Rising Expectations for 'Corona Vaccine' Boost S-Oil: "Profit Turnaround Expected Next Year"

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[Asia Economy Reporter Geum Bo-ryeong] S-Oil is gradually showing an upward trend in its stock price amid growing expectations for the development of a novel coronavirus (COVID-19) vaccine.

According to the Korea Exchange on the 18th, S-Oil's closing price on the previous day was 66,600 KRW. Compared to 57,900 KRW on the 9th, the day before news of Pfizer's vaccine development in the U.S. was announced, the stock price rose 15.03% over six trading days. On the 9th (local time), Pfizer announced that the interim results of the Phase 3 clinical trial of the COVID-19 vaccine, jointly developed with German company BioNTech, showed an efficacy rate exceeding 90%.

The market paid attention to oil refining stocks following the vaccine development news. The stock price of ExxonMobil, a leading U.S. oil refining company, also rose 17.97%, from $32.78 on the 6th to $38.67 on the 17th.

S-Oil is one of the stocks hit hard by COVID-19. While the stock price closed at 91,900 KRW at the beginning of the year, it dropped to 48,500 KRW on March 23 and has shown difficulty recovering, leading to greater expectations for vaccine development.

If a COVID-19 vaccine is released, S-Oil's performance is also expected to recover. Hyun-ryeol Cho, a researcher at Samsung Securities, said, "Operating profit next year is expected to turn positive to 710 billion KRW compared to the previous year. The largest portion of the operating profit improvement is expected to come from the refining business. Next year's refining operating profit is projected at 180 billion KRW, which is significantly lower than the 300 billion KRW average from 2015 to 2019." He added, "We do not expect a sharp profit-generating ability in refining but anticipate escaping from the refining margin below the current breakeven point. This is because we expect a recovery in transportation fuel demand following the commercialization of the COVID-19 vaccine."

The accelerating rationalization of facilities is also positive for S-Oil. Due to COVID-19, most global refining facilities are operating at a loss, while pressure to reduce carbon emissions continues to increase. Accordingly, the rationalization movement to close or repurpose facilities has been accelerating since this year. Researcher Cho explained, "This global production capacity (capa) reduction is expected to have a significant impact during the upcoming demand recovery phase."