst at NH Investment & Securities, said, "SK Gas's consolidated third-quarter revenue is expected to reach KRW 2.9 trillion, while operating profit is projected at KRW 133.8 billion, up 49% and down 23%, respectively, from the same period a year earlier."
Third-quarter operating profit is expected to turn profitable from an operating loss of KRW 44 billion in the previous quarter. As LNG prices rise amid the prolonged Middle East war and inventory shortages in Europe, the price gap with LPG is widening. Ulsan GPS, operated by SK Gas, can use both fuels, allowing the company to lower power generation costs through selective fuel use.
Lee said, "Ulsan GPS is a power plant that can use LNG and LPG interchangeably, allowing it to profit from the price gap through selective use." He added, "If it had switched to LPG from June through August, we estimate that gains of approximately KRW 60 billion or more could have been generated." He continued, "The reasons earnings are normalizing compared with the second quarter are the slowing decline in sales volume in the LPG division and the increase in the system marginal price (SMP) in the power generation division."
However, the brokerage lowered its earnings estimates to reflect declining profits in the LPG division and maintenance-related costs in the power generation division. Its operating profit forecast for this year was cut 12.1% from KRW 509 billion to KRW 448 billion, while its earnings-per-share (EPS) forecast was lowered 14.9% from KRW 24,650 to KRW 20,965.

[email protected] Lim Sang-hyeok Reporter