[Click eStock] "S-Oil, Strong Earnings Rebound This Year... Aiming for '100,000 Oil'"

Profit Turnaround Expected from First Half Compared to Previous Year

[Asia Economy Reporter Minwoo Lee] S-Oil, which showed sluggish performance last year, is expected to see a significant rebound in earnings this year due to rising oil prices and improved market conditions.

On the 8th, Kiwoom Securities maintained a 'Buy' rating on S-Oil and raised the target price by 15.4% to 105,000 KRW. This is the first time since February last year that a target price in the 100,000 KRW range has been suggested. The previous closing price was 74,600 KRW.

Clear earnings improvement is expected to begin in the first half of this year. According to financial information provider FnGuide, S-Oil's estimated sales for Q1 this year are 4.8684 trillion KRW, with operating profit of 152.1 billion KRW. This represents a significant rebound compared to the first quarter of last year, when the company recorded a historic loss of around 1 trillion KRW.

Despite some reduction in petroleum product inventories, the weak refining margin trend continues; however, due to rising oil prices, inventory-related profit and loss is expected to improve compared to the first half of last year. Kiwoom Securities estimates that for every 1 USD movement per barrel in oil prices, S-Oil's inventory valuation profit and loss fluctuates by approximately 15 to 20 billion KRW. The cumulative Dubai crude price rose by about 11 USD per barrel from Q4 last year to Q1 this year.

Researcher Dongwook Lee of Kiwoom Securities stated, "In the second half of this year, as the regional and international inventory drawdown period continues from the first half, and with the closure of refining facilities estimated to exceed 1.5 million barrels last year, supply is expected to ease significantly. Additionally, with the expansion of COVID-19 vaccinations and seasonal peak demand factors, petroleum product demand is expected to recover." He added, "It is also necessary to consider the possibility of a sudden rebound in refining margins, which were highly volatile last year."

The strategy of repurposing existing facilities is also noteworthy. Researcher Kim explained, "In line with the accelerating 'energy transition' trend, competitors have boldly invested in the secondary battery sector, widening the market capitalization gap with S-Oil. S-Oil appears to be pursuing a strategy of repurposing existing facilities in preparation for the energy transition."

In fact, S-Oil plans to invest about 7 trillion KRW to build a new SC&D (Steam Cracker and Downstream) plant and introduce TC2C (technology converting crude oil into petrochemical products). The SC&D plant is expected to proceed smoothly due to extensive experience in large-scale plant operations and the availability of excellent domestic talent. Researcher Lee said, "The TC2C process is expected to be technically challenging, similar to the hydrocracking facility (HS-FCC), but it is anticipated to secure naphtha and crude margins, adjust C2/C3 yields according to market conditions, utilize low-value streams, and significantly increase the proportion of petrochemical products in existing refining facilities." He forecasted, "Applying the TC2C technology from the major shareholder Aramco will improve profitability by more than 30% compared to existing integrated refining and chemical facilities."

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