[Click e-Stock] "S-Oil: Gains Will Outweigh Uncertainty... Target Price Raised"

"The Impact of Soaring Refining Margins Will Ultimately Be Greater"

On April 13, Samsung Securities raised its target price for S-Oil to 150,000 won, an increase of 24.3%, while maintaining its "Buy" investment rating.

Hyunryul Cho, a researcher at Samsung Securities, stated in a report on the same day, "Despite the elevated international benchmark margin due to the prolonged Middle East war, there continues to be uncertainty regarding feedstock supply after June, the domestic fuel price ceiling, and potential future exports." He further analyzed, "Nevertheless, the favorable lagging effect realized by the tight global supply and the sharp increase in refining margins are ultimately expected to outweigh the negative impacts."

He added, "Restocking activities to replenish inventories that were depleted after the war and some operational disruptions at production facilities are considered key reasons why refining margins may be higher than before the conflict."

Accordingly, he projected that S-Oil's first-quarter performance would also exceed expectations. Cho forecast S-Oil's first-quarter operating profit at 1.18 trillion won, up 218% from the previous quarter. This figure is significantly higher than the market consensus of 579.9 billion won. He explained, "This is attributable to the favorable inventory effect and improvements in refining margins resulting from higher oil prices due to the Middle East war, which led to a substantial improvement in refining business performance."

The operating profit for the refining segment in the first quarter is expected to reach 1.04 trillion won, a 465% increase from the previous quarter. This is because the average Dubai crude oil price surged from 63.3 dollars in November–December last year to 94.9 dollars in February–March this year, leading to a significant rise in inventory valuation gains. The increase in oil prices also generated a favorable lagging effect, and spot refining margins improved substantially. Cho noted, "However, a considerable deficit resulting from the implementation of the domestic fuel price ceiling and the impact of regular maintenance on some lines starting in March have partially offset the margin improvement effects."

The operating profit for the chemical segment in the first quarter was estimated at 27.4 billion won, while that of the lubricants segment was estimated at 117.8 billion won. Regarding lubricants, he projected a 41% decrease from the previous quarter. Cho commented, "Given the nature of the business, where there is a certain time lag between changes in raw material prices and product prices, a short-term decline in profitability due to rising oil prices is inevitable."

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