could be Zhuge, my views are as such because of extraordinary crack in June, would have resulted in huge gain in July..

anyway it does not matter much

Posted by Zhuge_Liang > Sep 6, 2022 8:33 PM | Report Abuse

Posted by probability > 1 minute ago | Report Abuse
of course Zhuge, i have share my derivation on Q3 gross profit.
Q3, do not expect any hedging loss..
-------------
I believe Q3 2022 still has a small hedging loss.
Q4 2022 will have a hedging gain.

when you hedge refined products, 100% of the crude amount in barrels is hedged simultaneously

the hedging of 100% is the monthly clearing (physical and futures market interval of 1 month), this is as per the below derivation.

https://klse1.i3investor.com/blogs/2017/2022-06-11-story-h1624320379-HENGYUAN_derivatives_loss_on_Q1_22_completely_clarification.jsp

the hedging of in futures (long term maturity) has a notional amount - this is only utilized on avg 20% every qtr

of course Zhuge, i have share my derivation on Q3 gross profit.
Q3, do not expect any hedging loss..

Posted by Zhuge_Liang > Sep 6, 2022 8:13 PM | Report Abuse

Sslee, probability and Johnzhang,
I believe the PAT for second half of FY2022 = 1.3 billion.
Is this estimate possible ?

@PSAi3alert, i have share the derivations on the article i made. You share to me where its mention they 100% hedge.

if they are hedging 18 million barrels distribute over 24 month that like 2 million barrel hedged every qtr for a plant that produce 10 million barrels...

Its calculated risk. If the plant got into fire and it has prolonged shutdown, they can always clear their hedge position on the market albeit with small loss or even gain.

risk is too low

Posted by BobAxelrod > Sep 6, 2022 8:18 PM | Report Abuse

Of course they know their production handling capacity. But to Hedge without goods and for futures that are uncertain....is pure Gambling.

FCF will blast up next qtr....

why? Hedging GAIN from gasoline.

Your futures market cash IN FLOW is higher than your physical market cash OUT FLOW...


Posted by Zhuge_Liang > Sep 6, 2022 7:51 PM | Report Abuse

The present market cap of Hengyuan = 1.458 billion.
PAT for the first half of FY2022 = 715 million.
I believe the PAT for second half of FY2022 = 1.3 billion.
I also believe total PAT for FY2022 = 2.0 billion which is 542 million more than the present market cap.
My sifu taught me the 5 most important FA criteria to assess the FA report for the first half of FY2022.
1.) Growth > 917% better than the previous first half year.
2.) Free cash flow = -16 million. However, Hengyuan is still able to make an operating profit before changes in working capital of RM 939.171 million in the first half of FY2022.
3.) PER = 1.73 very good.
4.) ROE = 45% which is very high.
5.) EV/EBIT = 2.13 very good.

I can see the free cash flow is = -16 million which is not a positive free cash flow.
The rest of criteria are excellent.
I will say the fundamental of Hengyuan is very good after the first half result of FY2022.
Is there any stock listed in KLSE has PER = 1.73 and EV/EBIT = 2.13 ?
The answer is no. You cannot find any stock with such low PER and EV/EBIT.
I still conclude the fundamental of Hengyuan is very good.

@Bob, no...thats how hedging with futures works. They simply know they have refining ability to produce before the maturity. The hedging amount is only 20% oh their throughput.

Posted by BobAxelrod > Sep 6, 2022 8:08 PM | Report Abuse

In other words, they are Hedging without Goods......isn't that Gambling???

@Blee, what i meant was HY can always hedge at longer maturity, along with physical stock they can produce at a later point in time.

Meaning, the current high margin 'opportunity' is not lost due to hedging completely, but deferred due to hedging. This is not related to their refining capacity or storage tanks

Guys take note of the following:

For every amount lost under 'cash flow hedge' due to their 'refining margin swap contract (RMSC)', they are entering into a higher margin fresh contract (RMSC) by the same amount.

The fantastic margins opportunities are never really lost by HY, but only deferred to a later date. HY can always do this as they have unlimited physical product to hedge along with new opportunities (just that it will take place at a later date).

Guys take note of the following:

For every amount lost under 'cash flow hedge' due to their 'refining margin swap contract (RMSC)', they are entering into a higher margin fresh contract (RMSC) by the same amount.

