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KLSE: PETRONM       PETRON MALAYSIA REFINING & MARKETING BHD
Last Price Avg Target Price   Upside/Downside Price Call
5.16 5.57     +0.41 (7.95%)
* Average Target Price, Price Call and Upside/Downside are derived from Price Targets in the past 6 months.
** Price Targets are adjusted for Bonus Issue, Shares Split & Shares Consolidation (where applicable).
Date Open Price Target Price Upside/Downside Price Call Source News
07/10/2019 5.09 5.49 +0.40 (7.86%) HOLD RHB-OSK Price Target News
31/05/2019 6.68 5.65 -1.03 (15.42%) SELL RHB-OSK Price Target News


Price Target Research Article/News (past 6 months)
07/10/2019  RHB-OSK Petron - Refining Margins Recovery; U/G to NEUTRAL
31/05/2019  RHB-OSK Petron - Still Looking at Weaker Numbers Ahead; SELL



  8 people like this.
 
bose00 Moved already
04/11/2019 2:54 PM
enigmatic ¯\_(ツ)_/¯ Finally, some recovery
04/11/2019 3:00 PM
meistsk3134 main move ofcos small move
04/11/2019 6:19 PM
Choivo Capital Haha quite happy i topped up then, i actually think of buying more. Its still very close to my cheapest top up. Personally, i think the shares are worth RM10 - RM12.

If people go crazy, well, we know how much it shot up back then, but im not banking on that.
04/11/2019 6:50 PM
mf Golden
05/11/2019 2:25 AM
Vulture123 A clear indicator that it is an absolutely Value Buy @ 5 if we observe and notice the number of Petron stations sprouting all over Malaysia. Last Call & Watch it move !
05/11/2019 11:10 AM
sheldon Calling john0909 (& anyone else) ... what's your prediction of profit for the 3rd quarter?

A. Loss (urgh!)
B. 0 - 50m
C. 51 - 100m
D. >100m (wishful thinking)
05/11/2019 3:41 PM
05/11/2019 4:24 PM
sheldon Choivo Capital C/D - you're pretty optimistic.

I say B
06/11/2019 9:30 AM
06/11/2019 10:03 AM
Choivo Capital Haha, lets make a fun bet sheldon.

And this is despite the announcement below, petron corp owns petron malaysia, and consolidates the earnings in, so its a proxy to the malaysian results. ;)

https://www.gmanetwork.com/news/money/companies/714256/petron-corp-reports-70-bottom-line-drop-in-jan-sept/story/
06/11/2019 3:28 PM
sheldon This co has quite a bit of headwinds going forward - Petronas Pengerang for one.
06/11/2019 8:50 PM
john0909 well if that's the case, i would guess B... eps between 16 to 19 cents... and again i do sincerely hope that i am wrong on this...
06/11/2019 10:17 PM
damiantreez https://www.rappler.com/business/244214-petron-earnings-report-january-september-2019
07/11/2019 9:32 AM
damiantreez From another source,

The company said it managed to book a “modest” profit during the period “with Petron Malaysia’s contributions and its parent company’s extensive efforts to manage costs and keep the business viable under the current volatile market condition.”

https://www.bworldonline.com/shrinking-refining-margins-pull-down-petrons-income/
07/11/2019 9:34 AM
damiantreez As of September, Petron opened 38 new stations in Malaysia. :)
07/11/2019 9:35 AM
damiantreez I say B/C.
07/11/2019 9:36 AM
sheldon Noted john0909 - i believe that's what your model is saying.

Chiovo Capital & damiantreez - The alternatives given are very broad range of earnings. You should stick your neck out and choose one or else it's as good as guessing between negative to positive infinity.
07/11/2019 9:56 AM
damiantreez i say C then. EPS around 21.2
07/11/2019 9:58 AM
sheldon The score to date :

A Loss : 0
B 0 - 50m - 2 (Sheldon, john 0909)
C 51 - 100m : 2.5 (hock007, damiantreez, Chiovo Capital)
D - > 100m 0.5 (Chiovo Capital)

I hope we won't be rudely shocked with a loss like a few quarters ago.
07/11/2019 11:27 AM
Choivo Capital Here's the basic understanding to Petron.

