[Click eStock] S-Oil Exceeds 4Q Expectations, Set to Grow Further This Year

Refining Sector Performance Expected to Rebound Due to Expansion Limits on Refining Facilities

[Asia Economy Reporter Minwoo Lee] S-Oil posted better-than-expected results in the fourth quarter of this year. Despite negative refining margins and exchange rate effects, the performance of the petrochemical and lubricants base oil sectors improved, according to evaluations.

On the 29th, Kiwoom Securities gave S-Oil a 'Buy' rating and set a target price of 91,000 KRW, citing these reasons. The closing price the previous day was 70,200 KRW.

S-Oil recorded consolidated sales of 4.2803 trillion KRW and an operating profit of 93.1 billion KRW in the fourth quarter of last year. Sales decreased by 33.91% compared to the same period last year, but operating profit increased by 879.89%. Compared to the previous quarter, it turned to a profit and exceeded the market consensus of 70.8 billion KRW. The refining sector was sluggish, but the petrochemical and lubricants base oil sectors performed well.

The refining sector posted an operating loss of 89.7 billion KRW, continuing the deficit from the previous quarter. Despite the seasonal peak, demand recovery was limited due to the spread of COVID-19, and inventory valuation gains decreased compared to the previous quarter due to a drop in Saudi Arabia's Official Selling Price (OSP).

The petrochemical sector's operating profit was 72.7 billion KRW, turning sharply to a profit compared to the previous quarter. Researcher Dongwook Lee of Kiwoom Securities explained, "Although the spread of the main product paraxylene (PX) did not improve significantly, the favorable market conditions for SM derivatives increased benzene profitability, and the olefin sector including polypropylene (PP) and propylene oxide (PO) saw margin improvements due to strong demand from downstream automotive, home appliances, and packaging materials."

The lubricants base oil sector's operating profit was 110.1 billion KRW, a 14.0% increase from the previous quarter. This was due to a base effect in volume caused by partial line maintenance in the previous quarter and a decrease in supply due to maintenance of major competing facilities.

Kiwoom Securities expects S-Oil to significantly improve its operating profit this year. PX, which had maintained poor spreads until last year, is expected to improve profitability compared to last year due to limited capacity expansion and increased supply of terephthalic acid (TPA). Additionally, with petroleum product inventories decreasing in the first half of this year and restrictions on refining capacity expansion in the region, a rebound in refining sector performance is expected in the second half. Researcher Lee said, "The proactive shift in the business portfolio in the olefin sector, including PO and PP, is also positive," adding, "The lubricants base oil sector is expected to maintain solid profitability due to limited supply increases and improved demand this year."

This content was produced with the assistance of AI translation services.