S-Oil Corp

KRX:010950

Earnings Call Analysis

S-Oil's Q2 Performance and Future Outlook Highlighted by Operational Challenges

In Q2 2024, S-Oil reported a 2.8% increase in revenue to KRW 9.57 trillion, while operating income rose to KRW 160.6 billion, bolstered by petrochemical improvements. However, the refining segment faced a KRW 95 billion loss due to a drop in margins amid weak gasoline demand. For Q3, management anticipates a recovery in refining margins linked to seasonal gasoline demand growth, projecting increased overall operational efficiency. The Shaheen project continues on track, with completion rates of 94.9% for site preparation and 30.9% for EPC as of July. Overall, a robust strategy is in place to navigate operational challenges while enhancing long-term value.

Financial Performance Highlights

In the second quarter of 2024, S-Oil achieved a sales revenue of KRW 9.57 trillion, reflecting a 2.8% increase from the previous quarter. However, the operating income experienced a decline, standing at KRW 160.6 billion. Within this landscape, the refining segment encountered a loss of KRW 95 billion due to decreased refining margins and sluggish gasoline demand, primarily from the U.S. In contrast, the petrochemical business thrived, showcasing substantial improvement and contributing positively to the overall results.

Refining and Petrochemical Segments

The refining sector is facing pressures, evidenced by a significant decrease in Asian refining margins, which fell by $5 per barrel from the first quarter, driven predominantly by weak gasoline demand and geopolitical tensions that affected diesel inflows into Asia. On a promising note, forecasts for Q3 indicate a potential rebound in margins as seasonal demand for transportation fuel is expected to rise. Meanwhile, the petrochemical business recorded operating income of KRW 109.9 billion, buoyed by favorable PX and benzene spreads. However, growth in this segment is anticipated to temper slightly in Q3 due to increased supply.

Outlook for Gasoline Demand

Looking forward, S-Oil anticipates a growth in global gasoline demand, with net growth projected at 280,000 barrels per day in 2024. This anticipated increase is bolstered by robust demand in key markets such as India, Japan, Korea, and Southeast Asia, especially during the summer season. Despite the rise in electric vehicle adoption, China is also expected to experience stable gasoline demand. The outlook remains optimistic for Q3, with expectations of improved refining margins driven by this seasonal uptick.

Safety Management Initiatives

S-Oil is prioritizing employee safety, striving towards achieving a zero-incident workplace. Recent achievements include becoming the first Korean refiner to earn KOSHA-MS certification and maintaining an impressive record of 8 million man-hours without incidents. The company has established comprehensive safety programs and continuously reinforces its safety culture, further enhancing operational resilience.

Strategic Project Progress

The company is making steady progress on the Shaheen project, which is crucial for enhancing their long-term value amidst the energy transition. As of July 2024, the project’s site preparation stands at 94.9% complete, while engineering, procurement, and construction (EPC) work has reached 30.9% completion. The management remains optimistic regarding the project's alignment with corporate goals without significant CapEx overruns.

Financial Health and Risk Management

Despite external economic volatilities, S-Oil maintains a stable financial structure, with a cash balance of KRW 1.33 trillion and a net debt-to-equity ratio of 58.1%. The company noted a net income before tax loss of KRW 40.9 billion due to foreign exchange losses and instability in input costs. Nevertheless, S-Oil's management maintains confidence in its liquidity and risk management strategies, which are established to mitigate the impact of foreign exchange fluctuations and market complexities.

Conclusion and Investment Considerations

S-Oil's second-quarter performance reflects both challenges and opportunities across its various business segments. While the refining operations face headwinds, the petrochemical sector thrives, presenting mixed signals for investors. The outlook for gasoline demand and strategic project execution will likely be key drivers for future growth. Investors should weigh the company's proactive safety measures and robust financial management against potential volatility in external markets, making a diversified investment strategy prudent.

Earnings Call Transcript 2024-Q2

[Unknown Executive]

Good morning. This is [ K.D. Gang ], Treasurer of S-Oil. I would like to extend my gratitude to our investors and analysts in and out of Korea for joining S-Oil's conference call for Q2 earnings results. Today, we have CFO, J.W. Bang; IR team leader, J.W. Ahn; and team members.

First, I'll take you through the highlights of Q2 results. The company posted KRW 160.6 billion in operating income in Q2 2024. Refining margin, which fell during the quarter reduced quarter-on-quarter operating income. However, other business segments supported overall results as petrochemical business showed improved results and performance of LBO business remained stable.

