Posted by shortinvestor77 > 2018-03-15 20:37 | Report Abuse

Bullshit!

Posted by stockraider > 2018-03-15 20:42 | Report Abuse

U MUST UNDERSTAND THIS LOH....!!
HENGYUAN AT RM 19.50....WHAT IS THE IRR RATE LEH ??
EASILY EXCEED 25% PA LOH....!!
SO WHAT IS BOND YIELD MOVING 3% TO 5% PA LEH ???

Posted by sunztzhe > Mar 15, 2018 08:39 PM | Report Abuse

Bond yields globally is expected to move higher. So will inflation rate. Has your discount rate of 3.17% factored in rising yields scenario of the FED planned rate increases for 2018 and beyond since you had made projections up to year 2027?

Posted by stockraider > 2018-03-15 20:43 | Report Abuse

GENERAL RAIDER SAYS CORRECTLOH...!!
WHY GENERAL RAIDER TP RM 22.00 TO RM 42.00, WHEREAS DAVID TP IS RM 19.55 LEH ??
BCOS DAVID USE DCF RATE 3.23% AND RAIDER USE 1% LOH...!!
WHY RAIDER USE 1% DCF BCOS...ANYTHING U MAKE ABOVE O% PROFIT ADD VALUE TO HENGYUAN MAH...!!

Valuing Hengyuan - Discounted Cash Flow Method
Author: david_tan | Publish date: Thu, 15 Mar 2018, 08:07 PM

Subsequent to my analysis titled ‘Hengyuan – No Doom For 2018’, there have been strong discussions on the need to use the Discounted Cash Flow (“DCF”) method to value HRC.

There are various methods to value a company and DCF is certainly a popular method. Personally, I have reservations about this method as it involves too many crucial variables where minor tweaks to these variables will lead to the valuation result to differ significantly. And it goes without saying that everyone will have an opinion on what constitutes the best numerical value when it comes to applying these variables; this inevitably makes for even more disagreements on the result of the valuation. Furthermore, DCF requires projection far into the future; 10 years is a common time period used. My reservation is the further the projection into the future, the less reliable the numbers are.

But the use of DCF is not without merit. Personally, I find that DCF is useful when valuing a stable company where the operations are matured, the industry it operates within is stable, and its historical accounting numbers do not fluctuate significantly. Under these conditions, the analyst is allowed to work within a more predictable environment leading to more reliable numbers being used in the forecast and projections. Unfortunately, I do not see HRC falling within these criteria as the refinery business is highly volatile. Nevertheless, I am also intrigue by what sort of numbers may possibly come up for HRC via applying the DCF method.

PROJECTING GROSS PROFIT

Here are some key assumptions:

1. Average gross profit for the past 8 latest reported quarters (1 January 2016 to 31 December 2017) is used as the base number. In determining this average, quarters with the highest and lowest gross profit were disregarded to eliminate unusual fluctuations.

2. Based on information available from the quarterly reports, a minor 3-week shutdown was identified in Q2 2017. The gross profit for the said quarter was normalised for our averaging purpose.

3. Major shutdown of 75 days is assumed in Year 2018.

4. Statutory shutdowns of 25 days each is assumed in Year 2021, Year 2024 and Year 2027 based on the basis that a statutory shutdown is required every 3 years.

5. Post Year 2018 plant upgrade exercise, capacity of HRC is increased by 10% beginning Year 2019.


NEW TERM LOAN IN 2018

Here are some key assumptions:

1. US$300,000,000 was drawndown on 23 January 2018 to repay existing term loans. At foreign exchange rate of 3.927 on that date, the new term loan amounted to RM1.178 billion.

2. The tenure of the new term loan is 5 years.

3. In 2016, HRC’s effective interest expense rate was 3.62% to 5.27% (2015: 1.36% to 4.44%). The average interest rate is 3.67%. (Source: Latest available audited financial statements)

4. Based on this average interest rate, monthly loan repayments amount to RM21,520,000 (including interest expense) with 1st repayment in February 2018.

LOAN FOR MAJOR PLANT UPGRADE IN 2018

1. US$160,000,000 has been budgeted for this exercise. Based on US$ exchange rate as at 14 March 2018 of 3.9085, the loan amounted to RM625,360,000.

