S.Korean brokerage lowers stock forecast for S-Oil over poor prospects

South Korea's Eugene Investment & Securities on Monday cut S-Oil Corp.'s target share price from 140,000 won ($113.5) to 133,000 won due to a lower earnings forecast for the oil refinery company this year.

Hwang Sung-hyun, an analyst for the brokerage, said in a report, "We cut the book value per share due to downgrades in performance for 2023."

"The current share price is attractive because the refining margin remains solid and not many factors will cause further drops in international oil prices," he added. S-Oil's investment rating stayed at "buy" and its share price on Friday was 85,300 won on the stock market.

In the fourth quarter last year, S-Oil's sales were forecast to grow 19% to 9.8 trillion won year on year, operating income to plummet 98% to 7.3 billion won and net profit to return to the black from the previous quarter to 191.4 billion won.

"The business slump was due to higher inventory valuation losses stemming from the plunge in international oil prices and fluctuations in the foreign exchange rate," Hwang said. "Net profit is expected to return to the black as other profits and losses grow through hedging via derivatives."

On China's quotas on petroleum product exports, he said, "If global demand for petroleum products does not decrease, the actual margins will stay unaffected and the effect will decline if China's energy demand rises."

"Because the spread between Dubai and West Texas intermediate is narrowing, the discount factors for oil refineries in Asia compared to those in the US have been resolved, so earnings and stock prices should rebound," he added.

Write to Hyeong-Gyo Seo at seogyo@hankyung.com