Although international oil price was volatile during the quarter with ups and downs, it was pretty much the same at both end of Q1 and Q2. As a result, overall impact of oil price movement on Q2 income, including inventory and the margin impact was not very different from that of Q1.

And turning to Q3, Asian gasoline market that hit the bottom in Q2 is gaining upward momentum, backed by the projected seasonal demand growth in summer. After international oil prices surged temporarily in April, gasoline demand slowed in the U.S., which is a large consumer market in the world.

However, such trend took an upward turn after June and returned to a normal seasonal pattern going into July. We expect high summer demand in India where gasoline vehicle sales are sharply going up and in Japan, Korea and Southeast Asia.

Now I will share S-Oil safety management. S-Oil is putting all our efforts to create 0-incident workplace. Recognizing the importance of safety and the health of our employees as part of ESG management, the company added safety reinforcement as new company-wide strategic target and set key safety performance indicator as corporate KPI.

We are also putting top priority on safety as an uncompromised value that underpins every decision we make and enhancing safety mindset of officers, employees and contractors who are our partners. These are all part of our continuing efforts to root down safety as our corporate culture. Additionally, we have and we are introducing various safety systems and programs to ensure the prevention of safety incidents for all members of the company.

These efforts allowed us to become the first Korean refiner to obtain KOSHA-MS certification, a Korean safety and health management system in 2023. In June, we achieved 8 million 0-incident man hours for the second time in the company's history. Moving forward, upholding safety as our first and foremost value, S-Oil we will continue to stay committed to building the safest work site through compliance with related regulations and procedures, constant investment and innovation.

Lastly, let me briefly share the progress of the Shaheen project. The company is executing Shaheen project with the goal to prepare for energy transition and further enhance our corporate value in the long term. The project is cruising according to the plan with a 94.9% progress rate in site preparation and 30.9% in EPC as of July 10. We'll push ourselves to successfully deliver the project and boost the company's shareholder value in the longer term.

Now a team leader, J.W. Ahn, will get into more details for Q2 performance with the following slides.

[J.W. Ahn, executive]

Good morning. This is S-Oil IR team leader, J.W. Ahn. Before we begin, please be noted that Q2 financial results are provisional and subject to change according to independent external auditors audit results. First, let me begin with Q2 2024 performance and outlook. First, Q2 2024 financial results in Page 5.

Q2 sales revenue went up by 2.8% from the previous quarter, recording KRW 9.57 trillion. Although international price of a major product inched down in dollar terms, average sales price in Q2 inched up in 1 terms from Q1, thanks to $1 rate increase. In Q2, the company's operating income stood at KRW 160.6 billion.

Unlike refining business segment that recorded a loss due to various refining margin in Q2, income From petrochemical business improved largely while LBO business showed steady results despite a slight drop in quarter-on-quarter performance. For your reference, inventory-related gain that is reflected in Q2 operating income was KRW 81.1 billion, up from the previous quarter. However, overall impact of oil price movement, including lagging margin and income slightly went up from the previous quarter.

Q2 income before tax recorded minus KRW 40.9 billion. In finance and other income, we recorded KRW 152.2 billion in net FX loss due to $1 rate increase. As you know well, the company runs consistent FX management policy that neutralizes FX impacts on annual income before tax with a certain time lag. Company-wide operating income and income before tax in the first half of 2024 stood at KRW 614.8 billion and KRW 186.3 billion, respectively.

Next is financial status. Cash balance as of Q2 end is KRW 1.33 trillion, a slight drop from the previous quarter due to CapEx per Shaheen project and dividend payout for the 2023 fiscal year-end. Net debt-to-equity ratio also slightly climbed up to 58.1%.

Despite external volatilities, we are keeping our financial structure stable with enough liquidity to ensure smooth [ operation ] of Shaheen project. As for profitability indicators, annualized, the first half ROE stood at 3.2% and ROCE at 4.0%. First half EBITDA recorded KRW 545 billion.

Now allow me to go through market environment and outlook by each business segment. First, our refining business segment. In Q2, refining business turned to loss, recording minus KRW 95 billion in operating income. Q2 Asia refining margin fell $5 per barrel from Q1 due to sluggish gasoline demand, mostly in the U.S.

