Result First Take: Becoming one of the world’s largest renewable fuel producers
- 4Q23 hit by softer performance of refinery and marketing units
- 1Q24F will be driven by renewable fuel capacity expansion
- Maintain HOLD rating with FY24F TP of US$122
4Q23 review: PSX reported 4Q23 net profit at US$1.3bn (-33% y-o-y, -40% q-o-q), better than Bloomberg estimate. Weak performance was hit by softer performance of refinery and marketing units due to i) softer crack spreads to US$14.41/bbl (-24% q-o-q), ii) marketing margins, and iii) seasonal low domestic wholesales volume. However, this is partly offset by improving NGL performance where sales volume and margin increased at Sweeny Hub refinery.
Looking ahead: PSX is converting its San Francisco refinery plant in Rodeo into one of the world’s largest renewable fuel facilities with capacity of 50kbd (expected to start up by end of 1Q24F). Such facility will no longer process crude oil and instead use waste oils, fats, greases and vegetable oils to produce an initial >50kbd of renewable transportation fuels, including renewable diesel, renewable gasoline and sustainable aviation fuel. These renewable fuels, on average, have c.US$3.0-4.0/bbl higher EBITDA margin than regular diesel. In addition, PSX continues to improve asset reliability and market capture through high-return, low-capital projects. Approximately 10-15 initiative projects will enable PSX to increase market capture by 5% by 2025. Given the escalation in conflict in the Middle East that results in the higher freight rate from the re-routing of vessel transportation of crude oil, we deem certain impact such as cargo delay and rising freight rate to PSX’s refinery operation in Europe as their crude intake is Middle Eastern grade that needs to transport via Suez Canal. We maintain HOLD rating with TP of US$122.