Posted by probability > 2022-06-07 09:20 | Report Abuse

maturity date is an option you have before which you can realize your hedging gain or loss at per prevailing market crack. You can realize it anytime.

Thats why i say they realize the hedging gain / loss on the following month

thats the reason why they had huge hedging loss in Q1 because of Mar actual margin being same as Feb. i,e they loss the opportunity of the 'rise in margin' in Mar


@John you need to understand that by Apr, their margin is now as per Mar as they had hedge again for the full month throughput

In a nut shell, margin after hedging loss or gain is the trailing 3 months gross margin (lagging by a month)

Please do the maths with sample numbers



Posted by Johnzhang > Jun 7, 2022 8:56 AM | Report Abuse

@Probability , this is what I think too . That means HY is locking in refining margins ( ie crack spread) at the rate they are happy about in Q1 2022 . As crack spread continues to rise , derivative loss from this refining margin contracts suffer huge losses as evidenced in fair value change of financial derivative in Q1 QR.
In this connection, refining margin derivative loss may still be very substantial for Q2 as crack spread has soared much higher since the closing of the 1st Q.
Correct me if I have misunderstood it.


Posted by Sslee > Jun 7, 2022 8:07 AM | Report Abuse

A swap is like a call or put warrant cash settlement on maturity.
So if you do a buy swap for crude oil at USD 100 and at maturity the crude oil market price is USD 130 then the banker will pay you USD(130-100) = USD 30. Gain on the buy swap

Similary if you do a sell swap of you fuel products at USD 100 at maturity the fuel products market price is USD 130 then you pay banker USD(130-100) = USD 30. Loss on this sell swap.
You then record these gain/loss into your P &L account

Before maturity you can record a fair value gain/loss based on your quarter end date crude oil and Fuel product market price.

No one will know on maturity date whether your fair value gain/loss will turn into during maturity date.

Example my Petronm-CY give me fair value gain of 30% now but who will know what it will be during cash settlement maturity date

Posted by Jerichomy > 2022-06-07 09:27 | Report Abuse

Petron unstoppable

Posted by probability > 2022-06-07 09:29 | Report Abuse

example, say gross margin as per actual crack spread chart is as per below:

Dec 21': 7 $/brl

Jan: 8 $/brl,
Feb: 8 $/brl
Mar: 20 $/brl

Q1 gross profit: 3.5m brl/month x ( 8 + 8 + 20)
Q1 profit after hedging loss gain: 3.5 m brl/mth x ( 7 + 8 + 8)


Apr: 24 $/brl,
May: 24 $/brl
June: 30 $/brl

Q2 gross profit: 3.5m brl/month x ( 24 + 24 + 30)
Q2 profit after hedging loss gain: 3.5 m brl/mth x ( 20 + 24 + 24)

..........

why worry on hedging loss / gain? Its just the effects of lagging 1 month trailing 3 months profit

Posted by kl_guy > 2022-06-07 09:31 | Report Abuse

selling hy and buy into petronm. hy not moving

Posted by probability > 2022-06-07 09:31 | Report Abuse

you should be happy the higher the crack spread goes instead of worrying on hedging loss

Posted by Jerichomy > 2022-06-07 09:32 |

Post removed.Why?

Posted by probability > 2022-06-07 09:40 | Report Abuse

@Johnzhang, please ask if you need any more clarifications

i have explained why they must hedge the full volume of their through put every month as they are pure refinery player without retail kiosk (downstream)

its absolutely wrong not to hedge any small portion of their sales volume as it then implies they are purely gambling on this portion (its a waste of their refining capacity)

Posted by investor2021trading > 2022-06-07 09:48 | Report Abuse

expecting a strong closing, cheers!

Posted by probability > 2022-06-07 09:55 | Report Abuse

anyone who is letting go HY now are the greatest loser due to gross misunderstanding on this simple hedging strategy

HY is at the cusp of showing the most extraordinary earnings in Bursa history

and as i had mentioned numerous times, it only requires 13 USD/brl to sustain RM 1 EPS per qtr....

Posted by probability > 2022-06-07 09:56 | Report Abuse

https://www.tradingview.com/chart/?symbol=NYMEX%3AGZ1!

Posted by lcwin > 2022-06-07 10:02 | Report Abuse

HY hedging of their oil purchase and refining spread is a very important part of the business. The loss n gain in hedging will usually balance out over time to reflect moving average of Prices without getting caught in a sudden up or down spike. Of course this assume a consistent and good hedging strategy. That said the probability of huge upside in subsequent qtr profit is very likely. Don't forget you cannot increase refining capacity much in the short term. Almost no new refineries are being built as the risk dwindling demand is real in the next 10 years.
At present all refinery are running above 90% capacity which can leads to major unschedules breakdown .

Posted by stockraider > 2022-06-07 10:32 | Report Abuse

Remember this loh.....increasing share price & potential improving of profits will sucked in many innocent & naive investors to buy into a stock with corp governance problem like hengyuan ( U all should learn the lesson from Serba mah!}

If u like the prospect of refinery & strong crack spread and good oil price buying Petron is the answer, do not touch kon stock like hengyuan loh!

