[Edaily Reporter Kim Kyung-eun ] On the 13th, LS SECURITIES raised its target price for S-OilCorporation(010950)(SY CO., LTD.) from 133,000 won to 140,000 won, stating that strong earnings are expected to continue through next year. However, considering that the recent rise in the stock price has already partially reflected these earnings expectations, the firm downgraded its investment rating from “Buy” to “Hold.”

Jeong Kyung-hee, an analyst at LS SECURITIES, stated in a report released that day, “We are raising the target price to 140,000 won to reflect the longer-than-expected period of strong earnings, but the recent rise in the stock price means the upside potential is limited to less than 15%.”

SY CO., LTD.’s consolidated revenue for the second quarter of this year is expected to reach 13.8 trillion won, a 71% increase from the same period last year. Operating profit is estimated to return to the black at approximately 1 trillion won.

Analyst Jeong noted, “Thanks to its structure of receiving crude oil supplies from its largest shareholder, Saudi Aramco, the company maintained a relatively high operating rate by leveraging its crude oil supply advantage over other refiners amid the shortage of medium and heavy crude exacerbated by the Middle East crisis,” adding, “It is expected to benefit from low transportation costs.”

By business segment, the lubricant base oil division is expected to drive earnings. This is because the supply shortage has worsened, with global Group III lubricant base oil supply decreasing by 20–25% due to operational disruptions at Qatar’s Shell Pearl GTL (Gas-to-Liquids) plant and major facilities in Bahrain and the United Arab Emirates (UAE). LS SECURITIES estimated S-Oil’s second-quarter operating profit from lubricant base oils at 451.9 billion won, a 171% increase from the previous quarter. It also projected that operating profit in the chemicals division would rise 426% quarter-over-quarter to 134.1 billion won, driven by rising product prices.

The boom in the refining and lubricant base oil sectors is expected to continue through next year. Analysts note that the share of light crude has expanded since the U.S. shale revolution, leaving no surplus in the supply of medium and heavy crude, a situation further exacerbated by the Russia-Ukraine war and conflicts in the Middle East. S-Oil is expected to continue benefiting from this trend as it can secure a stable supply of medium and heavy crude through its long-term supply agreement (LTA) with Aramco.

Expectations for increased shareholder returns have also been raised. With the Shaheen project set to be completed this year, marking the end of large-scale capital expenditures (CAPEX), the company’s capacity to pay dividends is expected to grow. Given that SY CO., LTD. maintained a dividend payout ratio of over 30% from 2021 to 2023—before the Shaheen project funding was disbursed—and has announced a policy of maintaining a payout ratio of at least 20% from 2024 to 2026, analysts explain that there is a high likelihood of increased dividends once the investment is completed.