[Edaily Reporter kyoungeun kim ] S-OilCorporation(010950)posted third-quarter earnings that exceeded market expectations, driven by strong refining margins and record-high performance in its lubricant base oil business. Analysts predict that the strong market conditions will persist for the long term as supply shortages continue due to disruptions in global refining operations caused by the war and limited capacity expansions.

Choi Young-gwang, an analyst at NH INVESTMENT & SECURITIES, made these remarks in a report on the 3rd, in which he maintained a “Buy” rating and a target price of 210,000 won for S-OilCorporation.

S-OilCorporation’s third-quarter operating profit reached 1.4067 trillion won, a 45.8% increase from the previous quarter, exceeding the consensus estimate (1.1910 trillion won). The operating profit margin stood at 11.8%. Operating profit in the refining segment rose 29.7% to 690.4 billion won. Analyst Choi explained, “While the positive lag effect from rising oil prices (268 billion won) was offset by the impact of a weaker exchange rate (-290 billion won), the company posted solid profits thanks to strong refining margins.” Operating profit in the lubricants segment rose 55.6% to 742.7 billion won, setting a new all-time quarterly record for the second consecutive quarter. The operating profit margin reached 48.2%. The chemicals segment posted an operating loss of 26.4 billion won, though the loss narrowed slightly due to improved aromatics spreads.

He predicted that the strong refining margins would persist for the long term. Analyst Choi stated, “The scale of disruptions to global refining capacity caused by the war amounts to approximately 4.5–5.0% of global oil supply, with the Middle East accounting for about 2.5 million BARRELS per day and Russia for 2.0–2.5 million BARRELS per day,” adding, “Refining capacity for lubricant base oils, equivalent to about 30% of global supply, is also experiencing operational disruptions.”

He predicted that supply and demand conditions would remain tight even after the war ends. The projected net increase in global refining capacity for this year and next is 300,000 BARRELS per day and 800,000 BARRELS per day, respectively—representing a mere 0.3% and 0.8% of global oil supply. In contrast, the U.S. Energy Information Administration (EIA) forecast that oil demand will increase by 2.2 million barrels per day (2.2%) next year, driven by a rebound in demand that had been suppressed by the war and additional demand for stockpiling.

S-OilCorporation is expected to fully benefit from these strong market conditions. Analyst Choi explained, “S-OilCorporation has no disruptions in crude oil procurement and is therefore well-positioned to fully benefit from the supply shortage,” adding, “The company has recently increased its procurement volumes through the Strait of Hormuz using ship-to-ship (STS) transfers, enabling it to expand its share of medium-grade crude oil, which is in short supply globally.” Consequently, the recent operating rate has risen to 90%, higher than the third-quarter average (81%).

NH INVESTMENT & SECURITIES raised its operating profit forecast for S-OilCorporation this year from 4.682 trillion won to 4.904 trillion won. It estimated fourth-quarter operating profit at 1.301 trillion won.