They make about 200m a year net from the petrol stations.

So each Q, you can expect 50m from that.

Refinery, makes either 200m in a good year, 100m normal, and -50m to 50m in bad times. This depends a lot on spread.

So the thing you need to know now is, you're paying 7 times earnings for a very stable and well run petrol station business, and you get a refinery for free.


Only question you need to ask in this case is,

1) How efficient are they compared to the competitors in the refinery business? Pretty good.

2) Is there a structural decline or slowdown in demand for fuel related products? Nope.

3) Can you handle volatility in earnings? Yes.
07/11/2019 1:25 PM
Choivo Capital I only have a few qualms for PETRONM,

1) Do not do pension plans for employees, EPF only. Its only 50m but id rather it not even appear in the books.

2) I would rather the petrol stations be a separate business and the refinery another. Alot of the cash goes to upgrading the refineries etc. I suppose we can see it as one whole integrated package, but i'd really rather just own the petrol stations only.
07/11/2019 1:29 PM
Philip Greta Actually there are far more questions to ask than that.
1. Why are investors only willing to pay 6.24 PE for petronm? This is a very interesting question indeed. the next few questions are followups that will be very pertinent.
1a. What is the possibility of Petronm increasing their profit margins above 5%? If they could do it, how would they do it and would it be feasible? (this includes things like increasing efficiency, buying organically integrated businesses and investing in new products or systems that competitors are unable to have access to)
1b. What is the possibility of users to choose petronm above other competitors like petronas, shell etc even if the prices were fixed nationwide.
1c. what is petronm gameplan to hit 4 billion a quarter? do they have enough resources (without cutting the 3% dividend), and is it likely that they will do so?
1d. was 2017 an anomaly with the crack spread or is it something that can repeated sustainably?

All of these questions tie into one simple answer. petronm has been doing below 3 billion in revenue a quarter since forever, and it is very very likely that this will continue. Petronm has been doing below 5% net profit margins a quarter since forever, and it is very very likely that this will continue. There is no differentiating factor from petronm versus its other competitors, and there is no catalyst or guidance from the management that petronm will overperform in the future or give bigger dividends above its 20 cents per year.

knowing this fact and the fact that you will only be a minority investor in petronm business (with no ability to change anything),

all you get for your 6.24PE is 3% dividend a year, so why pay more for such volatile earnings?
you can also choose to pay 1 PE for your RHB fixed deposit at 4.5%, which amounts to the same thing.

Do you see Petronm growing and growing and taking market share and expanding to other countries? I dont. What I do see is a business that has maximized its local market share and is content to keep to its corner.

A safe, efficient and boring 3% a year with minimal growth of revenue and earnings. slowly building up its cash hoard to buy its next refinery to keep things going.

Nothing wrong with investing in petronm. you just need to know what kind of business you are putting your hands into. dont expect 20PE or growing earnings or increased dividend for a long long time yet.

Just because something is low PE does not make it necessarily good. It just means investors will not overpay for something that will not overperform.


>>>>>>>>

Posted by Choivo Capital > Nov 7, 2019 1:25 PM | Report Abuse

Here's the basic understanding to Petron.

They make about 200m a year net from the petrol stations.

So each Q, you can expect 50m from that.

Refinery, makes either 200m in a good year, 100m normal, and -50m to 50m in bad times. This depends a lot on spread.

So the thing you need to know now is, you're paying 7 times earnings for a very stable and well run petrol station business, and you get a refinery for free.


Only question you need to ask in this case is,

1) How efficient are they compared to the competitors in the refinery business? Pretty good.

2) Is there a structural decline or slowdown in demand for fuel related products? Nope.

3) Can you handle volatility in earnings? Yes.
07/11/2019 2:28 PM
sheldon I don't like pension plans either. Even worse are companies with ESOS plans. I avoid such companies.

