What's behind fall of oil and chemical stocks despite record profits?

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Investors turn away from traditional energy sector despite solid earnings

By Anna J. Park

Despite achieving a record high operating profit last year, S-Oil's stock price still hovers some 25 percent below its 52-week high of 117,500 won set in October last year.

In a longer time frame, the firm's stock is less than half of its highest intra-day trading record of 170,000 won set in 2011. It seems the oil refiner's impressive operating profit of 2.3 trillion won ($1.9 billion) and annual revenue of 27.4 trillion won were not enough to convince investors of the firm's bright future.

SK innovation, another major company engaged in the petroleum and energy sector, is displaying similar stock price movements. The company logged an annual operating profit of 1.7 trillion won, mainly due to the increase of global oil prices and the inflated demand for petroleum products. However, the firm's stock price fell by nearly 25 percent in less than a month, since the intra-day trading price hit 278,000 won on Jan. 18.

The two major petroleum companies' similar negative stock price moves, despite their strong earnings, show that the market now asks for more from these powerhouses of the traditional energy segment. Investors do not seem to be impressed by their present performances, but want more sustainable business visions in the era of net-zero emissions.

That's why the companies have recently been struggling to restructure their business portfolios and to rebrand their corporate images in an environment-friendly way, aiming to prove the firms' viability in the long term.

While SK innovation is the parent company of refining subsidiary SK energy, which is the country's top oil refiner, the company officially announced last month that the core axis of the firm will be transformed from its previous carbon-based business to green business. It is a drastic change of the company's core identity of oil refining during the past 40 years towards environment-friendly and green business portfolios.

In addition to its emphasis on the battery business, the company continues to expand investments in green, sustainable businesses. SK global chemical, a former subsidiary of SK innovation, changed its company name to SK geocentric last year, rebranding and shifting its core business to plastic waste recycling. Both SK energy and SK geocentric announced their net-zero goals by year 2050 early this year.

S-Oil, meanwhile, agreed last month to jointly invest with Saudi Aramco ― its largest shareholder ― in venture companies focusing on net-zero and decarbonization.

Industry insiders say such moves by traditional energy or chemical companies will be strengthened, as both domestic and global markets now put priority on achieving net-zero emission targets.

Yet, it is forecast there will be further heated competition and reshaping of the industry among these traditional energy companies, as they seek to advance and expand into sectors like secondary batteries, hydrogen energy and electric vehicle materials in the near future.