[Click eStock] "S-Oil, 1Q Refining Division Operating Profit Expected to Turn Positive"

NH Investment & Securities forecasted on the 5th that S-Oil's profits will grow in 2024 due to a lowered base effect. They maintained a buy rating and a target price of 86,000 KRW. Although the refining segment recorded a loss in the fourth quarter of last year, a return to profitability is expected in the first quarter of this year.

Last year, S-Oil posted an operating profit of 1.4 trillion KRW, which is a 58% decrease compared to the same period the previous year. The opportunity loss in operating profit due to large-scale scheduled maintenance was approximately 460 billion KRW, and the inventory valuation loss in the refining segment caused by the decline in oil prices was about 86 billion KRW.

According to the U.S. Energy Information Administration, global oil demand is expected to increase by about 1.4 million b/d (barrels per day) this year compared to the previous year. Global refinery capacity expansion is limited. Refining margins are expected to remain higher than in the past. Scheduled maintenance is expected to be significantly reduced compared to last year, and operating profit is forecasted to grow by about 24% year-on-year to approximately 1.77 trillion KRW.

The weak performance in the fourth quarter was anticipated, and a significant improvement in results is expected in the first quarter of this year. Fourth-quarter sales were 9.8 trillion KRW, with an operating profit of 7.6 billion KRW. The refining segment recorded an operating loss of 265.7 billion KRW. This was due to inventory valuation losses (152 billion KRW) caused by the decline in oil prices and the lagging drop in refining margins. The chemical segment posted an operating profit of 47 billion KRW. Despite the decline in spreads, the opportunity loss (39 billion KRW) from scheduled maintenance in the previous quarter was eliminated. In the first quarter of this year, operating profit is expected to improve significantly to 508.4 billion KRW. Due to rising refining margins and falling OSP, refining operating profit is forecasted to turn positive at 253 billion KRW.

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