Posted by 888STOCK888 > 2022-06-07 10:42 | Report Abuse

My Singapore Guru says sometime buy stock cannot be too rational... the more you analyse, you better keep your money in the bank, the return is 99.99% accurate.... otherwise shares with explicit growth will always take risk...

When he called buy on glove stocks last time, the PE was 50 then reach PE100!!! Who cares??? Everyone needs glove at that time!!!! Just remember to take profit during one of the high prices....

Now is the same, oil price is all time high, crack is high, economy reopen, everyone needs petrol and the share price is attractive~ IBs are brewing the oil news via mediat!!! Like it or not, FMs and syndicate will goreng it high....

My Singapura guru maintain Hengyuan can hit 50.00 by January 2023, which is about 20% discount from his TP 62.50. =D

Posted by param1 > 2022-06-07 10:50 | Report Abuse

LOCK N LOAD !

Posted by lcwin > 2022-06-07 11:05 | Report Abuse

Serbk n Sapulaa is a very clear cut case of conjob like 1malaisiaDBoleh with strong political shits. SC n law is being side step. Now given time they r trying to cover all the Indah water holes with creative bandaids n gov subsidi. All foreign oil n metal MNC hedges their position n its very often their hedge will go negative (loss) once in a while. It will average out over the subsequent period as the hedging is done continuously. Don't buy if u think its expensive.

Posted by Sslee > 2022-06-07 11:12 | Report Abuse

qqq3, hope my betting will earn me a BMW IX-Xdrive50 EV car for me to do my part on climate change.

Posted by ValueInvestor888 > 2022-06-07 11:21 | Report Abuse

in about 3 months time, we will know who is right and who is wrong.

Posted by bsinvestor > 2022-06-07 11:24 | Report Abuse

Sslee, u have both? Or only one?

Posted by Sslee > 2022-06-07 11:26 | Report Abuse

I have small position on Hengyuan for trading purpose. I invest more on Petronm.

Posted by lcwin > 2022-06-07 11:45 | Report Abuse

Yes hedging will lock in profits or loss or realised profits for the qtr deducting the hedging cost which can be substantial in cpys that actively hedge. I acually make a huge mistake of assuming an oil stock OVV in US that they will not make much profit as they hedge at a pretty low price long term a large portion of their sales to satisfy their creditors n banker. I took profit too early otherwise I would hv made huge returns.

Posted by goody99 > 2022-06-07 11:51 | Report Abuse

Does anyone know the highest crack spread a few years ago when HY was close to RM20?

Posted by lcwin > 2022-06-07 11:57 | Report Abuse

Breakeven crackspread is about $5 per barrel, assume $20 refining margin per barrel now so a gross profit of $15 less $5 for hedging loss. All figure in USD and very conservative. 10 millions refined barrel per qtr gives Gross profit of USD150 millions. Lets give an uncertainty discount of a further 50% to be safe .. USD100 millions ok is this fair?

Posted by Sslee > 2022-06-07 12:25 | Report Abuse

In q3 year 2017 the gross profit is RM 429 million and NPAT is RM 362 million.
In q1 year 2022 the gross profit is RM 509 million but NPAT only RM 47.5 million.

In Q2 if based on crack spread of USD 20 and volume of 10 million barrels the gross profit will be (10X20X4.4)= RM 880 million.

As of NPAT you guess is as good as mine?

Posted by lcwin > 2022-06-07 12:26 | Report Abuse

As a refinery u sell foward (hedge) to satisfy and safeguard your operational and borrowing cost. Crack spread is consider supernormal when it reaches $15 per barrel. So its only rational for HY to sell foward to lock in at $15. Doing so means they make a loss of $10 if the price shots to $25 fair deal i would say. So if the next qtr the do the same but the spread goes down they will make more profit even though the crack margins goes to $10...thats what will happen so it averages out but of course its not perfect

Posted by investor2021trading > 2022-06-07 13:08 | Report Abuse

Posted by probability > 11 seconds ago
..............................why worry on hedging loss / gain? Its just the effects of lagging 1 month trailing 3 months profit
.......................................................
gud job guys...hengyuan still hold steady in morning trade!

Posted by Jerichomy > 2022-06-07 13:15 | Report Abuse

Money makers keep saying petron down and down

Posted by Jerichomy > 2022-06-07 13:17 |

Post removed.Why?

Posted by Jerichomy > 2022-06-07 13:17 |

Post removed.Why?

