[Edaily Reporter Shin Ha-yeon ] On the 7th, NH INVESTMENT & SECURITIES raised its target price for S-OilCorporation(010950)by 27.3%, from 165,000 won to 210,000 won, citing that favorable conditions in the refining sector—including strong refining margins and weak Official Selling Prices (OSP) for crude oil—are persisting longer than expected. The firm maintained its “Buy” rating. It also projected that operating profit for the third quarter of this year would exceed market expectations.

Choi Young-gwang, an analyst at NH INVESTMENT & SECURITIES, stated, “The primary reason for the target price increase is our expectation that favorable refining conditions—including strong refining margins driven by tight supply and structural weakness in the OSP stemming from Middle Eastern oil-producing nations’ strategies to secure competitiveness—will persist longer than anticipated. This led us to raise our 2027 operating profit forecast by 25.7% from our previous estimate.”

NH INVESTMENT & SECURITIES forecasts that S-OilCorporation will be able to generate annual operating profits exceeding 3 trillion won over the next few years, driven by a favorable business environment. Considering that the large-scale capital expenditure (Capex) cycle has ended, the firm expects the dividend payout ratio—currently at around 20%—to increase to 30% starting in 2027.

The key factor behind the expectation that the refining sector will remain strong is the OSP. The OSP is the premium or discount that oil-producing countries apply to the market price of crude oil; the lower it is, the lower the crude oil procurement costs for refiners.

The OSP for Arab Light destined for Asia fell sharply from $9.50 per BARREL in July to minus (-) $1.50 in August, and recorded minus $2.00 in both September and October, marking three consecutive months of negative figures.

He particularly noted that the OSP has remained low even as oil prices have risen. Researcher Choi pointed out, “What is noteworthy is that the OSP has continued to weaken despite the fact that, during the period when the OSP was announced from August to October, the price of Dubai crude rose steadily from the mid-$60s to over $100.”

He went on to explain, “The reason the OSP—which has generally moved in tandem with Dubai crude prices in the past—has recently been diverging from oil price trends is that Middle Eastern oil-producing countries have an increasing need to defend their market share.”

The analysis suggests that as countries around the world reduce their dependence on Middle Eastern crude oil and diversify their supply sources, Middle Eastern oil-producing nations face a growing need to enhance their price competitiveness.

Researcher Choi stated, “Even after shipping through the Strait of Hormuz returns to normal, we expect the global trend toward diversifying crude oil sources to continue, along with the Middle East’s efforts to secure market share and competitiveness in response. Therefore, we forecast that the downward trend in OSP will persist over the medium to long term.”

High refining margins are also expected to support earnings. While the average domestic integrated refining margin from 2010 to 2025 was approximately $6 per barrel, the average since March of this year has reached about $31. Although margins have undergone some adjustment since late August due to the seasonal off-peak period—including the end of the driving season—they remain at a high level in the mid-$20s.

Analyst Choi predicted, “While refining margins are expected to stabilize at a lower level once shipping operations in the Strait of Hormuz return to normal, the sustainable level of refining margins is projected to be significantly higher than in the past.”

Accordingly, NH INVESTMENT & SECURITIES raised its operating profit forecast for S-OilCorporation this year by 17.1%, from 3.998 trillion won to 4.682 trillion won. The operating profit forecast for 2027 was raised by 25.7%, from 2.511 trillion won to 3.156 trillion won, and for 2028, by 24.2%, from 2.587 trillion won to 3.213 trillion won.

Strong results are also expected for the third quarter. NH INVESTMENT & SECURITIES forecasts S-OilCorporation’s third-quarter revenue to reach 11.978 trillion won, a 42.3% increase year-over-year, and operating profit to rise 464.7% to 1.2945 trillion won. This operating profit figure exceeds the market consensus of 1.057 trillion won.

The refining segment is expected to lead the improvement in earnings. Third-quarter operating profit for the refining segment is estimated at 851.8 billion won, a 60.0% increase from the previous quarter, with an operating margin of 9.1%.

Analyst Choi explained, “While the OSP is expected to rise slightly, the lagging refining margin is projected to increase significantly, driving profit improvement compared to the previous quarter.”

Operating profit for the lubricants segment is projected to rise 1.6% quarter-over-quarter to 485 billion won, with an operating margin of 29.5%. He predicted, “Although steep price increases are continuing, the improvement compared to the previous quarter will be minimal due to the absence of the 122.7 billion won in inventory valuation gains recorded in the previous quarter.”

The chemicals division is estimated to post an operating loss of 42.4 billion won. Although the olefin spread has deteriorated, the spread for the aromatics product group has improved, leading to a projection that the deficit will remain at a level similar to the previous quarter.

Analyst Choi emphasized, “As S-OilCorporation’s enhanced profitability continues over the next few years, we also expect an increase in the dividend payout ratio starting in 2027 following the conclusion of the capital expenditure (Capex) cycle.”