[Click eStock] Hantoo "S-Oil, Proving Upward Cycle Direction... Profit Improvement in Second Half"

[Asia Economy Reporter Ji Yeon-jin] Korea Investment & Securities stated on the 28th that despite the resurgence of COVID-19 causing variables in the recovery of refining conditions for S-Oil, the company has proven through its second-quarter performance this year that it can compensate with other businesses. Therefore, the upward cycle's direction remains unchanged, and the current profit benefits accelerate future eco-friendly investments. They maintain a buy rating and a target price of 140,000 KRW.

Choi Go-woon, a researcher at Korea Investment & Securities, explained, "In the second half of the year, profit improvements exceeding market expectations are anticipated across all business divisions," adding, "With the economic recovery, the recovery of refining margins is expected to accelerate, and excluding inventory-related profits, the company's operating profit is projected to continue its growth trend."

Operating profit for the second quarter of this year recorded 571 billion KRW, down 9%, but exceeded market expectations by 23%. This is analyzed to be driven by a significant improvement in profits from the lubricants and chemical sectors, compensating for the sluggish refining margins and leading to a performance surprise. Sales increased by 26% compared to the previous quarter, reaching 6.7 trillion KRW.

Operating profit in the chemical business rose 36% from the previous quarter to 134 billion KRW. The PO (polyol, a raw material for polyurethane widely used in automotive and home appliance interiors) spread continued to maintain strength, and in the second quarter, the recovery of margins for aromatic products such as PX and benzene was added.

In refining, inventory valuation gains decreased by about 110 billion KRW compared to the first quarter, resulting in operating profit halving to 152.5 billion KRW. Due to oil prices rising faster than demand, the recovery speed of refining margins is considered slower than expected.