IBK Securities analyzed on the 18th that, despite Middle East geopolitical risks, the impact on crude oil supply and demand for S-Oil (hereafter S-Oil) will be limited. This is because a backup of the supply chain by its largest shareholder, Saudi Aramco, secures differentiated defense capabilities in crude procurement.
At the same time, it maintained a "buy (BUY)" investment opinion and raised the target price to 140,000 won. The previous trading day's S-Oil closing price was 106,500 won.
Lee Dong-wook, an analyst at IBK Securities, said, "The recent expansion of geopolitical risks in the Middle East is highlighting the vulnerability of in-region petrochemical companies in procuring feedstock," but noted, "S-Oil has secured differentiated defense capabilities in crude procurement through Saudi Aramco's geopolitical infrastructure and supply chain backup."
According to the analyst's assessment, Saudi Aramco has recently raised the operating rate of the East–West pipeline, which connects the eastern oil field region of Saudi Arabia to the Yanbu port on the Red Sea coast, to a maximum of 7 million barrels per day to bypass export disruptions from a Strait of Hormuz blockade.
He said, "With the nominal loading capacity of Yanbu port at around 4.5 million barrels per day, it is difficult to completely replace the export volume through the existing Strait of Hormuz (about 5.5 million barrels)," but added, "Aramco is highly likely to prioritize crude supply to its affiliate S-Oil." Saudi Aramco currently holds a 63.4% equity stake in S-Oil.
The earnings outlook is also positive. IBK Securities estimates S-Oil's operating profit for the first quarter of this year at 793.9 billion won. This far exceeds the market consensus of 406.4 billion won.
The analyst added, "With a forex environment favorable to exporters continuing, inventory-related gains are set to increase significantly on a rebound in average spot crude prices in March from December last year," and "The concurrent rise in kerosene and diesel cracks and benzene and PX spreads due to geopolitical issues is also a factor improving results."