My biggest reservation of Petron is its group structure - what goes into the listed entity and the unlisted entity is not transparent.
07/11/2019 2:32 PM
Choivo Capital Phillip,

Long time no see.

Correct questions, just more long winded. Its only a basic understanding post, i'm too busy to do a full write up to share.

This is a volume business, not luxury goods, 5% is pretty damn good. Go and buy the PFI accounts, and you can see the ROE for the retail division of the unlisted entity. Its a good proxy.

Anyway, QL is 6% margin. Haha.
07/11/2019 3:22 PM
Choivo Capital I don't think you actually understand the business or its history to be honest. Take a look at the accounts from 2013 to 2018 at least, and let me know what you think.
07/11/2019 3:26 PM
untong I am more interested to know
1) why PETDAG command PE of more than 25 with lower DY but PETRONM is only 7ish with higher DY, maybe they will get PE15-20 if they split their refinery business out? Is it the intention of their major shareholders in PH to combine the refinery and retail entity
2) Given the limited revenue upside, is there a chance PETRONM hit a significant lower cost base in future when they reach certain number of petrol stations or critical mass etc. is the opening of RAPID pengerang net beneficial to PETRONM? or only good for PETDAG
3) How much/how long they need to spend cash on upgrading the refinery plant to make it whatever EURO 4/5/6/7... compliance? i am not too sure the ROI of the CAPEX they spent worthwhile or they should just import more refined petrol from other countries
07/11/2019 6:36 PM
sheldon Yes untong PetronM is definitely a very much unsung hero and underappreciated by investors compared to Petdag.

Philip Greta - noted your views - a fresh perspective TQ.
07/11/2019 10:46 PM
Vulture123 It is strange that when I started to accumulate at 4.95 plus level, there were only sellers and limited buyers. It has since been inching up and currently against my “bottom fishing” strategy to average upwards. Fundamentally, this stock should be much higher from current level.
08/11/2019 10:49 AM
Philip Greta I don't think you have been to their AGM before to be honest. I always go through all financial reports, AGM transcripts and shareholders discussions before I comment. Those I don't have much interest in I rarely comment.

I repeat, is there any way for them to raise their revenues to 4 billion a quarter and increase margins without losing market share? Is it a business that can grow over it's peers? Or are we just buying something because it is cheap? The entire industry is cheap.

I prefer quality buying above all else, if I had to choose.

QL on the other hand, if you want to keep comparing has been growing revenues unlike anything seen in the simple chicken and egg industry before. I will take 6% margins any day for a yoy growth as spectacular as that.

>>>>>>

Posted by Choivo Capital > Nov 7, 2019 3:26 PM | Report Abuse

I don't think you actually understand the business or its history to be honest. Take a look at the accounts from 2013 to 2018 at least, and let me know what you think.
08/11/2019 12:08 PM
hock007 Their revenue highly depend on the oil price, not much meaning. Crack spread and the volume of petrol sold is the factors determined the profit
08/11/2019 12:46 PM
Choivo Capital "All of these questions tie into one simple answer. petronm has been doing below 3 billion in revenue a quarter since forever, and it is very very likely that this will continue. Petronm has been doing below 5% net profit margins a quarter since forever, and it is very very likely that this will continue. "

Are you sure you read the accounts etc? Last year Q2 and Q3 above 3bil. This year Q2 above 3 bil and i bet Q3 will be as well.

I'm not sure how you would make a factually incorrect statement like that if you have read the accounts.

And if you get the facts wrong, the probability of the "opinion" being wrong as well becomes much higher, as this is much more subjective.

In any event, ill just take your word for it. In that case, explain to me the fuel retailing industry in Malaysia and how its different with those globally.

This is key.

In any event, the revenue don't matter as much, the thing that matters is fuel sales volume. For the retail division at least. Have you seen the growth rates for fuel volume sold? Have you seen the market share trend for retail fuel in Malaysia for the last 5 years?

