Posted by cheoky > 2017-07-17 22:49 | Report Abuse

great insight

Posted by probability > 2017-07-17 23:08 | Report Abuse

Effect of refinery complexity factor (can be verified if required):

when complex refinery margin is at 5 USD/brl, simple refiners margin is at almost zero margins (scenario 1).

When complex refinery margins is 9.3 USD/brl, simple refiners are at 4.3 USD/brl (scenario 2).

assume USD to RM exchange rate at 4.3



SCENARIO 1 (earnings per qtr):

PetronM gross profit from refinery:
= 4.3 USD/brl x 48k bpd x 90 days/qtr
= RM 80M
PetronM retails from Jay's publishing earlier:
= RM 104M
Total = 184M (EPS = 40 cents)

HRC refinery gross profit from refinery:
= 9.3 USD/brl x 112k bpd x 90 days/qtr
= RM 400M (EPS 90 cents)


HRC EPS is 2.25 times higher than PetronM



SCENARIO 2 (earnings per qtr):

PetronM gross profit from refinery:
= 0 USD/brl x 48k bpd x 90 days/qtr
= RM 0M
PetronM retails from Jay's publishing earlier:
= RM 104M
Total = 104M (EPS = 19 cents)

HRC refinery gross profit from refinery:
= 6 USD/brl x 112k bpd x 90 days/qtr
= RM 260M (EPS = 45 cents)


HRC EPS is 2.36 times higher than PetronM


Now let us assume the long term reality will approach SCENARIO 1 where the EPS ratio of HRC/PetronM is less severe, i.e minimum 2.25 conservatively (of course provided the complexity factor basis above is true).

Basically this means, the retail segment of PetronM (currently generating 104 M / qtr) needs to grow by 10% every year for the next 8 years just to match the present EPS of HRC.

Note that i am not even talking about the Net present value, i am talking about future EPS in 8 years time.

We need 8 years of 10% CAGR assuming extreme marketing skills of PetronM to capture the market share just like IKEA can do..to be given the same Price per unit share with HRC.

Posted by 3iii > 2017-07-17 23:13 | Report Abuse

Thanks for the article. Good insight.

Posted by pang72 > 2017-07-17 23:17 | Report Abuse

Wow...very good analyse from Probability.
By calculation(fact)-not talking/dreaming/guessing/assuming-HRC is 2x better than Petron.

We wait for mr market to reward HRC with current rm5.8 only
The explosive gain for buying HRC is. :-)

Posted by probability > 2017-07-17 23:26 | Report Abuse

Actually the retail segment margin is purely at the mercy of government. We never know what can happen in 8 years time...

how if Shell Retails (not HRC) or Petronas becomes very aggressive with their marketing..can they not do that?

For PetronM to achieve the growth i mention above...they need to more than double their petrol stations in 8 years time...meaning another 700 petrol stations ( 90 new petrol stations / annum) needs to be acquired...

Posted by Felicity > 2017-07-17 23:44 | Report Abuse

Hi Probability, your insight is very good, but you actually miss the gist of this article.
Also, I do not think Shell being a close second to Petronas will want to grow the retail segment too fast. In the retail side Shell is probably the largest at the moment. They will not want to outgrow Petronas. The race is actually for the 2nd and 3rd. I do not think a foreign player will want to outgrow the local supported incumbent too far. If one wants to operate well, operate within limits and do not get over noticed. This is business.
While Hengyuan can be a good refiner (yet to be really tested for a long period) - it is purely a refiner. At this moment, the crack for a refiner is good. One should be wary of buying at its highest margin period.
For retailing, look at PDB as a very good example, the government will never allow the retail to lose money. As for refinery, it is a different story. The input price is according to MOPS as well as output price for the refined oil. Shell buys from Hengyuan at MOPS.

Posted by probability > 2017-07-18 00:05 | Report Abuse

Felicity, Mean of platts is a natural pricing mechanism - not controlled by government as i understand.

Posted by probability > 2017-07-18 00:12 | Report Abuse

On HRC, we definitely should not value it at current composite crack spread (refinery margin) level...

The valuation should be based on the norm expected. The 6.5B investment capital for 150k bpd refinery as projected by PetronM can be a good basis. It works out at ~ 6USD/brl.

why HRC is interesting at the moment?

its because of its huge Debt...which is a double-edged sword...and its pointing at the right direction currently.

Posted by probability > 2017-07-18 00:15 | Report Abuse

I am vested in PetronM too, its easy to see why its cheap...even at EPS of 19 cents/qtr (without the refinery contribution) if one gives P/E as given for Petdag...it should definitely be trading at double digits now!

Posted by supersaiyan3 > 2017-07-18 00:16 | Report Abuse

I think 1. Hengyuan's recent high profits comes from inventory. 2. The China parent wanted to get out of bad market through swapping products with Malaysian subsidiary, it has failed because they can't get the licenses. 3. The reputable board members will gradually quit because they can not stand the way Chinese works. They are there just because they have been there for a long time. 4. The parent company is the champion of pollution.

I don't know how Petron works in your place, but i see their petrol stations have leaner structure. In this weak economic environment, less staff and smaller operation wins!

Posted by calvintaneng > 2017-07-18 03:28 | Report Abuse

No matter how good a stock is projected we must always prepare for some unforeseen circumstances.

In 1985 to 1987 tin & rubber prices collapsed. I saw one of the deepest recession Singapore ever experienced.

Many people lost their jobs or got retrenched.

