DK66,

Thank you for referencing my articles in your write-up.

I do believe that Jaks is a counter with potential for a handsome return.

Jaks - Winner Andy Ang

https://klse.i3investor.com/jsp/blog/blallpost.jsp?blid=4374

Jaks - Green Light Now?

https://klse.i3investor.com/blogs/financialpedia/185815.jsp

Seacera Poised For A Takeover

https://klse.i3investor.com/blogs/financialpedia/180294.jsp

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.

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."

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

qqq3,

Sales price - please read Note 1(a). It is clearly explained there.

Stock valuation - stocks are stated at cost. There is no profit element in my stocks. Please read and understand Note 2(c).

————-

qqq3 don't be funny David....How did you get your sales price?

and your stock valuations? accounting policy should be lower of cost and net realisable values....not market prices....

profits are to be recognised in the period of sales, not in the period of manufacture......

CharlesT,

I am neither but I am a shareholder of HRC.

—————

CharlesT Full time analyst n also full timr promoter for syndicate
09/04/2018 20:56

probability,

At no time did I say that HRC’s EPS will be RM3.70 per annum. This analysis is for Q1 2018, and not for FY2018. There is no way you can extrapolate the results of one quarter into a full year.

Please do not put words in my mouth.

—————

probability so far the best analysis was done by David_Tan, KC already say....

It is indeed the most professional analysis so far.

82 cents x 4 = RM 3.70 per annum...

with this kinda support from i3 members, and Koon and his wife who used to serve curry puff to KC.....

why fear

we have a big community helping all to be succesfull investor
09/04/2018 20:51

CharlesT,

If you are referring to Koon Yew Yin and Ooi Teik Bee, no I am not related or connected to them.

—————

CharlesT Are u one of the koon bee team as well?
09/04/2018 20:49

lanjiolang,

My analysis required data from 1 January 2018 to 31 March 2018. This is a time consuming exercise. I guess you will ask me the same question even if I managed to get this article out last Thursday or Friday. Truth is I can only work on this article after 31 March 2018, and today is only 9 April 2018.

—————

lanjiolang David Tan, may i know why you chose today to publish this article?
09/04/2018 20:47

Jeffbkt,

Based on accounts made available to public, we will not know the breakdowns of manufacturing and administrative expenses. This makes profit forecasts challenging. For instance, the higher administrative expenses incurred in Q4 2017 could be for bonuses paid at the end of the year. Or there could be other one off expenses. But we will not know for sure.

As such, as I have explained in my article, I use the average of the past 8 most recent quarters. And to remove the effects of any outliers, the quarter with the lowest and highest numbers are removed in determining the average expense.

—————

Posted by Jeffbkt > Apr 9, 2018 08:37 PM | Report Abuse

David Tan
In Q4 2017, the manufacturing expenses is 20M more than Q3 and the admin expenses is 10M more than Q3. Can you explain why? If you can't then on what basis that this high expenses will not continue in 2018

3iii,

You have gotten the wrong author. I did not post any article on Q4 2017.

Thanks.

Please take a look at my analysis on Hengyuan's Q1 2018 profitability.

https://klse.i3investor.com/blogs/financialpedia/152815.jsp

Please take a look at our analysis of MediaC.

https://klse.i3investor.com/blogs/financialpedia/151565.jsp

probability,

Good thinking on the reverse working. It’s clear and easily understandable by everyone.

3iii, brisk and CharlesT,

Please read paragraphs 1, 2 and 3 at the beginning of the article.

Thank you.

Don Choivo,

Re your comment on non-cash items such as impairments and write-downs not being included in the calculation above.

One of the key purpose of the DCF method is to specifically exclude such non-cash items and to place emphasis upon the cash flows of the entity.

An update on our article titled 'Valuing Hengyuan - Discounted Cash Flow Method.



[The following was inserted into this article after it had been initially posted. Updated on 16 March 2018, 1.40pm]

There are comments that the discount rate used was too generous. As I have mentioned in the beginning of the article, the DCF method always draws disagreements to assumptions and estimates used. Nevertheless, for discussion purpose, lets try a discount rate that is more conservative.

Using the Weighted Average Cost Of Capital ("WACC") again to calculate the discount rate, I revisit inputs for cost of equity and cost of debts.

The cost of equity I previously selected was that of Maybank's fixed deposit rate as that will be the opportunity cost of the fund used to invest. Here, I will be using the cost of margin facililty instead - this being the interest expense that you will have to pay for investing using bank borrowings. Maybank's current interest rate for margin facility is 4.65% per annum.

