11 people like this.

26 comment(s). Last comment by probability 2017-11-03 14:42

Alex Foo

12,692 posts

Posted by Alex Foo > 2017-10-24 10:04 | Report Abuse

thank you David for your hard work in analyzing hengyuan and your generosity to share with us.

Can I ask something?

The chart you attached for fuel oil (shows negative margin). Is it a bad thing? I saw that you also mentioned 2% profit margin for fuel oil.

Jay

1,126 posts

Posted by Jay > 2017-10-24 10:18 | Report Abuse

Good article. Just to highlight a few things

1. I think Petronm capacity not sufficient to support the volume they sell so they have to source some from 3rd parties, which will reduce their margin
2. there may be some transfer pricing between refinery and marketing. sometimes it's also quite hard to distinguish between these two when both are under the same roof
3. Hengyuan is sourcing crude oil from shell for 5 years and its products are also mainly sold to shell malaysia for 10 years. the management team is also mainly from the shell days. so I think you are right to point out hengyuan is different from typical red chip

both petronm and hengyuan are good companies to ride this refinery upcycle

Posted by Penang_lang > 2017-10-24 10:23 | Report Abuse

Why never promote at RM 2-3? Bought at RM 8.4?

BullRunComing

1,450 posts

Posted by BullRunComing > 2017-10-24 10:34 | Report Abuse

Nobody has obligation and he is not paid for this write-up. I see this as an analysis and learning rather than a promoting.

Alex Foo

12,692 posts

Posted by Alex Foo > 2017-10-24 10:37 | Report Abuse

@Penang_lang wants to get at the ground floor price =D

cheoky

2,808 posts

Posted by cheoky > 2017-10-24 11:03 | Report Abuse

Great effort, give a like. Of all positives, can pls comment a bit on hrc hedging and any possible accelerated impairment & major shutdown as the plant is at age tail end?

Posted by pakatan_harapan2 > 2017-10-24 11:04 | Report Abuse

Tax more from big companies.

probability

13,417 posts

Posted by probability > 2017-10-24 11:42 | Report Abuse

superb explanations... on why margin of HY refinery is greater than Petronm
thanks David!

probability

13,417 posts

Posted by probability > 2017-10-24 11:49 | Report Abuse

Fuel Oil crack spread was negative, and only recently from end of last year it went to break even level, the moment it reverts it will erode PetronM profits unlike HY which only produces less than 3% Fuel oil...

Simple Refiners produce more than 30% fuel oil.....just like leverage which acts as a double edged sword, the moment fuel crack spread becomes negative, its earnings will return to about its previous level..

tftey

318 posts

Posted by tftey > 2017-10-24 11:53 | Report Abuse

Good article. Any comment on HY hedge on the crack margin?

JayC

1,302 posts

Posted by JayC > 2017-10-24 12:05 | Report Abuse

I will buy on breakout

O3DURIAN

21 posts

Posted by O3DURIAN > 2017-10-24 12:27 | Report Abuse

FOR RISK INVESTOR, MAY BE CAN CONSIDER HENGYUAN CALL WARRANT.

Posted by SpaceNeedle > 2017-10-24 13:33 | Report Abuse

High profit margain is good, but high growth of profit margin is more important and convincing.

Posted by Equityengineer > 2017-10-24 20:24 | Report Abuse

Fantastic sharing, everything is a new knowledge for me .. Keep it up

probability

13,417 posts

Posted by probability > 2017-10-24 20:43 | Report Abuse

Here you can see how refinery margin is calculated based on its yield, Simple vs Complex refinery:

https://books.google.de/books?id=zIM6UjoFTHAC&pg=PA197&lpg=PA1...

Simple: 4.75 USD/brl
Complex: 11.50 USD/brl

Based on the Distillate Fuel (Diesel) yield for HY and Residue (Fuel Oil) yield for PetronM, one can calculate and compare them.

deMusangking

4,600 posts

Posted by deMusangking > 2017-10-24 20:45 | Report Abuse

aiyoh, why cant the big players go n ask the CEO of Heng and find out whether the earnings good or not!!!!!! why keep on guessing!!!!!????

stockraider

29,402 posts

Posted by stockraider > 2017-10-24 20:47 | Report Abuse

osted by deMusangking > Oct 24, 2017 08:45 PM | Report Abuse

aiyoh, why cant the big players go n ask the CEO of Heng and find out whether the earnings good or not!!!!!! why keep on guessing!!!!!????

LIKE THAT INSIDER TRADING MAH...ILLEGAL LOH...!!

deMusangking

4,600 posts

Posted by deMusangking > 2017-10-24 20:52 | Report Abuse

i dont think so!!!! many analysts and banks go to listed companies n ask about the companies prospects n futures! that's y they come out with TP!!!!

stockraider

29,402 posts

Posted by stockraider > 2017-10-24 20:54 | Report Abuse

They hush hush ask...then guess the profit loh...!!
Then set the TP mah....!!

probability

13,417 posts

Posted by probability > 2017-10-25 01:01 | Report Abuse

https://www.energyinst.org/_uploads/documents/session-4-refining-notes...

View Bar chart on Page 6 of the pdf article above.

PetronM is a Hydroskimmer, whereas HY is more like the Deep conversion bar at the far right.

Basically there is almost nil 'Heavy products + Residue" from a Deep Conversion refinery...all of them are converted to lighter products such as Diesel and Petrol.

cloudtrip

65 posts

Posted by cloudtrip > 2017-10-25 17:15 | Report Abuse

The more promotion will cause more profit taking and Fund will not support and retail was interested with this kind of promotion.
TRAP...............

weng

189 posts

Posted by weng > 2017-10-25 23:22 | Report Abuse

May I know where to get the crack spread chart?

probability

13,417 posts

Posted by probability > 2017-11-03 14:25 | Report Abuse

Oil Traders Set Sights on Seas as Diesel Renaissance Is Born (1):

http://washpost.bloomberg.com/Story?docId=1376-OYDB596KLVS001-1E9I04O9...

With crude’s bull market being underpinned by diesel consumption, Asian refiners could soon be scrambling to meet further appetite as a maritime rule in 2020 seeks to replace DIRTIER FUEL OIL that runs tankers.

While shippers could add technology that’ll clean up their traditional power source, it’ll mean investing millions of dollars in each vessel -- an expense they may not be prepared to bear. Their other option is to use DIESEL.

NOW THIS WHERE HY'S EDGE is OVER PETRONM.

probability

13,417 posts

Posted by probability > 2017-11-03 14:42 | Report Abuse

Profits in Asia from turning benchmark Dubai crude into diesel, known as the crack spread, more than doubled to $15.37 a barrel in September versus a record low in April 2016,

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