[Click eStock] "S-Oil to Rebound in Performance After Bottoming Out in First Half"

On April 29, IBK Investment & Securities projected that S-Oil would improve its refining margins in the second half of this year, leading to a rebound in performance. The firm maintained its buy rating but lowered the target price to 80,000 won.

S-Oil posted an operating loss of 21.5 billion won in the first quarter of this year, falling short of the market consensus of 82.2 billion won. Despite stable profitability in the lubricants segment, losses in the refining and chemical segments were the main reasons for the weak performance.

Specifically, the refining segment recorded an operating loss of 56.8 billion won. This was due to the ramp-up of large-scale refining facilities that were expanded last year, which weakened gasoline and naphtha cracks both domestically and internationally, and partially offset the seasonal benefits for kerosene and diesel. The chemical segment posted an operating loss of 74.5 billion won, continuing its losses from the previous quarter. This was due to persistent oversupply of olefins and a decrease in benzene exports caused by concerns over U.S. tariffs.

Lee Dongwook, a researcher at IBK Investment & Securities, predicted that S-Oil would hit bottom in the first half of this year and rebound in performance thereafter.

He explained, "Despite the operation of some new refining facilities in countries such as Mexico and China, the net increase in global refining capacity this year is expected to be only 200,000 barrels per day, a significant decrease compared to last year." He added, "This is because closures of aging and economically inefficient refining facilities are increasing in the United States, Europe, Japan, and China."

He continued, "While supply growth remains limited, economic growth in developing countries in Asia is expected to drive a 17% year-on-year increase in incremental demand for gasoline, kerosene, jet fuel, and diesel, which will support the improvement in refining margins."

He also noted, "It is a positive factor that Saudi Arabia has cut its official selling price (OSP) to the lowest level in four years in an effort to regain its market share in the Asian oil market." He added, "This measure is expected to contribute to improving refining margins with a time lag."