Hard Datas

Author: FutureEyes   |   Latest post: Sat, 14 Dec 2019, 6:49 PM



Author:   |    Publish date:

I WOULD LIKE TO PRESENT THIS ARTICLE AGAIN IN i3 to ensure investors understand the difference between PetronM and Hengyuan (apologies for reposting and taking space of i3 blogs again).


By now, many of i3 members are probably aware that Petron Malaysia is a Simple Refinery unlike Hengyuan a Complex refinery equipped with a Catalytic Cracker to convert Fuel Oil to a much more valuable product Diesel.

Their typical product yield are as presented on below table where Simple Refiners produce approximately 30% Fuel Oil and almost all of them are converted to Diesel by Hengyuan.

The Table summarizes the implication of Fuel Oil Crack spread at negative 4USD/brl, i.e selling below Crude Oil price for both Complex refinery like Hengyuan and Simple Refinery like PetronM as recently reported.

In Q4 2017,  Fuel Oil margins became low (-4 USD/brl) from a positive value of 2 USD/brl and Diesel Margins were much better in Q4 2017 than Q3 2017 at above 12 USD/brl. 

Refer the recent news on Fuel Oil crack spread implications mainly in Europe who still use Simple Refining technology:




We can easily see the Gross Margin of PetronM drops significantly versus Hengyuan which had barely changed.


PetronM is a Simple Refiner and Hengyuan a Deep Converter.


PetronM does not have the ability to convert Fuel Oil extracted from the Crude Oil to Diesel unlike what Complex Refinery does with a Catalytic Cracker - refer their plant specifications below:



Catalytic Crackers are absolutely necessary to convert Fuel Oil to Diesel.  Refer typical yields of Simple Refiner and Complex refiner via charts below – Page 6


From Page 6 of the article and knowing Hengyuan only produces 2% Fuel, Hengyuan refinery falls under Deep Conversion and since PetronM does not even have a Catalytic Cracker it falls under Hydroskimmer category.


Since recent dip in crack spread has more to do with Fuel Oil affecting Simple Refiners, it is precisely the reason for PetronM gross margin reduction.

Refer the recent news on Fuel Oil crack spread implications mainly in Europe who still use Simple Refining technology:



Thus, the volatilty in Earnings is in fact higher in PetronM as it is the Fuel Oil Margins which is highly vulnerable now, not the Diesel which in fact stands to benefit from Q4 2017 Diesel Crack Spread observation and the IMO 2020 implementation in future.


Further to that,  please note that  WTI crude was significantly cheaper than Brent in Q4 2017 (averaging 6USD/brl) and that  it can be effectively utilized by Complex refinery like Hengyuan. Many Chinese refineries including Malaysian had started sourcing this Crude Oil from U.S in replace of Brent due to the following reasons:


COLUMN-U.S. crude oil exports to Asia soar, complicating OPEC's efforts: Russell  


"Imports from Malaysia are up 500 percent, those from Britain by 95 percent and from the Republic of Congo by 459 percent."



COLUMN-Forties pipeline outage is a gift to U.S. oil exporters, others: Russell


This widened the premium of front-month Brent over WTI CL-LCO1=R to $6.74 a barrel, up from $4.76 as recently as Nov. 24. The spread is closing in on the $7.07 touched in September when Hurricane Harvey knocked out U.S. Gulf Coast refineries, temporarily cutting crude demand.

The blowout of the Brent-WTI spread in September saw a flood of U.S. crude head toward Asia, with vessel-tracking data showing that top global crude buyer China imported a record 293,000 bpd in November.


Please refer the price difference between Brent and WTI for Q4 2017 as per below:



With the above, i am extremely optimistic on Hengyuan future of refining. It will definitely continue to deliver performance above current expectation at current price level.




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Chart Stock Name Last Change Volume 
PETRONM 5.08 +0.06 (1.20%) 10,400 

  4 people like this.
Miyamoto Musashi So beautiful this presentation!
03/02/2018 9:44 PM
mf Dow Jones 25,520.961 -665.75 2.54%
Nasdaq 7,240.95 -144.917 1.96%
03/02/2018 10:04 PM
calvintaneng Mohb Fahmi

Dow up from 18,000 points to 26,000 points is 44% Up

Dropping 665 points only 2.54%?


03/02/2018 10:11 PM
probability 90 cents per qtr, 360 cents per annum for RM 14 Billion investment (RM 46 per share) sounds logical as they are looking ahead into the benefit they can get by supporting their retail segments...
03/02/2018 10:51 PM
longkanginvestor This was what probability sifu has mentioned before this! Imagine if petronm is willing to inest rm14billion..how much is hy worth? :)
03/02/2018 11:22 PM
longkanginvestor I must really salute probability for having such sharp and forward thinking to be able to see through all this while others are still nitpicking over temporary hiccup is share price movement!
03/02/2018 11:28 PM
Activeinvestor No wonder Petronm now follows HY's tail given the above illustration.

