[Click eStock] "S-Oil, Q3 Refining Margin Decline...Limited Earnings Improvement"

[Asia Economy Reporter Park Jihwan] KB Securities expects that S-Oil's refining margin improvement will be delayed in the third quarter of this year due to limited jet fuel demand, and thus the performance improvement trend will be limited for the time being. Accordingly, the investment opinion 'Buy' was maintained, but the target price was lowered by 5.4% from the previous 74,000 KRW to 70,000 KRW.

Baek Youngchan, a researcher at KB Securities, said, "The investment return rate has fallen from the previous 7.8% to 7.5% due to the downward revision of performance estimates for the second half of this year, and despite the rise in oil prices, the third quarter complex refining margin fell by 2.0 dollars from the previous quarter to 2.5 dollars," adding, "Refining margin improvement is still delayed due to limited jet fuel demand and weak diesel demand."

The third quarter performance is also expected to be lower than market expectations. Third quarter sales and operating profit are expected to be 4.5096 trillion KRW and 103.8 billion KRW, down 27.7% and 55.0% respectively compared to the previous year. However, the third quarter petroleum business operating profit is expected to continue a loss of -7.1 billion KRW but the operating loss is expected to decrease significantly compared to the previous quarter. Although the third quarter complex refining margin declined, operating profit at the break-even level is expected due to improved inventory gains from rising oil prices. Researcher Baek Youngchan analyzed, "Operating profit this year is expected to be a loss of 849.2 billion KRW compared to 2019, and the COVID-19 mobility restrictions directly caused a sharp decline in demand for transportation petroleum products such as jet fuel, gasoline, and diesel."

Above all, the timing of refining margin improvement is a key factor. He stated, "The key to stock price increase is the easing of mobility restrictions and the timing of demand improvement for transportation petroleum products resulting from it. Even conservatively, demand improvement is expected to start with gasoline in the second half of next year," and added, "From a long-term stock price perspective, the second half of this year is expected to be the bottom."