The fantastic margins opportunities are never really lost by HY, but only deferred to a later date. HY can always do this as they have unlimited physical product to hedge along with new opportunities (just that it will take place at a later date).

some useful reading on IFRS9 - airline:

www.iata.org/contentassets/4a4b100c43794398baf73dcea6b5ad42/airline-disclosure-guide-hedge-accounting.pdf

The IFRS9 itself was spurred by Cost of hedging reserve

Interest rate swap is a good example

https://www.bloomberg.com/professional/blog/ifrs-9-adoption-spurred-cost-hedging-approach/

The IFRS9 itself was spurred by Cost of hedging reserve

Interest rate swap is a good example

https://www.bloomberg.com/professional/blog/ifrs-9-adoption-spurred-cost-hedging-approach/

sslee, my thoughts are each hedged barrels are marked to market based on futures prices corresponding to their respective maturity date, at the end of the reporting period.

we can assume the 'A' we had used here as 'reflective' of their composite effects

If you use only Mogas92 crack spread: USD 31.58
Equation:
V x A=226,945,000 or V=226,945,000/A
V x (31.58 – A) = 1,490,267,000/4.397

Posted by Sslee > Sep 5, 2022 11:31 AM | Report Abuse

If i will to attend the next HRC AGM, I will prepare the following questions on refining margin swap contract.
Refer refining margin swap contracts.
Is contact notional amt is sum of contracts (volume in barrel X hedged refining margin)?
What is refining margin swap contracts assets and liabilities and how it is computed?

If they had hedged large portion of Diesel / Jet fuel, the COHR would have easily shown huge loss like we saw at end of Q2 22', by end of Q1 22 itself.

Posted by probability > Sep 5, 2022 11:24 AM | Report Abuse X

@Zhuge,

Gasoline should be the most abundantly available in the futures for hedging far into the future and diesel & jet fuel had been having strong crack even under covid environment (less concerned) unlike gasoline demand affected by lockdown.

Thats why we can see in 2020 and 2021, HY still can deliver good earnings.

Further we can see in Q1 22 results the hedging losses under COHR is very low (even positive, as the futures maturing in 24 months could be well below 12.7).

@Zhuge,

prove on the effects of hedging when crack spread drop below hedging level for balance hedged contract is here

Posted by Sslee > Sep 3, 2022 6:17 PM | Report Abuse

If you look into HRC quarterly report.
On 31/12/19. NAPS is RM 6.7045.
Q1 end 31/03/20 EPS negative 41.37 cents but NAPS is now RM 7.4418

Posted by Sslee > Sep 3, 2022 6:32 PM | Report Abuse

You can check what is the mogas92 crack spread on 31/03/2020.
www.tradingview.com/symbols/NYMEX-D1N1%21/

@Zhuge,

Gasoline should be the most abundantly available in the futures for hedging far into the future and diesel & jet fuel had been having strong crack even under covid environment (less concerned) unlike gasoline demand affected by lockdown.

Thats why we can see in 2020 and 2021, HY still can deliver good earnings.

Further we can see in Q1 22 results the hedging losses under COHR is very low (even positive, as the futures maturing in 24 months could be well below 12.7).

@Zhuge,

Among the two possibility below derived by sslee, only gasoline fits the hedged crack value as found in 2021 annual report page 130 where the max margin was around 12 USD/brl.

The lowest crack spread closing on 30 June 2022 is only for gasoline around 31USD/brl (others like Diesel & Jet Fuel is way higher).
Only using the lowest mark to market crack spread end of June 22, you can derived the low value hedged crack spread as per annual report of about 12 USD/brl.

Using gasoline the hedged barrels is 18 millions as derived by sslee below.


Since we have passed 2 qtrs in 2022, the average crack spread hedged on the latest notional amount of USD 226 million is much higher than what was reported at end of 2021 (on annual report). It has been displaced by maturing hedged contract of gasoline at 0.75 million barrels/month x 6 = 4.5 million, with fresh ones as per market crack spread in future for gasoline in Q1 and Q2.


Posted by Sslee > Sep 2, 2022 8:59 AM | Report Abuse

Dear probability,
The outstanding Refining margin swap contract as on 30/06/2022
Notional amount: USD 226,945,000
Assets: RM 261,065,000
Liabilities: RM 1,751,332,000
Hence unrealized loss RM (1,751,332,000-261,065,000) = RM 1,490,267,000

On 30/06/2022:
Mogas92 crack spread: USD 31.578
Diesel crack spread: USD 56.125
Average of the two USD (31.578+56.125)/2= USD43.85
USD to MYR: 4.397

V: Volume of outstanding refining margin swap contract (Barrels)
A: Average outstanding margin per barrel hedged (USD)

Equation:
from notional amount: V x A=226,945,000 or V=226,945,000/A
from unrealized loss: V x (43.85 – A) = 1,490,267,000/4.397

