Posted by subwayzzz > 2022-06-03 10:12 | Report Abuse

ok!! on

Posted by subwayzzz > 2022-06-03 10:13 | Report Abuse

got.
u know sports toto right?
use RM1 you can earn RM2500.
that's 2500x return.

Posted by probability > 2022-06-03 10:17 | Report Abuse

as per the Table represented, they hedge 1 month's supply and sales contract and close the balance the following month

https://klse1.i3investor.com/blogs/2017/2022-06-02-story-h1624195575-How_hedging_for_refining_margin_causes_derivative_loss_gain_HENGYUAN.jsp

hedging only DAMPENS the reflection of Gross margin on Net margin, it DOES NOT ERODE

do go through the table and see yourself how rise in crack spread (selling price vs purchase price) effects the hedging gain/loss



Posted by Johnzhang > Jun 3, 2022 9:56 AM | Report Abuse

The main hedging loss in Q1 2022 is in Refining Margin Swap Contracts which is tied to rising crack spread from about USD11 early Jan 2022 to about USD15 as at 31/3/2022. (pls refer to note A18 in QR for the breakdown of the various types of hedges and their respective position)
As at today, crack spread has surged passed USd32 . If it continue to stay high or go higher , I suppose Refining Margion swap contracts will suffer huge hedging losses that will offset the operating margin like we see in Q1. Can any financial accountant comment ?




Posted by Rabbit2 > Jun 3, 2022 10:07 AM | Report Abuse

Yes. what we know is the duration of the derivatives. How much % of locked in/hedged over total output is not being disclosed. just hope it's not extensive, else hrc will not fully enjoy the crack spread spike.

Posted by Rabbit2 > 2022-06-03 10:24 | Report Abuse

Yes. Saw your analysis this morning and this is what I would like to highlight.

probability

as per the Table represented, they hedge 1 month's supply and sales contract and close the balance the following month

https://klse1.i3investor.com/blogs/2017/2022-06-02-story-h1624195575-H...

hedging only DAMPENS the reflection of net margin on the gross margin, it DOES NOT ERODE

do go through the table and see yourself how rise in crack spread (selling price vs purchase price) effects the hedging gain/loss

Posted by probability > 2022-06-03 10:26 | Report Abuse

Q1 22 PAT was poorer vs Q4 21' PAT as their hedging on INVENTORY ( NOT CRACK SPREAD or refining margin) which was not on the right direction, and exacerbated by oil loss written down

Posted by SengGor1011 > 2022-06-03 10:34 | Report Abuse

sell queue at 6.7 hope can reach

Posted by OTB > 2022-06-03 10:35 |

Post removed.Why?

Posted by Plato99 > 2022-06-03 10:35 | Report Abuse

Sell before it drop. Fantastic 4 is coming.

Posted by Johnzhang > 2022-06-03 10:42 | Report Abuse

@Probability,
In latest QR note A18 , It is declared as below :
Financial instruments that were outstanding as at reporting date as as below :
Refining margin Swap Contracts ; Notional amount USD291mil (about RM1.22 billion) with nett liabilities of RM294.3mil (RM339.5 - 45.2). I suppose this is a one month rolling balance as your advocated.
Can you comment on this position and what is the implication to Q2 results as crack spread has gone higher compare to reporting date?
Thanks in advance.

Posted by brian3381 > 2022-06-03 10:46 | Report Abuse

c, i told u!!!! y so ignorant leh?

Posted by brian3381 > 2022-06-03 10:47 | Report Abuse

just switch to petron.

Posted by subwayzzz > 2022-06-03 10:52 | Report Abuse

i want to read the analysis

Posted by hengpetron > 2022-06-03 10:52 | Report Abuse

give us analysis

Posted by hengpetron > 2022-06-03 10:53 | Report Abuse

standard three only

Posted by probability > 2022-06-03 10:53 | Report Abuse

@Johnzang, crack spread has gone higher from a high value (end of Q1 -Mar) that was not reflected in Q1 22'

This higher value will start reflecting in Q2.

Just create a table a do the maths John. If you do it yourself, you can see..

The PAT is lagging by 1 month.

Sudden rise in crack spread becomes not fully reflected due to hedging loss - this 'loss' is is a representation of opportunity they were unable to capture as it happened suddenly.


Posted by Johnzhang > Jun 3, 2022 10:42 AM | Report Abuse

@Probability,
In latest QR note A18 , It is declared as below :
Financial instruments that were outstanding as at reporting date as as below :
Refining margin Swap Contracts ; Notional amount USD291mil (about RM1.22 billion) with nett liabilities of RM294.3mil (RM339.5 - 45.2). I suppose this is a one month rolling balance as your advocated.
Can you comment on this position and what is the implication to Q2 results as crack spread has gone higher compare to reporting date?
Thanks in advance.

