Quicky #4 on Inpex (1605 JP)

This is part #4 about Inpex Corporation (1605 JP). I stumbled about the company when reading about Royal Dutch Shell’s huge Prelude FLNG project off Australia in which Inpex owns a stake with several other Asian companies. Inpex took a huge one-off charge due to operational production problems depressing current earnings. Time to take a look …

This is not investment advice. Please read the disclaimer.
I might currently or at a later point in time own shares (economic interest) in mentioned or related companies.

INPEX Corporation (the company, Inpex) is a holding company managing subsidiaries which are active in the oil and gas industry. Activitites include exploration, production, as well as selling oil and natural gas. Lending operations to industry related companies is another business activity. (profile)

This is another part of my series of Quickies on new companies.

The stock is listed at Tokyo Stock Exchange (1605 JP). It slumped in March to a low of JPY 517 from a high of 1,183 in January and did not recover (yet?). In January 2018 it traded as high as JPY 1,523. Based on a current price of JPY 538 per share the company sports a market capitalization of JPY 786 bn ($ 7.5bn). Estimates are for a 4.4% dividend yield.

The company looks cheap. As of June 2020, total liabilities stand at JPY 1,616 bn, total net assets stood at 3,054 bn, resulting in a 0.26x P/B ratio. Assets included cash (357bn), investment securities (316bn) and long-term loans (751bn).

Due to weak oil prices the top and bottom line is taking a hit and this years earnings are expected to be negative (financial years were recently aligned with the calendar, now ending at Dec 31st). Though, according to their revised forecast (p5), management seems to believe in improved business results. For the financial year, ending Dec 2020, ordinary income and net income could come in at JPY 200 bn (upwards revision +22%) and JPY -136bn, respectively. The difference is mainly due to an extraordinary impairment-loss of JPY 192 bn and high income tax charges. Inpex regularly pays very high income taxes!

Inpex pays a lofty effective income tax rate way above its statutory tax rate of 28%. According to its annual report 2019 – note 7 income taxes (p79), this is mainly due to foreign tax regimes, pushing the effective tax rate to a level above 75%. More favorable foreign tax regimes and/or more effective tax avoidance schemes could be a strong profit driver for Inpex, leveraging any support from eventually higher oil and gas prices. But I am not an expert on international tax regimes or special tax issues regarding oil and gas businesses.

INPEX will see a production ramp up. Some mayor production facilities are currently in an initial production phase already. These sites will ramp up production volumes in the near future. Other projects are build and should further add to production and sales growth. The Ichthys LNG Project is already in production but exploration of surrounding blocks is ongoing. The company hopes for expanding its business and realizing synergies. The development of Abadi LNG Project is proceeding after agreed amended terms with the government of Indonesia and INPEX aims for production startup in the latter half of the 2020s. (INPEX’ business should grow considerably in existing and new undertakings)

Currently the company is a ‘watch‘ for me and I might come back to the company at a later point and take a closer look …

I hope you enjoyed this post. I always appreciate your feedback, likes, discussion and new follwers 🙂

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