[Edaily Reporter kyoungeun kim ] NH INVESTMENT & SECURITIES maintained its “Buy” rating and target price of 150,000 won for S-OilCorporation(010950). Although oil prices have returned to pre-Iran war levels, refining margins have actually remained at three times their pre-war levels, and the firm believes this boom will continue for the next several years.
Choi Young-gwang, an analyst at NH INVESTMENT & SECURITIES, stated in a report on the 29th, “Given the tight supply situation—including damage to facilities caused by the war—amid limited new capacity expansion, refining margins are expected to remain strong in the medium to long term,” adding, “The company is capable of generating annual operating profits exceeding 2 trillion won over the next few years.” The stock currently has an upside potential of 60.9% relative to its current price.
As of the 26th, the domestic integrated refining margin stood at $26.1, remaining nearly three times higher than pre-war levels (an average of $9.0 in February). Analyst Choi explained, “Despite yield fluctuations due to changes in fuel types, insufficient capacity utilization indicates tight supply and demand across the entire product range,” adding, “Given that the peak of the U.S. driving season falls in August and September, gasoline refining margins are highly likely to continue their upward trend through the third quarter.”
Second-quarter operating profit is projected to reach 9891억원 (-19.7% quarter-over-quarter, operating margin of 9.2%), exceeding the consensus estimate (9060억원).
This is due to the continued strength of refining margins, despite increased cost pressures from rising Official Selling Prices (OSP), the disappearance of the previous quarter’s inventory valuation gain (5250억 won), and the occurrence of an inventory valuation loss (estimated at 385억 won).
In the third quarter, operating profit is expected to shrink significantly to 850억 won due to the lag effect from falling oil prices and an increase in inventory valuation losses (projected at 3603억 won). However, starting in the fourth quarter, as the impact of the sharp decline in oil prices subsides, strong earnings performance is expected to resume.