[Click e-Stock] "S-Oil Target Price Raised... Price Cap Remains a Variable"

Mirae Asset Securities has raised its target price for S-Oil from 120,000 won to 135,000 won while maintaining its "Buy" investment rating. However, the brokerage noted that S-Oil's performance could fluctuate significantly depending on factors such as the timing of the end of the oil price cap, and that investors should take this associated risk into consideration.

According to Mirae Asset Securities on May 12, the upward revision of the target price is due to an adjustment in earnings forecasts driven by strong refining margins. The newly presented target price of 135,000 won suggests an upside potential of 21.7% compared to the previous day's closing price of 110,900 won.

Jinho Lee, an analyst at Mirae Asset Securities, commented, "Supply shortages caused by the blockade of the Strait of Hormuz have driven up prices across crude oil and petroleum products," adding, "Even after the end of the conflict, it is expected to take more than three months for normalization, so price strength is likely to continue in the second half of the year."

S-Oil's operating profit for the first quarter was 1.2311 trillion won, surpassing the latest one-month consensus of 1.169 trillion won. Lee explained, "The improvement in earnings compared to the previous quarter was largely due to the refining division," and added, "Increases in inventory-related gains from higher oil prices and strong refining margins had a significant impact." Inventory-related gains totaled 643.4 billion won, broken down by division as follows: refining 524.8 billion won, chemicals 87.1 billion won, and lubricants 31.5 billion won.

Second-quarter operating profit is estimated at 491.7 billion won, representing a 60% decline from the previous quarter. Lee stated, "The earnings decrease compared to the previous quarter is due to the full reflection of opportunity losses from the oil price cap, as well as a sharp rise in Saudi OSP (Official Selling Price)," and added, "If the price cap policy continues through June, the loss is expected to expand significantly to around 900 billion won."

The biggest variable at this point is the timing of the end of the price cap and the scale and timing of loss compensation. Lee noted, "Depending on when the domestic price cap ends and the scale of loss compensation, S-Oil's performance could fluctuate greatly, so it is necessary to consider this risk." He added, "Since discussions are underway between the government and the refining industry regarding the criteria for calculating losses, third- and fourth-quarter results could vary significantly depending on the finalized agreements."

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