[Click eStock] "S-Oil, Q2 Earnings Expected to Decline"... Target Price Down
NH Investment & Securities lowered the target price for S-Oil from 100,000 KRW to 90,000 KRW on the 26th, citing weak oil prices and refining margins that are expected to result in poor performance in the second quarter of this year. However, the buy rating was maintained.
Choi Young-kwang, a researcher at NH Investment & Securities, explained, "The global oil supply and demand balance has improved each quarter since hitting a low in the fourth quarter of 2022, but international oil prices and refining margins have remained weak. However, the diesel margin, which was a major factor in the weak refining margins, has fallen to the historical average level and has been slightly rebounding since May."
He continued, "The previously high base burden has been resolved, and while we expect refining margins to rebound in the second half of the year, the second quarter results, affected by weak oil prices and refining margins, are expected to be the worst of the year. Second quarter sales are projected to decrease by 13.6% from the previous quarter to 7.8 trillion KRW, and operating profit is expected to drop by 86.8% to 67.9 billion KRW, significantly missing market consensus estimates."
The refining segment is expected to record an operating loss of 162.2 billion KRW due to weak refining margins and inventory valuation losses caused by falling oil prices. It was analyzed that the recent rebound effect in refining margins will not be realized due to this month's scheduled maintenance.
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Researcher Choi added, "The chemical segment is expected to generate an operating profit of 36.4 billion KRW as there is no negative lag effect from raw materials and the aromatics spread remains strong. The base oil segment is expected to have an operating profit similar to the previous quarter at 193.8 billion KRW, as export prices rose but were offset by the impact of scheduled maintenance."
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