[Click e-Stock] "S-Oil, Refining Margin Improvement Expected... Target Price Lowered"

Target Price Lowered by 5% from Previous Level

On September 12, NH Investment & Securities stated that although the rise in refining margins for S-Oil has been slow, it expects a significant improvement next year. The firm lowered its target price from 78,000 won to 74,000 won but maintained its "Buy" investment rating.

Choi Younggwang, an analyst at NH Investment & Securities, explained, "The downward revision of the target price reflects a cut in our earnings forecast due to weaker-than-expected chemical spreads and the sluggish increase in refining margins. While we are lowering our expectations, we believe that operating profit in 2026 will see a significant improvement, driven by further gains in refining margins, a slowdown in the decline of oil prices leading to a reduced negative lagging effect, and a decrease in inventory valuation losses."

Refining margins have been gradually rising since the end of 2024. Choi noted, "In Asia, refining margins remain relatively weak compared to other regions due to sluggish demand from China. However, the National Development and Reform Commission (NDRC) of China has announced its intention to cut petroleum product output and increase chemical production to counteract declining fuel oil demand resulting from the adoption of electric vehicles. In fact, Chinese refiners are already moving to reduce output. As a result, the regional supply-demand balance is expected to become tighter, and Asian refining margins should show a moderate upward trend."

S-Oil's third-quarter results this year are expected to meet market expectations. Choi said, "Operating profit for the third quarter is projected at 263.2 billion won, turning to a profit from the previous quarter and in line with the consensus (the average forecast by securities firms). The refining division is estimated to post an operating profit of 149.8 billion won. Although gasoline margins were weaker than expected, the strong margins for diesel and kerosene, the disappearance of one-off costs from the previous quarter, inventory valuation gains due to rising year-end oil prices, and improved profits from a drop in the official selling price (OSP) of crude oil all contributed to the results. The chemical division is expected to record an operating loss of 21.7 billion won, with only a slight improvement as the weak spread trend continues."

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