2. The tenure of the new term loan is 5 years.

3. In 2016, HRC’s effective interest expense rate was 3.62% to 5.27% (2015: 1.36% to 4.44%). The average interest rate is 3.67%. (Source: Latest available audited financial statements)

4. Monthly loan repayment amount to RM11,424,000 (including interest expense) with 1st repayment in October 2018.

Posted by sunztzhe > 2018-03-15 20:44 | Report Abuse

Bond yields globally is expected to move higher. So will inflation rate. Has your discount rate of 3.17% factored in rising yields scenario of the FED planned rate increases for 2018 and beyond since you had made projections up to year 2027?

Your discount rate of 3.17% seemed rather low and consequently your derived NPV figure is high. If one were to factor in a higher discount rate, what will the NPV of HY be? Certainly it will be much lesser than your projected figure.

Moreover as an investor, one takes more risk by investing in securities and the discounted rate must factor in the investor risk premium over and above the revised discount rate that had factored in the planned rate increase by the FED.

Posted by Koh Chin Lai > 2018-03-15 20:45 | Report Abuse

I have doubt on the cost of debt and equity here. It's too low. The target price should be much lower

Posted by stockraider > 2018-03-15 20:47 | Report Abuse

U NEED TO INVEST IN BUSINESS TO PROTECT YOURSELF MAH....!!

WITH MORE THAN IRR 25% PA SURELY HENGYUAN WILL BEAT ANYTHING LOH...!!

Posted by sunztzhe > Mar 15, 2018 08:44 PM | Report Abuse

Bond yields globally is expected to move higher. So will inflation rate. Has your discount rate of 3.17% factored in rising yields scenario of the FED planned rate increases for 2018 and beyond since you had made projections up to year 2027?

Your discount rate of 3.17% seemed rather low and consequently your derived NPV figure is high. If one were to factor in a higher discount rate, what will the NPV of HY be? Certainly it will be much lesser than your projected figure.

Moreover as an investor, one takes more risk by investing in securities and the discounted rate must factor in the investor risk premium over and above the revised discount rate that had factored in the planned rate increase by the FED.


Koh Chin Lai
2 posts
Posted by Koh Chin Lai > Mar 15, 2018 08:45 PM | Report Abuse

I have doubt on the cost of debt and equity here. It's too low. The target price should be much lower

Posted by shortinvestor77 > 2018-03-15 20:47 | Report Abuse

TP: RM0.40.

Posted by 1010 > 2018-03-15 20:48 | Report Abuse

volatile and cyclical business, even the next QR aslo difficult to predict, .. somemore 10 years ..

Posted by sunztzhe > 2018-03-15 20:48 | Report Abuse

An investor will require a discount rate of at least 10%. In that case, the NPV for HY will be much lower than your projected figure.

Posted by tealeaf > 2018-03-15 20:52 | Report Abuse

TP 40

Posted by stockraider > 2018-03-15 20:54 | Report Abuse

FORGET 10% DCF....4% DCF DON GET MISLEAD MAH.....!!

OR JUST U DCF 1%....MAH....!!

IF UR IRR IS 25% PA LIKE HENGYUAN....IT DOES NOT MATTER U DISCOUNT AT 1%, 4% OR 10% PA...U STILL GET POSITIVE NPV LOH.....!!

posted by sunztzhe > Mar 15, 2018 08:48 PM | Report Abuse

An investor will require a discount rate of at least 10%. In that case, the NPV for HY will be much lower than your projected figure.

Posted by nekosan > 2018-03-15 20:58 | Report Abuse

TP 150

Posted by sunztzhe > 2018-03-15 20:59 | Report Abuse

DCF is one of the methods to derive an intrinsic value of a company. The discount rate of 3.17% used to value HY is too low and this gives a high valuation for HY.

A 10% discount rate for investor is fairly reasonable. Even if the author does not make changes to the cashflow figures, a discount rate of 10% will value HY to a much lower value.

Posted by Jian Eric > 2018-03-15 21:01 | Report Abuse

what is the growth rate? next qr hy wont be able to deliver good revenue as the shut down of the factory? the revenue can grow only if the petrol price to be stable or increased.

Posted by stockraider > 2018-03-15 21:03 | Report Abuse

correctloh...if lower figure... if u use 10% pa, so what ??

The rule is that if u use discount 10% dcf on the cashflow....if u still get positive Net Present Value.....than u buy loh....!!

Posted by sunztzhe > Mar 15, 2018 08:59 PM | Report Abuse

DCF is one of the methods to derive an intrinsic value of a company. The discount rate of 3.17% used to value HY is too low and this gives a high valuation for HY.

