Refinery, steel, shipping industries likely to post bleak Q2 earnings

S-Oil Corp. headquarters in Seoul [Courtesy of S-Oil]

Korea’s listed companies are expected to continue seeing a downward trend in their operating profit margins in the second quarter as operating profits are estimated to halve due to higher raw material prices and interest payments, while revenues are expected to be similar year-on-year due to inflation, despite sluggish demand driven by the global economic downturn.

Operating profit at 182 listed companies in the second quarter are expected to fall 52.4 percent year-on-year to 21.15 trillion won ($15.8 billion), according to an analysis from local financial data tracker FnGuide on second-quarter earnings estimates released by securities firms on Monday. Operating profit estimates over the past month have also been reduced slightly from the previous 21.24 trillion won, continuing a downward trend.

Estimated net income for the second quarter is 15.64 trillion won, plummeting 56.2 percent year-on-year. Only companies whose earnings estimates were provided to at least three securities firms have been included in the data. Combined second-quarter sales are expected to be 515.33 trillion won, slightly up year-on-year from 513.11 trillion won in 2022.

By industry, operating profit at companies in the oil and gas as well as metals and minerals industries are expected to see the largest declines, down 71.6 percent and 47.7 percent year-on-year, respectively, mostly due to weak exports following the recent tension between Korea and China.

As for S-Oil Corp., second-quarter operating profit is projected to be 589.4 billion won, down as much as 65.8 percent year-on-year. Earlier on March 27, the oil company said that its first-quarter operating profit dropped 61.3 percent to 515.7 billion won. Following worsening earnings, the company’s stock price dropped 10.55 percent from the end of last year.

“S-Oil’s earnings are likely to decline this year as refining margins plummeted at the start of the second quarter due to a sluggish refining industry,” said Yuanta Securities Korea Co., predicting an industry-wide improvement to likely come next year.

Hyundai Steel Co. is projected to see the largest decline in second-quarter operating profits of 56 percent on year to an estimated 361.7 billion won. Operating profit at Daehan Steel Co. and Dongkuk Steel Mill Co. are expected to decline by 54.5 percent and 44.7 percent, respectively, over the same period.

Operating profit in the shipping industry are expected to plummet by 71.8 percent due to the global economic downturn. Estimated operating profit at HMM Co. for the second quarter is 745 billion won, down 74.6 percent on year.

“The company is likely to see a significant fall in operating profit as rates in container freight, its key business, is seeing a downtrend,” said Yang Ji-hwan, an analyst at Daishin Securities Co.

On the other hand, operating profit in the hotel and leisure industry are expected to surge by 176.1 percent on year on the back of increased domestic and foreign tourists. In particular, Paradise Co. and Grand Korea Leisure Co., which posted operating losses in the second quarter last year, are expected to see positive earnings this quarter.

The pharmaceutical industry is also seeing some better second-quarter outlooks, with an estimated 65.9 percent increase year-on-year in combined operating profit as there are some announcements scheduled to come in the second quarter concerning clinical results in relation to new drugs.