IBK Securities on the 27th said it expects S-Oil to swing to a large operating profit in the third quarter of this year from the previous quarter. It raised its target price to 90,000 won from 80,000 won and maintained a buy rating. The previous trading day's closing price of S-Oil was 74,900 won.
IBK Securities estimated S-Oil's third-quarter operating profit this year at 227.1 billion won. The strong results are mainly due to a recovery in the refining institutional sector and robust profitability in the base oil institutional sector. While the chemical institutional sector is expected to see a narrower spread for key products such as benzene and polypropylene, the refining institutional sector is likely to turn profitable on improved refining margins, a decline in the official selling price (OSP), and reduced inventory-related losses.
At the same time, the Shaheen project showed steady progress, reaching 85% engineering, procurement and construction (EPC) completion as of October this year. Valued at a total of 9.3 trillion won, the Shaheen project is attempting, for the first time in the world, to introduce the TC2C process at the Ulsan Onsan plant to directly convert crude oil into high value-added petrochemical products such as ethylene.
Researcher Lee Dong-uk at IBK Securities said, "As the outlines of the TC2C unit and ethylene production facilities emerge, the fact that the completion rate, which was 77.7% in July this year, reached 85% in three months, up 7.3 percentage points, is a positive sign that offsets early delay risks."
The Shaheen project is targeting mechanical completion in June next year. It is expected to begin full-scale operation in the second half of next year.
Lee said, "S-Oil's petrochemical production capacity will increase by 1.8 million tons per year in ethylene terms, and the chemical Production yield will improve significantly from the existing 40% to 70%," adding, "In the long term, the Shaheen project will act as a catalyst to shift S-Oil's refinery-centered portfolio toward high value-added petrochemicals."
Lee added, "After the project is completed, the contribution to earnings before interest, taxes, depreciation and amortization (EBITDA) will increase by more than 20%, significantly improving financial soundness."