Diesel inflow into Asia increased, driven by restricted diesel exports to Europe from Middle Eastern and Indian refiners as the geopolitical tension pushed ocean freight rate upward. Also, weak demand from Chinese construction and manufacturing industries negatively affected diesel demand. However, OSP of Saudi crude oil traded in Q2 fell over $1 per barrel from the previous quarter, partially offsetting the impact of lower refining margin.

Dubai crude price reached an annual high, averaging at $89.2 in April. However, it showed a volatile movement as it fell in May and June, affected by slow economy indicators in major countries. Further downward fall was limited by geopolitical instability in the Middle East and expectation for summer high demand.

As for Q3 outlook, we expect Asian refining margin to rebound, driven by demand growth of transportation fuel during the summer high season. Gasoline spread is projected to improve as the seasonal demand will begin to pick up during driving season in the Northern Hemisphere.

Though Q2 Asian gasoline spread was slightly bearish, it bottomed out in June and started to make an upward turn in July. Jet fuel and diesel spreads are anticipated to support overall middle distillate market, including diesel and the back of air travel demand that is hovering over prepandemic level, coupled with the summer high season.

Inventory buildup, which will start from Q3 end to prepare for winter heating demand in Northern Hemisphere is also projected to work as a bullish factor. More details and the outlook will be explained with specific data in key business updates.

Next, is petrochemical business segment. In Q2, petrochemical business witnessed large income improvement from the previous quarter, recording KRW 109.9 billion in operating income. Starting with aromatics products, PX spread in Q2 stood at $352 per ton, inching up from the previous quarter. Supply reduced due to the T&I of many regional PX facilities, while demand was healthy, driven by start-up of a new Chinese PTA facilities and summer seasonal demand that pushed up the operation rate of polyester facilities.

In Q2, benzene spread continued its bullish run from the previous quarter, recording $362 per ton. High supply caused by regular maintenance of regional facilities and benzene import demand in the U.S. for gasoline blending had a positive impact on Asian benzene market.

In Q3, we expect a slight slowdown in PX and benzene markets due to added supply after the completion of a regular T&I of regional facilities and gradual seasonal slowdown in gasoline blending demand. However, stable downstream demand, backed by high operation rate of polyester facilities in summer is forecasted to support the market.

As for olefin downstream, PP and PO market moved in an opposite direction in Q2. PP spreads widened, thanks to regular T&I of facilities and increasing packaging demand from Chinese e-commerce platform market that mainly focuses on low-cost goods.

On the contrary, PO spread narrowed from the previous quarter despite regular maintenance of several Chinese facilities as a start-up of new facilities was concentrated in the first half and demand for durable consumables remained sluggish. In Q3, capacity addition in China will continue, but we expect the market situation to improve slightly as China's economic stimulus package that includes trade-in policy is projected to gain momentum in generating demand.

Next is lube base oil business. Q2 operating income of lube base oil stood at KRW 145.8 billion. LBO market maintained a healthy level in Q2, thanks to T&I of a major global suppliers and the firm demand of a Group 2 product. LBO product spreads temporarily narrowed due to lagging effects caused by feedstock price that increased with the spike in oil price in April. But the spread widened one by one in May and June, alongside the falling oil price and eventually averaged at $51 per barrel, which is similar to Q1 average.

As for Q3 outlook, LBO spread may go over slight downward correction as is demand, which slightly perceives seasonal demand cycle of gasoline will face low season during Q3. However, we forecast these fundamentals to remain healthy and the above prepandemic averages as constant demand growth for premium products under restricted capacity expansion has been keeping the market tight for years.

Next is key business updates. Let me first explain seasonal gasoline demand. According to major institutions, 2024 global oil demand forecast averages between 1.4 million and 1.5 million bd. Gasoline demand is forecast to show 280,000 bd of net growth compared to the previous year, growing more in the second half than in the first half, especially in the third quarter, reflecting seasonal demand pattern.

By region, demand growth in Asia is anticipated to be led by India, where sales of gasoline vehicles are on a big increase. We're also forecasting high demand in Japan, Korea and Southeast Asian countries in summer season. Despite the rise in EV penetration rate, China is forecasted to witness net growth in gasoline demand, which is evenly distributed throughout the year.

In areas other than Asia, Europe is showing higher-than-expected demand growth of gasoline in the first half with increasing gasoline and hybrid vehicle registration. This suggests healthy gasoline demand growth in Q3 as well. As for U.S., which is the largest gasoline consumer market, less than usual demand in April served as one of the bearish factors that resulted in downward correction in global gasoline spread.

