Hana Securities on the 15th said next year's operating profit for S-Oil is expected to increase quickly as refining margins improve, the official selling price (OSP) falls, and the paraxylene (PX) margin widens. It raised its target price to 110,000 won from 100,000 won and maintained a Buy rating. The previous trading day's closing price for S-Oil was 81,600 won.
Hana Securities projected S-Oil's operating profit in the fourth quarter this year at 495.4 billion won, up 90% from a year earlier. That is 72% above the market consensus of 288.6 billion won. Although an inventory-related loss of 250 billion won is expected due to lower oil prices from the previous quarter, the benefit from improving refining margins (490 billion won) appears far larger.
Operating profit for the first quarter next year is also estimated at 539.9 billion won, swinging to a profit from a year earlier. It is 94% above the current market consensus of 278.5 billion won.
Yoon Jae-sung, an analyst at Hana Securities, said, "Given that the current refining margin is in the mid-$13 range and the downward trend in OSP continues, estimates for the refining business are conservative," adding, "Consensus will be quickly revised up to reflect improved refining margins, lower OSP, and better PX margins."
Concerns about weak oil prices still remain, but with the OPEC+ alliance of major oil producers agreeing to halt output increases in the first quarter next year and macroeconomic conditions improving, an announcement could come that the scale of next year's crude oversupply will be reduced.
Yoon said, "Considering the recent surge in U.S. natural gas and ethane and the resulting sharp rise in U.S. polyethylene prices, the value of Shaheen Pj could be reflected in corporate value next year."
He added, "There is ample room to raise the payout ratio, so we present it as the top pick for the entire sector next year."