S-Oil’s price target falls on worsening refining margin

Yuanta Securities Korea lowered its target price for S-Oil Corp. to 100,000 won ($75) from 110,000 won on Tuesday, saying the oil refining industry has worsened significantly in the second quarter of this year.

S-Oil is South Korea's third-largest oil refiner after SK Innovation and GS Caltex.

"The oil refining industry is deteriorating significantly due to a large increase in production facilities in the global market in the second quarter of this year. S-Oil's composite refining margin fell from $5 per barrel last year to $0.9 in the second quarter of this year," Hwang Kyu-won, a researcher at Yuanta Securities analyzed.

S-Oil's operating profit in the first quarter is estimated to have turned into a surplus of 527.3 billion won.

"The operating profit in the first quarter was 60 percent lower than in the first quarter of 2022, although the company posted a surplus due to reduced inventories. The oil refining and lubricating oil business was good, but the petrochemical sector was sluggish," Hwang said.

"We expect refining margins to recover if the trend of global refinery expansion slows next year. If the stock price approaches 67,000 won, which is 0.8 times PBR, we can increase the proportion of investment," he added.

S-Oil closed at 77,500 won at Kospi on Monday. This is a 37% drop from last year's high.

Write to Tae-Ung Bae at btu104@hankyung.com