Result First Take: Margin enhancement and cost reduction are primary goals in 2024F
- Weak 4Q23 net profit, hit by softer crack spreads
- Expect q-o-q softer 1Q24F, pressured by normalising middle distillate margins
- Maintain BUY rating with FY24F TP of US$172
4Q23 review: MPC reported 4Q23 net profit at US$1.5bn, -56% y-o-y (FY23 net profit at US$9.7bn). The result is better than Bloomberg estimate. The y-o-y softer earnings was hit by i) weaker market crack spreads, and ii) a slight increase in operating cost to US$5.64/bbl (+1% y-o-y). However, weak refinery performance was partly offset by improving pipeline transportation business performance, lifted by higher throughput volumes and higher rates charged.
Looking ahead: MPC plans to spend c.65% of capex budget of US$1.25bn on growth capital while the rest will be spent on sustaining capital. This growth capital of US$825m is focused on business opportunities that enhance margins and reduce cost. Specifically, MPC is improving reliability and lower operating cost at Los Angeles refinery such as utility system integration. At Galveston Bay refinery, MPC is undertaking capacity expansion by c.90kbd of high-pressure distillate hydrotreater that will produce higher-value added product. This project is expected to startup by end of 2027. For short-term outlook in 1Q24F, MPC expect a rise in operating cost to US$5.85/bbl (+4% q-o-q). Coupled with nomalising middle distillate margins, we expect q-o-q softer 1Q24F business performance. Given the escalation conflict in the Middle East that results in the higher freight rate from the re-routing of vessel transportation of crude oil, we deem minimal impact to MPC’s business operation as all refinery plants are located in the US where crude sourcing is domestic grade. We maintain BUY rating with TP of US$172.