Overview of Star Petroleum Refining (SPRC TB)

Star Petroleum Refining (SPRC) operates a 165kbd refinery located in Map Ta Phut, Thailand, which accounts for 15% of the country’s refining capacity. It is a subsidiary of Chevron and recently expanded into downstream operations by acquiring Chevron’s local fuel distribution business, including stakes in aviation fuel and oil product pipelines. This acquisition positions SPRC as a complete downstream operation with direct outlets for its refinery output.

Analyst Recommendation: A Tactical BUY

The report maintains a “BUY” rating for SPRC with a 12-month target price of THB9.9, indicating an 87% upside from the current share price of THB5.30. The recommendation is based on SPRC’s undervalued pricing, improving gross refining margins (GRM), and multiple operational advantages that could drive profitability.

Gross Refining Margin (GRM) Improvements Expected

Singapore GRM has sharply declined from USD5.3/bbl in December 2024 to less than USD1/bbl in late January 2025. However, historical trends over the last 25 years indicate a 96% probability of GRM recovery within two weeks after the Chinese New Year (CNY). For years when GRMs start below USD4/bbl, as is the case this year, the average uptick within two weeks is USD1.5/bbl. This anticipated recovery is supported by post-CNY demand surges, particularly for diesel and jet fuel, which currently maintain crack spreads above USD10/bbl.

Operational Advantages Cushioning Against Low GRM

SPRC is strategically positioned to outperform the Singapore GRM due to three key factors:

• Lower Crude Premiums: SPRC primarily relies on Murban and Upper Zakum crude oils, which have seen declining premiums relative to the Dubai benchmark. For instance, Murban crude has shifted from a USD0.2/bbl premium in Q4 2024 to a USD -0.6/bbl discount in early 2025.
• Superior Product Mix: SPRC’s refinery yields a higher proportion of diesel (38%) compared to the Singapore benchmark (16%), while producing less gasoline (25% vs 31%) and fuel oil (5% vs 22%). This product mix makes SPRC less vulnerable to falling gasoline and fuel oil spreads.
• Resumption of Single-Point Mooring (SPM): Since Q3 2024, SPRC has resumed using SPM for crude oil unloading, saving USD2/bbl in logistical costs compared to ship-to-ship transfers.

Rock-Bottom Valuation

SPRC is currently trading at a distressed valuation. Its market capitalization is equivalent to its net working capital (NWC), suggesting significant undervaluation. On a price-to-book (P/BV) basis, SPRC’s multiple of 0.5x is even lower than its COVID-19 nadir of 0.6x. This valuation discrepancy exists despite the company generating profits and maintaining healthy cash flows.

Financial Metrics and Forecasts

SPRC’s revenue is expected to stabilize at THB213.2 billion in FY2024 and grow modestly to THB215.4 billion in FY2025. EBITDA is forecasted to recover significantly from THB3.1 billion in FY2023 to THB6.6 billion in FY2024 and THB7.9 billion in FY2025. Core net profit is projected to rise from THB383 million in FY2023 to THB2.7 billion in FY2024 and THB3.9 billion in FY2025. Dividend payouts are also expected to resume, with a net yield of 5.2% in FY2024 and 7.7% in FY2025.

Environmental, Social, and Governance (ESG) Analysis

SPRC faces severe ESG risks, reflected in its ESG score of 33 out of 100. Key issues include:

Environmental Initiatives

• No explicit target for carbon neutrality, though SPRC aligns with Chevron’s 2050 net-zero goal.
• Reduction in SO2 emissions by 11% from a 2013 baseline using reduction additives.
• Achieved “zero waste to landfill” in 2022 and aims to reduce waste at the source by 5% by 2025.

Social Contributions

• Maintains an impressive safety record with a Total Recordable Injury Rate (TRIR) of 0.18 in 2022.
• Engages in community development programs, focusing on education, youth development, and ecosystem conservation.

Governance Practices

• Board comprises 9 members, 4 of whom are independent. However, only one director is female.
• Adheres to anti-corruption policies and received no corruption complaints in 2022.

Key Risks and Opportunities

Upside Factors

• Stronger-than-expected GRM recovery could significantly boost earnings.
• Integration of Chevron’s fuel distribution business could create synergies, enhancing SPRC’s market position.

Downside Risks

• Weaker refining margins could negatively affect profitability.
• Challenges in managing the newly acquired fuel distribution business could lead to short-term disruptions.

Conclusion

Maybank Securities (Thailand) PCL views Star Petroleum Refining as a compelling investment opportunity due to its undervalued stock price, anticipated GRM recovery, operational efficiencies, and strategic expansion into downstream operations. Despite existing ESG concerns, SPRC’s strong financial position and growth prospects make it a tactical “BUY” for investors.