226,945,000 x (43.85 – A) = 338,928,133 x A
9,951,538,250= (338,928,113 + 226,945,000) x A
A= 9,951,538,250/565,873,133
A= 17.586
V=226,945,000/17.586
V=12,904,746

If you use only Mogas92 crack spread: USD 31.58
Equation:
V x A=226,945,000 or V=226,945,000/A
V x (31.58 – A) = 1,490,267,000/4.397

226,945,000 x (31.58 – A) = 338,928,133 x A
7,166,923,100= (338,928,113 + 226,945,000) x A
A= 7,166,923,100/565,873,133
A= 12.665
V=226,945,000/12.665
V= 17,918,718



Posted by Zhuge_Liang > Sep 5, 2022 10:57 AM | Report Abuse

Post by probability
The reason why HY shows large unrealized loss on Cost of hedging reserve (COHR) is because it has around 18 million barrels of refined products, e.g Gasoline crack spread that is hedged for next 24 months at 12.7 USD/brl margin.


This is the Refining Margin Swap Contract (RMSC) shown as USD 227 million (USD 12.7 crack x 18 million barrels hedged).
-------------------
@probability,
I have 2 questions on your posting here.
1.) 18 million of refined products hedged at USD12.70/brl.
Is it all gasoline only ? No diesel and jet fuel or mixture.

2.) 18 million of refined products hedged at USD12.70/brl.
Is this hedging for 1 year or 2 years ?

Please advise.

all depends on availability of counter party to get into the hedging deals

Posted by ValueInvestor888 > Sep 5, 2022 11:38 AM | Report Abuse

@probability, do hengyuan secured big forward contract when crack spread at around USD 20-30?

If they do big hedging, the results should be very good in next 1 year...

sslee, my thoughts are each hedged barrels are marked to market based on futures prices corresponding to their respective maturity date, at the end of the reporting period.

we can assume the 'A' we had used here as 'reflective' of their composite effects

If you use only Mogas92 crack spread: USD 31.58
Equation:
V x A=226,945,000 or V=226,945,000/A
V x (31.58 – A) = 1,490,267,000/4.397

Posted by Sslee > Sep 5, 2022 11:31 AM | Report Abuse

If i will to attend the next HRC AGM, I will prepare the following questions on refining margin swap contract.
Refer refining margin swap contracts.
Is contact notional amt is sum of contracts (volume in barrel X hedged refining margin)?
What is refining margin swap contracts assets and liabilities and how it is computed?

If they had hedged large portion of Diesel / Jet fuel, the COHR would have easily shown huge loss like we saw at end of Q2 22', by end of Q1 22 itself.

Posted by probability > Sep 5, 2022 11:24 AM | Report Abuse X

@Zhuge,

Gasoline should be the most abundantly available in the futures for hedging far into the future and diesel & jet fuel had been having strong crack even under covid environment (less concerned) unlike gasoline demand affected by lockdown.

Thats why we can see in 2020 and 2021, HY still can deliver good earnings.

Further we can see in Q1 22 results the hedging losses under COHR is very low (even positive, as the futures maturing in 24 months could be well below 12.7).

@Zhuge,

prove on the effects of hedging when crack spread drop below hedging level for balance hedged contract is here

Posted by Sslee > Sep 3, 2022 6:17 PM | Report Abuse

If you look into HRC quarterly report.
On 31/12/19. NAPS is RM 6.7045.
Q1 end 31/03/20 EPS negative 41.37 cents but NAPS is now RM 7.4418

Posted by Sslee > Sep 3, 2022 6:32 PM | Report Abuse

You can check what is the mogas92 crack spread on 31/03/2020.
www.tradingview.com/symbols/NYMEX-D1N1%21/

@Zhuge,

Gasoline should be the most abundantly available in the futures for hedging far into the future and diesel & jet fuel had been having strong crack even under covid environment (less concerned) unlike gasoline demand affected by lockdown.

Thats why we can see in 2020 and 2021, HY still can deliver good earnings.

Further we can see in Q1 22 results the hedging losses under COHR is very low (even positive, as the futures maturing in 24 months could be well below 12.7).

@Zhuge,

Among the two possibility below derived by sslee, only gasoline fits the hedged crack value as found in 2021 annual report page 130 where the max margin was around 12 USD/brl.

The lowest crack spread closing on 30 June 2022 is only for gasoline around 31USD/brl (others like Diesel & Jet Fuel is way higher).
Only using the lowest mark to market crack spread end of June 22, you can derived the low value hedged crack spread as per annual report of about 12 USD/brl.

Using gasoline the hedged barrels is 18 millions as derived by sslee below.


