[Click eStock] "S-Oil, Rapid Oil Demand Decline... Investment Rating and Target Price Down"

Hyundai Motor Securities on the 16th downgraded its investment opinion on S-Oil from 'Buy' to 'Neutral (MARKETPERFORM)'. The target price was also lowered from 110,000 KRW to 81,000 KRW. This is due to the rapid decline in oil demand centered on China.

S-Oil's third-quarter earnings are estimated at sales of 10.3 trillion KRW and operating profit of 1 trillion KRW. This significantly exceeds market expectations due to rising oil prices and strong refining margins.

However, recently, refining margins have been rapidly falling, especially for gasoline. Some analysts predict that China's gasoline demand will peak out (reach a peak and then decline) in the second half of this year, two years earlier than expected. Accordingly, gasoline margin weakness is expected to continue next year.

S-Oil is making large-scale investments in the Shahin project to prepare for the peak out of oil demand. However, this is expected to lower the dividend payout ratio. Although oil prices are rising recently due to production cuts by major oil-producing countries such as Saudi Arabia and geopolitical issues, the oil selling price (OSP) continues to rise despite weak refining margins. The strength in oil prices caused by geopolitical issues is likely to be a negative factor for refining margins.

Kang Dong-jin, a researcher at Hyundai Motor Securities, said, "While long-term fundamental strengthening is expected, considering the peak out of refining margins and the lowered dividend payout ratio, it will be difficult for investment attractiveness to increase in the near term."

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