Shinhan Investment Corp. reported that S-Oil is expected to continue improving its performance despite falling oil prices, thanks to strong refining margins. The firm maintained a 'buy' rating and raised its target price from 140,000 won to 180,000 won.
Lee Jin-myung, a senior researcher at Shinhan Investment Corp., stated, "Despite the decline in oil prices, strong refining margins persist due to low petroleum product inventories and global refining capacity disruptions. In the short term, we anticipate a decrease in earnings for the third quarter due to inventory valuation losses and lagging effects, but the burden of crude oil import costs will gradually ease with the transition to negative Saudi OSP (official selling price) in August."
Shinhan Investment Corp. estimates S-Oil's consolidated operating profit for the second quarter of this year at 947.7 billion won. This represents a 23% decrease from the previous quarter but aligns with market consensus of 941.5 billion won. The refining sector is expected to see reduced profits due to the expiration of inventory gains and scheduled maintenance, but refining margins are assessed to have increased by $21 per barrel compared to the previous quarter due to tight supply and demand.
In contrast, the lubricants segment is projected to achieve record earnings of 475.6 billion won in the second quarter, a 186% increase from the previous quarter, driven by soaring base oil spreads due to operational disruptions at Qatar Shell's Pearl GTL facility.
Lee emphasized the importance of noting the elevated refining margin levels compared to pre-war conditions and the robust fundamentals of the refining sector. He added that starting in 2027, when investments in the Shahin project are completed, free cash flow is expected to improve significantly, leading to a normalization of dividend payouts and increased shareholder returns.
* This article has been translated by AI.
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