 |
NH Investment & Securities |
[Alpha Biz= Paul Lee] NH Investment & Securities has lowered its target price for S-Oil by 16% to 67,000 KRW, citing weaker oil prices and anticipated sluggish refining earnings in the first half of the year. Despite the downgrade, the firm maintained its “Buy” recommendation.
“We have revised down our operating profit forecast for the year to reflect the steeper-than-expected decline in crude prices and a slower recovery in aromatics spreads,” NH Investment said in a report released today. “Operating profit in the first half is expected to be weak due to the negative lagging effect from the sharp fall in oil prices, inventory valuation losses, and elevated official selling prices (OSP) set by oil-producing countries,” the firm added.
However, NH Investment expects a recovery in earnings beginning in the third quarter, as the lower crude and OSP levels are gradually reflected in production costs.
“Despite the recent drop in oil prices, refining margins have remained resilient. The supply-demand balance for petroleum products is also more favorable compared to crude oil,” the report stated. “The global refining capacity expansion this year is only about 0.3% of global demand, supporting the case for a gradual earnings improvement throughout the year.”
The brokerage emphasized that with S-Oil currently trading at a price-to-book ratio (PBR) of just 0.65x, the stock remains attractive, reaffirming its ‘Buy’ rating.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
