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Hengyuan Q1 2018 - Good Margins, Good Profit
2018 has been a turbulent year thus far for the share price of HRC. However, is the same turbulence seen in the operations of HRC? In this article, lets attempt to estimate the profitability of HRC in the 1st Quarter of 2018.
1. SALES
In estimating sales, cost of goods sold and gross profit of HRC for Q1 2018, the 3:2:1 Crack Spread approach is highly popular and favoured. This widely used crack spread ratio is based upon the premise that 3 barrels of crude oil produce 1 barrel of gasoil (diesel) and 2 barrels of gasoline (petrol).
a. Sales Price
The daily historical data of the followings were obtained from CME Group's website for the quarter from 1 January 2018 to 31 March 2018:
- Singapore Gasoil (Platts)
- Singapore Mogas 95 Unleaded (Platts)
b. Sales Quantity
Sales volume is determined as the average of the past 8 most recent quarters (1 January 2016 to 31 December 2017). In determining this average, quarters with the highest and lowest sales volume were disregarded to eliminate unusual fluctuations.
Using the 3:2:1 Crack Spread ratio, daily diesel sales is estimated at 36,790 barrels while daily petrol sales amounted to 73,580 barrels.
c. Sales In RM
Daily sales price extracted in US$ were converted to RM using daily foreign exchange rates extracted from Bank Negara's website. The daily sales price in RM is then multiplied with the sales quantity of diesel and petrol respectively on a daily basis, giving a sales revenue of RM3,058,775,000 for the quarter.
Note: Detailed daily sales calculation has not been included here as it is voluminous.
2. COST OF GOODS SOLD
Cost of goods sold is determined as Opening Inventories + Purchases - Closing Inventories.
a. Opening Inventories
Based on the latest breakdown of inventories available as at 31 December 2016, 56% of inventories was that of crude oil, 41% of refined products while the balance 3% was of other materials. Applying this ratio (but ignoring the insignificant 3% of other materials), the breakdown of inventories as at 31 December 2017 is estimated as below:
Cost of diesel and petrol is calculated based on Q4 2017 gross profit margin of 11.5%.
b. Puchases
For presentation purpose, it is assumed that daily crude oil used in production of 110,370 barrels is purchased and replenished on a daily basis.
As in the sales estimation above, daily prices of Brent Crude Oil were extracted in US$ and translated into RM using daily foreign exchange rates. This figure is then multiplied with daily sales of 110,370 barrels of crude oil, giving total purchases of RM2,624,104,000.
Note: Detailed daily purchases calculation has not been included here as it is voluminous.
c. Closing Inventories
For direct comparison, physical closing inventories is maintained per physical opening inventories.
The opening inventories of 2.6m barrels of crude oil is able to last daily production consumption of 110,370 barrels for 24 days. At daily crude oil purchases of 110,370 barrels per day, closing inventories of crude oil is calculated based on daily prices of Brent Crude Oil extracted (in US$ and translated into RM using daily foreign exchange rates) for the last 24 days of March 2018 giving a value of RM707,805,000.
For apple to apple comparison, gross profit margin of diesel and petrol are maintained at 11.5%.
Note: Detailed daily purchases calculation for the last 24 days of Q1 2018 has not been included here as it is voluminous.
3. OTHER INCOME
Other income is determined as the average of the past 8 most recent quarters (1 January 2016 to 31 December 2017). In determining this average, quarters with the highest and lowest other income were disregarded to eliminate unusual fluctuations.
4. MANUFACTURING EXPENSES
a. Manufacturing expenses is determined as the average of the past 8 most recent quarters (1 January 2016 to 31 December 2017). In determining this average, quarters with the highest and lowest manufacturing expenses were disregarded to eliminate unusual fluctuations.
b. Manufacturing expenses for Q2 2017 was normalised due to expenses incurred for an unplanned maintenance shutdown. Manufacturing expenses is adjusted accordingly based on number of production days.
5. ADMINISTRATIVE EXPENSES
Administrative expenses is determined as the average of the past 8 most recent quarters (1 January 2016 to 31 December 2017). In determining this average, quarters with the highest and lowest administrative expenses were disregarded to eliminate unusual fluctuations.
6. DEPRECIATION AND AMORTISATION
Depreciation and amortisation expenses are determined as the average of the past 8 most recent quarters (1 January 2016 to 31 December 2017). In determining this average, quarters with the highest and lowest depreciation and amortisation expenses were disregarded to eliminate unusual fluctuations.
7. OTHER OPERATING GAINS
On 23 January 2018, HRC took a new term loan amounting to US$430m (RM1.7b) to refinance existing term loans, to finance the planned 2018 capital expenditure and a revolving credit facility for working capital purposes.
As at 31 December 2017, the outstanding US$ denominated term loans amounted to RM1,205,008,000. The foreign exchange on that date was 4.0620. The exchange rate as at 23 January 2018 was 3.9270. Assuming the new term loan was drawndown for full repayment on the said date, the realised foreign exchange gain for HRC amount to RM40,048,000.