=====
Philip Greta I don't think you have been to their AGM before to be honest. I always go through all financial reports, AGM transcripts and shareholders discussions before I comment. Those I don't have much interest in I rarely comment.
08/11/2019 1:25 PM
Outliar I find great value in Phillip and Choivo's comments in the forum and particularly so in this topic. However, I can't help but feel that Phillip's analysis into each stock does not factor in the price the stock is being traded. Phillip justifies Petron's low PE with his reasons, right though as he may be. But what if Petron was trading at RM1? Phillip's questions about Petron's growth and ability to expand in an already saturated industry let alone its ability (or lack thereof) to differentiate itself from Shell and Petronas still rings true. In other words, the price of a stock is an immaterial consideration to Phillip and even if it is, Petron's low PE is justified given its comparable quality compared to others. My question to Phillip is if Petron was trading at RM1, would you buy the stock? I doubt it. Your reasons for justifying Petron to be selling at such a low PE still holds true, nothing changes.

Choivo on the other hand from what I have read loves Petron. And I feel this has alot to do with the price at which it is being traded at as compared to PetDag 20+ PE. Margin of Safety is important and at this price point, it's difficult to argue against Choivo. From my shallow understanding of the company, it's one of a few B2C companies on Bursa in an industry where it is being subsidised by the government for the most part. The refinery is an immaterial consideration as it earns most of its money from its stations. Most people including myself is indifferent about pumping in Petron or Shell etc.. and this is where Phillip comes from. Why invest in a company where its moat is questionable, its chances of usurping Shell and Petronas in terms of market share is doubtful, with little likelihood of increasing efficiency and profit/profit margins besides its strategy of increasing petrol stations every year? Im sure Choivo knows this, but paying 7/8 times earnings of about 200m a year is still worth the investment, the downside is limited, what can really go wrong?

Ultimately as I see it, its a Qualitative vs Quantitative assessment. That's not to say that Choivo doesnt do a qualitative assessment on Petron, Im sure he has. But the quantitative aspect of it plays a bigger part in Choivo's mind than Phillip's. In the end, it is the price at which you are willing to pay for a company. Phillip doesn't think its worth it even at 7 PE for the reasons aforesaid in his posts. Choivo thinks its an absolute bargain at 7 PE, 200m a year earned back in 7 years, the downside is extremely limited. After all, 2 rules in investing, 1 is not to lose money, 2 is not to forget rule 1. Who's to say who's right and who's wrong?

Just my 2 cents.
08/11/2019 2:51 PM
Vulture123 Interesting, wise and knowledgeable arguments in this forum. There will always be differing views and that applies even for Research Houses. Otherwise, the share price will not fluctuate. An old man like me like to invest based on “bottom fishing” strategy once I think there is limited downside to a stock and greater probability of upside in the short/medium or even long term ;-)
08/11/2019 3:28 PM
Choivo Capital The value of an investment is ultimately, all future cashflows discounted back to current value.

Low PE can be expensive, high PE or even loss making can be cheap.

Having said that, balance of probabilities. Chances higher that if you pay a low pe, you are getting it cheap, compared to if you were to pay a high one.

Case in point, i'm looking at ELKDESA (other than MBSB, its the most exp by quantitative) , MYNEWS as well.

And i also think companies like Mulpha etc may be expensive.

And if you buy the bottom of a cyclical co, chances are the PE then is high. And when you sell at the top of a cyclical co, PE is low.

I don't want to make any comments on Phillip, god knows we will probably end up arguing and wasting each others time.

I actually don't have much criticism when it comes to his picks, other than QL, and maybe Yinson at this price.

He does have alot of comments on mine though. I welcome any comments, especially criticism, but when you start by making broad statements that get the facts wrong, i can't help but think the criticism is not constructive.

A real masterpiece of his, is his article criticizing TIMECOM, it actually inspired me to buy more.
08/11/2019 4:05 PM
Philip Greta Hi outlier,

I totally agree: thus I post with my remark
"
Nothing wrong with investing in petronm. you just need to know what kind of business you are putting your hands into. dont expect 20PE or growing earnings or increased dividend for a long long time yet.
"

The main point I am trying to make is that the fuel service industry is very saturated ( similar to condo development construction industry).

