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2022-05-07 18:42 | Report Abuse
What would you need to justify a TP of RM 12 with PE 5?
.......................................................
(PE 5 is conservative considering its just the beginning of golden age for refinery now)
If you see Q4 21'results which delivered EPS of 60 cents. You only need such performance on average every quarter for TP of RM 12 with PE5.
During this quarter, the Gross Profit added with other Operating Gains was MYR 309m.
This is the gross refining margin you need with a stable oil price (not dropping) in order to deliver EPS of 60 cents per quarter as you have not even subtracted the manufacturing cost.
Lets see what is the average crack spread you would need to deliver the above earnings going forward:
Barrels processed / sold per Qtr average 10.5 m
Gross refining margin per barrel needed:
= ( MYR 309 ) * (1/4.2) / (10.5 m barrels)
= USD 7.0/brl
Hope with the above people will realize its not that hard to hit RM 12 with current refining margin exceeding USD 20 / brl
2022-05-07 18:42 | Report Abuse
The 5 years crude sourcing from Shell is over by 22 Dec 2021, I believe Hengyuan being a smart China management would have sourced crude oil from Russia:
https://www.euractiv.com/section/energy-environment/news/the-fossil-fuel-companies-profiting-from-europes-oil-trade-with-russia/
The company’s refining margins jumped to staggering levels in March, according to media reports.
Compared to the previous ten-year record of $9.3 per barrel on refined products, MOL earned $34.9 per barrel of oil refined in March.
This is largely due to the much lower price of the Russian export oil blend (REBCO) used in MOL’s refineries compared to other types of oil.
2022-05-07 18:41 | Report Abuse
Frequently asked questions on refinery like HRC for investors knowledge:
https://investor.esso.co.th/en/frequently-asked-questions
Why are refined product prices set based on singapore market prices?
.........
Oil is a commodity product in a market which is highly competitive. Pricing policy or production and sale strategies of a market player can impact the overall market as the other players may consequently make price adjustments in order to maintain their competitiveness. Therefore, the to-be reference oil price should be determined by demand and supply capabilities in free markets within a given proximity. This approach which is similar to what is done with agricultural goods such as fruit reference prices at Tai market or rice reference prices at Kumnun Song market.
The three major oil trading regions are North America, Europe and Asia Pacific. The AP trading hub is in Singapore as it is the biggest exporting country in the region. Singapore reference prices are not refined product prices set by Singapore government or refineries. They essentially are the prices of products which are traded in Singapore by oil traders in the region.
Thailand is in the AP region and located near Singapore; therefore, it is logical that Singapore oil prices are used as reference prices. Singapore oil prices not only reflect equilibrium prices of free markets in the region but also globally align with the other regional trading hubs.
2022-05-07 16:39 | Report Abuse
check 2021 annual report
2022-05-07 16:36 | Report Abuse
India
Posted by BoomBerg > May 7, 2022 4:35 PM | Report Abuse
Who dare to buy Russian oil since USA already imposed sanctions
2022-05-07 16:24 | Report Abuse
@Sparrow & Boomberg refer annual report for 2016, pg 45
COSA
.....
The 5-year COSA is intended to ensure continuity of supply of
crude oil to HRC post completion of the Share Sale. With effect
from 22 December 2016, being the completion date of the
Share Sale, HRC will procure crude oil mainly from SIETCO on
the terms and conditions set out in the COSA for an initial period
of five years, which may be extended for a further period of three
years by mutual agreement of the parties in writing.
The minimum amount which has to be purchased from SIETCO will reduce
each year during the abovementioned five years.
The price for each parcel of crude oil supplied to HRC under the
COSA shall be agreed by HRC and SIETCO based on, amongst
others, the prevailing market crude oil price, freight costs and/or
insurance. Again the price follows the various international Platts
markers for crude oil
Posted by sparrow > May 7, 2022 2:56 PM | Report Abuse
@probability may know where you get this detail?