Since we have passed 2 qtrs in 2022, the average crack spread hedged on the latest notional amount of USD 226 million is much higher than what was reported at end of 2021 (on annual report). It has been displaced by maturing hedged contract of gasoline at 0.75 million barrels/month x 6 = 4.5 million, with fresh ones as per market crack spread in future for gasoline in Q1 and Q2.


Posted by Sslee > Sep 2, 2022 8:59 AM | Report Abuse

Dear probability,
The outstanding Refining margin swap contract as on 30/06/2022
Notional amount: USD 226,945,000
Assets: RM 261,065,000
Liabilities: RM 1,751,332,000
Hence unrealized loss RM (1,751,332,000-261,065,000) = RM 1,490,267,000

On 30/06/2022:
Mogas92 crack spread: USD 31.578
Diesel crack spread: USD 56.125
Average of the two USD (31.578+56.125)/2= USD43.85
USD to MYR: 4.397

V: Volume of outstanding refining margin swap contract (Barrels)
A: Average outstanding margin per barrel hedged (USD)

Equation:
from notional amount: V x A=226,945,000 or V=226,945,000/A
from unrealized loss: V x (43.85 – A) = 1,490,267,000/4.397

226,945,000 x (43.85 – A) = 338,928,133 x A
9,951,538,250= (338,928,113 + 226,945,000) x A
A= 9,951,538,250/565,873,133
A= 17.586
V=226,945,000/17.586
V=12,904,746

If you use only Mogas92 crack spread: USD 31.58
Equation:
V x A=226,945,000 or V=226,945,000/A
V x (31.58 – A) = 1,490,267,000/4.397

226,945,000 x (31.58 – A) = 338,928,133 x A
7,166,923,100= (338,928,113 + 226,945,000) x A
A= 7,166,923,100/565,873,133
A= 12.665
V=226,945,000/12.665
V= 17,918,718



Posted by Zhuge_Liang > Sep 5, 2022 10:57 AM | Report Abuse

Post by probability
The reason why HY shows large unrealized loss on Cost of hedging reserve (COHR) is because it has around 18 million barrels of refined products, e.g Gasoline crack spread that is hedged for next 24 months at 12.7 USD/brl margin.


This is the Refining Margin Swap Contract (RMSC) shown as USD 227 million (USD 12.7 crack x 18 million barrels hedged).
-------------------
@probability,
I have 2 questions on your posting here.
1.) 18 million of refined products hedged at USD12.70/brl.
Is it all gasoline only ? No diesel and jet fuel or mixture.

2.) 18 million of refined products hedged at USD12.70/brl.
Is this hedging for 1 year or 2 years ?

Please advise.

myongcc5, of different time zone, yup whatever need to be said - done

market is voting a machine...and it has time on its side

Posted by myongcc5 > Sep 5, 2022 11:01 AM | Report Abuse

Professor Prob, guess u r exhausted due to overworked. Thanks

HY refinery margin update - 2/09/22 (DIESEL CRACK BLASTED ABOVE 50$/brl!)
...........

Diesel: https://www.tradingview.com/symbols/NYMEX-GOC1!/

Jet Fuel: https://www.tradingview.com/symbols/NYMEX-ASD1!/

Gasoline Mogas 92: https://www.tradingview.com/symbols/NYMEX-D1N1%21/
Gasoline Mogas 95 premium: https://www.tradingview.com/symbols/NYMEX-SMU1!/

From above:

1. Diesel at 46% yield, cracks USD 50.36/bbl
2. Jet fuel at 7% yield, cracks USD 38.40/bb
3. Gasoline Mogas 95 at 35% yield, cracks USD (4.07 + 3.71) / bbl
4. Rest of product yield at 12%, using Mogas 95 cracks USD 7.77/bbl

Gross refining margin:

= (0.46 x 50.4 ) + (0.07 x 38.40) + (0.35 x 7.77)+ (0.12 x 7.77)
= 23.18 + 2.70 + 2.72 + 0.93
= US $ 29.5 / brl

Gross Profit :

= (10.7 million barrel sales per qtr) x ( US $29.5/brl) x (MYR 4.45/USD)
= 1.404 Billion MYR
...................


