[Click eStock] "S-Oil, Strong Market Conditions Continue Due to Supply Factors... Target Price Up"

On the 14th, NH Investment & Securities raised its target price for S-Oil to 93,000 KRW, an 8% increase from the previous target, citing "tighter-than-expected supply conditions, robust oil prices, and strong refining margins, which led to an 8% upward revision of this year's operating profit forecast." The buy rating was maintained.

Choi Young-kwang, a researcher at NH Investment & Securities, stated, "S-Oil's current stock price is at a price-to-book ratio (PBR) of 0.8 times for this year, indicating a low valuation (stock price level relative to corporate value)." Choi added, "While demand remains solid, the oil price strength driven by supply factors continues," and "the additional production capacity of non-OPEC (Organization of the Petroleum Exporting Countries) producers, who had been significantly expanding supply, is shrinking, and tight supply conditions are expected to persist throughout this year."

He also noted, "For reference, the U.S. Energy Information Administration (EIA) forecasts that oil demand will increase by 1.43 million barrels per day (1.4%) compared to the previous year, while supply is expected to rise by 380,000 barrels per day (0.4%). The supply forecast has been continuously lowered since August last year."

He said, "The net increase in refining capacity this year is projected to be 800,000 to 1 million barrels per day, which is below the demand growth, allowing for sustained strong refining margins," and "S-Oil's scheduled maintenance volume this year is 96,000 barrels per day, significantly reduced from 253,000 barrels per day last year, enabling the company to fully benefit from the robust market conditions."

Furthermore, "First-quarter sales are expected to be 9.3 trillion KRW, down 5% from the previous quarter, with operating profit turning positive at 548.3 billion KRW (operating margin of 5.9%), exceeding market expectations," he said. "Since the low point in December last year, oil prices have been gradually rising. Along with improving refining margins, the positive lagging effect (where product prices rise following oil price increases, boosting the margin companies earn when selling products) will significantly enhance earnings."

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