'Earning Surprise' Mixed Views on S-Oil... "To Buy or Not to Buy"

[Asia Economy Reporter Lee Seon-ae] S-Oil, which posted an operating loss exceeding 1 trillion won in the first quarter of last year due to the impact of COVID-19, achieved its best performance in five years in the first quarter of this year, but investment opinions in the securities industry are divided. While some recommend actively buying S-Oil, which has shown confidence in the industry's rebound, others advise holding off on investment, viewing the surprise earnings as a one-time factor amid a bleak outlook for the refining business.

According to the Korea Exchange on the 28th, S-Oil opened the market at 87,000 won, up 2.83% from the previous day. It closed at 84,600 won the previous day, marking a stock price increase of over 20% since the beginning of the year.

This is interpreted as a buying spree driven by expectations for strong earnings. S-Oil announced that it recorded an operating profit of 629.2 billion won in the first quarter of this year, turning profitable from an operating loss of 1.0073 trillion won in the same period last year. This performance is the highest quarterly operating profit in the past five years. It is an 'earnings surprise' nearly double the market expectations. According to financial information provider FnGuide, S-Oil was expected to earn an operating profit of 340.8 billion won in the first quarter of this year.

Reports analyzing S-Oil poured in on the day, with the general investment opinion being 'Buy.' Yoon Jae-sung, a researcher at Hana Financial Investment, said, "The current annual operating profit consensus is 1.1 trillion won, but Hana Financial Investment estimates 2.2 trillion won," adding, "For cyclical companies, the first stock rally occurs when suppressed estimates are significantly revised upward, so I advise an early and active buy call."

Meritz Securities also emphasized buying, stating that the current point is the bottom for S-Oil's stock price. Noh Woo-ho, a researcher at Meritz Securities, said, "From a mid- to short-term perspective, the refining industry rebound is imminent, and both profits and stock prices are at the bottom," recommending it as the top pick in the refining sector.

However, NH Investment & Securities presented a neutral/hold investment opinion. Hwang Yoo-sik, a researcher at NH Investment & Securities, explained, "Structural weakness in refining margins continues, and with other companies' refining facilities operating rates rising, refining margin weakness is expected to persist, so we maintain a hold rating." However, the target stock price was adjusted upward from 72,000 won to 82,000 won, reflecting the upward revision of operating profit estimates.

Daishin Securities maintained a buy rating and raised the target stock price by 10.5% to 105,000 won but advised caution regarding the timing of investment. Han Sang-won, a researcher at Daishin Securities, said, "Although the target price was raised following earnings estimate revisions, the key is the speed of recovery in the refining business," advising, "Rather than excessive immediate expectations, a strategy of responding while confirming the rebound in refining margins is effective."

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