Market analyzed that the spike of international oil price in April temporarily contracted demand or delayed it. However, we are seeing demand rebound entering into June and July, repeating previous seasonal cycle. Gasoline market is regaining momentum into the third quarter, thanks to such seasonal demand pick up. It's expected to work as the main contributor to Q3 refining margin rebound.

Next is the safety management of the company. We are putting all our efforts to achieve 0-incident work site by building up safety-first culture and continuously reinforcing safety management. From a governance perspective, we are operating Occupational Health and Safety Committee for employees of each work site, and Safety and Health Council for contractors under Chief Safety Officer. Additionally, CSO host Safety, Health, Environment Compliance meeting every month to check safety, environmental issues and action plans of company-wide organizations.

We are also developing safety management strategies and programs after benchmarking our majority shareholder, Saudi Aramco, and global oil majors. Above all, the company is implementing various initiatives and systems to improve safety under our mid- to long-term safety roadmap to root down voluntary safety culture among officers and employees.

As for safety risk management, we have company-wide emergency control program up and running for fast and effective response to emergencies such as fire and explosion. Our refinery is equipped with the 24/7 emergency control center and conducts at least 24 emergency drills every year and company-wide and work site basis.

Additionally, we improved the process safety of all process facilities in the refinery over the last 2 years from 2022 through process risk assessment by independent external consultants to identify risks and make improvements. Thanks to such efforts, olefin plants earned the highest P grade from PSM assessment conducted by the Ministry of Employment and Labor in 2023, following aromatics plant in 2021 and oil movement plant in 2022.

We also provide various support activities to contractors and encourage them to voluntarily bolster their safety management capabilities. In 2023, 50 contractors participated in the company's safety cooperation program. We also run safety and health bid evaluation program that allows construction companies to take part in the later stages of subcontracting feed only when they satisfy basic capabilities required as a contractor and passed a comprehensive assessment on safety, environment and overall sustainability competencies.

Thanks to these efforts, as we became the first domestic refiner to obtain KOSHA-MS certification, a safety and health management system which reflects domestic safety regulations in November 2023, in June, we achieved 8 million 0-incident man hours for the second time in the company's history. As for major indicators related to safety and process incidents, our record is 0 as of the first half 2024. Moving forward, the company will continue to do our best to fulfill social responsibility for all stakeholders through enhanced safety management.

This concludes my presentation. Thank you.

[Operator]

[Foreign Language] [Operator Instructions] [Interpreted] The first question will be given by Lee Jin-Myung from Shinhan Investment Securities.

[Jin-Myung Lee, analyst]

[Foreign Language] [Interpreted] I have 3 questions. First is about the impact that the hurricanes and the sweltering heat will have on the supply side. Second is, I understand that we have new facilities up and running in Dangote, Al-Zour and Olmeca. Could you share with us the ramp-up status and how this will affect the product margin in the second half of the year? And third question has to do with China. I would like to know more about their export status for their field products and their quota outlook in the future.

[J.W. Ahn, executive]

[Foreign Language] [Interpreted] So to answer your first question on how the hurricanes and the sweltering heat across the world will impact the supply side, the U.S. NOAA made a statement at the end of May that this year, we'll see a higher frequency of hurricanes across the United States during the summer season. And although the energy institutions cannot give their answers for sure, they did not overrule the possibility of some operational glitches and interruptions of the refineries around the Gulf Coast due to extreme weather patterns.

So the analysis suggests that around 1.5 million bd of capacity and supply was interrupted by the sweltering heat in 2023. And there's also a possibility of the interruptions at the similar level because of the sweltering heat that will be quite close to the ones that we saw last year.

The refineries in the EU region were built mostly in the '70s and the '80s and therefore, they are built to better withstand the cold [ snow ] rather than the heat. And as a result of that, they face a higher risk of interruption and operational glitches this summer. As for the refineries in the U.S. East Coast and the Midwest, their design makes them a little more vulnerable to the heat as well.

So to answer your second question about the ramp-up status of the new refineries, first with the Nigeria Dangote refinery, which was the 650,000 of bd refinery. We understand, according to the estimation that the CDU run rate is around 40% to 50% at the moment. Most of their jet and jet fuel and diesel is being sold to the domestic market, while the naphtha and fuel goes to the export market according to our market intelligence.

But they plan to phase in and ramp up in the second half of the year, I mean the RFCC and the reformer, which will obviously produce more gasoline. However, their production level that will have an impact in the market will not come until the end of 2025 and early 2025 -- sorry, end of 2024 and early 2025.