In Singapore Repo Car Yards Cars are jammed packed to overflowing with no extra space literally.

So many people just surrendered their cars to the finance companies. No money for installment. Don't even have money to pay for petrol.

This was what happened during the Great Depression as depicted in the film "The Grapes of Wrath" people could not afford to pump petrol - those who could only bought just 1 liter of petrol to travel short distances then.

So always remember - nothing is for sure.

Posted by pang72 > 2017-07-18 08:31 | Report Abuse

Probability : do you mind to help to calculate the quarter earning for Reach Energy?

Posted by pang72 > 2017-07-18 08:42 | Report Abuse

Rhb gives 1.14 TP which is very promising

Posted by Flintstones > 2017-07-18 09:00 | Report Abuse

Wow felicity sifu is here! Respect.

Posted by invest_101 > 2017-07-18 09:05 | Report Abuse

Good contribution by both felicity and probability. I agree with both as felicity is comparing business models while probability on valuation/opportunity of both companies at current prices. Kudos and good luck.

Posted by paperplane2016 > 2017-07-18 11:02 | Report Abuse

no wonder PetronM up so much today

Posted by resilient911 > 2017-07-18 11:38 | Report Abuse

petronm looks in investor radar.
good opportunity to enter

Posted by probability > 2017-07-18 13:31 | Report Abuse

http://stockfundatalk.blogspot.de/2006/02/oil-gas-refining-refining-margins.html

Posted by probability > 2017-07-18 13:32 |

Post removed.Why?

Posted by probability > 2017-07-18 18:15 | Report Abuse

JULY 7, 2017 / 1:59 PM / 11 DAYS AGO
Japan, S. Korea oil refiners maximize runs to profit from margins at five-month highs
3 MIN READ
* Japan, S Korea average refinery runs above 90 pct

* Solid demand may prompt runs to stay high for extended period

* Demand growth may outpace added capacities over 2017-2019 - BMI

SINGAPORE, July 7 (Reuters) - South Korean and Japanese refiners are running their plants at near-maximum capacity to cash in on profit margins that are at five-month highs, industry sources told Reuters on Friday.

Singapore overall refining margins to Dubai crude DUB-SIN-REF rose to $7.34 per barrel on July 6, the highest since Feb. 16, amid weaker crude prices and strong demand for oil product such as fuel oil, gasoil and jet fuel.

Japanese refineries were mainly running at above 90 percent of their capacity from January to May this year compared with below 90 percent for the same period last year, according to data from the Petroleum Association of Japan.

South Korean refineries had an even higher throughput of 99.1 percent for the January to May period compared with last year's 96.6 percent, data from Korea National Oil Corp showed.

"(Margins) were strong because of tight regional inventories, and this shows how solid demand is," said a source from a South Korean refinery who declined to be named due to the sensitivity of the matter.

"There is little reason to trim down the run rates," the source added.

Asia's refinery run rates are expected to increase further in the second half, said Peter Lee, an oil and gas analyst at BMI Research, adding that the pace of incremental fuel demand growth will outstrip refining capacity additions over 2017-2019.

"This will be positive for runs, before the market flips into a refining overcapacity from 2020," he said.

Strong margins were seen across three key refined products, fuel oil, jet fuel and diesel which make up about 40 to 70 percent of a refinery's output.

"Fuel oil is often treated like a by-product but recently it became the same price or higher than Dubai crude, which means there is no reason to keep run rates low unless you have a planned maintenance," said a trader with a Japanese refinery who declined to be named as he was not authorised to speak with media.

The cost of Dubai crude, the Middle East oil benchmark DUB-1M-A for Asia refiners that typically process Middle East grades, has dropped 11 percent to $47.11 per barrel since May 25, when the Organization of the Petroleum Exporting Countries (OPEC) said it would extend output cuts.

"(The strength in margins) relies on (product) demand remaining strong and refinery maintenance, both planned and unplanned, remaining elevated. If either disappoint then margins are ripe for a correction," said Virendra Chauhan, analyst at Energy Aspects.

Posted by 360Capitalist > 2017-07-24 08:18 | Report Abuse

Malaysia : Oil Refinery Players :-
1)Melaka I Refinery (Petronas), 100,000 bbl/d (16,000 m3/d)
2)Melaka II Refinery (Petronas/Phillips 66), 170,000 bbl/d (27,000 m3/d)
3)Kertih Refinery (Petronas), 40,000 bbl/d (6,400 m3/d)
4)Hengyuan Port Dickson Refinery (Hengyuan), 156,000 bbl/d (24,800 m3/d)
5)Petron Port Dickson Refinery (Petron), 88,000 bbl/d (14,000 m3/d)
6)Kemaman Bitumen Refinery (TIPCO), 30,000 bbl/d (4,800 m3/d)

Remarks :
HENGyuan Vs PetronM
HengYuan's refinery capacity is twice the size of Petron Malaysia, hence with good crack spread we should see HengYuan's profit will be double of PetronM's earning potential.
It should be a better bet in terms of profitability for HengYuan against PetronM.
Theoritically, HengYuan's share price (300mil shares @ RM5.80) should be higher than PetronM (279Mil shares @ RM8.50).

It is about time for HengYuan to catch up again PetronM. I believe within 6-9 months, HengYuan's share price should be running ahead of PetronM.

Posted by jackfruit > 2017-07-24 09:13 | Report Abuse

China refiners are starting to dump diesel into the world market.