LNG Expansion Will Fuel Asia Demand Amid Decarbonization Risks

Key Takeaways

• Organic production growth, expanded assets, and robust Asian energy demand position Inpex for higher revenue and stronger future pricing power.
  
• Profitability and resilience are boosted by structural reforms, disciplined investment, and diversified new-energy initiatives, driving steady shareholder returns and margin improvement.
  
• Heavy dependence on major LNG projects and slow diversification from hydrocarbons leave the company exposed to operational risks, energy transition pressures, and potential long-term revenue decline.

Catalysts

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

• Analyst consensus sees future profit uplift from LNG and upstream projects like Ichthys and Abadi, but this may actually understate the upside-as Abadi marketing efforts are already generating nonbinding demand in excess of past production levels, positioning Inpex for outsized revenue growth as Asian energy demand continues to accelerate.
  
• Analysts broadly price in Ichthys and Abadi contributing to stable long-term cash flows, but Inpex's implementation of the Profit Booster 500 structural reforms provides a unique, persistent ¥50 billion annual profit uplift, improving profit resilience and substantially raising net earnings and return on equity beyond prevailing models.
  
• Inpex's production capacity is growing organically with strong ramp-up in Abu Dhabi and new asset acquisitions in Norway and Indonesia, which, combined with robust Asian energy consumption and supply security premiums, signals structurally higher revenue visibility and stronger pricing power in future years.
  
• The company's disciplined capital expenditure and investment criteria-backed by ¥2.9 trillion projected 3-year cash flow and a low debt-to-equity ratio-enable it to fund major growth initiatives and progressive dividends, supporting steady earnings growth and increased shareholder returns even during industry down-cycles.
  
• Early-mover status and government support for Inpex's CCS, hydrogen, and ammonia ventures-including national-level CCS projects in both Japan and Australia-offers access to premium customers and regulatory incentives, ultimately diversifying revenue streams while enhancing margin resilience through the energy transition.

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 1.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 20.6% today to 17.3% in 3 years time.
• The bullish analysts expect earnings to reach ¥387.9 billion (and earnings per share of ¥364.5) by about September 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 9.8x on those 2028 earnings, up from 7.1x today. This future PE is lower than the current PE for the JP Oil and Gas industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 1.81% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.33%, as per the Simply Wall St company report.

Inpex Future Earnings Per Share Growth

Risks

• Inpex's heavy reliance on large-scale LNG projects such as Ichthys and Abadi exposes it to significant project and geographic concentration risk, making its earnings and future cash flow vulnerable to operational disruptions, cost overruns, or resource nationalism, and this could materially impact revenue and net margins.
  
• Escalating global decarbonization and energy transition policies present a material long-term threat to fossil fuel demand, which may impair Inpex's ability to generate sustainable growth in revenue and place downward pressure on profitability over time.
  
• The company's "Profit Booster 500" hinges on continued favorable foreign exchange rates and consistent free cash flows from Ichthys, yet these drivers are inherently volatile, potentially rendering this profit boost short-lived and at risk of reversal, with direct consequences for future earnings stability.
  
• There are persistent risks of major cost escalation, delays, and tough negotiations with the Indonesian government regarding Abadi LNG, with management openly noting cost uncertainty and the need for further incentives, which could erode project IRRs, reduce free cash flow, and worsen returns on invested capital.
  
• Inpex has made only gradual progress in diversifying beyond hydrocarbons, and while there are nascent CCS and renewables initiatives, these remain small relative to the company's overall asset base, leaving it highly exposed to long-term trends away from oil and gas, and raising the risk of stranded assets and declining revenues if the energy transition accelerates.

Valuation

• The assumed bullish price target for Inpex is ¥2900.0, which is the highest price target estimate amongst analysts. 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 ¥2900.0, 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 ¥2248.2 billion, earnings will come to ¥387.9 billion, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 5.3%.
  
• Given the current share price of ¥2615.0, the bullish analyst price target of ¥2900.0 is 9.8% 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.