"by 22 Dec 2021 Hengyuan no longer forced to buy Brent from Shell, the 5 year contract is over and they are free to buy Russian oil..."
2022-05-07 13:05 | Report Abuse
Hurricane Harvey is a temporary blip in 2017...it is incomparable to whats happening now
A new golden age of oil refiners
https://www.home.saxo/en-mena/content/articles/equities/a-new-golden-age-of-oil-refiners-04052022
https://klse1.i3investor.com/blogs/Crackspreads/2022-05-06-story-h1622444383-Why_crack_spreads_for_refined_oil_products_have_NOT_peaked.jsp
Posted by emsvsi > May 7, 2022 1:00 PM | Report Abuse
Dear Mr Koon,
It is clear that you are selling oil palm and buying Heng Yuan. However you must remember what happened in the past in Heng Yuan where you and many others were burnt badly. Remember, what goes up must come down. Especially a cyclical stock like Heng Yuan. All the promoters will disappear when Heng Yuan crashes to the depths of the world, and when the 'crack spread' and one off inventory gains turn to losses
Sincerely,
EMSVSI
2022-05-07 12:55 | Report Abuse
The beauty is that their margin (as a minimum) are fixed against Brent at Means of Platts Singapore for the next 5 years while they are free to source crude from anyone to expand it....
its like there is a minimum margin but no maximum
simply brilliant!
2022-05-07 12:49 | Report Abuse
The 5 years crude sourcing from Shell is over by 22 Dec 2021, I believe Hengyuan being a smart China management would have sourced crude oil from Russia:
https://www.euractiv.com/section/energy-environment/news/the-fossil-fuel-companies-profiting-from-europes-oil-trade-with-russia/
The company’s refining margins jumped to staggering levels in March, according to media reports.
Compared to the previous ten-year record of $9.3 per barrel on refined products, MOL earned $34.9 per barrel of oil refined in March.
This is largely due to the much lower price of the Russian export oil blend (REBCO) used in MOL’s refineries compared to other types of oil.
2022-05-07 12:31 | Report Abuse
Frequently asked questions on refinery like HRC for investors knowledge:
https://investor.esso.co.th/en/frequently-asked-questions
Why are refined product prices set based on singapore market prices?
.........
Oil is a commodity product in a market which is highly competitive. Pricing policy or production and sale strategies of a market player can impact the overall market as the other players may consequently make price adjustments in order to maintain their competitiveness. Therefore, the to-be reference oil price should be determined by demand and supply capabilities in free markets within a given proximity. This approach which is similar to what is done with agricultural goods such as fruit reference prices at Tai market or rice reference prices at Kumnun Song market.
The three major oil trading regions are North America, Europe and Asia Pacific. The AP trading hub is in Singapore as it is the biggest exporting country in the region. Singapore reference prices are not refined product prices set by Singapore government or refineries. They essentially are the prices of products which are traded in Singapore by oil traders in the region.
Thailand is in the AP region and located near Singapore; therefore, it is logical that Singapore oil prices are used as reference prices. Singapore oil prices not only reflect equilibrium prices of free markets in the region but also globally align with the other regional trading hubs.
2022-05-07 12:23 | Report Abuse
From above, we can see 22 Dec 2021 was the date they would have switched to Russian Oil.
Q1 22'will see the real power of Russian oil...
2022-05-07 12:02 | Report Abuse
uncle Koon, for your reading pleasure:
https://klse1.i3investor.com/blogs/2017/2022-05-07-story-h1622469652-Hengyuan_2_pictures_says_a_thousand_word.jsp
2022-05-07 12:00 | Report Abuse
What would you need to justify a TP of RM 12 with PE 5?
.......................................................
(PE 5 is conservative considering its just the beginning of golden age for refinery now)
If you see Q4 21'results which delivered EPS of 60 cents. You only need such performance on average every quarter for TP of RM 12 with PE5.
During this quarter, the Gross Profit added with other Operating Gains was MYR 309m.
This is the gross refining margin you need with a stable oil price (not dropping) in order to deliver EPS of 60 cents per quarter as you have not even subtracted the manufacturing cost.