A 10% discount rate for investor is fairly reasonable. Even if the author does not make changes to the cashflow figures, a discount rate of 10% will value HY to a much lower value.

Posted by sunztzhe > 2018-03-15 21:07 | Report Abuse

So the intrinsic value is lower with 10% discount rate.
So HY intrinsic value will be much lower than the author's derived figure.

Posted by stockraider > 2018-03-15 21:20 | Report Abuse

IS THIS NOT DOUBLE COUNTING LEH ??

IF RETURN 25%PA....IF U USE DCF 10% U GET LOWER POSITIVE NPV 15% PA RETURN AFTER DISCOUNT MAH..!!

IF U RETURN 25% PA....IF U USE DCF 1% LIKE RAIDER, U GET POSITIVE HIGHER NPV 24% PA RETURN AFTER DISCOUNT LOH...!!

SO DO NOT GET CONFUSE LOH....!!

DO NOT DOUBLE COUNT LOH....!!

Posted by sunztzhe > Mar 15, 2018 09:07 PM | Report Abuse

So the intrinsic value is lower with 10% discount rate.
So HY intrinsic value will be much lower than the author's derived figure.

Posted by feet > 2018-03-15 21:22 | Report Abuse

another blogger tweak here tweak there to come out with good number to con reader?

Posted by feet > 2018-03-15 21:23 | Report Abuse

projecting this and that still? and end up way wrong at the end?

Posted by stockraider > 2018-03-15 21:25 | Report Abuse

THATS WHY INVESTMENT IS AN ART NOT SCIENCE LOH....!!

IT IS SUBJECTIVE LOH.....!!

BUT U NEED TO INVESTIGATE FURTHER LOH....!!


Posted by feet > Mar 15, 2018 09:22 PM | Report Abuse

another blogger tweak here tweak there to come out with good number to con reader?

Posted by Flintstones > 2018-03-15 21:37 | Report Abuse

Hallelujah

Posted by qqq3 > 2018-03-15 21:44 | Report Abuse

valuing Hengyuan...dividend model....worth $1.......

Posted by qqq3 > 2018-03-15 21:46 | Report Abuse

valuing Hengyuan...terminal value after 2020.....scrap value....... when Petronas super new refinery come on stream.

Posted by nekosan > 2018-03-15 21:47 | Report Abuse

lol ... ANALYst again ...

hahaha

Posted by nekosan > 2018-03-15 21:48 | Report Abuse

Posted by stockraider > Mar 15, 2018 09:25 PM | Report Abuse

THATS WHY INVESTMENT IS AN ART NOT SCIENCE LOH....!!

IT IS SUBJECTIVE LOH.....!!

BUT U NEED TO INVESTIGATE FURTHER LOH....!!


Posted by feet > Mar 15, 2018 09:22 PM | Report Abuse

another blogger tweak here tweak there to come out with good number to con reader?
------------------------
lol, from 19 sink to 8, hahahaha

you really think you are warren buffet ?
warrent buntut

Posted by Fabien Extraordinaire > 2018-03-15 21:52 | Report Abuse

10% discount rate assuming 6% risk premium on top of 4% risk free rate seems reasonable

Posted by Fabien Extraordinaire > 2018-03-15 21:53 | Report Abuse

i personally would demand a higher rate of return given the higher business risk of HY

Posted by Fabien Extraordinaire > 2018-03-15 21:55 | Report Abuse

The author is smart to use the FD rate of 3.35% (which is one of the lowest by the way among the banks' offer) to distort the IV calculation, disregarding the risks involved in investing in HY..the busienss risk, financial risk, earnings visibility etc. etc.

Posted by sunztzhe > 2018-03-15 21:59 | Report Abuse

If higher discount rate is imputed, the intrinsic value of HY will be much lower.

Posted by Jon Choivo > 2018-03-15 22:02 | Report Abuse

You fucking insane ah?

Ask you put in FD at 4.8 dowan. but 1% return on investment you want?

Siao meh. Heard of time value of money anot.



Posted by stockraider > Mar 15, 2018 08:43 PM | Report Abuse

GENERAL RAIDER SAYS CORRECTLOH...!!
WHY GENERAL RAIDER TP RM 22.00 TO RM 42.00, WHEREAS DAVID TP IS RM 19.55 LEH ??
BCOS DAVID USE DCF RATE 3.23% AND RAIDER USE 1% LOH...!!
WHY RAIDER USE 1% DCF BCOS...ANYTHING U MAKE ABOVE O% PROFIT ADD VALUE TO HENGYUAN MAH...!!

