Ichthys And Abadi FID Will Spur Growth Despite Risks

Key Takeaways

• Strong LNG demand, project acceleration, and strategic long-term contracts are set to boost cash flow, revenue stability, and operational outperformance for years ahead.
  
• Innovations in decarbonized energy, diversified investments, and government backing position the company as a resilient leader in Asia's energy transition and net margin growth.
  
• Heavy dependence on LNG and oil, modest energy transition, and rising project risks expose INPEX to market, regulatory, and margin pressures amid global energy shifts.

Catalysts

Engages in the research, exploration, development, production, and sale of oil, natural gas, and other mineral resources in Japan and internationally.

• Analysts broadly agree that Ichthys expansion and Abadi FID are key catalysts, but the market is significantly underestimating both the scale and speed at which LNG offtake volumes and associated cash flows could ramp, driven by robust Asian demand and accelerated project timelines, supporting outperformance in operating cash flow by 2030 and beyond.
  
• Analyst consensus anticipates benefit from the energy transition, but INPEX's aggressive integration of CCS, hydrogen, and blue ammonia into its natural gas/LNG business-alongside government support and first-mover advantages-could drive far higher long-term net margins and earnings resilience, enabling INPEX to become Asia's leading provider of decarbonized gas solutions.
  
• The company's extensive midterm growth investments, including undisclosed upstream M&A potential, could deliver rapid, high-return production additions-well above modeled estimates-further boosting revenues and return on invested capital over the next three years.
  
• With underinvestment in global upstream supply and a notable pivot among Asian buyers towards long-term offtake agreements for energy security, INPEX is in position to secure premium pricing and higher utilization rates for its LNG portfolio, materially enhancing revenue visibility and free cash flow stability through the next decade.
  
• Leveraging its deep subsurface capabilities, INPEX's push into battery minerals (lithium, iodine) and renewables-linked energy solutions offers an underappreciated multi-billion yen growth engine, likely to structurally raise the company's long-term earnings potential and diversify cash flow sources well beyond oil and gas.

Inpex Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Inpex compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Inpex's revenue will grow by 1.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 20.6% today to 16.5% in 3 years time.
• The bullish analysts expect earnings to reach ¥370.3 billion (and earnings per share of ¥341.18) by about August 2028, down from ¥438.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 9.3x on those 2028 earnings, up from 6.4x today. This future PE is lower than the current PE for the JP Oil and Gas industry at 11.9x.
• Analysts expect the number of shares outstanding to decline by 4.04% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.28%, as per the Simply Wall St company report.

Inpex Future Earnings Per Share Growth

Risks

• INPEX remains heavily reliant on its LNG and oil projects, particularly Ichthys and upcoming Abadi, both located in politically and operationally complex regions, so the company's future revenue and earnings are exposed to geopolitical, regulatory, and project execution risks in these markets.
  
• Despite management highlighting growth pillars like hydrogen and CCS, the scale and pace of diversification into low-carbon and renewable energy remains modest compared to global peers, raising the risk that future declines in global hydrocarbon demand will depress both revenues and operating cash flow over the long term.
  
• The company's mid
• and long-term financial targets (such as operating cash flow growth and ROE above cost of equity) assume continued robust demand for LNG and only gradual energy transition, but if global carbon regulation accelerates or ESG-driven capital flight intensifies, INPEX could face higher financing costs and lower capital access, pressuring its net margins and share price.
  
• Steadily rising project and exploration spending-including very large investments required for Abadi, LNG train expansions, CCS, and hydrogen-may face significant inflationary and cost-overrun risks, which can erode free cash flow and diminish return on invested capital in a sector already facing declining margins.
  
• The global LNG market is structurally at risk of oversupply due to ambitious expansion plans from U.S., Qatar, and Australia, increasing price competition and likely compressing INPEX's realized prices and top-line revenue in the coming decade, particularly as alternative energy sources become more cost-competitive.

Valuation

• The assumed bullish price target for Inpex is ¥2776.36, which represents two standard deviations above the consensus price target of ¥2277.0. This valuation is based on what can be assumed as the expectations of Inpex's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥2780.0, and the most bearish reporting a price target of just ¥1940.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ¥2240.6 billion, earnings will come to ¥370.3 billion, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 5.3%.
• Given the current share price of ¥2342.5, the bullish analyst price target of ¥2776.36 is 15.6% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.