Gross refining margin (Gasoline hedged at 12.7 USD/brl):

= (0.46 x 50.4 ) + (0.07 x 38.40) + (0.35 x 12.7)+ (0.12 x 7.77)
= 23.18 + 2.70 + 4.44 + 0.93
= US $ 31.2 / brl

Gross Profit at above derived present refining margin

= (10.7 million barrel sales per qtr) x ( US $31.2/brl) x (MYR 4.45/USD)
= 1.485 Billion MYR
...................

there are two type of hedging losses, the one on page 8 is already accounted on PAT

the one in the box under Other comprehensive income, are treated under IFRS9

different product has different selling price on the market based on demand

their yields are different

https://klse1.i3investor.com/blogs/2017/2022-09-02-story-h1627801128-HENGYUAN_How_to_calculate_its_refinery_margin_Why_share_price_hesitatin.jsp

Posted by King_trader_shadow > Sep 5, 2022 2:42 AM | Report Abuse

Honestly speaking, i am clueless. How could the Gasoline margin be low and the rest of Diesel and Jet fuel spike up where as they are distilling heated crude oil in the refinery and produces equally the diesel oil--> Jet oil --> lastly the gasoline oil.

Basically, it is just a process going through the funnel and output it accordingly. How could the margin gasoline or the crack spread gasoline go lower?

the crack - margin itself

this is because european refiners diesel yield is very low with high fuel oil yield

these refiners will stop refining if their margins are too low

Posted by King_trader_shadow > Sep 5, 2022 2:34 AM | Report Abuse

When you mentioned gasoline margin stays low means the price they purchased the crude oil or the price of the crack spread that they are selling?

1. Diesel (or Gasoil): https://www.tradingview.com/symbols/NYMEX-GOC1!/

2. Jet fuel (or Kerosene): https://www.tradingview.com/symbols/NYMEX-ASD1!/

3. Gasoline:

Gasoline Mogas 92: https://www.tradingview.com/symbols/NYMEX-D1N1%21/
Gasoline Mogas 95 premium: https://www.tradingview.com/symbols/NYMEX-SMU1!/

see the Cut volume, % on the first line of the pdf

Posted by probability > Aug 29, 2022 11:08 PM | Report Abuse X

@sslee, ok got it. Its exactly matching the yield they mentioned on the Q&A...thanks

https://corporate.exxonmobil.com/-/media/Global/Files/crude-oils/Tapis/Crude_Oil_Tapis_assay_pdf_new.pdf


Posted by ValueInvestor888 > Sep 4, 2022 6:19 PM | Report Abuse

Dear probability,

Thank you for your research on Hengyuan and its hedging...

Do you think Petron will benefit from high diesel spread? How many % of diesel petron is producing? Thanks

@MM, i bet if you can squeeze your brain cells a bit after a strong cup of coffee and spend 10 minutes to understand the below concept, you will be quite confident HY makes money (secures) through hedging

try taking this challenge for you:

Extract from below article:
www.cmegroup.com/education/articles-and-reports/introduction-to-crack-spreads.html

Fixing Refiner Margins Through a Simple 1:1 Crack Spread

In January, a refiner reviews his crude oil acquisition strategy and his potential gasoline margins for the spring. He sees that gasoline prices are strong, and plans a two-month crude-to-gasoline spread strategy that will allow him to lock in his margins. Similarly, a professional trader can analyze the technical charts and decide to “sell” the crack spread as a directional play, if the trader takes a view that current crack spread levels are relatively high, and will probably decline in the future.

In January, the spread between April crude oil futures ($50.00 per barrel) and May RBOB gasoline futures ($1.60 per gallon or $67.20 per barrel) presents what the refiner believes to be a favorable 1:1 crack spread of $17.20 per barrel. Typically, refiners purchase crude oil for processing in a particular month, and sell the refined products one month later.

The refiner decides to “sell” the crack spread by selling RBOB gasoline futures, and buying crude oil futures, thereby locking in the $17.20 per barrel crack spread value. He executes this by selling May RBOB gasoline futures at $1.60 per gallon (or $67.20 per barrel), and buying April crude oil futures at $50.00 per barrel.

Two months later, in March, the refiner purchases the crude oil at $60.00 per barrel in the cash market for refining into products. At the same time, he also sells gasoline from his existing stock in the cash market for $1.75 per gallon, or $73.50 per barrel. His crack spread value in the cash market has declined since January, and is now $13.50 per barrel ($73.50 per barrel gasoline less $60.00 per barrel for crude oil).

Since the futures market reflects the cash market, April crude oil futures are also selling at $60.00 per barrel in March — $10 more than when he purchased them. May RBOB gasoline futures are also trading higher at $1.75 per gallon ($73.50 per barrel). To complete the crack spread transaction, the refiner buys back the crack spread by first repurchasing the gasoline futures he sold in January, and he also sells back the crude oil futures. The refiner locks in a $3.70 per barrel profit on this crack spread futures trade.

