KKPS Expects a Sharp Rebound in SPRC’s Earnings in 2H23, Eyeing Target Price at THB12.6

Since the beginning of the Russia and Ukraine war, gross refining margin (GRM) has fluctuated extensively. This caused stock volatility in the refining industry and added stress to those companies’ profits.

However, signs of recovery have recently emerged, and analysts predict that GRM will increase to US$6.8/bbl in the third quarter of this year from US$4.1/bbl in 2Q before falling to US$5.5/bbl in 4Q. 

With this forecast, Kiatnakin Phatra Securities anticipated refineries to see earnings upside in the second half of the year, highlighting the outlook of Star Petroleum Refining Pcl. (SET: SPRC).

The brokerage forecasts that SPRC’s third-quarter earnings will bounce back to a net profit of THB2.2 billion, reversing a projected loss of THB1.8 billion in the second quarter, assuming the recent GRM traction continues throughout the third quarter. This will be supported by a reported GRM of $8.7/bbl (versus the market GRM of $7.3/bbl) and a run rate of 91.4%. 

KKPS also predicted core 4Q NPAT of THB1.8 billion, with reported NPAT increasing to as much as THB2.5 billion due to a stock gain. With the elimination of ship-to-ship costs in the fourth quarter, the market GRM will likely stay high at US$7.4/bbl, and the run rate is predicted to be at 99%. Maintaining a “Buy” rating on SPRC shares with a price target of THB12.6.