Much have been analyzed on Petron Malaysia (3042). So I would just jump in on key points why I am bullish on this stock. In addition, there are further updates since my last posting on September 11, https://klse.i3investor.com/blogs/investmentopportunity/131977.jsp

1) Surge in Brent Crude Oil Price

Year 2017:
Jan - $53.59

Feb - $54.35

Mar - $50.90

1QFY17 Profits: rm108.54m

Apr -  $52.16

May - $49.89

Jun - $46.17

2QFY17 Profits: rm90.99m (rm39m gains on disposal of service stations for MRT development)

Jul  -  $47.66

Aug - $49.94

Sep - $52.95

3QFY17 Profits: rm??? 

As there is some correlation of Petron's profits to crude oil prices,it is key to monitor its movement. Brent Crude Oil has settled above $50 / barrel for September. As it's a closing month for 3QFY17, and most importantly, an increasing trend for Dated Brent prices, Petron Malaysia margins should improve amid inventory gains. Do note that Brent Crude Price averaged at $44.68 for 3QFY16. 

2) Surge in Brent Crack Spread

Product cracks continue to improve, holding steady above $10 / barrel from 1 August to 20 September. Look at the trend below, from July to September. I am aware there are many other crack spread to refer, but I would just use this as a reference. Please conduct your own due diligence. 

3) Sales Volume

2016:                        
Q1 - 8.2 million barrels  

Q2 - 7.8 million barrels

Q3 - 7.8 million barrels

Q4 - 8.3 million barrels

2017:                        
Q1 - 8.3 million barrels  

Q2 - 8.5 million barrels

Q3 - ?.? million barrels

Q4 - ?.? million barrels

In Petron's 2QFY17 report, the company registered 8.5 million barrels of total sales volume, a 9% improvement from previous corresponding period. I am of the view that Petron will continue to register higher total sales volume in coming period. For Q3FY17, Petron Malaysia is expected to register sales volume of 8.2 million barrels or above, beating Q3FY16 sales volume of 7.8 million barrels.  

4) Healthy Cash Level

As of Q2FY17 financial report, Petron Malaysia has a healthy cash level of RM156 million (RM0.58 per share), while its total debts amount to RM66 million, a net cash position of RM90 million.

Do take notice of its cash and debt level at 31 December 2016, it has a cash level of RM172 million, while its total debts amount to RM308 million, contributing to a net debt position of RM136 million. 

In just 6 months, it has improved from a net debt position of RM136 million, to a net cash position of RM90 million. It is not surprising if Petron Malaysia can have a net cash position of RM200 million by 31 December 2017, with over RM250 million to RM300 million cash level, sufficient to undertake any major plant upgrades and expansion, via internally-generated funds. 

5) Valuations:

If Petron Malaysia could record rm80 million net profits for its 3QFY17 (rm46.79m, 3QFY16), its immediate 4 rolling quarters Earnings Per Share (EPS) would stand at rm1.45. I have revised its profits from rm70 million to rm80 million (with reference all favourable factors above).With a Price Earnings Multiple of 8.5x (current underlying PE), Petron Malaysia should be trading at rm12.35. From current price of rm11.34, there is 9% upside for this stock. 

A number of research centres gave a higher PE of 11 to 12.5x for Petron Malaysia. I would stick to its current PE of 8.5x. Any re-rating would be a further boost to the company, and could trade above current target price of RM12.35. 

Any downside risk would be the fall in crude oil prices , product cracks and mishaps / maintenance shutdown in its refinery plant in Port Dickson.