Light Crude Shift And Domestic Focus Will Support Stronger Refining Margins Over Time

Catalysts

About Star Petroleum Refining

Star Petroleum Refining operates a refinery and integrated marketing business that supplies a significant share of Thailand's gasoline and distillate demand.

What are the underlying business or industry changes driving this perspective?

• Planned 2026 refinery turnaround and light crude project are expected to lift utilization when lighter crudes are attractive, which can support higher throughput and improve revenue and earnings resilience through the next cycle.
• Greater use of light crude grades that support more jet and gasoline production, targeted at Thailand's generally balanced to short domestic demand, can help sustain higher value product yields and support gross refining margins and net margins.
• Ongoing integration of refining and marketing, with around 64% of production already sold through SPRC's own commercial channels and a growing Caltex retail network, points to a larger share of value chain capture and potential uplift to sales margins and earnings quality.
• Continued push to prioritize domestic placement, with recent sales at around the mid to high 90% range of total volume, positions SPRC to benefit when local netbacks exceed export benchmarks, which directly supports enterprise margin and cash flow generation.
• Cost discipline, including OpEx control, logistics optimization and a projected reduction of about US$0.40 per barrel in depreciation as certain assets become fully depreciated, can support operating leverage and improve net margins even if headline refining margins remain volatile.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Star Petroleum Refining's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 4.0% today to 1.2% in 3 years time.
• Analysts expect earnings to reach THB 3.4 billion (and earnings per share of THB 1.14) by about August 2029, down from THB 9.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting THB6.4 billion in earnings, and the most bearish expecting THB2.8 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 15.9x on those 2029 earnings, up from 5.1x today. This future PE is greater than the current PE for the TH Oil and Gas industry at 9.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.2%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Refining is highly exposed to swings in crude prices and product cracks, and recent quarters already show stock losses from declining oil prices feeding through to an EBITDA loss of US$3 million and a net loss of US$24 million. If this pattern were repeated, it would pressure revenue quality and net margins over time.
• The refinery is preparing for a major 2026 turnaround with total OpEx and CapEx related spending of about US$120 million to US$150 million over 2025 and 2026. Any cost overrun, delay or longer downtime than planned could temporarily cut throughput and cash generation, weighing on earnings and free cash flow.
• Management plans to rely more heavily on light crude grades such as Murban to lift gasoline and jet yields by roughly 3% to 5%. However, a long term structural shift toward electric vehicles and weaker gasoline spreads, as already flagged in the Q&A, could make this product mix less attractive and reduce gross margins and net margins.
• The business model depends on keeping domestic placement at around the mid to high 90% of total volume and capturing more margin through its own marketing channels. Any regulatory change, demand softness in Thailand or stronger competition in retail and B2B outlets could squeeze realized prices and sales margins.
• Recent reliability issues at the FCC unit and past electrical problems show that unplanned outages remain a risk until the 2026 turnaround work is fully executed. Further disruption would limit utilization, lower enterprise margin per barrel and create volatility in quarterly earnings and cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of THB10.14 for Star Petroleum Refining 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 THB12.9, and the most bearish reporting a price target of just THB6.7.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be THB278.3 billion, earnings will come to THB3.4 billion, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 7.2%.
• Given the current share price of THB10.8, the analyst price target of THB10.14 is 6.6% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.