IBK Securities said on the 7th that as geopolitical risk in the Middle East has recently intensified, S-Oil has secured differentiated crude procurement defense through the powerful geopolitical infrastructure and supply chain backup of its largest shareholder, Saudi Aramco. It maintained a Buy rating and a target price of 140,000 won. S-Oil's previous closing price was 118,100 won.
Saudi Aramco has recently ramped up the utilization of the east–west pipeline connecting the oil fields in eastern Saudi Arabia and the port of Yanbu on the Red Sea to a maximum of 7 million barrels per day to bypass export disruptions from a potential closure of the Strait of Hormuz.
However, the nominal loading capacity of the port of Yanbu is 4.5 million barrels per day (effective capacity 4 million barrels), so it cannot fully replace the 5.5 million barrels per day of crude that had been exported through the Strait of Hormuz.
Lee Dong-uk, an analyst at IBK Securities, said, "Aramco is highly likely to prioritize crude supply to S-Oil, its core subsidiary in which it holds 63.4% equity," adding, "This is an example that shows the gap between the procurement risk that must be borne in a geopolitical crisis and the procurement stability enjoyed by a direct subsidiary of a national oil company with large-scale refining facilities."
He also explained that this structural premium of S-Oil is highly likely to act as a factor strengthening the petrochemical segment's margin when the Shaheen project goes into operation in the future.
S-Oil's operating profit for the first quarter of this year is projected at 793.9 billion won. This is an increase of 87.0% from the previous quarter.
The analyst said, "As the exchange-rate effect favorable to exporters has begun in earnest, a sharp increase in inventory-related gains is expected due to the rebound in the average spot oil price in March this year compared with December last year," adding, "The concurrent rise in kerosene and diesel cracks and in benzene and PX spreads due to geopolitical issues is another factor for earnings improvement."