[Click eStock] "S-Oil Undervalued Excessively... Target Price Maintained"

On the 17th, Korea Investment & Securities maintained its buy rating and target price of 90,000 won for S-Oil, stating that "the expected price-to-book ratio (PBR) for next year will drop to 0.7 times, making its valuation (stock price relative to corporate value) more attractive than during the early days of COVID-19."

On the same day, Choi Gyo-woon, a researcher at Korea Investment & Securities, said, "the current stock price needs to consider the potential rise if concerns about the US economic slowdown next year or assumptions about the peak-out of fossil fuel demand prove incorrect."

Researcher Choi noted, "Since oil prices had reached the 60-dollar range, expectations for high oil prices have disappeared. The related effects are one-time losses already reflected in the stock price," adding, "although it is regrettable that dividend capacity has been reduced due to the investment burden related to the 9.3 trillion won Shahin project, which is building the largest petrochemical complex ever in Ulsan, it is excessive to undervalue the mid- to long-term refining and chemical integration synergy."

S-Oil's third-quarter performance this year is expected to turn to a loss due to falling oil prices and refining margins. Researcher Choi estimated, "Sales will be 8.8 trillion won, and operating loss will be 271.8 billion won (operating margin -3%). The refining business segment is expected to record an operating loss of 451.5 billion won, continuing the deficit from the previous quarter. Lubricant base oil is expected to have an operating profit of 153.3 billion won, and chemicals an operating profit of 26.4 billion won."

Concerns about weak oil prices are likely to persist until the economic recovery next year becomes visible. Researcher Choi said, "In the short term, the energy market is distorted unfavorably with high uncertainty, and in the long term, demand reduction due to the decarbonization trend remains a concern. Despite the continuous production cut policies of the Organization of the Petroleum Exporting Countries (OPEC) and the OPEC Plus (+) group of major non-OPEC oil-producing countries, oil prices have struggled to break through the upper limit easily. Signs of discord among member countries are also detected."

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