NH Investment & Securities on the 7th analyzed that in a high oil price environment, the appeal of low procurement expense for S-Oil(010950) is standing out. It especially noted that the official selling price (OSP) has been negative for three straight months.
It maintained a "buy (BUY)" investment opinion and raised the target price to 210,000 won from the previous 165,000 won. The previous trading day's S-Oil closing price was 157,300 won.
Choi Young-gwang, a researcher at NH Investment & Securities, said, "Considering that favorable refining industry conditions, such as stronger-than-expected refining margins and weaker OSP, are extending over the long term, we are raising our 2027 operating profit forecast by 25.7% from the previous level."
OSP is the official selling price that oil-producing countries apply by adding or subtracting from a benchmark oil price when selling crude to refiners. When OSP declines, refiners' crude procurement expense falls, which works positively for profitability.
According to Choi, the October OSP for Asia was -$2 per barrel, marking a negative value for three consecutive months. Choi said, "As countries diversify crude procurement sources, Middle Eastern oil producers' efforts to secure market share are expected to continue," and projected, "The weak OSP will persist in the medium to long term."
Choi also saw S-Oil's third-quarter operating profit this year reaching 1.2945 trillion won, up 34.1% from the prior quarter. He analyzed operating profit in the refining institutional sector at 851.8 billion won, up 60%, and the lubricants institutional sector at 485.0 billion won, up 1.6%.
He also said an expansion of dividends is expected. He explained, "S-Oil's enhanced profit-generating capacity will continue for the next several years, and from 2027, an expansion in payout ratio is also expected as the capital expenditure (CAPEX) cycle ends." NH Investment & Securities expects S-Oil's payout ratio next year to expand to 30% from the previous 20%.