Tq Future Eyes and probability sifu, you both are great !
03/02/2018 11:35 PM
LA777 Thanks to Future Eyes and probability sifu, you guys are expert in this field and thanks for sharing!
04/02/2018 8:02 AM
pjseow As what I have commented earlier , a return of US 600 million or RM 2400 million per year from an investment of RM 14 billion is worth it . Based on Petronm's announcement ,the RM 14 billion upgrade will enable petronm to have a total capacity of 178 kbpd ( 88+90) . Whether HY ( current capacity of 112kbpd) is worth RM 14 billion with its planned upgrade by borrowing another RM 1.7 billion recently is not clear to us . HY do has a licenced capacity of 156 kbpd but no one know how much is required to upgrade to this 156 kbpd capacity .
04/02/2018 8:37 AM
Miyamoto Musashi this article shows how cheap is hengyuan not petron lah!
04/02/2018 11:10 AM
pjseow Petronm has the retailed business which is not assessed in this topic .
Its 580 petron stations earned more than half of the total earnings ( refinery + retail) .
04/02/2018 1:26 PM
elainesong Future Eyes didnt add in the strong eps from retail segment..............that means higher total eps for future years !!!!!!!!! Yeah yeah.......will win big big
04/02/2018 2:22 PM
Aseng i also find this piece of homework a bit careless


1. How is the 14B fund is used, any detail announcement from the company yet ?
what happen if only part of it is used for refinery , the rest is used for retailing ,petrochemical and other, then your calculation and comparison are wrong.
how it is executed , can not be a JV or other business model?

2. this sentence is very misleading.
"....Perhaps, the above may also answer what could be the fair valuation of Hengyuan, RM 14 Billion?"
why ?
if all the 14B is dump into refinery, how do you know Petronm 14B new plant has the same efficiency as Hengyuan
which costs less than 2B, any data to support you claim . do not tell me the chinaman can do magic

3. The article indirectly implies that Hengyuan is a better buy than Petronm . this is not right
Hengyuan has only refinery
Petronm has refinery, 560 petrol stations, petrol chemical and land asset

no value investor will think a high risk business like hengyuan where its earning rely heavily on crack spread and
got to pray everyday there is less maintenance plant shut down and mishap ,is better than a well integrated
business like Petronm

4. management efficiency
Petronm management has already proven its ability to reward the shareholders with handsome dividend , to bring
the company to net cash status with zero borrowing from the billion borrowing at the time of acquisition and now
a mega expansion plan to upgrade the company to the next level growth

what about hengyuan?
nothing, still current huge borrowing of 1.3B + a new borrowing of 1.7B for upgrading
any dividend ? nothing ! but EPS RM3.6
what about Petronm? paid 22 cents dividend with the EPS less than 1.60

04/02/2018 6:35 PM
perterpan Haha, only those "half blind" like future eyes can't see
04/02/2018 10:00 PM
Miyamoto Musashi observe the graph showing the difference between crude oil and fuel oil, that's why he said Petronm can drop eps by 11 cents! See the table!
04/02/2018 10:11 PM
Alex™ aiya, just by the intention that petronm want to dump 14b into a PE <5 refinery business, already tell u something...

either they too much money dunno where to burn, want to invest in a segment with ultra low market valuation, or they got something behind the card.
04/02/2018 11:36 PM
Aero1 So this IMO rules leave Petron with no choice but to spend the 14B. It makes sense as Petron is expanding its retail segment.
05/02/2018 8:51 AM
Aero1 It is a good move but just that future dividend may be compromised for high working capital requirements.
05/02/2018 8:53 AM
soojinhou Well, yes and no. Petron's refinery is designed to process sweet and light crude. By definition their raw material has low sulphur content. While I'm not privy to exactly how much sulphur is in their fuel oil, it should be low because the raw material is sweet.
05/02/2018 9:16 AM
FutureEyes The plant cost, technology level, and the value addition on products should be higher in sequence as per below:

simple refinery with sweet crude > simple refinery with sour crude > complex refinery with sweet crude > complex refinery with sour crude

There would have been no incentive for petron to have the 88k bpd with sweet crude designed originally to have products meeting IMO 2020 specification back then.

It is still a simple refinery designed for a less demanding task originally.

Unless simple refinery install scrubbers they would not be able to meet the IMO 2020 requirements on fuel oil.

Petron must be thinking far ahead to go for complex refinery all together to support their retail requirements which are mainly petrol and diesel.

Posted by soojinhou > Feb 5, 2018 09:16 AM | Report Abuse

Well, yes and no. Petron's refinery is designed to process sweet and light crude. By definition their raw material has low sulphur content. While I'm not privy to exactly how much sulphur is in their fuel oil, it should be low because the raw material is sweet.
05/02/2018 10:56 AM


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