The cost of debts was previously taken as the average term loan interest rate of HRC for the past 2 years as extracted from HRC's audited financial statements. For this illustration, I am selecting the upper most interest rate incurred by HRC in the past 2 years of 5.27% per annum.

Based on the above inputs, the discount rate using WACC is 4.44% and HRC is valued at RM18.25 per share.

Please take a look at our valuation of HRC based on the Discounted Cash Flow method.

https://klse.i3investor.com/blogs/financialpedia/150907.jsp

Icon8818,

I appreciate where you are coming from. But from an accounting point of you, your approach is incorrect.

Thank you.

Icon 8818,

Below is my reply to your concerns.

1. Your inventory gain of RM400m is incorrect. I believe you are referring to MFRS 13 (Fair Value Measurement). The inventory is classified as a Level 1 asset and the market market value is quite readily available.

As at 31 December 2016, inventory is valued at RM826m. Brent crude price was RM255 per barrel. This translates to approximately 3.2m barrels in hand.

As at 31 December 2017, brent crude price was RM272 per barrel. The fair value of the said 3.2m barrels is therefore RM870m.

The fair value gain on inventories in FY 2017 was therefore only RM44m, and not RM400m claimed by you.


2. I agree that there was an exceptional gain in Q3 2017 and hence should not be taken into account for future projections. As such, our projected 2018 numbers were determined based on that of Q4 2017 (being the latest available numbers) and not the GP margin for the entire 2017. This was clearly explained in our analysis.


3. Re refining margin. It is incorrect to say that refining margin in 2018 thus far is below that seen in Q4 2017. As also pointed out in our analysis, 2018 thus far has seen a volatile crack spread movement. Yes, there were days when margins were below Q4 2017, but there were also days when margins were significantly higher than Q4 2017. You may refer to available information on the internet for confirmation.


4. Re plant upgrade shutdown. We believe that there is no basis for your stating that the planned exercise will 'easily exceed 2.5 months'. The said upgrade involves transfer of technology and know-how from HRCB's parent company in China. This is not a new exercise or technology to the Group as a whole. They are experienced professionals in an advanced industry.


5. Malaysia's corporate tax rate is 24%, and not 25% as stated by you.


6. Re the U$160m budgetted for upgrade exercise. Management had via the Q4 2017 report stated that RM542m had been approved and contracted for, while another RM205m had been approved but not contracted for.

The reinvestment allowance arising from this upgrade exercise is an approved tax incentive in Malaysia.

As HRCB will likely make a profit this year (as even your personal computation shows a profit of RM329m), the reinvestment allowance will certainly be of benefit to reduce HRCB's taxation expense for 2018.


I hope that the above clears your misunderstandings.

Thank you.



Icon8818 there are BIG ERRORs in the above estimation as shown below:

(1) 2017 Gross profit was derived despite Inventory Gain more than 400 Million for the year.

(2) 2017 Gross profit had exceptional Refining Margin due to Hurricane Harvey


Take out the above two effects in 2017 and replace it with below for 2018:

(1) Huge potential for Inventory loss (crude price has more downside risk)

(2) Refining margin had significantly dipped as shown in Q4 2017 despite inventory gain for this quarter. The refining margin was higher in Q4 2017 than current Q1 2018. Current low margin is what to be expected for the whole year 2018.

(3) The MTA shutdown will easily exceed 2.5 months. There is a huge risk of commissioning / troubleshooting not turning up well escalating delays to even a year.

(4) The 25% Tax


2018 has every reasons to be disaster for Hengyuan

My sincere warnings to all
06/03/2018 20:26


Capex of 160M was only budgetted, there is no certainty it will result with Tax reduction.

Also the tax benefit only becomes apparent when there is a good PBT to start with.

There is much bigger potential for a heavier inventory loss exceeding 200M.
07/03/2018 13:41

Icon 8818,

Below is my reply to your concerns.

1. Your inventory gain of RM400m is incorrect. I believe you are referring to MFRS 13 (Fair Value Measurement). The inventory is classified as a Level 1 asset and the market market value is quite readily available.

As at 31 December 2016, inventory is valued at RM826m. Brent crude price was RM255 per barrel. This translates to approximately 3.2m barrels in hand.

As at 31 December 2017, brent crude price was RM272 per barrel. The fair value of the said 3.2m barrels is therefore RM870m.

The fair value gain on inventories in FY 2017 was therefore only RM44m, and not RM400m claimed by you.


