Domestic Margins And Light Crude Project Will Shape Future Earnings Amid Refining Headwinds

Catalysts

About Star Petroleum Refining

Star Petroleum Refining operates an integrated refinery and marketing business in Thailand, supplying a significant share of the country’s transportation fuels.

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

• While the planned 2026 turnaround and light crude project should lift utilization and raise higher value jet and gasoline yields, any extended downtime or execution slippage could compress gross refining margins and depress EBITDA in the near to medium term.
• Although integration of refining and marketing has increased domestic placement to 96 percent of sales, a sustained narrowing of domestic versus export netbacks would limit further upside from channel optimization and cap revenue growth.
• While growing the Caltex retail network and direct to business channels supports more stable margins over time, intensifying competition in Thai retail fuels and changing mobility patterns could constrain volume growth and keep net margins under pressure.
• Despite strong progress in logistics and inventory optimization, including lower cost to serve and better freight management, any reversal in freight advantages or higher infrastructure spending needs would erode unit margins and weigh on operating earnings.
• While the company is exploring circular and sustainability focused business models alongside deeper petrochemical integration, slower than expected commercialization or muted regional demand could limit diversification benefits and keep long run earnings growth modest.

Assumptions

This narrative explores a more pessimistic perspective on Star Petroleum Refining compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Star Petroleum Refining's revenue will decrease by 3.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 0.7% today to 1.4% in 3 years time.
• The bearish analysts expect earnings to reach THB 3.2 billion (and earnings per share of THB 0.72) by about December 2028, up from THB 1.6 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as THB5.5 billion.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 8.8x on those 2028 earnings, down from 15.1x today. This future PE is lower than the current PE for the TH Oil and Gas industry at 10.1x.
• The bearish 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 7.44%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The 2026 turnaround and light crude project carry execution and reliability risks, and any extended outage, cost overrun or continued FCC reliability issues after the work is completed could undermine the goal of higher utilization and light crude throughput, reducing long term earnings power and net margins.
• SPRC’s strategy increasingly depends on capturing higher domestic and retail margins, but structural shifts such as intensifying competition in Thai fuels, slower growth in transportation demand or policy driven price controls could compress domestic netbacks, limiting revenue growth and pressuring net margins.
• Longer term declines in gasoline crack spreads driven by EV adoption and changing mobility patterns may erode the value of SPRC’s sizable gasoline exposure before alternative uses like petrochemical feedstock or exports can absorb the volumes, weighing on enterprise margin per barrel and overall earnings.
• The company is planning substantial turnaround related OpEx and CapEx of USD 120 million to USD 150 million over 2024 and 2025, and if refining margins weaken or stock losses reoccur during this investment phase, cash generation could fall short of expectations, constraining future dividends and dampening earnings growth.

Valuation

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

• The assumed bearish price target for Star Petroleum Refining is THB5.27, which represents up to two standard deviations below the consensus price target of THB7.01. This valuation is based on what can be assumed as the expectations of Star Petroleum Refining's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of THB8.78, and the most bearish reporting a price target of just THB5.27.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be THB222.3 billion, earnings will come to THB3.2 billion, and it would be trading on a PE ratio of 8.8x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of THB5.7, the analyst price target of THB5.27 is 8.1% 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.