Posted by Jon Choivo > 2018-03-15 22:04 | Report Abuse

If you money payable next year is only worth 1% more to you, i also want leh.

Stockraider, loan me RM10 mil for 10 years. I will give you 1% per annum. And to top it off, bullet payment at end of 10 year! Ok boh?

Posted by Jon Choivo > 2018-03-15 22:09 | Report Abuse

David_Tan

You're fucking up.

You don't take into account stockholding loss/gain, derivative loss/gain, Forex loss/gain, Inventory writedown/write backs. Impairment loss/Gain

The 3 here, is very very volatile. One year you could lose a billion, the next make a billion.

This year is record year for stockholding gain.

Posted by stockraider > 2018-03-15 22:27 | Report Abuse

ASSUME U WORK IN CO....UR SALARY IS RM 12OK PA LOH....!!
UR BOSS WANT TO PAY U 5% INCREMENT THAT IS RM 126K PA LOH...!!

BUT U TELL UR BOST U HAVE A DCF OF 20% , INFLATION 5% AND RISK PREMIUM 20% LOH....!!

U DEMAND UR BOSS TO PAY U 45% LOH THAT IS RM 174K PA...!!

UR BOSS ASK U TO FUCK OFF LOH...!!

Posted by Fabien Extraordinaire > Mar 15, 2018 09:52 PM | Report Abuse

10% discount rate assuming 6% risk premium on top of 4% risk free rate seems reasonable


Fabien Extraordinaire
486 posts
Posted by Fabien Extraordinaire > Mar 15, 2018 09:53 PM | Report Abuse

i personally would demand a higher rate of return given the higher business risk of HY


Fabien Extraordinaire
486 posts
Posted by Fabien Extraordinaire > Mar 15, 2018 09:55 PM | Report Abuse

The author is smart to use the FD rate of 3.35% (which is one of the lowest by the way among the banks' offer) to distort the IV calculation, disregarding the risks involved in investing in HY..the busienss risk, financial risk, earnings visibility etc. etc.

Posted by sunztzhe > Mar 15, 2018 09:59 PM | Report Abuse

If higher discount rate is imputed, the intrinsic value of HY will be much lower.

Posted by Flintstones > 2018-03-15 22:37 | Report Abuse

The moment I saw the title, I stopped reading. It is irresponsible and misleading to share bad analysis here. If I were admin, I will delete this trash immediately. God knows how much shares David Tan had which trapped above RM 15.

Posted by stockraider > 2018-03-15 22:47 | Report Abuse

THE MORAL OF THIS STORY IS IF U EARN RM 120K PA...UR BOSS WANT TO GIVE U 5% INCREMENT OR RM 126K PA U TAKE IT 1ST LOH....BCOS IT INCREASES UR WEALTH MAH....!!

IF U THINK...U R WORTH 45% MORE....OR RM 174K PA....GET A NEW JOB, THAT THE NEW EMPLOYER WILLING TO PAY MORE 45% PA, B4 U FUCK OFF YOUR PRESENT BOSS LOH...!!

THE STORY FOR HENGYUAN, IS U GET THE LOWEST DCF AS POSSIBLE AS LONG AS POSITIVE NPV LOH.....!!

IF U GET HIGHER FROM HENGYUAN SAY LIKE 45% PA ....THAN BONUS MAH....!!

U CAN WANT WHATEVER HIGH DCF....BUT CAN THE MKT GIVE THAT TO U LEH ???

THATS WHY RAIDER RECOMMEND DCF 1% PA....BCOS POSITIVE NPV LOH...!!

Posted by stockraider > Mar 15, 2018 10:27 PM | Report Abuse X

ASSUME U WORK IN CO....UR SALARY IS RM 12OK PA LOH....!!
UR BOSS WANT TO PAY U 5% INCREMENT THAT IS RM 126K PA LOH...!!

BUT U TELL UR BOST U HAVE A DCF OF 20% , INFLATION 5% AND RISK PREMIUM 20% LOH....!!

U DEMAND UR BOSS TO PAY U 45% LOH THAT IS RM 174K PA...!!

UR BOSS ASK U TO FUCK OFF LOH...!!

Posted by probability > 2018-03-15 22:49 |

Post removed.Why?

