"It Could Reach 200,000 Won": S-Oil Surges 9% on Broker Forecasts

[Financial News] S-Oil surged more than 9% on expectations of stronger refining margins and improved earnings. As the market expects a shortage of refined products to persist for some time even if the war in the Middle East eases, brokerages have been raising their target prices for S-Oil to the 200,000-won range.
According to the Korea Exchange on the 28th, S-Oil closed at 149,200 won, up 12,500 won, or 9.14%, from the previous session. During the day, it rose as high as 150,700 won. Institutions and foreign investors bought a net 6.43794 billion won and 5.71047 billion won, respectively, while individual investors sold a net 12.01017 billion won.
Brokerages said the stock still has room to rise despite its recent gains. Yuanta Securities Korea Co., Ltd. raised its target price for S-Oil from 175,000 won to 205,000 won, while Shinhan Investment & Securities lifted its target from 180,000 won to 200,000 won. Compared with the closing price that day, the implied upside to the target price ranges from 34.0% to 37.4%.
The target price increases were driven by expectations that strong refining margins will continue for now. Even if the war eases, global oil prices may fall in the short term, but it will take time to repair damaged refining facilities and replenish depleted inventories of petroleum products. Analysts say that even if crude supply recovers first, the normalization of gasoline and diesel supply could lag behind.
Lee Jin-myeong, a researcher at Shinhan Investment & Securities, said, "Crude procurement will recover first through rerouted shipping, while repairing refining facilities and rebuilding product inventories will take longer." He added, "In the second half of the year and in 2027, complex refining margins are expected to reach $30 per barrel and $19 per barrel, respectively, well above the $10 level in the fourth quarter of last year before the war."
In the second and third quarters of this year, S-Oil's complex refining margin exceeded $41 per barrel, surpassing the $39 posted by Valero Energy Corporation, a leading U.S. refiner. The gain was driven by supply shortages of petroleum products in Asia caused by operational disruptions at refining facilities in Russia and the Middle East.
A decline in the official selling price (OSP) of Saudi Arabian crude was also cited as a factor improving profitability. OSP is a kind of premium added to international oil prices. A $1 drop in OSP per barrel is estimated to increase S-Oil's annual operating profit by about 300 billion won. Because S-Oil secures crude oil stably through its largest shareholder, Saudi Aramco, it is seen as able to maintain cost competitiveness even as freight and insurance costs rise.
As a result, brokerages expect S-Oil to post operating profit of around 5 trillion won this year. In particular, they forecast that operating profit in the second half will exceed 3 trillion won, with earnings improving more sharply than in the first half.
Hwang Kyu-won, a researcher at Yuanta Securities Korea Co., Ltd., said, "The industry is much stronger than expected, and the company is entering a virtuous cycle of reduced financial burden and higher shareholder returns." He added, "With free cash flow increasing this year and next, it should be able to reduce debt and raise its dividend per share to 10,000 won."
The Shaheen Project, which is scheduled to begin commercial operations early next year, is also seen as a factor that could re-rate the stock. As the large-scale capital investment phase comes to an end, capital expenditures are expected to fall from the 200 billion won range this year to around 500 billion to 800 billion won next year. If stronger earnings and lower investment burden come together, cash available for debt repayment and higher dividends is also expected to increase.
  

[email protected] Bae Han-geul Reporter