Very hard to make money. Like I said, those who buy petronm based on last year results of crack spread and expecting it to be reoccurring and sustainable will be in for a rude Awakening.

As the market value increases, so will the share of petronas, shell and others. In fact, refinery wise, petronas will be taking a huge step forward next year compared to it's peers. Petronm will definitely make money, but so will pouring money in the fixed deposit.

I don't believe in buying petronm or any stock based on past performances. I buy it based on the quality of the revenue and earnings, and the possibility and feasibility of future growth expectations.

As young choivo so succinctly explained, he expects 200 million in a good year, 100 million in a normal and 50 million in a bad year.

My question is why invest in average companies at all?

Of course, you can question yinson results this year, ql and topglov results last year, and gkent results next year. I may be wrong, but so far my results are still ok for me.

Maybe it's just me, I much prefer a company with clear earnings and revenues coming in the future, and a well managed and resourceful one.

And speaking of shareholder value, how is petronm rewarding shareholders with share buybacks dividends?

I give a simple example, choivo is getting 4.5% for his margin collateralization. Very high, but understandable.

Using the same ideas, take for example GKENT. Today it is 1.02, paying a 6.42% dividend yield or 6.5 cents since last year. The management is doing a lot of share buybacks, it is cash positive and guaranteed earnings and revenue increase with lrt3 and mrt2 and water meter increase of 26 export territories. Management has guided to increased revenue by Q1 2020. If you took a million dollar loan, the dividend alone would have paid for the margin, as well as the constant buyback from the management. You are assured double revenues and earnings next year ( by Malaysia government claim for lrt3). Historically before changing of government their share price was 2+. It is a net cash company with a market leadership in water meter and a niche specially is railway automation and control( how many Malaysian companies can claim that?)

Choivo seems to think petronm can consistently do 3b every quarter and grow and grow, but he doesn't have a confident set of ideas how and why it could do so. How can he? When management itself has not guided towards growth but preaches safety and cost reductions instead of growth.

For me like you said I practice qualitative analysis. I will consider investment into petronm only if one of the following occur,

1. A change in CEO and hire vig knudstorp.
2. They become the first to have a biodiesel refinery and produce b20+ grade and Palm oil high grade biodisel product conversion for diesel pump station. ( If Europe has 50% diesel from bio sources, I'm sure it can be done in Malaysia).
3. They suddenly have a more efficient and cheap source of oil compared to petronas, Shell and friends.
4. They become the first supercharger compliant network in Malaysia. Not because this will earn money, but more because they are starting to look to grow the company instead of resting on laurels.
5. They somehow hit petronas level net profit margins quarterly. There are those who buy lctitan for the 5% np, and those who buy pchem for the 25% np. I prefer companies with either high earnings, or willing to sacrifice short term earnings for huge growth. Low earnings and low growth, not so much.
6. They start to fully embrace the concept of the fuel station as a mini 7-11, where customers buy more than just fuel. I loved that shell and petronas led the way with this, and others began to fall suit. Nothing like buying fuel and claiming the voucher for a bag of rice to build customer loyalty.
08/11/2019 4:37 PM
Vulture123 https://www.klsescreener.com/v2/news/view/599538
Good news for Malaysia Equity market next Monday :-)
08/11/2019 5:20 PM
Choivo Capital Statutory reserve requirement, not interest. Scare me like crazy when i first saw the number
08/11/2019 9:56 PM
Choivo Capital Phillip,

400m in a good year, 300 in a normal one, and 150-250 in a bad one. With 200m a year being basically fixed deposit earnings (retail earnings).

I too like a company with clear earnings and revenues coming in the future, and a well managed and resourceful one.

Maybe you were just talking about the refinery then, and not including the retail division.

Yes, you are correct, fuel retail industry is relatively saturated, but not so much so that Petronm cannot grow the business at high-ish single digits the last few years.