The refiner has successfully locked in a crack spread of $17.20 (the futures gain of $3.70 is added to the cash market cracking margin of $13.50). Had the refiner been un-hedged, his cracking margin would have been limited to the $13.50 gain he had in the cash market. Instead, combined with the futures gain, his final net cracking margin with the hedge is $17.20 — the favorable margin he originally sought in January.

Just want to inform all readers,

For HY refinery its actually good if the gasoline margin stays low, as the lower it is the higher the Diesel & Jet fuel crack will go since refinery try to compensate their loss in gasoline with higher margins on other refined products.

Further, this will discourage simple refiners who produce mainly gasoline and fuel oil from increasing output and even shutting down their operation - reducing further diesel availability on the market.

HY which had hedged significant amount of gasoline (at about 20% of their sales volume - basically all their gasoline yield ) will be the greatest beneficiary among all regional refineries.

All the information are there, research carefully to gain an edge to make fantastic investment decision of a lifetime.
Good luck..

Just want to inform all readers,

For HY refinery its actually good if the gasoline margin stays low, as the lower it is the higher the Diesel & Jet fuel crack will go since refinery try to compensate their loss in gasoline with higher margins on other refined products.

Further, this will discourage simple refiners who produce mainly gasoline and fuel oil from increasing output and even shutting down their operation - reducing further diesel availability on the market.

HY which had hedged significant amount of gasoline (at about 20% of their sales volume - basically all their gasoline yield ) will be the greatest beneficiary among all regional refineries.

All the information are there, research carefully to gain an edge to make fantastic investment decision of a lifetime.
Good luck..

Just want to inform all readers,

For HY refinery its actually good if the gasoline margin stays low, as the lower it is the higher the Diesel & Jet fuel crack will go since refinery try to compensate their loss in gasoline with higher margins on other refined products.

Further, this will discourage simple refiners who produce mainly gasoline and fuel oil from increasing output and even shutting down their operation - reducing further diesel availability on the market.

HY which had hedged significant amount of gasoline (at about 20% of their sales volume - basically all their gasoline yield ) will be the greatest beneficiary among all regional refineries.

All the information are there, research carefully to gain an edge to make fantastic investment decision of a lifetime.
Good luck..

Just want to inform all readers,

For HY refinery its actually good if the gasoline margin stays low, as the lower it is the higher the Diesel & Jet fuel crack will go since refinery try to compensate their loss in gasoline with higher margins on other refined products.

Further, this will discourage simple refiners who produce mainly gasoline and fuel oil from increasing output and even shutting down their operation - reducing further diesel availability on the market.

HY which had hedged significant amount of gasoline (at about 20% of their sales volume - basically all their gasoline yield ) will be the greatest beneficiary among all regional refineries.

All the information are there, research carefully to gain an edge to make fantastic investment decision of a lifetime.
Good luck..

yes, as long as there is a counter party to provide the hedging contract like found on futures for commodity
Posted by Income > 1 minute ago | Report Abuse

Yes. Betul MM.

If hedging doesn’t bring losses, then every company in Bursa please make hedging lah.

This simple common sense pun tak tahu kah?

@Ular, very smart leh...we are all predicting earnings & NTA, now he wants to have TP...

@ular, please elaborate how hedging can lead to loss? example with hedging contract and consequence please...

prove on the effects of hedging when crack spread drop below hedging level for balance hedged contract is here

Posted by Sslee > Sep 3, 2022 6:17 PM | Report Abuse

If you look into HRC quarterly report.
On 31/12/19. NAPS is RM 6.7045.
Q1 end 31/03/20 EPS negative 41.37 cents but NAPS is now RM 7.4418

Posted by Sslee > Sep 3, 2022 6:32 PM | Report Abuse

You can check what is the mogas92 crack spread on 31/03/2020.
www.tradingview.com/symbols/NYMEX-D1N1%21/

dont wait till Q3 results is out.. NTA is more than 12 by then!

Posted by stockraider > 2 seconds ago | Report Abuse

I m trying to be positive but seeing such a huge losses of HY derivative, i see no hope loh!
But i faith in Petron loh!

HEDGING can never results with loss (this is a simple common sense that MIRACULOUSLY many in i3 STILL cannot understand)....

When its a loss, COHR only shows the 'greater opportunity lost' compared to smaller opportunity gained by hedging - by locking down the margin.

When its a gain, COHR only shows the 'benefit of opportunity locked' compared to if you had not locked the opportunity available earlier.

only reason HY had ever reported loss earlier is becoz they only hedge 20% of their sales volume and when they could not find opportunity to hedge at good cracks from futures

we actually want raider to lead the comrades...but unfortunately he is a broken soldier....extremely pessimistic and apprehensive lor! :(

no theory is perfect ..but its definitely better than speculating without any basis
investing is all about taking calculated risk

we have done the calculation, its up to you to take the risk
Posted by stockraider > 2 minutes ago | Report Abuse

Thats why i say....u cannot inferred from SSLEE simply guessing by trying very to fit into the margin for gasoline loh!

