S-Oil's operating profit for the second quarter of this year is forecast to reach nearly 1 trillion won, marking a significant turnaround from last year's loss. According to a survey of 10 securities firms compiled by Yonhap Infomax on the 28th, S-Oil's Q2 operating profit is expected to record 980.3 billion won, reversing from a year-earlier loss. The strong performance is attributed to sustained refining margin strength and favorable market conditions including lube base oil supply imbalances, despite the disappearance of inventory valuation gains enjoyed from rising oil prices. Revenue is projected to surge 56.96% year-on-year to 12.633 trillion won. The forecast reflects favorable market conditions in the refining sector, where war-damaged facilities have delayed supply normalization and kept margins elevated.
S-Oil Q2 Forecast Shows 980.3 Billion Won Operating Profit
The consensus forecast from 10 securities firms surveyed within the last month by Yonhap Infomax projects S-Oil's second quarter operating profit at 980.3 billion won, a turnaround from the year-earlier loss. Revenue is expected to reach 12.633 trillion won, representing a 56.96% increase from the same period last year. International oil prices declined somewhat, but refining margins remain strong and are expected to positively impact S-Oil's profitability.
Refining Margins Remain Strong Amid Supply Constraints
Refining margins continue to maintain high levels due to tight supply conditions. War-related damage to some refining facilities has delayed the normalization of refinery operations, keeping supply constrained. This supply-demand imbalance has sustained elevated refining margins, which remain favorable for S-Oil's earnings despite the decline in international oil prices during the quarter.
Lube Base Oil Division Drives Profitability
The lube base oil segment is expected to contribute significantly to this quarter's performance. Export prices for lube base oil from the Ulsan region nearly doubled following the destruction of a large-scale supply facility in Qatar in March. Lee Chung-jae, a researcher at Korea Investment & Securities, estimated that S-Oil will record more than 1.5 trillion won in operating profit from the lube base oil division alone this year.
Inventory Valuation Impact Diminishes in Q2
Inventory valuation gains that benefited the previous quarter are expected to be limited in Q2 as oil prices declined during the period. S-Oil reported inventory valuation gains of 524.8 billion won in the first quarter due to rising oil prices. However, the second quarter saw oil price declines, which constrained these valuation benefits.
Domestic Price Cap Offset by Oil Price Decline
The decline in oil prices during Q2 offset opportunity losses from South Korea's petroleum maximum price system implementation. As domestic sales prices were capped while oil prices fell, the opportunity cost of not being able to sell maximum-price-regulated volumes at international prices decreased. Cho Hyun-ryul, a researcher at Samsung Securities, estimated that losses from the domestic maximum price system disappeared after mid-last month due to this effect.
Dividend Policy Recovery Expected After Shaheen Project
With the completion of the Shaheen project and the conclusion of capital expenditure execution, attention is turning to the potential recovery of S-Oil's dividend policy. Jung Kyung-hee, a researcher at LS Securities, noted that considering the company's pre-2020 commitment to "industry-leading shareholder returns" and the 30%+ dividend payout ratio policy from 2021-2023 before Shaheen project execution, expectations for increased dividend payout ratios have risen following the completion of large-scale investments and strong profitability.
FAQ
What is S-Oil's expected operating profit for Q2?
According to a survey of 10 securities firms by Yonhap Infomax on the 28th, S-Oil's second quarter operating profit is forecast at 980.3 billion won, marking a turnaround from last year's loss.
Why did lube base oil prices nearly double?
Export prices for lube base oil from the Ulsan region nearly doubled after a large-scale supply facility in Qatar was destroyed in March, creating a supply shortage in the market.