Lets see what is the average crack spread you would need to deliver the above earnings going forward:
Barrels processed / sold per Qtr average 10.5 m
Gross refining margin per barrel needed:
= ( MYR 309 ) * (1/4.2) / (10.5 m barrels)
= USD 7.0/brl
Hope with the above people will realize its not that hard to hit RM 12 with current refining margin exceeding USD 20 / brl
2022-05-07 11:59 | Report Abuse
Good thing is the 5 - year contract for crude sourcing is over and they can freely use Russian oil at easily 20 USD /brl discount against Brent
2022-05-06 19:02 | Report Abuse
Remember PAT margin in Q4 2021 was only 4.4%, we dont need margin like gloves stock to deliver powerful earnings for refinery.
2022-05-06 18:58 | Report Abuse
The msg here is you dont need a large rise in crack spread for Hengyuan to deliver extraordinary earnings.
You just need about 13 USD/brl to hit TP of RM 24 with PE 5.
2022-05-06 18:51 | Report Abuse
Guys, study the Q3 2017 vs Q4 2021 Income Statement as closely as possible.
Compare the Gross Profit and divide them by the avg barrels processed & sold usually in a qtr (about 10m) to see the margin per barrel.
All you need is 3 USD/brl higher average margin in Q1 2022 vs Q4 2021 to obtain an EPS close or more than RM 1.
The depreciation per qtr now is half of it used to be in 2017.
For Q2 2022 no need to estimate lor.....buta buta jackpot!
2022-05-06 11:36 | Report Abuse
i was not aware of point no.3, thanks for sharing
2022-05-05 23:32 | Report Abuse
Summary:
Oil refining is typically not a high ROIC business except for the Finnish based Neste, but the recent jump in crack spreads are causing revenue growth to soar to above 70% y/y and with crude oil supply remaining tight these refining margins will remain high for a considerable time period. The question is how long this new golden age of oil refining will last. As long as capital expenditures are not being raised considerably in the energy sector the market will remain tight for quite some time.
2022-05-05 23:32 | Report Abuse
A new golden age of oil refiners
4th May 2022
https://www.home.saxo/en-mena/content/articles/equities/a-new-golden-age-of-oil-refiners-04052022
2022-05-05 15:11 | Report Abuse
13 USD/brl is actually good enough for RM 10 TP, seriously
2022-05-05 14:53 | Report Abuse
will apple168 help us clear 6.50? :)
2022-04-30 11:16 | Report Abuse
i welcome everyone to voice their opinion, as long as they have access to real current refining margin information like i do
.........
@pang72, valueguru, cactus81, kl-guy etc who have been here for sometime, a very shocking news is unfolding...
like what valueguru said, i have access to some powerful tool to know the current margin of refinery and just within last 3 days it had exploded to a value no one would belief...
this will come to surface from news soon
as such please hold on tight for a few weeks no matter what (roller coaster ride we may face) as its possible that HRC price breaks RM 10 very very soon
2022-04-29 16:02 | Report Abuse
https://www.theedgemarkets.com/article/bursa-energy-index-rises-most-led-refiners-rally-line-crack-spread-spike
Reuters also reported that profit margins for complex refiners in Singapore — the bellwether for Asian refiners — had tipped over US$20 a barrel on Wednesday while crack spreads for gasoline, diesel and jet fuel had set fresh record highs of US$22.28, US$47.53 and US$37.38 per barrel respectively on Thursday, as transportation returns to form amid easing of pandemic containment measures across the globe.
Earlier this month on April 4, rating agency Moody’s Investors Service had also said Asian refining margins will remain buoyant in 2022 as easing movement restrictions boost demand for transportation fuels, while uptake for Asian fuels from Europe has increased due to international sanctions on Russia.
It noted that at the same time, supply has fallen due to significant refinery closures last year, coupled with decreased fuel exports from China.
