For those who do not read Chinese, I provided a news report link on the parent company of Hengyuen. The news was published by an environmentally concern reporter in 2012. It said Hengyuan Shandonghas been polluting the nearby area through directly channel dark-color waste water into the drainage and black smog spreading tenths of mile, creating problems such as undrinkable underground water, sickness etc. We all have choices. May goodness be with you.
If you see the above article i posted on Ruwais refinery, what is most mind-boggling is this:
"they are now mainly producing Fuel Oil as they could only operate their Hydroskimming unit as their Catalytic Cracking unit for Higher conversion to Gasoline (and other lower hydrocarbon chain lengths) is the one damaged due to the fire"
Despite all this the Singapore Fuel Oil Crack spread is currently shooting sky high...meaning there are so many other factors that are conducive regionally to maintain a healthy overall refinery margins.
yup, that is one point i wanted to correct you, but leave it...as there are safety margins on your refining margins, throughput, forex etc. Even if its way lower it does not matter.
Inventory down valuation does not affect cash flow, i.e will cause cash flow to be higher than earnings. I am hoping for a spectacular cash flow on Q2!
market has now realized Not to link Oil price with Refinery Performance i.e Margins..same way they will realize stock loss or gains are temporary effects which will be having zero cumulative effects just like how you take out non-core operating profit (one off gains/loss) to value the stock based on core operating profit.
I was a bit concern on inventory loss effects on Reliance India results using a a greater delta change on Brent pricing than u had used, but their results proved otherwise, meaning your basis on delta price are probably more correct.
Raider says...people are too worried about refinery earnings loh...!!
U need to understand loh...HRC trading at PE 3x...why leh bcos sceptical about refinery profit sustainablility loh...!!
Also people worried about inventory losses too loh !!
Put it this way loh....!! At PE 3x....HRC is generating 33% return pa loh...!!
If u look at 2015 and 2016 HRC is generating more than EPS Rm 1.00 mah...!!
So if HRC can generate another EPS above rm 1.00 in 2017 certainly mkt will rerate mah....!! It is unsustainable HRC PE maintain so low at 3x mah....!!
What is the fair rerate conservative value leh ?? Raider think at least PE 6x loh....!!
Thus if 2015 EPS Rm 1.00 2016 EPS Rm 1.00 2017 est EPS Rm 2.00 Avg EPS Rm 1.33
So if AVG EPS Rm 1.33 for 2017 ...rerate PE 6x....will mean HRC easily immediate target share price of Rm 8.00, this is coming 2nd qtr reporting loh...!!
So be prepare to expect HRC share price at around Rm 8.00 in aug after 2nd qtr reporting date loh...!!
Probability: My calculation try to be conservative. When the actual result released in Aug are better than my estimated profit, this can give market a surprise and triggers a strong buy.
Raider says...people are too worried about refinery earnings loh...!!
U need to understand loh...HRC trading at PE 3x...why leh bcos sceptical about refinery profit sustainablility loh...!!
Also people worried about inventory losses too loh !!
Put it this way loh....!! At PE 3x....HRC is generating 33% return pa loh...!!
If u look at 2015 and 2016 HRC is generating more than EPS Rm 1.00 mah...!!
So if HRC can generate another EPS above rm 1.00 in 2017 certainly mkt will rerate mah....!! It is unsustainable HRC PE maintain so low at 3x mah....!!
What is the fair rerate conservative value leh ?? Raider think at least PE 6x loh....!!
Thus if 2015 EPS Rm 1.00 2016 EPS Rm 1.00 2017 est EPS Rm 2.00 Avg EPS Rm 1.33
So if AVG EPS Rm 1.33 for 2017 ...rerate PE 6x....will mean HRC easily immediate target share price of Rm 8.00, this is coming 2nd qtr reporting loh...!!
So be prepare to expect HRC share price at around Rm 8.00 in aug after 2nd qtr reporting date loh...!!
Looking carefully on share performance in its glory days;
yr share price range average pe 2005 8.50 to 12.30 6x 2006 9.55 to 11.20 12x 2007 9.50 to 11.60 5.5x 2008 7.95 to 11.80 loss 2009 8.05 to 11.30 10x 2010 10.40 to 10.98 30x 2011 9.11 to 11.20 loss 2012 8.38 to 10.38 loss 2013 6.38 to 8.99 loss 2014 4.60 to 7.00 loss 2015 4.40 to 6.00 3.5x 2016 2.10 t0 6.00 3x
What cause HRC earnings to collapse in 2011 to 2014 ?? It is due mainly to HRC capacity and few billion capex in 2011 during the refinery margin downturn loh....!!
In 2011 to 2014 refining gross margin collapse to usd rm 1.00 to 1.50 per barrel loh....!!
This make a disaster for HRC with huge depreciation after the refinery expansion in 2011 and low gross refinery margin a recipe for destruction mah....!!
HRC is on the road to recovery with refining margin of USD 6.00 bpd in 2015 and USD 5.50 bpd in 2016.
It is expected 2017 the refinery margin will be USD 7.00 to 9.50 bpd mah.....!!
With this type of good margin PE rerating can easily go 6x or more loh...!!
Raider sees the glory days of SHELL trade above Rm 10.00 will be restored in 2017.
Alex...any teaching, whether investing, trading, treating patience or even religion (especially) one can never reveal the secrets 100% completely..share share a bit can la...
If not how the teacher, the preacher or even the doctor can cari makan in future?
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.
"it will suffer some inventory stock loss as it should keep around 18-21 days of crude oil stock "
18-21 days duration? Anyone can help enlighten me? how long the inventory can be keep with a fix price? or the price fluctuated each day?
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paperplane2016
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Posted by paperplane2016 > 2017-07-21 18:21 | Report Abuse
another great work! master piece. I am more interested in the Free cashflows.