Yuanta Securities announced on August 28 that it has raised its target price for S-Oil from 175,000 won to 205,000 won, an increase of 17.1%, citing strong refining margins and improved crude oil import costs expected in the second half of the year. The firm maintained its 'buy' rating.
Hwang Kyu-won, a researcher at Yuanta Securities, stated, "The refining sector is experiencing a much stronger performance than anticipated, establishing a virtuous cycle of increased shareholder value. We expect improvements in earnings, reduced financial burdens, and expanded dividends to occur simultaneously in the second half of the year."
S-Oil's operating profit for the second half of the year is projected to reach 3 trillion won, a significant increase from 2.4 trillion won in the first half. The operating profits for the third and fourth quarters are estimated at 1.3 trillion won and 1.7 trillion won, respectively. The ongoing disruptions in global refining product supply due to the impacts of the Iran-Ukraine war are expected to sustain strong refining margins.
Notably, S-Oil's complex refining margin has exceeded $41 per barrel in the second and third quarters, surpassing Valero's $39 per barrel. This increase is supported by reduced gasoline and diesel supply in Asia due to drone attacks on Russian refining facilities.
Starting in September, improvements in costs are anticipated due to a decrease in Saudi Arabia's official selling price (OSP) for crude oil. A $1 drop in OSP is estimated to increase S-Oil's annual operating profit by approximately 300 billion won.
Hwang forecasts S-Oil's operating profit for this year to be 5.2 trillion won, with free cash flow expected to expand to 2.4 trillion won this year and 3 trillion won next year. Based on this, he predicts that S-Oil could reduce its net debt to below 6 trillion won by 2027 and increase its dividend per share to around 10,000 won.
* This article has been translated by AI.
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