Buying Biz or Buying Stock?
Petronm: Ignore The Noise Is The Best Investment Decision
I have been very quiet of late as I try not to join the "experts" to comment on daily share price movement.
After a long wait, Petronm has finally reported its 2Q17 results. On first glance, it is indeed very commendable with reported profit +48% yoy to RM91m, bringing its 1H17 profit to RM200m (+156% yoy). However, when one delve into it, it is not hard to realize there is an one of disposal gain of RM40m. That's the only non core item I will consider for Petronm as I view realized/unrealized/derivative gain or loss as part and parcel of the refinery biz due to the group hedging policy.
So back to the core profit for 2Q17, why was it only RM51m, vs RM109m in 1Q17 and RM62m in 2Q16? This is even confusing as management mentioned crack spread was better in 2Q17 and volume (this refer to the marketing volume) +9% yoy. Was it because of huge inventory loss? I doubt so, seriously. It's hard for me to explain but based on my calculations, inventory loss is not as significant, most probably less than RM10m after 50% hedging. Bear in mind, the company only holds 3 weeks of inventory on a rolling basis everyday. Hence, the company will gain in some days but loss in some days as crude oil go into refinery today was bought 3 weeks ago, while crack spread (refined product price today - crude price today) is based on today pricing.
Then why would Petronm report weaker profit in 2Q17? The culprit was the 25 days shut down in the quarter for plant maintenance, which wasn't mentioned in the quarterly results but it was disclosed in Petron Corp's 2Q17 results. Plant shut down is always the biggest hit to profitability as (1) the company loss in production while fixed cost carry on, & (2) one off maintenance cost which will be recognized during the quarter. It is very hard for us to calculate the cost for these 2 items but one can draw a comparison from its 4Q15 results which closed down its refinery for 40 days and reported only RM17m profit. Obviously, this profit is too small and not reflective of Petronm's core profit as the petrol kiosk profit is definitely higher than this amount based on its sales volume.
So to me, 2Q17 wasn't great but a decent quarter, especially the company's operating cash flow remain strong and has turned net cash in this quarter (RM90m). This is a different animal as compared to Hengyuan, which has huge debt and has no stable and profitable retail biz. So pls don't make stupid comparison without differentiating the 2, just like I never expect Petronm to trade up to PetDag's 25x PE.
What's next? Many of you may be thinking at what price q to sell tomorrow morning to cut the position but I suggest you to think twice before you key in the trade. I have no idea if the price will go up or down tomorrow but I am pretty confident that Petronm is in a good position (net cash means no more interest expenses) to report record earnings in 2017 (I still stick with my expectations of RM350-400m core profit) as crack spread has expanded in July and Aug 2017. This coupled with the refinery biz revert to normal production in 3Q17, I think the company can comfortably report profit above RM100m per quarter.
Along the investment journey, sometime we just have to ignore the temporary hiccup and market noises for us grow and become a better investor.
A good example is Ann Joo which has reported 69% earnings plunged in 2Q17 on Tuesday but share price went up 5-6% the next day as market look ahead the temporary setback and eagerly look into 2H17 as steel price has been trending up since July 2017. Don't you think this sounds like dejavu?
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Petronm: A 6x PE stock generating 30% ROE with a clean balance sheet!
Created by sumato88 | May 25, 2017
Discussions
Be the first to like this. Showing 24 of 24 comments
>>>So to me, 2Q17 wasn't great but a decent quarter, especially the company's operating cash flow remain strong and has turned net cash in this quarter (RM90m). This is a different animal as compared to Hengyuan, which has huge debt and has no stable and profitable retail biz. So pls don't make stupid comparison without differentiating the 2, just like I never expect Petronm to trade up to PetDag's 25x PE. <<<
Fair write up with your assumptions well argued.
2017-08-24 21:03
PRECISELY THE ABOVER ARTICLE IS CORRECT LOH RAIDER'S SIFU SENIOR ANALYST ADVICE, JUST IGNORE THE NOISES AND FOCUS ON THE FACTUAL GOOD RESULT LOH...!!
Raider after discussing with sifu senior analyst enclosed herewith my sifu recommendations on HRC;
1. My Sifu says no need to panic after all HRC is undervalue stock with PE 4x or less basing on EPS of Rm 2.00. Should hold out well, even if PNB aggressively dispose loh....!! But if u cannot afford to hold, set defense by selling only, once Rm 8.00 is breached.
2. PNB only sold abit around Rm 8.30 level less than 100k share, look like, they also know good the value of HRC loh...!! They will only dispose slowly on way up to maximise return loh...!! So do not expect it to aggressively sale loh..!!