Strong demand for transportation fuels amid a supply shortfall would drive refining margins even as a recent surge in crude prices bolsters feedstock costs, Moody’s added.
2022-04-27 23:03 | Report Abuse
correction: more than half of its market cap
2022-04-27 22:59 | Report Abuse
actually i myself cannot belief the margin information i have.... there appears to be acute shortage of refining capacity worldwide..
at this rate , if the margin persist till end of June...
2nd qtr earnings of Hengyuan can exceed its entire market cap now...
2022-04-27 22:42 | Report Abuse
@pang72, on the same article they already mention the below:
Refining margins in Singapore, bellwether for profits at export-oriented refineries in Asia, hit an all-time high of $19.12 a barrel in April as Western sanctions hit Russian supplies while global oil inventories are at multi-year lows.
Purely FYI, the current margin is even higher than above but i will not disclose at the moment
2022-04-27 22:33 | Report Abuse
RM 440M per qtr for 67000 bpd (6 million barrels per qtr)
That means approximately USD 17 per barrel profit margin
2022-04-27 22:28 | Report Abuse
https://www.reuters.com/article/s-oil-results/update-1-s-koreas-s-oil-sees-q2-refining-margins-staying-firm-on-seasonal-demand-idUKL2N2WP08C
S-Oil reported an operating profit of 1.3 trillion won for the first quarter, up 112% from the year-ago period.
The company said it operated the crude distillation units at its 669,000 barrels-per-day refinery in the southeastern city of Ulsan at 99.6% of capacity on average in the January-March period, up from 98.7% in the fourth quarter.
...........
thats approximately 440 million RM for a 67,000 bpd capacity
2022-04-27 21:30 | Report Abuse
https://money.usnews.com/investing/news/articles/2022-04-26/valero-kicks-off-u-s-refiners-first-quarter-earnings-with-profit
Refiners' earnings are expected to remain strong in coming quarters as sanctions on Russia following its invasion of Ukraine have cut global product inventories at a time when fuel demand has rebounded to near pre-pandemic levels. In addition, numerous facilities have closed in the last year, boosting profitability for existing refiners.
Valero's quarterly refining margin more than doubled to $3.21 billion from a year earlier.
2022-04-27 19:18 | Report Abuse
@pang72, there are two errors on the above derivation from KYY posting..
1) EPS calculated above of 50 cents is per month (30 days) not per qtr
2) Refining margin obtained from average crack spread of all products including gasoline & diesel, has to be deducted with 'break even' margin (the cost of production per barrel).
2022-04-27 19:11 | Report Abuse
PetronM just announced 20 cents Dividend
2022-04-27 19:09 | Report Abuse
thanks for the wishes apple168
2022-04-27 19:03 | Report Abuse
@apple168, i test your maths intelligence..can you see the error in KYY's EPS derivation on point - 02 on the link you provided...? :)
2022-04-27 18:39 | Report Abuse
@apple168, FYI... HRC is beneficiary of weakening RM against USD
The crack spread is in USD/brl and HRC margin (to Shell retail) is fixed on the Singapore crack spread
2022-04-27 17:38 | Report Abuse
If this prolongs for a few more months, Earnings can actually exceed the entire market cap of HRC... it will be flushed with cash for expansion. NTA will hit RM 10 easily by end of June.
2022-04-27 17:20 | Report Abuse
Hurricane Harvey in 2017 had only momentarily made the crack spread to shoot up about 16 USD/brl....
This 2022 Russia-Ukraine war and China refined oil export tax has triple the power of the hurricane now. They say this can last for 3 years...
2022-04-27 17:12 | Report Abuse
Refining margins have hit a high on the back of record-high diesel spreads. Singapore complex hovered between $ 19-20/bbl last week, while diesel spreads have been between $ 40-45/bbl.
https://www.5paisa.com/tamil/blog/indian-omcs-refining-margin-spike-to-continue
2022-04-26 17:35 | Report Abuse
@Johnzhang, market have not realized crack spread for Diesel yet....wait till it realize
2022-04-26 17:24 | Report Abuse
Check Page 41 on the Annual Report just released
2022-04-25 22:37 | Report Abuse
sifu pang72 so silent....
