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Capable of delivering solid earnings at the current refining margin levels

Recommendation

• We maintain our Buy rating and target price of W94,000 on S-Oil. While refining margins are unlikely to climb further, the company should be able to generate profits as long as margins are sustained at the current levels. We view the stock as undervalued, currently trading at the bottom end of its P/B range.

Market status and outlook

• For 2Q23, S-Oil delivered below-consensus operating profit of W36.4bn, hurt by a combination of inventory-related losses resulting from oil price declines and large-scale maintenance. For 3Q23, however, we forecast operating profit to improve sharply, aided by: 1) the ongoing recovery in refining margins; and 2) the elimination of regular maintenance effects.