2. I agree that there was an exceptional gain in Q3 2017 and hence should not be taken into account for future projections. As such, our projected 2018 numbers were determined based on that of Q4 2017 (being the latest available numbers) and not the GP margin for the entire 2017. This was clearly explained in our analysis.


3. Re refining margin. It is incorrect to say that refining margin in 2018 thus far is below that seen in Q4 2017. As also pointed out in our analysis, 2018 thus far has seen a volatile crack spread movement. Yes, there were days when margins were below Q4 2017, but there were also days when margins were significantly higher than Q4 2017. You may refer to available information on the internet for confirmation.


4. Re plant upgrade shutdown. We believe that there is no basis for your stating that the planned exercise will 'easily exceed 2.5 months'. The said upgrade involves transfer of technology and know-how from HRCB's parent company in China. This is not a new exercise or technology to the Group as a whole. They are experienced professionals in an advanced industry.


5. Malaysia's corporate tax rate is 24%, and not 25% as stated by you.


6. Re the U$160m budgetted for upgrade exercise. Management had via the Q4 2017 report stated that RM542m had been approved and contracted for, while another RM205m had been approved but not contracted for.

The reinvestment allowance arising from this upgrade exercise is an approved tax incentive in Malaysia.

As HRCB will likely make a profit this year (as even your personal computation shows a profit of RM329m), the reinvestment allowance will certainly be of benefit to reduce HRCB's taxation expense for 2018.


I hope that the above clears your misunderstandings.

Thank you.



Icon8818 there are BIG ERRORs in the above estimation as shown below:

(1) 2017 Gross profit was derived despite Inventory Gain more than 400 Million for the year.

(2) 2017 Gross profit had exceptional Refining Margin due to Hurricane Harvey


Take out the above two effects in 2017 and replace it with below for 2018:

(1) Huge potential for Inventory loss (crude price has more downside risk)

(2) Refining margin had significantly dipped as shown in Q4 2017 despite inventory gain for this quarter. The refining margin was higher in Q4 2017 than current Q1 2018. Current low margin is what to be expected for the whole year 2018.

(3) The MTA shutdown will easily exceed 2.5 months. There is a huge risk of commissioning / troubleshooting not turning up well escalating delays to even a year.

(4) The 25% Tax


2018 has every reasons to be disaster for Hengyuan

My sincere warnings to all
06/03/2018 20:26


Capex of 160M was only budgetted, there is no certainty it will result with Tax reduction.

Also the tax benefit only becomes apparent when there is a good PBT to start with.

There is much bigger potential for a heavier inventory loss exceeding 200M.

traderman,

Management of HRCB had in their Q4 2017 report commented that a delay in the planned completion is expected but at the moment, there is no indication stating that it cannot be completed before the October 2018 dateline.

The delay also does not mean the exercise requires a timeframe longer than 2.5 months as planned; the delay is due to a longer time needed to fabricate the main equipment. It simply means that commencement of work will be delayed. As such, production downtime of 2.5 months remains.

Thank you.

traderman smary guy, Euro 4M Mogas completion is delay. please study the quarter report first
06/03/2018 18:54

Please take a look at our analysis of HRCB for FY2018

https://klse.i3investor.com/blogs/financialpedia/149856.jsp

brightsmart,

Your view on Masteel is incorrect. You have not done your homework correctly prior to presenting your opinion.

1. Masteel’s QoQ operational earnings did not drop by 70% as you claimed. All you had to do was to look at Masteel’s 30/9/17 quarterly report and you will clearly see that there was a gain of RM20.6m arising from reversal of deferred taxation. Hence, operationally, the profit for that quarter was actually RM18.1m, and not RM38.7m (accounting profit).

2. A fall in steel price may actually be good for Masteel. After all, steel is it’s main raw material. A drop in global steel demand (if any) may also further reduce prices of consumables such as metallurgical coke. There is no worry about China or anyone else dumping their steel onto Malaysia as being quicker than the Americans, our government had already imposed similar import tariffs in 2017 to protect our local steel industry. If you are not aware of this, you have no place commenting about Masteel.

I find your article highly inaccurate and very irresponsible as you write without substance and facts. As you yourself said, investments involve investors’ hard earned money. If you truly understand this point, then why are you writing untruths and lies?

