[Click eStock] "S-Oil, 2Q Best Performance Expected but... Mixed Large-scale Investment Issues"

[Asia Economy Reporter Lee Jung-yoon] Yuanta Securities maintained a buy rating and a target price of 130,000 KRW for S-Oil on the 24th, stating that despite better-than-expected earnings in the second quarter of this year, major investment issues may coexist.

S-Oil's second-quarter sales were expected to be 11.6 trillion KRW, with an operating profit of 1.7 trillion KRW. The operating profit estimate represents a 199% increase compared to 571 billion KRW in the same period last year. Due to the effect of rising oil prices, it is estimated to increase by 28% from the previous record high of 1.3 trillion KRW in the first quarter. Improvement in performance is expected across all sectors, with refining at 1.4 trillion KRW, petrochemicals at 86 billion KRW, and lubricants at 231.9 billion KRW.

Additionally, on the 19th of last month, an explosion occurred at the alkylation plant 2, a gasoline additive, at the Onsan plant; however, concerns are expected to be overcome by the strong refining sector. Other than alkylation, there was little impact on other sectors, and the disruption scale is estimated to be around 70 to 80 billion KRW. The shortage of additives is planned to be supplied by the parent company, Aramco. Due to export controls on refined products to Russia, Singapore refining margins are estimated to have surged to 15 USD per barrel. Although the OSP, the cost of procuring Middle Eastern crude oil, rose to 8 USD, refining sector profits are expected to reach 1.4 trillion KRW. Inventory gains are estimated at 340 billion KRW.

The expected operating profit for this year is 4.2 trillion KRW, which is a 95% increase compared to the previous record of 2.1 trillion KRW last year. Following last year's global refinery shutdowns and the benefits from export sanctions on Russia in the first half of this year, tight refining market conditions are expected to continue due to factors such as hurricanes in the US in the second half. However, major investment issues may coexist. Yuanta Securities analyst Hwang Kyu-won explained, "The Shahin project variable will emerge," adding, "It is a facility that directly produces 1.8 million tons of ethylene from crude oil, with an estimated investment cost exceeding 7 to 9 trillion KRW." He continued, "There will be mixed evaluations, with positive views on securing non-refining growth engines and negative views on financing burdens and domestic overcompetition."