8. FINANCE COST
Finance cost is determined as the average of the past 8 most recent quarters (1 January 2016 to 31 December 2017). In determining this average, quarters with the highest and lowest finance cost were disregarded to eliminate unusual fluctuations.
9. PROFIT BEFORE TAXATION
10. TAXATION EXPENSE
Depreciation is assumed as capital allowance for taxation purpose.
11. PROFIT AFTER TAXATION FOR Q1 2018
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If someone is so good in estimate a company profit, he can become d owner of the company. No need to invest in stock market
2018-04-10 06:22
Good at estimate can become owner - What kind of logic is this?
All analyst can become ceo?
Trulyidiot.
Posted by trulyinvest > Apr 10, 2018 06:22 AM | Report Abuse
If someone is so good in estimate a company profit, he can become d owner of the company. No need to invest in stock market
2018-04-10 06:44
If no estimate, how to value share?
chanting namotolongtolong kah?
Posted by trulyinvest > Apr 10, 2018 06:19 AM | Report Abuse
Again ppl estimate profit. In d end all pokai. Kikimkmk
2018-04-10 06:45
david, good work! What is the comparison of average crack spread between 2017 Q4 and 2018 Q1?
2018-04-10 08:03
already email SC, they will investigate accordingly for all sorts of pump and dump activities
seedarren, you can refer the report by another ANALyst david lim
2018-04-10 08:48
I think the SC will take up the case....thanks.
healthier bursa without fake forecasts.
2018-04-10 09:10
Heng Yuan got many many sharks inside...KYY is only one of them and is acting like leader.
As for JAKS n Sendai,seems KYY is kaki goreng kaki song only
2018-04-10 09:10
I think the SC will take up the case....because Hengyuan is such a specullative counter
2018-04-10 09:11
been many times, super dive down, then up back, if tell me no manipulation, anyone believe?
2018-04-10 09:12
potential 5 years jail....is it worth it......?
take down the blog if I am you.
2018-04-10 09:13
seedarren,
I don't have the full data for 2017. These are what I have calculated based on the 3:2:1 Crack Spread ratio:
As at 30 June 2017 - $12.22
As at 30 September 2017 - $10.13
As at 31 December 2017 - $10.87
As at 31 March 2018 - $10.80
Please take note that crack spread is very volatile and the figures will definitely have gone significantly higher or lower during the quarters mentioned above. I do think that the few crack spreads listed above are not sufficient to form an opinion for comparison between 2017 and 2018.
----------
seedarren david, good work! What is the comparison of average crack spread between 2017 Q4 and 2018 Q1?
10/04/2018 08:03
2018-04-10 11:21
As at 30 June 2017 - $12.22
As at 30 September 2017 - $10.13
As at 31 December 2017 - $10.87
As at 31 March 2018 - $10.80
=================================
it already show that your crack spread not well co related to actual results.......failed.
2018-04-10 11:31
sure wrong 1 those analysis. as proven. the david lim also wipe off completely.
hengyuan red now. SC gonna investigate and sue the author
2018-04-10 11:50
qqq3,
I have clearly explained the unreliability of the little data above. I've posted it here again for you. I notice that you do not read in full or you choose to read what suits your interest. Please read carefully and understand.
"Please take note that crack spread is very volatile and the figures will definitely have gone significantly higher or lower during the quarters mentioned above. I do think that the few crack spreads listed above are not sufficient to form an opinion for comparison between 2017 and 2018."
2018-04-10 11:50
qqq3,
What's with you lah? On the main hengyuan forum, you promote hengyuan like nobody's business. Here, everything you also try to find fault and you wrong all the way some more.
You scared KYY hire him instead of you? If KYY read your comments here, he also bad impression of you lah.
2018-04-10 11:54
5 years jail....is it worth it? think carefully.....expected value vs expected cost in terms of 5 years jail.....
2018-04-10 11:55
john
I posted in HY forum yesterday, neither I nor Kyy needs to resort to dirty tricks of fake forecasts whether over pessimistic one or overly optimistic ones.........
Also I am concerned about this fellow and 5 years jail as an example to others.
2018-04-10 11:57
qqq3,
David_tan has something to share, let him share. Sharing is what i3 is all about. How you know is fake? It is a forecast. His work seems well supported. Readers are smart enough to evaluate.
You comment like as though you have a personal agenda like how you attack OTB. You making yourself look very bad. Go back to hengyuan forum lah.
2018-04-10 12:11
come on la....you are an accountant.....commment on the work of this David , I think it is misleading...But , that is not all....
In the case of Bonescythe, he did some thing similar, and what happened to him? and it is not even about accurate or not...