For the Olmeca refinery in Mexico, we presume that their constructions are coming almost towards the end, but they're still having some troubles starting up their CDU. So based on this, we don't expect to see some normal operation going in the Olmeca refinery this year. Most probably, we'll see -- we're expecting their normal operation for the CDU in the first half of 2025.

And as for the Kuwait [ auxiliary ] refinery, there's no market data available, but the analysis and the media release or the press release suggests that have been increasing their run rate since they started their commercial operation in 2022, and they have hit their max run rate at the beginning of this year.

So as for the China light oil export quota, at the end of May this year, the Chinese government announced their second quarter export quota at 14 million tons, which is 5 million tons higher than the same period last year. And the May -- the export quota for light oil was slightly higher than the previous quarter at 900,000 bd. And as for June, it was almost the same level.

So if we compare with the first quarter, the average export volume in Q2 was actually low. And this is because the state-run refineries and the private independent refineries in China has been maintaining a low run rate in response to the disappointing domestic demand and the bearish refining margin.

So even if they decide to ramp up their run rate in the third quarter, that will be only based on the assumption that the domestic demand in China goes up. So all in all, this leads me to the conclusion that the chances of the Chinese government or chances of the Chinese refineries, enhancing their export volume in Q3 will be quite limited.

That concludes my answer.

[Operator]

[Foreign Language] [Interpreted] The following question is by Cho Hyunryul from Samsung Securities.

[Hyunryul Cho, analyst]

[Foreign Language] [Interpreted] I have 2 questions. As you know, the U.S. elections are running high these days. Do you think there will be any impact on the global refining industry as Trump gets reelected in November? Second has to do with S-Oil's investment in Shaheen project. As I understand the CapEx is quite sizable. But after the FID in 2022, inflation has been running high in Korea as well. Do you think this could possibly affect Shaheen project's CapEx? And is there any chance that it will go up?

[J.W. Ahn, executive]

[Foreign Language] [Interpreted] Yes, to answer your first question, the campaign pledges among the candidates and the U.S. election is obviously escalating uncertainties around the economic and energy policies and also uncertainties around -- as to the direction itself. But some of the institutions have the forecast and project that if the Republican party wins the election, the regulations on the fuel efficiency of vehicles will ease, and this will work in favor of the demand of fuel products.

However, the changes in the energy policy and how much it'll change will be very much dependent on who takes over the leadership in the U.S. Health and Senate. So we will definitely monitor the situation and depending on the evolution, how things evolve, we will be able to come back with our opinion and thoughts.

To answer your second question about any possibility that the Shaheen CapEx will go up, I would like to tell you that we signed the EPC contract for Shaheen project based on lump sum turnkey, which means that the amount has already been committed. And therefore, the risk of any changes in the CapEx as a result of the volatilities in the external market is very low. The ATC, at the moment, is cruising and we're not seeing any issues that could possibly affect the CapEx of the project, and therefore, we're not concerned about it.

That concludes my answer.

[Operator]

[Foreign Language] [Interpreted] The following question is by Parsley Ong from JPMorgan.

[Rui Hua Ong, analyst]

I have 3 questions. So the first question is, I see that your chemical second quarter profit was quite strong. Congrats on that. But I saw that your utilizations in the second quarter for PX, PP, PO, they fell Q-on-Q, even though there was no maintenance. Could you give us some color on what drove that? And what is your outlook for utilization rates in second -- in third and fourth quarter?

For the second question, could you just give us an update on the lubricant capacity additions you're seeing over the next 3 years, the demand outlook and margin outlook? And then for the third question, in the PPT, I saw that you have long-term carbon reduction plan. Could you share the overall process and your expected impact on costs or economics? Do these carbon reduction plans increase your cost? Or actually improve your earnings? [Foreign Language]

[J.W. Ahn, executive]

[Foreign Language] [Interpreted] So to answer your first question on the utilization rate of our chemical processes, obviously, our PX utilization rate was lower in Q2 compared to Q1. This is a deliberate decision that we made based on the relative economics of the PX and MX compared to Q1. We increased our sales of the intermediate of these in order to maximize our economics. As for the PP and PO, we do not have any specific issue. It was a mostly cleaning jobs of their processes but we will obviously make up for this by running a higher run rate in Q3.