According to Petron 2016 Annual Return, Petron O&G Intl S/B owns 73%. Other shareholders all below 1%

---------- ---------- ----------

Posted by JayC > Oct 17, 2017 01:41 PM | Report Abuse

may I know if amanaraya got share in PETRONM? if yes, we need to analyse why they sell heng yuan and not petronM

If this biological assets is related to the plantation land sale, then the total cost of the sale will be RM352m + RM18.75m + RM262m = RM633m

Pre-tax profit is then RM117m. RPGT @ 5% is RM5.85m giving a net profit of RM111m.

At 846m shares, EPS will be 13 sen.

Sitting in the books of Dutaland (AR2016) is 'biological assets' amounting to RM262m. Anyone knows what this is?

Based on 2016 Annual Report, the land has a carrying value of RM352m (revalued in 2015).

Note: AR2016 states that the land measures 29,599.25 acres which is a bit larger than 11,600 hectares. For conservative computation, am assuming the entire value of this piece of land as cost. Am not sure why there is a difference in measurement.

Land is being sold for RM750m. Say incidental expenses amount to 2.5% of selling price i.e. RM18.75m, giving a pre-tax profit of approximately RM380m. RPGT of 5% amount to RM19m. Net profit for the sale of land is therefore RM360m.

At 846m number of shares, EPS is approximately 42.5 sen.

Supermx2, you are not allowed to suspend trading due to results announcement (good or bad). Airasia is making some announcements. I wouldnt know what it is. We'll have to wait

You guys need to learn how to ready financial reports properly lah. Deferred tax is an accounting entry only. Without this accounting entry, quarterly profit is RM457,941,000

Oh and 1 more thing. Not technical related. What's with some of those who comment here laughing at fellow investors who are losing their hard earned money? You know who you are. You seriously get joy out of posting such comments?

Notwithstanding what I’ve written above, please invest based on your personal judgment. Informed judgement preferred. Also, stick to your personal investment strategy. If you have preset, say, 20% cut-loss strategy, and the emotional investors do cause the price to hit your threshold, you may want to stick to your plan and preserve your capital.

I am of course hoping that there will be no major knee jerk reaction on Monday because any such occurrence is simply not guided by sound financial acumen. Remember, there will always be people buying from panic sellers. Who are these buyers? Someone who understands the market and possess financial knowledge, maybe? Insiders, maybe?

Maybe some of you may have been more engrossed with negative news, but also do look at some of the positive news that management of TS has given out recently. Among them was this:

http://www.theedgemarkets.com/my/article/tek-seng-says-it%E2%80%99s-still-full-steam-ahead-after-layoffs

Management has stated that the past is in the past. They had business deals which did not work out as planned and it affected 4Q 2016. Reasonably, how do you expect management to replenish large loss business orders in a space of weeks to meet 4Q shortfall.

Looking forward, the MD said that they have secured a new RM40m deal for FY2017. And that is on top of on-going orders in the books. They are in fact increasing their production line from 7 to 10 lines to cater for this increase in orders.

Note: Looking at the detailed announcement for 31 December 2016 results, I do think that there is a deliberate attempt to book in a substantial amount of unrealised foreign exchange losses (to the tune of RM3.8 million) since the quarter’s results is already less than favourable. What may happen to this unrealised foreign exchange losses in FY2017? There are only 2 outcomes (a) becomes a realised foreign exchange loss with no further impact to the income statement (b) reversal in the income statement as a corresponding credit i.e. income.

I see a lot of panic here which is understandable as the 4Q results was indeed not pleasant.

Nevertheless, I would like to highlight to fellow TS shareholders that, if you believe in the efficient market hypotheses, then you will know that the unfavourable Q4 results have already been priced in since news of the retrenchment, cancellation of JV, slowdown in production etc. came in.

Here is a summary of historical records for you to digest:

1. As at 26 September 2016 (the final trading day before the retrenchment news was published), TS's closing price was RM1.27. Based on EPS available at that point in time of 10.18 sen (extracted from quarterly announcement as at 30 June 2016), TS was trading at PE of 12.48 times.

2. As at last Friday, 24 February 2017, TS's closing price was RM0.74. Based on the latest EPS of 9.72 sen (extracted from quarterly announcement as at 31 December 2016), TS is now trading at PE of 7.61 times.

What this shows is that the less than favourable news which took place during 4Q of 2016 has seen the share price and PE ratio of TS falling correspondingly during 4Q of 2016. Market has already priced in the development of the company's business along the way. Financial analysts and fund managers take notice of developments and adjust their valuations throughout the year.

Unfortunately, uninformed and emotional investors adjust their share price valuations post announcements. These investors will dump the shares on Monday in a knee jerk reaction. It is not a rational financial decision but there are various types of investors out there.