HY is a speculative counter and a high chance SC is interested in this David.......
refer also to....
https://klse.i3investor.com/blogs/qqq3/153512.jsp
2018-04-10 12:15
qqq3,
Why are you pretending like you really care about david_tan being investigated by SC?
As long as he is not from some pump and dump syndicate, nothing wrong with doing analysis what. I don't think you understand how SC works. But if he is really working for the syndicates, then he deserves to get into trouble.
You on the other hand, dont pretend pretend like hero. The way you write here, how to believe you are being noble?
2018-04-10 12:22
ed by John_Lee > Apr 10, 2018 12:22 PM | Report Abuse
qqq3,
Why are you pretending like you really care about david_tan being investigated by SC?
=============
no, I am not pretending, it a genuine concern. Even a 10% chance of 5 years jail is too high a price to pay for an act of impulse.
2018-04-10 12:27
by John_Lee > Apr 10, 2018 12:22 PM | Report Abuse
. I don't think you understand how SC works. But if he is really working for the syndicates, then he deserves to get into trouble.
============
was Bones working for the syndicates? I have no proof....but SC also close him down...and that is before the Anti Fake News law.
2018-04-10 12:29
Karma will take care of manipulator Kyy and his evil assistant otb, they should laughing all the way to hell bank
2018-04-10 12:51
just to let you know.....anyone can recommend stocks....but do entice people with fake forecasts or fake news is a BIG NO NO as far as SC is concern.
2018-04-10 12:56
Ooi Teik Bee,
Thank you for your advice. Truly appreciate that you took the time to write.
I am aware that writing this article does not in any way goes against SC legislations and guidelines. Furthermore, I am not involved with illegal syndicates running rogue activities in Bursa. My conscience is clear.
Thanks again.
2018-04-10 12:56
obviously qqq3 disposed all hy shares now waiting for second chance to buy cheap...hahaha
2018-04-10 13:00
david_tan Ooi Teik Bee,
I am aware that writing this article does not in any way goes against SC legislations and guidelines.
===============
How you know? I put it to you, you are only guessing.
Just to inform you...IB analyst have very clear guidelines about what they write...and especially with profit forecasts...and they have a Corporate reputation to protect...you have what? Just a free for all here....SC needs to do some thing about pump and dump via fake profit forecasts.
2018-04-10 13:04
qqq3,
You talk and scold david_tan until like that still want to say genuine concern? You really think everyone is stupid?
Anyway i know you stubborn like buffalo when you decide to attack someone. This got nothing to do with me. Dont want to talk to you here anymore. Back to hengyuan forum.
2018-04-10 13:12
The author need not work for syndicates....the author may only have a few lots....but is it relevant? Is it adeuate defence?
I say it is not adeuate defence if lots and lots of people are enticed by the fake profit forecasts........
2018-04-10 13:17
what about the case of Bonescythe? No evidence that he works for syndicates....He may actually have just only a few lots too.
2018-04-10 13:19
Do not believe the calculation blindly
The range is as big as Icon 10 cents to David 80 cents, may be more unbelivable
if you are lucky you got right like future eye previous prediction
that is nothing because i also sometime guess the 4-ekor right
why?
it is hengyuan !
if it is Petronm , then the satay man also can tell you the coming EPS is around 30 cents and get it right or near right
but any how
all are good knowledge sharing
We should be thankful for their hard work
2018-04-10 14:14
David Tan...I am only one here concerned about you.....money I can make anyhow.....
2018-04-10 14:19
Market had told us that there are more uncertainties than what we can think of in the calculations of coming quarter eps
No matter we use historical average or estimated throughput to calculate
2018-04-10 14:19
Halite > Apr 10, 2018 02:19 PM | Report Abuse
Market had told us that there are more uncertainties than what we can think of in the calculations of coming quarter eps
No matter we use historical average or estimated throughput to calculate
==============
good reminder
2018-04-10 14:20
consider this...$40 revenue per share, slight changes in margin will have great impact on EPS....
and great fluctuations due to timing differences and lagging effects.......
great for speculations....not good for widows.....
2018-04-10 14:23
if david tan genuinely believed what he wrote and have findings to back up his writing and he did not buy in huge volume waiting to dispose quickly, then this article is educational purpose lah.... writing financial articles are very good to boost malaysian financial literacy ma....
2018-04-10 14:28
y joekit > Apr 10, 2018 02:28 PM | Report Abuse
if david tan genuinely believed what he wrote and have findings to back up his writing and he did not buy in huge volume waiting to dispose quickly, then this article is educational purpose lah.... writing financial articles are very good to boost malaysian financial literacy ma....
============
then how to explain the case of Bones?
2018-04-10 14:30
joe...I think the SC will appreciate people writing about companies, analyzing their strengths and weaknesses, the business sense of investing or not in the company.
profit forecast? that is a bit sensitive...handle with care, and avoid speculative counters.
2018-04-10 14:51
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Excellent analysis David
Thanks for sharing your hard work.
2018-04-10 05:45