Overview of Star Petroleum Refining (SPRC)

Star Petroleum Refining (SPRC) is recognized as one of the premier refineries in the Asia-Pacific region. Operating a complex refinery in Rayong, Thailand, SPRC boasts a production capacity of 175,000 barrels per day, equivalent to 13.2% of Thailand’s refining capacity. Its Nelson Complexity Index stands at an impressive 6.3, signifying its capability to handle complex refining processes.

Stock Data and Major Shareholders

SPRC operates within the energy sector and is listed under the Bloomberg ticker SPRC TB. With 4,335.9 million shares issued, its market capitalization is valued at Bt30,568.1 million (US\$875.4 million). Major shareholders include Chevron South Asia Holdings, holding a dominant 60.6% stake, followed by Thai NVDR with 4.6%.

The company’s share price has seen a decline, trading at Bt5.65 with a 52-week high/low of Bt9.40/Bt7.00. This represents a significant drop of 16% year-to-date (YTD).

4Q24 Results Preview: Positive Earnings Guidance with a Cheap Valuation

SPRC is set to announce its 4Q24 results on 19 February 2025, with expectations of a core profit surge of 139% year-on-year (YoY) to Bt469 million. This would bring its 2024 core profit up by 55% to Bt2.4 billion. Despite the 16% YTD share price dip, analysts view this as an opportunity to accumulate the stock, given its attractive valuation at 0.6x 2025F P/B (-2SD).

Why Share Prices Tumbled

The decline in SPRC’s share price is attributed to uncertainties surrounding weak gross refinery margin (GRM) outlooks and concerns over Thailand’s refinery margin formula restructuring. The Thai government is exploring a shift from a global oil pricing mechanism (import parity system) to a “cost-plus” system. This shift aims to cap refinery margins and regulate profits, potentially impacting profitability. However, the new Energy Act, which would enforce these changes, is not expected to be implemented within 2025, providing some relief to the sector in the near term.

Key Financial Highlights

4Q24 Financial Projections

SPRC’s 4Q24 performance is anticipated to reflect a turnaround, with net profit projected at Bt374 million compared to a net loss of Bt4.6 billion in 4Q23. The recovery is driven by improved refinery margins (US\$6.0/bbl in 4Q24 vs. US\$1.8/bbl in 4Q23) and reduced inventory losses. Core profit is expected to surge by 139% quarter-on-quarter (QoQ) to Bt469 million.

Revised Earnings Forecasts

Given a weaker-than-expected crack spread in January 2025, the 2025 GRM assumption has been revised down from US\$6.00/bbl to US\$5.70/bbl. Consequently, the 2025 core profit forecast is adjusted downward by 25% from Bt4.9 billion to Bt3.7 billion. This reflects a more conservative outlook for the company’s profitability in the upcoming year.

Valuation and Recommendations

The analyst maintains a BUY recommendation for SPRC with a revised target price of Bt9.00 (down from Bt9.50). This valuation is based on 1.0x 2025F P/B. The current share price correction of 16% YTD is deemed overdone, and SPRC’s operating performance is expected to improve from 4Q24 onwards. Additionally, every US\$1.00/bbl increase in GRM could potentially boost the company’s 2024 core net profit by Bt2.0 billion.

Share Price Catalysts

• Strong diesel demand during the winter season in 1Q25.
• Positive impacts from reduced ship-to-ship costs and seasonal trends.

Environmental, Social, and Governance (ESG) Initiatives

SPRC has set ambitious environmental goals, including zero recordable oil spills and zero waste to landfills by focusing on a circular waste economy. In 2023, less than 1% of waste was disposed of via landfills.

On the social front, the company prioritizes employee well-being and workplace safety. Governance practices are robust, with SPRC maintaining an “Excellent” CG score from the Thai Institute of Directors Association.