[Click eStock] "S-Oil, Refining Sector Performance Weak Until Q2... Target Price Down"

Target Price Lowered by 19% Compared to Previous Estimate

Shinhan Investment Corp. downgraded its target price for S-Oil from 90,000 KRW to 73,000 KRW on the 10th, anticipating continued poor performance through the second quarter of this year. The investment rating was maintained at 'Buy.'

Lee Jin-myung, a researcher at Shinhan Investment Corp., explained, "The target price was lowered by 19% compared to the previous estimate, reflecting downward revisions in earnings forecasts and changes in the price-to-book ratio (PBR)." He added, "The poor performance centered on refining in the first quarter is expected to continue through the second quarter due to sustained weak oil prices." He further noted, "However, the likelihood of additional downward factors emerging from supply and demand perspectives is low, and unlike the chemical sector, the petroleum product market faces less supply pressure, so upward pressure on refining margins is expected to gradually increase in the second half of the year."

S-Oil's first-quarter earnings this year are expected to fall short of market expectations due to a turnaround to losses in the refining segment. The researcher analyzed, "Operating profit for the first quarter is expected to be 51.4 billion KRW, below the consensus estimate of 199.1 billion KRW. The refining segment is anticipated to turn to an operating loss of 37.9 billion KRW, reflecting poor performance. This is due to a sharp drop in refining margins amid limited inventory effects caused by falling oil prices at the end of the quarter."

Although short-term investor sentiment deterioration is inevitable, the downside rigidity of the stock price is considered solid. The researcher stated, "WTI oil prices fell below $60 per barrel for the first time in four years due to concerns over a global economic recession and increased supply caused by tariffs, and the 12-month PBR dropped to an all-time low of 0.64. However, given the low likelihood of further declines in oil prices and the relatively favorable trend in refining margins, short-term investor sentiment deterioration is unavoidable, but the downside rigidity of the stock price is judged to be strong."

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