[Click e-Stock] "Refining Boom Continues... S-Oil Target Price Raised"

OSP Weakness Expected to Persist in the Medium to Long Term
NH Investment & Securities Raises Target Price by 27%

On September 7, NH Investment & Securities raised its target price for S-Oil by 27.3%, from KRW 165,000 to KRW 210,000, while maintaining its "Buy" investment rating.

Choi Young-gwang, a researcher at NH Investment & Securities, projected that the oil refining boom will continue for an extended period due to the weakness in Official Selling Price (OSP) for crude oil and strong refining margins. He stated, "We have raised our operating profit forecast for 2027 by 25.7% compared to the previous estimate, considering the better-than-expected and prolonged upturn in the refining industry." Choi added, "S-Oil's improved earnings generating capacity is expected to persist for the next several years, and from 2027 onwards, the company is also anticipated to expand its dividend payout ratio as the capital expenditure (Capex) cycle comes to an end."

He expects the OSP to continue its downward trend. The OSP for Asia-bound shipments in October stood at negative USD 2.0, marking the third consecutive month in negative territory. Choi commented, "It is especially noteworthy that the OSP has remained low despite rising crude oil prices," and explained, "As countries diversify their crude oil sources and Middle Eastern oil producers continue efforts to secure market share, the weakness in the OSP is expected to persist in the medium to long term."

S-Oil's third-quarter results are forecast to exceed market expectations. The company is expected to post an operating profit of KRW 1.2945 trillion, up 34.1% from the previous quarter, with an operating margin of 10.8%. Choi stated, "(In the refining segment) the OSP will edge up slightly, but a significant increase in lagging refining margins will drive profit improvement compared to the previous quarter." He added, "In the lubricants segment, strong price increases are continuing, but the quarter-on-quarter improvement will be limited due to the disappearance of inventory valuation gains from the previous quarter."

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