So to answer your second question on the capacity expansion and demand outlook for lube base oil. For this year, the demand, on a net growth basis, is 280,000 bd. Whereas for supply, it'll slightly go down because of some restructurings going on. In 2025, net growth is forecasted to be 300,000 bd where our supply will be 320,000 bd. 2026 is 330,000 bd on net demand growth basis and supply is 240,000 bd.

But I'd like to tell you that light oil products of the lube base oil and lubricants are not a commodity, and therefore, there, it takes some time for these products to enter into the market, be marketed to the consumers. And as a result of that, how this will affect the overall market fundamentals will be determined later on, and there will be a lot of uncertainties until then. So when we get closer to the point when these products hit the market, we'll be able to give you some updates.

So to answer your third question on how we are going to reduce carbon emissions, we have established a company-wide decarbonization roadmap as part of our efforts to reduce greenhouse gas emissions and also align ourselves with the government's net 0 policy. So our midterm target, based on our roadmap, is 35% carbon emission reduction versus -- in 2030 versus the BAU.

So in the short to medium term, there will not be any costs incurred on the company because we will be focusing on the levers and the items that can secure economics on their own, which are raising the energy efficiency in our existing facilities and using the low carbon steam and carbon capturing sales.

In the mid to long term, we're looking into a number of options which has a co-generation using the gas turbine and the eco-friendly and the green energy sources such as hydrogen and carbon capture and storage. As to the cost incurred as a result of these initiatives will all be subject to how much and how far the technology has advanced.

But we're seeing new business opportunities in sustainable aviation fuel, which is SAF. So we're in the middle of eco-processing for SAF. And we're also looking into an auction of constructing a dedicated SAF plant and make it as a new source of income. This concludes my answers.

[Operator]

[Foreign Language] [Interpreted] The following question is by Sung Hyun Hwang from Eugene Investment Securities.

[Sung Hyun Hwang, analyst]

[Foreign Language] [Interpreted] I have 3 questions. First is how is the Russians and drone attack -- sorry, how is the Ukraine's drone attack on Russian facilities damaged the capacity in Russia? If they have restored -- if they have been restored, how are they running in terms of the run rate? And how is it reflecting the overall market situation?

Second is I would like to know about S-Oil's progress on the immersion cooling business on lube base oil. And third is I understand that Saudi Aramco has made inroads into the Korean CHPS market. How do you think it will affect your business? And what kind of synergies do you think will be created out of this?

[J.W. Ahn, executive]

[Foreign Language] [Interpreted] So to answer your first question on how the Ukraine's drone attack against the Russian facilities affected the supply. As you know, the drone attacks on the Russian facilities have been constantly affecting the supply and the operation of the refining facilities in Russia in the first half of the year.

In the first half of the year, the biggest was in April when around 700,000 bd of capacity was affected as a result of the drone attack. Since then, things have recovered to some extent. But in June, still around 400,000 bd of capacity had been interrupted by the drone attack. But I think the impact of this to the market was not very big because the overall diesel demand in Europe was quite slow.

[Unknown Executive]

[Foreign Language] [Interpreted] About the emergent cooling lubricants. I'd like to share with you our updates on how we're developing things. We have so far come out with the sample product lines in order to meet the demands of the individual data centers. And at the moment, we are undergoing the verification process, doing the demo test to check how this is affecting or positively affecting the operation of the data centers, their efficiency -- operational efficiency and their impact on energy savings as well.

We have also signed the nondisclosure agreement with a number of the manufacturers of the immersion cooling tanks, and we are also in the middle of testing the tanks' performance. We think we'll be able to come up with more updates in the second half of the year. And when the time comes, we will do so.

[J.W. Ahn, executive]

[Foreign Language] [Interpreted] So your third question is about Saudi Aramco entering the Korean CHPS market. I would like to tell you that we signed the LOI with Saudi Aramco in October 2023 on importing the low-carbon ammonia for the company's hydrogen business in the long term. As for how we are responding to the changes in the policies and initiatives, they're still in the infancy stages. So we're still reviewing them. But whenever there is an update, we will come back to you.

I would like to thank all the investors and analysts for showing your keen attention to S-Oil and for joining the second quarter IR conference call. As always, we are committed to communicating with the market with all transparency and fairness. And if you have any further inquiries, please feel free to contact S-Oil IR team, and we will come back to you with the answer. Thank you.

[Operator]

[Foreign Language] [Interpreted] This concludes the fiscal year 2024 2nd quarter earnings results by S-Oil. Thank you for your participation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]