Posted by CharlesT > 2022-06-03 10:57 | Report Abuse

The catch is in their inventory loss..

Looks like their magic is in inventory n not hedging

Posted by probability > 2022-06-03 11:00 | Report Abuse

yup, this never happenéd before

i think they did not foresee Ukraine issue that had caused oil price to spike, perhaps they thought odds of downside is more at end of Q4 21

Posted by CharlesT > Jun 3, 2022 10:57 AM | Report Abuse

The catch is in their inventory loss..

Posted by Johnzhang > 2022-06-03 11:04 | Report Abuse

@OTB,
Thanks for your inputs. I think probability yesterday's posting on the hedging effect indicates that HY adopt a rolling one month hedging. As they square off previous month contracts new contracts are entered into. That means they continue to hedge one month forward. If crack spread on the uptrend from April to June qtr (which seem to be the case), isn't HY chasing the tail ?
I agree that HY shall make explosive profit from hedging gain when crack spread stay plateau or dropping over any particular qtr. Those robust qtr(s) will come on assumption that the hedging policy stay the same throughout.

Posted by OTB > 2022-06-03 11:15 | Report Abuse

@Johnzhang,
This derivative loss really makes me worrying.
I try to find answer for this huge loss.
I checked with a few analysts working in the Investment Bank, they told me the common rule to hedge for a refinery is around 25% of the revenue.
I feel safe after I get all the same answers.
You are very knowledgeable, I enjoy reading your postings.
Thank you.

Posted by apple168 > 2022-06-03 11:15 | Report Abuse

Once upon a time, a rich man from the city arrived in a village. He announced to the villagers that he would buy Monkeys for 100 each.

The villagers were very happy, after all there were hundreds of Monkeys in a nearby forest.

They caught the Monkeys and got them to the rich man. He bought hundreds of Monkeys and paid 100 for every Monkey the villagers gave him.

They began to make a living out of getting Monkeys from the forest and selling it to the rich man.

Soon, the forest began to run out of monkeys that were easy to catch.

Sensing this, the rich man offers 200 for every monkey. The villagers were ecstatic.

They went back to the forest, set up traps and caught the monkeys and got them to the rich man.

A few days later, the rich man announced he would pay 300 per monkey.

The villagers began climbing trees and risking their lives to catch monkeys and get them to the rich man – who bought them all.

There were no Monkeys left in the forest!

One day, the rich man announced he would like to buy more monkeys – this time for 800 each.

The villagers couldn’t believe this. They were desperately trying to get more monkeys.

Meanwhile, the rich man said he had to go back to the city on some business work and until he returns his manager would deal on his behalf.

Once he left, the villagers were unhappy. They were making quick and easy money from selling monkeys, but the forest no longer had monkeys.

This is when the manager of the rich man stepped in.

He made an offer the villagers could not refuse.

Pointing out to all the monkeys that the rich man had caged. He told the villagers he would sell the monkeys for 400 each.

“Sell them back to the rich man at 800 each when he comes back” the manager said.

The villagers were over the moon. Buy for 400 and sell for 800 in few days. They had just found the easiest way to double their money.

The villagers collected all their savings and even borrowed money.

There were long queues and within a few hours, almost all the monkeys were sold out.

Unfortunately, their happiness did not last long, as the manager went missing the next day and the rich man never came back.

Many villagers kept the monkeys with them, hoping the rich man would come back. But soon, they lost hope and had to let the monkeys back into the forest as feeding and taking care of the noisy monkeys became extremely difficult.

Good Luck!

Posted by subwayzzz > 2022-06-03 11:18 | Report Abuse

summarise the story please. too long

Posted by Mr NoNeedToStudy > 2022-06-03 11:18 | Report Abuse

UNCLE KOON WHERE ARE YOUUUUUU WE NEEED YOU TO BRING HENGYUAN TO RM20 DONT TRAUMA ! NEVER GIVE UP ! COMEEEEE

Posted by kl_guy > 2022-06-03 11:22 | Report Abuse

when KYY buy in , is mean alot ot syndicate already in.
Not very promising on the share price now.

Posted by Eden__lee > 2022-06-03 11:22 | Report Abuse

The inventory written down is non cash item and will cause next QR cost of goods sold become lower...

From the cash flow statement of last QR, hengyuan operating profit before working capital change hit RM325million in single Quarter.

From cashflow statement we can found that both hengyuan and petronm already start making big profit...

Posted by probability > 2022-06-03 11:23 | Report Abuse

nicely worded by John.

Now its important to realize & stress that its not the TREND of crack spread that matters for HY....its the ABSOLUTE value of the crack spread that matters as it is for any REFINERY in the world.

There is no need to focus on the Hedging loss or again due to the trend. HY is not making money from the trend.