Are you by extension saying that the refinery business is not saturated? Or the Chicken Egg industry is not saturated, or the surimi business is not saturated?

===

Now i have margin at 4.5% (do note its barely used), lets say i use it. In exchange for the 4.5%, i am getting a company yielding me 13%, of which about 30% is paid out, with the remaining 70% reinvested at 10-20% returns. Sounds good to me.

===

On GKENT, i dont deny the management is fairly decent, but at that price, you are getting a water meter business at 16 times earnings (lets assume they are good at water meters). Not much of a deal to be honest, though when compared to QL, it may very well be a bargain.

Kidding aside, The key part here is how good is the construction division.

How good are they at their rail works etc. Is that company more than just a golfing buddy of najib? How do they compare against GAMUDA etc?

How badly will they get chopped on the MRT contracts?

Well, i don't see them getting any overseas rail projects, so we can at best think they are a jaguh kampung, except with GAMUDA around, i don't see them being even that.

Whether they will get chopped on the rail projects, i have no idea.

Does not mean its a bad buy, i was thinking about it for abit, but its by no means better than the petronm you so keenly deride.
08/11/2019 10:08 PM
Choivo Capital Phillip, before you comment more on Petronm, go and buy the PFI accounts from 2014 to 2018. Lets talk then.
08/11/2019 10:12 PM
Philip Greta I have already given my explanation on petronm and rce capital.i have attended the agm, read the industry trade journals and the financial reports. I highly doubt you will see much sustainable growth here. As you seem to be the expert on rce capital and petronm which was your biggest largest shareholding I believe you may have some confirmation bias on your rce and petronm.

It is fine to be confident on a stock that you own. But it is useless to just tell someone to look further into something without explanation and talk later.

I will just continue to monitor your performance with your rcecapital, hengyuan and petronm to see the quality of your investment strength.

I will stop commenting here again until the next QR results.
09/11/2019 8:04 AM
popo92 From qualitative analysis , of coz petron failed to meet almost all aspects. But when you look at quantitative side, I still think there are much risk for now to be honest. It is almost a gamble of whether there’s a better year ahead 400m, a normal year 300m-200m or a bad year 100m-negative. Unless you bet it right with 400m, there’s some chance to hit and run with some low p/e investors buying from you. Other than that, highly chances the market will still pay petron a low p/e for unsustainable growth. In my opinion, the safest time to punt petron is to buy when they are having a bad year, best is losing money (probably of unexpected crack spread from its refinery, there’s chance) and provided share prices are depressing. Manipulating fear and greed on this petron share price is the best chance you are looking at, but no petron is not in depressing mode now.
09/11/2019 12:52 PM
sheldon The way I look at it - so long as the co generates a profit and Petron reinvests a portion, it's value should increase.
11/11/2019 6:20 AM
Choivo Capital Popo, I don't trade. This is a long term investment for me.
13/11/2019 10:44 AM
popo92 Choivo, although i still don't feel now petron is in the right timing and cycle i do agree that your long term investment on petron (price around 5) can serve you well. Wish you lucks on reaping your fruits on petron one day.
13/11/2019 8:04 PM
Felicity If we compare between PDB and Petron, even though PDB can be expensive, Petron is way underpriced. Currently the market is giving a negative value to the refinery as the low crack spread pulled down the value of Petron. Should not be the case.
The revenue for Petron is about 40% of PDB while the valuation is about 15x smaller.
Never like the government funds supporting these companies like PDB but still Petron is underpriced.
14/11/2019 5:15 PM
benlim https://www.bloomberg.com/news/articles/2019-11-13/struggling-asian-refiners-to-get-a-diesel-demand-boost-in-2020
14/11/2019 8:05 PM
john0909 petron corp only posted P1bil net income only... therefore dont expect any outstanding result for q3 2019...
15/11/2019 9:28 AM
Outliar @felicity

What do you think the fair value of Petron is?
15/11/2019 12:49 PM
Felicity I think it is more than RM10 stock. Market cap should be at least RM3 b
15/11/2019 5:43 PM


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