Yuanta Securities is expecting that SK Innovation will achieve profit increase in the second quarter of this year, after a hard year due to COVID-19 pandemic and fallen oil price.

In a report released on June 29^th, analyst Kyu-won Hwang of Yuanta Securities Korea said “SK Innovation is expected to have earned KRW 10.8 trillion in sales and KRW 541.8 billion in operating profits in Q2 2021, which is an earnings surprise that is 51% higher than the consensus,” and raised the company’s target stock price up to KRW 360,000.

Hwang explained, “The expected amount of operating income of SK Innovation is not only an improvement of KRW 981.5 billion year-on-year, but also an increase of 8% compared to last quarter’s KRW 502.5 billion.” He also emphasized, “In particular, it should be noted that although a decrease in profit was expected in Q2 due to the disappearance of an inventory valuation gain of KRW 372.2 billion thanks to the rise in oil prices that occurred in the first quarter, we see a higher chance of profit increase.”

Analyst Hwang continued, “The effect from booming in lubricant /petrochemical business and reduction of the loss in battery business will be remarkable in Q2.” He expected, “In Q2, SK Innovation’s oil refinery business will gain KRW 154.7 billion in operating profits, while the numbers of chemical and lubricant businesses will be KRW 194.1 billion and 249.1 billion, respectively.”

Considering two encouraging factors in oil refinery industry for the second half of this year, Hwang prospected that “SK Innovation may hit KRW 45.2 trillion in sales and KRW 2.2 trillion in operating profits this year.”

Hwang pointed out the reason for his prospect is “the improvement of global demand-supply status.” “The effect of COVID-19 vaccination will recover the demand for crude oil in the end of this year, which will be improved by 4% compared to the first half of 2021 to 100 million barrels, while the refineries around the world will be closed by 1.25 million barrels per day.”

Also, he predicted “Iran is highly likely to resume oil exportation.” and explained the amount to be “increase of 2% for global demand.” “This will increase the volume equivalent to 2% of global demand, which will lower the price premium of Middle Eastern crude oil.” He analyzed, “As a result, the cost of importing Middle Eastern crude oil can be lowered by 2 US dollars per barrel (equivalent to KRW 450 billion per year).”