Posted by Johnzhang > Jun 3, 2022 11:04 AM | Report Abuse

@OTB,
Thanks for your inputs. I think probability yesterday's posting on the hedging effect indicates that HY adopt a rolling one month hedging. As they square off previous month contracts new contracts are entered into. That means they continue to hedge one month forward. If crack spread on the uptrend from April to June qtr (which seem to be the case), isn't HY chasing the tail ?
I agree that HY shall make explosive profit from hedging gain when crack spread stay plateau or dropping over any particular qtr. Those robust qtr(s) will come on assumption that the hedging policy stay the same throughout.

Posted by hengpetron > 2022-06-03 11:24 | Report Abuse

I just copy and paste
Sorry i cant summarize. Thk

Posted by hengpetron > 2022-06-03 11:24 | Report Abuse

Level standard 2 only mah
lu tau boh

Posted by subwayzzz > 2022-06-03 11:31 | Report Abuse

wa tak tau.
i only read simple passages. too long hard to understand

Posted by Investing_Bursa > 2022-06-03 11:35 | Report Abuse

End of day, it”s stability which will be good for HY. Not the sharp volatility as it is detrimental to their hedging

Posted by subwayzzz > 2022-06-03 11:36 | Report Abuse

bursa malaysia seems stretched after earning reporting season.
going into consolidation phase?

Posted by subwayzzz > 2022-06-03 11:36 | Report Abuse

seems like it

Investing_Bursa

End of day, it”s stability which will be good for HY. Not the sharp volatility as it is detrimental to their hedging

44 seconds ago

Posted by probability > 2022-06-03 11:39 | Report Abuse

to answer why HY do this rolling 1 month hedging..

I think its purely to protect itself from wild oil price fluctuation

imagine it does not hedge to secure margin, say it buys crude at 100 $/brl and within a 1 week it drops to $80/brl (while refined oil follows the same trend and magnitude change), it will be making a loss...

they may as well become an oil trader than doing refinery business without hedging

Posted by brian3381 > 2022-06-03 11:40 |

Post removed.Why?

Posted by subwayzzz > 2022-06-03 11:42 | Report Abuse

eh brian u don't like that eh.
people all here to make money.

Posted by brian3381 > 2022-06-03 11:44 | Report Abuse

i can buy anither merz in petron!!!! Yeah

Posted by subwayzzz > 2022-06-03 11:44 | Report Abuse

probability, i thought about it too
by just buying brent / dubai contracts and sell mogas spread, easily can earn more.
but can't understand why HY can't be profitable

Posted by subwayzzz > 2022-06-03 11:46 | Report Abuse

im waiting for coastal to come down then i buy

Posted by brian3381 > 2022-06-03 11:46 | Report Abuse

yeah yeah... coastal lai liao

Posted by Jerichomy > 2022-06-03 11:46 |

Post removed.Why?

Posted by subwayzzz > 2022-06-03 11:49 | Report Abuse

kyy realised subur is kubur... same like mini 1mbd. so have to do risk transfer

Posted by subwayzzz > 2022-06-03 11:50 | Report Abuse

subur memang boleh short99e

Posted by Jerichomy > 2022-06-03 11:50 | Report Abuse

Sorry ya HY holders, bad decision is still bad decisiom

Posted by Jerichomy > 2022-06-03 11:51 | Report Abuse

The problem is here also become kubur

Posted by subwayzzz > 2022-06-03 11:52 | Report Abuse

those who caught top at 8 cham la.
level 4 go in still in profit anyway. just less

Posted by rr88 > 2022-06-03 11:52 | Report Abuse

How to go up when they lost 65m last qtr?

Come to papa, papa is waiting for you at 5.00..

Posted by Sslee > 2022-06-03 11:52 | Report Abuse

subwayzzz summarise the story please. too long
The story is about to sell your glove stocks at 100 then 200 then 300. But don't buy back at 400 when some one tell you glove stocks will go to 800.

Posted by subwayzzz > 2022-06-03 11:53 | Report Abuse

thanks, sslee

Posted by Jerichomy > 2022-06-03 11:54 | Report Abuse

Rr 88 and money makers come in habis cerita

Posted by mytwocents > 2022-06-03 11:57 | Report Abuse

@probability thanks for sharing about the 1 month hedging illustration. admitted i am still trying to understand it even though i did derivative modules in uni hahaha. mind me asking if you are in the financial industry?

well on the hedging thingy. i am just talking out loud. if they are doing one month hedging, but oil prices fluctuate massively during the month. and i guess they dont have big enough storage bunker to store 1 month of raw crude and 1 month of refined products. as a result of the massive oil prices fluctuation, their hedging would be far from a perfect hedge which they were hoping to achieve.
whats your thought bro.
thanks

Posted by subwayzzz > 2022-06-03 11:59 | Report Abuse

under chinaman, it seems they could just transfer the profit back to tongsan through creative acc.
previously under shell, they never stop giving dividends.