[Click eStock] "S-OIL, Refining Super Boom... 1Q Earnings Surprise Expected"

[Asia Economy Reporter Hwang Yoon-joo] Shinhan Financial Investment maintained a 'Buy' rating and a target price of 140,000 KRW for S-Oil on the 1st, stating that the refining industry is experiencing a super boom and that the first quarter operating profit is expected to exceed estimates.

Lee Jin-myung, a researcher at Shinhan Financial Investment, said, "The first quarter operating profit is expected to be 1.27 trillion KRW (+224% QoQ), surpassing the consensus of 940.9 billion KRW."

The researcher forecasted refining operating profit at 1.1 trillion KRW (+381%). He explained, "At the end of the quarter, Dubai crude oil prices rose by more than 30 dollars, expecting about 600 billion KRW in inventory gains," and added, "The refining margin is estimated to have increased by 5 dollars per barrel due to tight supply and demand amid supply concerns." In particular, he anticipated that the diesel production ratio of 36% (based on 2021) would be the biggest beneficiary of the strong diesel margin.

The chemical business is expected to continue operating at a loss. The researcher stated, "The operating loss is estimated at -34 billion KRW. Although the spreads of aromatic products (PX, paraxylene, benzene, etc.) have improved, the spreads of PO (propylene oxide) and PP (polypropylene) fell by 36% and 49%, respectively, leading to expected poor performance."

The lubricating base oil performance is also expected to decline compared to the previous quarter. He analyzed, "Operating profit is expected to be 202.6 billion KRW (-11%). As global refinery utilization rates increase, supply rises causing base oil prices to fall, and cost increases inevitably slow down the spread."

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