Posted by trulyinvest > 2018-03-15 22:56 |

Post removed.Why?

Posted by aidwiz > 2018-03-15 23:00 | Report Abuse

Overusing Capitals is Rude. WRITING ENTIRELY IN BLOCK CAPITALS IS SHOUTING, and it's rude. We've all done it: left the Caps Lock on while typing. But in email etiquette, online chats and/or forum posts, writing in capitals is the online equivalent of shouting.

Posted by martinam > 2018-03-15 23:04 | Report Abuse

Probability makes alot of CONCRETE sense rather than all these DCF projections, which is a waste of time reading.

Posted by Jon Choivo > 2018-03-15 23:30 | Report Abuse

Stockraider,

When i go work. I dont need to pay RM9k for 1000 shares. He just want my time.

Posted by stockraider > 2018-03-15 23:33 | Report Abuse

SAME MAH TIME EXCHANGE FORV MONIES LOH....!!

SAME LOH... MONIES EXCHANGE FOR SHARE LOH....!!

Posted by Jon Choivo > Mar 15, 2018 11:30 PM | Report Abuse

Stockraider,

When i go work. I dont need to pay RM9k for 1000 shares. He just want my time.

Posted by newbie911 > 2018-03-15 23:35 | Report Abuse

Talk a lot also no use...alr burned to aches.

Posted by Jon Choivo > 2018-03-15 23:42 | Report Abuse

Stockraider, right now, even you know you're just talking out of your ass.

IRR means what you think this investment will make you without taking into account the effect of time.

Discount rate is used to take time into account. A bird in hand is worth more than a bird in a bush.

if we use your reasoning. WCEBHD should be RM10 now not RM1.13.

The only point here worth arguing is if we should use Risk free rate for comparability (using margin of safety to tweak for the rest). WACC (stupid imho) or a higher rate (assuming risk can be compensated by a higher interest rate).





Posted by stockraider > Mar 15, 2018 11:33 PM | Report Abuse

SAME MAH TIME EXCHANGE FORV MONIES LOH....!!

SAME LOH... MONIES EXCHANGE FOR SHARE LOH....!!

Posted by cheoky > 2018-03-15 23:44 | Report Abuse

Move on buy lctitan la

Posted by stockraider > 2018-03-15 23:47 | Report Abuse

DON WASTE TIME LOH.....!!

DCF RAIDER ALSO USE LOH....BUT RAIDER USE INTELLIGENTLY LOH....!!

NO DOUBLE USE LOH....!!

FOR EXMNPLE

TODAY HENGYUAN RM 9.13 LOH....!!

RAIDER SAYS 2 YEARS TIME HENGYUAN TP IS RM 22.OO TO RM 42.00...!!

TODAY INTEREST RATE 4% PA....INVEST IN HENGYUAN NOT WORTH MEH ???

WHAT IS IRR OF HENGYUAN LEH ???

Posted by Jon Choivo > Mar 15, 2018 11:42 PM | Report Abuse

Stockraider, right now, even you know you're just talking out of your ass.

IRR means what you think this investment will make you without taking into account the effect of time.

Discount rate is used to take time into account. A bird in hand is worth more than a bird in a bush.

if we use your reasoning. WCEBHD should be RM10 now not RM1.13.

The only point here worth arguing is if we should use Risk free rate for comparability (using margin of safety to tweak for the rest). WACC (stupid imho) or a higher rate (assuming risk can be compensated by a higher interest rate)

Posted by Ricky Yeo > 2018-03-16 05:09 | Report Abuse

Let's see. HY has an invested capital of $2 bil. With the assumption of gross profit around $1.2-1.3 bil annually, you are looking at a business that has a return on invested capital that's over 35% long term. If you don't jump out of the chair, you should.

Posted by CharlesT > 2018-03-16 07:05 | Report Abuse

Assumption of gross profit 1.2 to 1.3 bil? Its biz is highly volatile depending to crack spread...whats the crack spread for q1 as compare to q4??

Posted by CharlesT > 2018-03-16 07:08 | Report Abuse

Is it true that crack spread drops fm 11+ last q to 7+ now??

Posted by lkoky > 2018-03-16 07:31 | Report Abuse

nice academic study

Posted by 3iii > 2018-03-16 08:45 | Report Abuse

>>>Jon Choivo Stockraider, right now, even you know you're just talking out of your ass<<<<



Raider lacks integrity.

A lot of hot air.