Optimism over Q3 earnings at four refiners... SK Innovation, S-OIL seen posting nearly 4 trillion won in operating profit

[Financial News] Expectations are growing that the four refiners will post improved earnings in the third quarter of this year. Buoyed by rising international oil prices and strong refining margins, the combined Q3 operating profit forecast for SK Innovation and S-OIL has climbed more than 39% in a month to nearly 4 trillion won. GS Caltex and HD Hyundai Oilbank are also expected to see improved profitability, while whether the government eases restrictions on petroleum-product exports is seen as a key factor for Q4 earnings.
According to financial data provider FnGuide on the 20th, as of the 16th, the consensus estimate (the average of securities firms’ forecasts) for SK Innovation’s Q3 consolidated operating profit stood at 2.6958 trillion won, up 370.1% from the same period a year earlier. That would be 22.7% lower than the previous quarter. However, Q2 results included one-off gains at battery subsidiary SK On, among other items, and consolidated earnings include battery and power-generation businesses as well as petroleum and lubricants.
S-OIL’s Q3 operating profit consensus estimate was 1.2372 trillion won, up 439.8% year-on-year and 28.2% from the previous quarter. The estimate was raised 16.3% from a month earlier. The combined operating profit forecast for the two companies reached 3.933 trillion won, an increase of 1.1059 trillion won (39.1%) in a month.
The main factors behind the earnings improvement are strong refining margins amid disruptions to petroleum-product supplies from the Middle East and Russia, and inventory-related gains resulting from rising oil prices. SangSangin Securities estimated the Q3 spot refining margin at $38.8 per barrel. It also said the price of Dubai crude rose from $68.3 per barrel at the end of June to $106.2 at the end of September, which it analyzed as having a positive impact on inventory-related gains.
The lubricants business is also supporting earnings. Meritz Securities forecast SK Innovation’s Q3 operating profit at 3.6983 trillion won, 1.0025 trillion won above the market consensus. It projected operating profit of 1.938 trillion won from the petroleum division and 1.1319 trillion won from the lubricants division. IBK Investment & Securities estimated S-OIL’s Q3 operating profit at 1.297 trillion won, projecting 791 billion won from refining and 493 billion won from lubricants.
GS Caltex and HD Hyundai Oilbank are also expected to see improved earnings. Heungkuk Securities cited improved profitability in GS Caltex’s refining and lubricants businesses as a major factor in improved earnings at GS Group. LS Securities analyzed that HD Hyundai Oilbank is expected to benefit from stronger margins on related products because it has refining facilities specialized in diesel production.
However, government price controls and export restrictions are expected to affect profitability going forward. On the 16th, the Ministry of Trade, Industry and Energy froze the 11th round of maximum prices for petroleum products at their existing levels. Accordingly, for four weeks from the 17th, the cap on refiners’ supply prices will remain at 1,784 won per liter for gasoline, 1,773 won for diesel and 1,380 won for kerosene. Whether export restrictions will be eased, as requested by the refining industry amid falling domestic consumption of petroleum products, is also drawing attention.
Lee Dong-wook, a researcher at IBK Investment & Securities, said, “The government’s export cap limits increases in volume, but it does not prevent margins from improving on existing export volumes. If the restrictions are eased, the effect of increased sales volume will be added to that,” he said.
[email protected] Kim Mi-hee Reporter