3.Some of call warrant investment bankers, may decide to buy more HRC to hedge ,thus this will give good buy support for HRC loh.!!
4. HRC is expected super record earnings in 2017 with eps exceeding rm 2.00 compare to the previous eps historical record of rm 1.74 in 2005. In 2005 the price range of HRC is Rm 8.50 to Rm 12.30 mah..!!
Today HRC price is only Rm 8.50, and with EPS exceeding Rm 2.00, thus should be able to support current share price & even got chance to appreciate over & above rm 12.30 in short term loh...!!
5. The crack margin now is usd 12.80 per barrel compare to 2005 crack margin historical record of USD 7.50 per barrel, this will ensure sustainable growth is eps of HRC loh....!!
6. Before PNB soldown, there is a substantial increase in volume, indicating alot of interest in HRC, thus should be able to absord good amount of selling pressure.
Conclusion
Raider senior analyst say best strategy is to hold tight and monitor the Q2 result, which expected to be good in a few days loh, do not be afraid of PNB selling bcos it is just a temporary noises loh...!!
Go for longer term investment raider's sifu senior analyst advice, bcos u cannot find such a good performance company, like hrc trading at undemanding low prices currently loh...!!
Good Luck !! Cheers !
BTW THE Q2 RESULT OF PETRON REALLY GOOD SHOULD BENEGIT HRC TOO LOH..!!
2017-08-24 21:08
Posted by 3iii > Aug 24, 2017 09:03 PM | Report Abuse
>>>So to me, 2Q17 wasn't great but a decent quarter, especially the company's operating cash flow remain strong and has turned net cash in this quarter (RM90m). This is a different animal as compared to Hengyuan, which has huge debt and has no stable and profitable retail biz. So pls don't make stupid comparison without differentiating the 2, just like I never expect Petronm to trade up to PetDag's 25x PE. <<<
Fair write up with your assumptions well argued.
RAIDER COMMENT;
NOT TRUELOH...!!
IN 2010, HRC TRADE AT RM 10.40 TO RM 11.00 WITH EPS OF RM 0.375 PE 30X EXCEEDING PET DAG CURRENT OVERVALUE PE 24X TODAY LOH...!!
WHY HRC, GOT SUCH SUCH A GOOD RATING AND HIGH VALUATIONLE LEH ??
IT IS DUE ANALYST VALUATION CONFIDENCE AFTER FEW YRS OF STEADY EARNINGS LOH....!!
THE SAME CAN HAPPEN TO HRC AND PETRON, WITH GOOD EARNINGS AND DUE FOR STRONG RERATING LOH....!!
2017-08-24 21:15
Petron group had a 45-day maintenance shutdown. That could have occurred at its Bataan refinery.
If shutdown were at Petron Malaysia's refinery, would revenue have gone up?
2017-08-24 21:46
Haha......predicting the price will go up tmr!!!!!. I hope it can drop for a while for me to pick some more.
2017-08-24 22:45
Posted by happy888 > Aug 24, 2017 11:17 PM | Report Abuse
And i remember exactly 1 sifu who promote like no tomorrow that petron is heaven made. The next day when it drop... that similar sifu come out and say this... this incident should serve as a lesson to investor to never chase high and hype. Somemore add salt to injury bcos i buy at the opening of 8.91.
Tiu lar. I kena before. If u r true investor... wait. Dun kena like me. If drop kaw2 tomorrow dun say u r not warned.
If u untung then good lar. I am happy for u. Invest stock is to earn. Not get trap at highest peak then kena ejek by the same person who put u up there.
LIKE THAT ALSO SCARE....BETTER STAY & REMAIN IN THE HOSPITAL LOH...!!
PETRON 6 MTHS AGO SHARE PRICE WAS RM 6.25....!!
3 MONTHS AGO WAS RM 8.20 MAH.....!!
TODAY RM 9.29 LOH.....!!
YA...TOMORROW SHOULD GO UP LOH....!!
BCOS GOOD RESULT MAH....!!
MOST SELLER WANT TO SELL ALREADY SOLD LOH...!!
2017-08-24 23:32
Wow! Plant maintenance 25days! No wonder lah!!!! Did not saw that in Philippines r
2017-08-25 00:43
Thank you sumato88 for the article, I am grateful that you are still with us here. Cheers !
2017-08-25 13:46
hi sumato, where do u find the info abt 25 days shut down for plant maintenance?
http://www.petron.com/web/Media/uploads/08_14_17_-_SEC_Form_17-Q_(2nd_Quarter_2017)_(as_filed_with_SEC_on_August_14,_2017)._._.pdf
2017-08-26 10:32
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Hehehe. Now waiting for Jay sifu to come out and enlighten us.
2017-08-24 20:55