Dynamic can or has change mah!
Like type of crude, processes of refinery and management intention to churn type of product mix etc loh!

Any misuse of assumption & data will derail this SSLEE very crude model mah!

The possibility of SSLEE model is highly inaccurate is possible mah!

Lu tau boh ??

@MM, if you say these last year on your pessimistic view on HY i can accept....but we have entered golden age for refinery...... the margins they are making are not peanuts.... ROI is less than half a year now for HY's mcap ...and refineries takes 5 years to build

@raider,
if you understood what has been presented, your last statement will be absurd.... in fact the whole aim is to tell what happens when crack spread of gasoline goes zero or negative where HY still makes money unlike those refinery that did not hedge!

@raider for you query above:
Among the two possibility below derived by sslee, only gasoline fits the hedged crack value as found in 2021 annual report page 130 where the max margin was around 12 USD/brl.

The lowest crack spread closing on 30 June 2022 is only for gasoline around 31USD/brl (others like Diesel & Jet Fuel is way higher).
Only using the lowest mark to market crack spread end of June 22, you can derived the low value hedged crack spread as per annual report of about 12 USD/brl.
Using gasoline the hedged barrels is 18 millions as derived by sslee.
As such, you need to be good in maths to understand how these are deduced.

Posted by Sslee > Sep 2, 2022 8:59 AM | Report Abuse

Dear probability,
The outstanding Refining margin swap contract as on 30/06/2022
Notional amount: USD 226,945,000
Assets: RM 261,065,000
Liabilities: RM 1,751,332,000
Hence unrealized loss RM (1,751,332,000-261,065,000) = RM 1,490,267,000

On 30/06/2022:
Mogas92 crack spread: USD 31.578
Diesel crack spread: USD 56.125
Average of the two USD (31.578+56.125)/2= USD43.85
USD to MYR: 4.397

V: Volume of outstanding refining margin swap contract (Barrels)
A: Average outstanding margin per barrel hedged (USD)

Equation:
from notional amount: V x A=226,945,000 or V=226,945,000/A
from unrealized loss: V x (43.85 – A) = 1,490,267,000/4.397

226,945,000 x (43.85 – A) = 338,928,133 x A
9,951,538,250= (338,928,113 + 226,945,000) x A
A= 9,951,538,250/565,873,133
A= 17.586
V=226,945,000/17.586
V=12,904,746

If you use only Mogas92 crack spread: USD 31.58
Equation:
V x A=226,945,000 or V=226,945,000/A
V x (31.58 – A) = 1,490,267,000/4.397

226,945,000 x (31.58 – A) = 338,928,133 x A
7,166,923,100= (338,928,113 + 226,945,000) x A
A= 7,166,923,100/565,873,133
A= 12.665
V=226,945,000/12.665
V= 17,918,718

@raider for you query above:
Among the two possibility below derived by sslee, only gasoline fits the hedged crack value as found in 2021 annual report page 130 where the max margin was around 12 USD/brl.

The lowest crack spread closing on 30 June 2022 is only for gasoline around 31USD/brl (others like Diesel & Jet Fuel is way higher).
Only using the lowest mark to market crack spread end of June 22, you can derived the low value hedged crack spread as per annual report of about 12 USD/brl.
Using gasoline the hedged barrels is 18 millions as derived by sslee.
As such, you need to be good in maths to understand how these are deduced.

Posted by Sslee > Sep 2, 2022 8:59 AM | Report Abuse

Dear probability,
The outstanding Refining margin swap contract as on 30/06/2022
Notional amount: USD 226,945,000
Assets: RM 261,065,000
Liabilities: RM 1,751,332,000
Hence unrealized loss RM (1,751,332,000-261,065,000) = RM 1,490,267,000

On 30/06/2022:
Mogas92 crack spread: USD 31.578
Diesel crack spread: USD 56.125
Average of the two USD (31.578+56.125)/2= USD43.85
USD to MYR: 4.397

V: Volume of outstanding refining margin swap contract (Barrels)
A: Average outstanding margin per barrel hedged (USD)

Equation:
from notional amount: V x A=226,945,000 or V=226,945,000/A
from unrealized loss: V x (43.85 – A) = 1,490,267,000/4.397