Posted by probability > 2022-06-07 13:34 | Report Abuse

The below is to help one understand, why i simply just see the difference in crack spread to derive the hedging loss between months
......................................


say in Feb 22' , the below was the pricing:

Crude: 100 $/brl
Avg refined oil: 108 $/brl
Crack spread: 8 $/brl (hedged, meaning they buy crude & sell prod forward - non physical)

in Mar 22' (when physical transaction takes place):

Crude: 105 $/brl
Avg refined oil: 125 $/brl
Crack spread: 20 $/brl

Hedging loss/gain on Crude: 105 - 100 = 5 $/brl
Hedging loss/gain on Refined oil: 108 - 125 = - 17 $/brl
Net hedging loss / gain = - 17 + 5
= - 12 $/brl

The above value is the same as Crack Spread in Feb 22' - Crack spread in Mar 22' : 8 - 20
= - 12 $/brl

Both way you derive the same figure



Posted by probability > Jun 7, 2022 9:29 AM | Report Abuse X

example, say gross margin as per actual crack spread chart is as per below:

Dec 21': 7 $/brl

Jan: 8 $/brl,
Feb: 8 $/brl
Mar: 20 $/brl

Q1 gross profit: 3.5m brl/month x ( 8 + 8 + 20)
Q1 profit after hedging loss gain: 3.5 m brl/mth x ( 7 + 8 + 8)


Apr: 24 $/brl,
May: 24 $/brl
June: 30 $/brl

Q2 gross profit: 3.5m brl/month x ( 24 + 24 + 30)
Q2 profit after hedging loss gain: 3.5 m brl/mth x ( 20 + 24 + 24)

..........

why worry on hedging loss / gain? Its just the effects of lagging 1 month trailing 3 months profit

Posted by probability > 2022-06-07 13:34 | Report Abuse

They go Long on crude and Short on refined oil products such that if tail (margin shrunk) by following month they dont lose but if head (margin expanded) they will win on next hedging

Refinery is about ensuring there is profit every month. If they dont hedge - some months could be huge loss if the trend in oil price changes downwards

Posted by probability > 2022-06-07 13:42 | Report Abuse

See detail derivations here:

https://www.mercatusenergy.com/blog/bid/72741/an-introduction-to-crack-spread-hedging

Extract from above:

Just as oil producers and consumers have the ability to hedge their exposure to volatile petroleum prices, refiners have the ability to hedge their exposure as well. In fact, one could argue that refiners face an even greater need to hedge than producers and consumers as their profit margins are based on the price of not one commodity, but at least two and often several: the price of their input (crude oil) as well as their outputs (bunker fuel, heating oil, gasoline, diesel fuel, gasoil, jet fuel, etc.).

In order to mitigate their exposure to crack spread price volatility, many refiners hedge the crack spread by purchasing crude oil futures or swaps and simultaneously selling refined products futures or swaps as the results allows the refiner to lock-in or fix the refining margin.

Posted by Jerichomy > 2022-06-07 13:44 | Report Abuse

Alot ppl listen to money makers…just look at ays and hiapteck

Posted by subwayzzz > 2022-06-07 13:49 | Report Abuse

tell him to just stay there and provide daily buy and sell recommendations since ays and hiapteck forumers like him so much

Posted by Zhuge_Liang > 2022-06-07 14:05 | Report Abuse

@probability,
Stop your posting.
No point to waste your time here.
If they are so good, should make million.
RM100k pun tak ada to buy shares.
At least I make million in 2015 and 2020.

Posted by MoneyMakers > 2022-06-07 14:06 | Report Abuse

Really BS calculation

Basically comparing ‘crack spread difference between 2 months’ & ‘change in price of oil/refined oil in 2 months’

Ofcos both value same lo..by definition, crack spread = price difference of oil/refined oil

Crack spread between 2months = price difference of oil/refined oil in 2months also sure same value lo aiyoyo

Posted by MoneyMakers > 2022-06-07 14:07 | Report Abuse

Should be more worried crack spread drop 15% yesterday

Good Q2 (1-off) but bad/normal Q3 onwards..doesnt deserve extra valuation @ easily back to rm4

Posted by Sslee > 2022-06-07 14:11 | Report Abuse

qqq3,
I am betting on q2 based on spike of crack spread in month April, May and hopefully June. So wish me luck.

Posted by Investing_Bursa > 2022-06-07 14:11 | Report Abuse

https://www.bloomberg.com/news/articles/2022-06-03/chevron-ceo-warns-not-to-count-on-new-us-oil-refinery

Posted by Gabriella > 2022-06-07 14:23 | Report Abuse

Fly to fast.... Landing also cannot break...

Posted by Jerichomy > 2022-06-07 14:43 | Report Abuse

Money makers make them cry like ays and hiap teck kaka

Posted by mf > 2022-06-07 15:05 | Report Abuse

warning

Posted by Jerichomy > 2022-06-07 15:13 |

Post removed.Why?

Posted by Jerichomy > 2022-06-07 15:16 |

Post removed.Why?

Posted by Jerichomy > 2022-06-07 15:24 |

Post removed.Why?

Posted by blackgold77 > 2022-06-07 15:31 | Report Abuse

Jerichomy you are king of lalang malaysia

Posted by Jerichomy > 2022-06-07 15:32 |

Post removed.Why?

Posted by harold8990 > 2022-06-07 15:33 | Report Abuse

ahahaha......I keep on hinting on the monkey story but still so many newbies kena con and didnt get the hint...

Posted by Jerichomy > 2022-06-07 15:34 | Report Abuse

Yum yum bilis/sheep kena bunuh

Posted by Jerichomy > 2022-06-07 15:48 |

Post removed.Why?

Posted by blackgold77 > 2022-06-07 16:40 | Report Abuse

i'm still waiting for it to come down to rm5 but seems like more hard work needed from the bogus accounts here...