S-Oil Corporation’s Refining Capacity Shortage to Sustain Earnings Even if Oil Prices Rise; Target Price Raised to 220,000 Won

[Financial News] Shinhan Investment & Securities raised its target price for S-Oil Corporation from 200,000 won to 220,000 won while maintaining its “Buy” rating, saying the company’s earnings resilience will remain intact even if oil prices rise again because of a shortage of refining capacity. The previous day’s closing price was 148,700 won, implying upside of about 47.9% to the 220,000-won target. On the 16th, Lee Jin-myeong, a senior researcher at Shinhan Investment & Securities, analyzed that geoeconomic shocks had disrupted crude oil supply chains and increased the scarcity value of refining capacity.
Lee Jin-myeong explained, "Although crude oil exports from the Gulf region recovered to 61% of their prewar level in July, they have been disrupted again by the suspension of the East-West Pipeline in September. Because refining capacity is difficult to replace with other facilities, the supply shortage is likely to persist for an extended period."
Dubai crude rose again from $88.4 in August to $123.7 on September 11, while the August complex refining margin expanded to $34, or 4.8 times its historical average.
In particular, the brokerage expected Saudi Aramco’s cuts to its official selling price (OSP) and strength in middle distillates to have a positive impact on S-Oil Corporation’s earnings.
The OSP for Saudi Arabian Light shifted from a $19.5-per-barrel increase in May to a $2 decline in September and October, falling to its lowest level since June 2020. The August diesel margin was 4.3 times its historical average, far exceeding the gasoline margin at 2.1 times its historical average.
Lee Jin-myeong cited low inventories as a key factor behind the strength of refining conditions. U.S. middle-distillate inventories were at their lowest level on record as of late August, while OECD commercial inventories were at their lowest level since April 2014. As a result, even after facilities are restored, initial increases in output are likely to be directed first toward replenishing inventories. Accordingly, the brokerage forecast that margins would normalize more slowly than supply recovered.
Shinhan Investment & Securities raised its forecast for S-Oil Corporation’s operating profit this year by 5.4% from its previous estimate to 5.2327 trillion won. Its forecast for 2027 was also raised by 3.1% to 3.7995 trillion won.
The Shaheen Project is scheduled to undergo test operations in the fourth quarter and begin commercial operations in early 2027. Capital expenditure is also expected to decline from 2.1 trillion won in 2026 to 500 billion won in 2027, increasing the company’s capacity to raise dividends.
The Shaheen Project is a massive petrochemical project worth approximately 9.3 trillion won. S-Oil Corporation is pursuing it to transform its business structure from a pure refining company into an integrated “refining plus petrochemicals” company.
[email protected] Kang Jung-mo Reporter