226,945,000 x (43.85 – A) = 338,928,133 x A
9,951,538,250= (338,928,113 + 226,945,000) x A
A= 9,951,538,250/565,873,133
A= 17.586
V=226,945,000/17.586
V=12,904,746

If you use only Mogas92 crack spread: USD 31.58
Equation:
V x A=226,945,000 or V=226,945,000/A
V x (31.58 – A) = 1,490,267,000/4.397

226,945,000 x (31.58 – A) = 338,928,133 x A
7,166,923,100= (338,928,113 + 226,945,000) x A
A= 7,166,923,100/565,873,133
A= 12.665
V=226,945,000/12.665
V= 17,918,718

@raider for you query above:
Among the two possibility below derived by sslee, only gasoline fits the hedged crack value as found in 2021 annual report page 130 where the max margin was around 12 USD/brl.

The lowest crack spread closing on 30 June 2022 is only for gasoline around 31USD/brl (others like Diesel & Jet Fuel is way higher).
Only using the lowest mark to market crack spread end of June 22, you can derived the low value hedged crack spread as per annual report of about 12 USD/brl.
Using gasoline the hedged barrels is 18 millions as derived by sslee.
As such, you need to be good in maths to understand how these are deduced.

Posted by Sslee > Sep 2, 2022 8:59 AM | Report Abuse

Dear probability,
The outstanding Refining margin swap contract as on 30/06/2022
Notional amount: USD 226,945,000
Assets: RM 261,065,000
Liabilities: RM 1,751,332,000
Hence unrealized loss RM (1,751,332,000-261,065,000) = RM 1,490,267,000

On 30/06/2022:
Mogas92 crack spread: USD 31.578
Diesel crack spread: USD 56.125
Average of the two USD (31.578+56.125)/2= USD43.85
USD to MYR: 4.397

V: Volume of outstanding refining margin swap contract (Barrels)
A: Average outstanding margin per barrel hedged (USD)

Equation:
from notional amount: V x A=226,945,000 or V=226,945,000/A
from unrealized loss: V x (43.85 – A) = 1,490,267,000/4.397

226,945,000 x (43.85 – A) = 338,928,133 x A
9,951,538,250= (338,928,113 + 226,945,000) x A
A= 9,951,538,250/565,873,133
A= 17.586
V=226,945,000/17.586
V=12,904,746

If you use only Mogas92 crack spread: USD 31.58
Equation:
V x A=226,945,000 or V=226,945,000/A
V x (31.58 – A) = 1,490,267,000/4.397

226,945,000 x (31.58 – A) = 338,928,133 x A
7,166,923,100= (338,928,113 + 226,945,000) x A
A= 7,166,923,100/565,873,133
A= 12.665
V=226,945,000/12.665
V= 17,918,718

The reason why HY shows large unrealized loss on Cost of hedging reserve (COHR) is because it has around 18 million barrels of refined products, e.g Gasoline crack spread that is hedged for next 24 months at 12.7 USD/brl margin.


This is the Refining Margin Swap Contract (RMSC) shown as USD 227 million (USD 12.7 crack x 18 million barrels hedged).

As per accounting rules, this hedged contract (RMSC) has to show the opportunity lost / gained presuming the current crack spread of these refined products at the end of reporting Q2 22' (30 June) persist indefinitely till all hedging contract matures (more than 24 months).

Unrealized Cost of Hedging Reserve (COHR) , loss / gain: (A-M) x V

A = hedged crack spread value, 12.7 USD/brl
V = barrels volume of refined products hedged, 18 million
M = Market pricing of the hedged refined product at end of reporting period (mark to market)

Since at the end of June 22', the avg crack spread of the refined products, e.g gasoline at 31.6 USD/brl, the opportunity lost for the period of hedging is

Unrealized Cost of Hedging Reserve (COHR):
= (12.7 - 31.6) USD/brl x 18 million barrels
= - 338 million USD or MYR 1,490,267,000

The above is what reported as (Asset 261,065,000 - Liabilities 1,751,332,000)

The above after taxation is placed into 'Other comprehensive
(expense)/income' , reported as Cost of hedging reserve (net of tax).

...

Now lets see what happens, when Gasoline crack drops to its usual average of 5.7 USD/brl (currently its about 7.8 USD/brl)

Unrealized Cost of Hedging Reserve (COHR):
= (12.7 - 5.7) USD/brl x 18 million barrels
= 90 million USD or gain of MYR 395,000,000

When its a loss, COHR only shows the 'greater opportunity lost' compared to smaller opportunity gained by hedging - by locking down the margin.

When its a gain, COHR only shows the 'benefit of opportunity locked' compared to if you had not locked the opportunity available earlier.