Shaheen Project And Southeast Asia Demand Will Expand Exports

Key Takeaways

• Tightening global supply and S-Oil's strategic position support sustained export growth, higher margins, and increased resilience amid post-pandemic supply chain shifts.
  
• Capacity expansion, operational upgrades, and industry-wide underinvestment position S-Oil for improved efficiency, profitability, and longer-term earnings growth.
  
• S-Oil faces earnings volatility, balance sheet stress, and uncertain growth prospects due to oil market dependence, high debt, excess industry capacity, and heavy exposure to China.

Catalysts

S-Oil Corporation manufacture and sell oil refining, lube, and petrochemical products in South Korea.

• Recent increases in energy demand from Southeast Asia and developing regions, combined with closures of aging refineries in the US, EU, and China, are tightening global supply, positioning S-Oil to boost export volumes and sustain revenue growth as demand outpaces new supply.
  
• The Shaheen Project remains on schedule for completion and commercialization by early 2027, significantly increasing high-margin olefins and petrochemicals capacity, which should enhance EBITDA growth and improve the company's net margin profile in the coming years.
  
• S-Oil's strategic location and supply chain stability, especially as global industries pivot toward more reliable regional suppliers in the wake of post-pandemic diversification efforts, will likely enhance export resilience and underpin more stable top-line revenue.
  
• S-Oil's operational upgrades, including expanding self-power generation and ongoing digitalization projects, are expected to reduce per-barrel costs and buffer against rising electricity prices, supporting better operating margins and long-term earnings growth.
  
• Industry-wide underinvestment and rationalization (capacity closures, maintenance delays, and reduced utilization rates in competing refineries) suggest ongoing tightness in global refining markets, allowing S-Oil to benefit from structurally higher refining margins and improved net income as demand recovers.

S-Oil Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming S-Oil's revenue will decrease by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.1% today to 3.6% in 3 years time.
• Analysts expect earnings to reach ₩1141.0 billion (and earnings per share of ₩5260.89) by about July 2028, up from ₩-397.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩1315.3 billion in earnings, and the most bearish expecting ₩87.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.6x on those 2028 earnings, up from -18.5x today. This future PE is lower than the current PE for the KR Oil and Gas industry at 11.4x.
• Analysts expect the number of shares outstanding to grow by 3.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.27%, as per the Simply Wall St company report.

S-Oil Future Earnings Per Share Growth

Risks

• S-Oil reported significant operating losses in Q2 despite improved product spreads, driven by adverse one-off factors such as inventory losses from falling oil prices, negative FX impacts, and increased Official Selling Price (OSP) for crude, indicating earnings volatility and potential ongoing pressure on net margins and operating income.
  
• The company's profitability is closely tied to the oil market and susceptible to geopolitical risks (e.g., Middle East conflicts, U.S.-China trade tensions) and volatile input costs, which could undermine revenue stability and gross margins over the long term.
  
• Ongoing high capital expenditure for large-scale projects like Shaheen, combined with a net debt-to-equity ratio above 77%, raises concerns about cash flow constraints and balance sheet stress, potentially limiting future earnings growth and flexibility for further investments.
  
• The outlook for the core petrochemical segment remains uncertain; while the Shaheen project is expected to increase capacity, industry oversupply, slow spread recovery, and heavy reliance on market conditions in China could delay or limit revenue and margin expansion from this investment.
  
• Intensified capacity additions in Asia, particularly from China, and technological advances in the sector may create structural oversupply and put downward pressure on S-Oil's refining and petrochemical spreads, adversely affecting long-term revenue and net profit.

Valuation

• The analysts have a consensus price target of ₩74126.087 for S-Oil based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩90000.0, and the most bearish reporting a price target of just ₩52000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩32073.5 billion, earnings will come to ₩1141.0 billion, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of ₩63200.0, the analyst price target of ₩74126.09 is 14.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.