S-Oil, the Korean operation of Saudi Aramco, is expected to report stellar results in the second half of this year, recovering fast from poor results in the second quarter thanks to an improvement in refining margins.

According to market data provider FnGuide on Tuesday, S-Oil is estimated to have earned 503.6 billion won ($445 million) in operating profit on a consolidated basis in the third quarter of this year ended September, more than quadrupled from a year ago. Sales are also estimated to have risen 17.9 percent to 4.88 trillion won during the same period while net profit would have more than doubled to 387.4 billion won.

In the second quarter of this year, the company reported poor results due to a fall in oil prices with operating profit plunging 81.7 percent on year to 117.3 billion won. But at that time, the company hinted a turnaround for the following quarters on higher oil prices, successfully fending off a fall in its stocks. In the fourth quarter, its operating profit is also expected to rise 19.6 percent to 440.1 billion won from a year earlier period.

“Hurricane Harvey battered Texas where 30 percent of U.S. refining facilities are based, improving refining margins from $6.4 to $8.3 on average in the July-September period,” said Lee Ji-yeon, a researcher at Shinyoung Securities Co. Refining margin, which is the difference between the crude oil price and the refined petroleum product, is a key index that determined a refiner’s profit. “Oil prices would rise more than $5 from a quarter ago, and this would lead the company to reflect gains of about 100 billion won from inventory valuation,” Lee added. Losses of about 50 billion won from inventory valuation were added in the wake of lower oil prices in the previous quarter.

Earnings outlook for the company is much rosier next year as it is expected to start running a residue upgrading facility as part of its biggest project to construct Residue Upgrading Complex (RUC) and Olefin Downstream Complex (ODC) since its inception.

Its full-year operating profit is expected to fall 13.8 percent to 1.39 trillion won this year from a year ago due to the poor performance during the first half, but is estimated to jump to 1.95 trillion won next year.

Buoyed by the upbeat outlook, investors have recently flocked to pick up its shares, and many still remain bullish on the stocks on expectations that the company’s solid earnings would boost dividend payouts.

The dividend yield ratio of S-Oil is expected to reach about 7 percent in 2018 based on current stock price, considering its current dividend payout ratio that is maintained at 50 to 60 percent and the improvement in net profit. Such a dividend yield ratio is considered very high in the refining industry as well as in the entire stock market.

Shares of S-Oil Wednesday closed 0.76 percent down at 130,500 won from the previous session.

By Ko Min-suh and Lee Ha-yeon

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