Tips: check page 37 of Hengyuan's annual report (refining margin FIFO)
It will also show what is was like in 2017 (the Hurricane Harvey year)
2022-04-25 18:06 | Report Abuse
https://pulsenews.co.kr/view.php?sc=30800028&year=2022&no=347756
South Korea refiners will likely report strong results in the first quarter while display and battery makers could be disappointing due to slowed demand coupled with spike in raw materials prices.
According to the consensus of seven analysts compiled by Yonhap Infomax, SK Innovation is expected to have raked an operating profit of 1.3 trillion won ($1 billion) for the first quarter, reversing from previous quarter’s loss and doubled from a year earlier. S-Oil is expected to report record-high operating profit of 1.2 trillion won, up 94.9 percent from a year earlier. Its best record so far is 704.1 billion won earned in the second quarter 2008.
“Oil refiners’ profitability has improved sharply as inventory value rose on surging global oil prices while refining margin also jumped, said Cho Hyun-ryeol,” Samsung Securities analyst. “Strengthening in refining margin will likely continue as jet fuel demand is also projected to pick up from the second half,” Cho projected.
Refining margin, the difference between the price of raw materials (crude oil) and price of petroleum products, and which is considered refiner’s key indicator of profitability, has hit a 22-year high recently. Korean refiners see $4 to $5 per barrel a break-even point. The benchmark Singapore gross refining margin (GRM) reached $18.2 per barrel, the highest since recording tracking began in 2000, in the third week of April, after adding $0.8 in a week. Singapore GRM had $6 averaged early this year but rose rapidly to $13.9 per barrel in late March as Western countries sought cutting off Russian oil while global demand for petroleum products continued recovery.
The oil price spike has also helped refiners’ inventory value surge, which is translated as higher profits.
2022-04-25 17:22 | Report Abuse
sifu Pang72...lets play Q&A game...
can you guess what will be the PAT of Hengyuan if the crack spread is maintained about 12 USD/brl? :)
2022-04-25 11:25 | Report Abuse
those who missed will never get it
2022-04-24 17:24 | Report Abuse
Lets see if this could pull in some intelligent information
2022-04-22 22:00 | Report Abuse
It shows this new management (after Shell) is good
2022-04-22 21:58 | Report Abuse
I mean end of 2015 (NTA 2.25) - end of 2020 (NTA 7.22)
RM 5 in just 5 years.
Blog: Hengyuan’s profit growth is doubtful - Koon Yew Yin
2022-05-07 20:47 | Report Abuse
Shandong-based independent refinery buying Russian crude discounted $35 per barrel against Brent crude
MAY 4 2022
https://www.ft.com/content/4f277a24-d681-421a-9c94-29d6fd448b20
China’s independent refiners have been discreetly buying Russian oil at steep discounts as western countries suspend their own purchases and explore potential embargoes because of the war in Ukraine.
An official at a Shandong-based independent refinery said it had not publicly reported deals with Russian oil suppliers since the Ukraine war started in order to avoid attracting scrutiny and being hit by US sanctions.
The official added that the refinery had taken over some of the purchase quota for Russian crude from state-owned commodity trading firms, which are seen to represent Beijing and have mostly declined to sign new supply contracts.
Many western companies are self-sanctioning or struggling to secure the insurance, shipping or financing needed to buy Russia’s commodity exports, raising expectations that energy-hungry China will step in and buy the unsold barrels.
The purchases from China’s independent refineries reveal how some importers are bypassing traditional routes to access cheap Russian oil, helping Beijing maintain a low profile as the west barrages Moscow with sanctions.
.......
Brian Gallagher, head of investor relations at Belgian tanker group Euronav, said the consolidation of Russia oil on to larger ships for transport to Asia was “unusual”. But with Urals discounted $35 per barrel against Brent crude, he added that Chinese refineries were motivated to buy.