Showing posts with label Hengyuan. Show all posts
Showing posts with label Hengyuan. Show all posts

Friday, August 12, 2022

THE LAST RIDING BET ON HENGYUAN REFINERY

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Global energy prices are very volatile with Ukraine Russia war. The under investment on the oil and gas industry had also saw production not able to catch up with the demand as global economy reopen post pandemic.

The tension of the war had sparked strong rallies on the oil prices as well as oil refinery crack margin. Both saw strong rallies in prices back in the 1st and 2nd quarter of 2022.

However, as of the last quarter earning report in May, Hengyuan apparently appear not to be able to capture the windfall in crack margin prices.


With almost RM 5 billion in revenue, Hengyuan only manage to get a profit of 47 million, turning into 15.82 in EPS. 
As many investor are expecting a big improvement in the result, the result being not up to the expectation lead to a major sell down of the stock from RM 7 to RM 4.
A big chunk of gross profit being RM 508 million are knock down with big operation losses of RM 338.5 million.
Many predicted that the losses could be due to bad hedging, selling contract that are too low while crack prices go way above. While this argument can be a valid point, it can also be a important turning point moving forward.



Assuming that HENGYUAN spread out their monthly hedging by selling contract are a certain price range, for example is USD 20.

If the price continue to go up until USD 30, every contract stand to lose out USD 10. (That is losing money)

If the price go down to USD 10, every contract stand to profit USD 10 as they sold at USD 20.


MY ANALYSIS (All numbers are my own assumption for easy understanding)
One of the reason for the major operational losses or hedging losses could be due to HENGYUAN do a forward hedge of 1, 2, 3, 4, 5, 6 month probably around the price of USD 25, 22, 20, 18, 15, 12 respectively (price are example)


When the crack margin prices continue to go up, all the hedging done in the forward month will be in a losing position. However, as long as HENGYUAN DO NOT CLOSE THE CONTRACT POSITION until the contract end settlement, then there is still chance for it to make a profit.

I will give you an example.

During the month of MAY 2022, lets say HENGYUAN sell 100 contract at USD 20 for the month of AUGUST. The crack margin continue to go up until USD 35. On paper, that is a paper lose of USD 15 for every 1 contract, and accounting practice will need to recognize the "paper losses" into operation losses as the contract will result in such losses at that material time.

However, if HENGYUAN held on the contract and coming to AUGUST 2022, the crack margin now is USD 10. If HENGYUAN DID NOT close all the sell contract in the month of AUGUST, then HENGYUAN will be looking for a paper profit of USD 10 per contract now.



CONCLUSION
So, do you think HENGYUAN still have the last ride on this oil refinery saga? Do they have the golden hand where contract sold at high are still holding on to their hands until delivery?

I am not related and do not have any insider information in HENGYUAN operation. I am only a investor in HENGYUAN and still holding in HENGYUAN share as waiting for them to unveil the secret.



If you think HENGYUAN hedge master is very good and still hold a golden hand, the coming quarter report will be very powerful as it will reverse all the operation losses and turn into profit. But if the hedge master is so bad and got played up side down by the global oil syndicate, that is too bad for HENGYUAN.



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Friday, May 27, 2022

US REFINERIES BRACE FOR HURRICANE SEASON STARTING JUNE 2022. OIL CRACK MARGIN CONTINUE TO STAY ELEVATED AT THE TOP SIDE WHICH WILL BENEFIT HENGYUAN

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As you know that I had been investing in Hengyuan Refinery for quite some time. I will continue to stay invested in Hengyuan as a hedge towards commodity inflationary prices, especially in the oil and gas industry.

Prior to the current development that is happening in the global stage, here are the reason for me to stay invested in Hengyuan

1. The 2 years of Covid19 had resulted in oil refinery closure. a total of 5 oil refineries in the US shut down permanently during 2021.

2. Reopening of global economy and air travel boost demand for refined oil products such as jet fuel.

3. Russia Ukraine on going war had resulted in Russian oil products getting sanctioned by the West, hence elevated the oil price further.

4. Moving into 2H 2022, there are more violent weather changes in the gulf of US, where weather reports are looking between 6 to 10 hurricanes which will start from in June, peaking in September and ending on November 2022.




As such event are lining up which will continue to push the oil refineries crack margin higher, or maintaining in a high range, oil refinery operator over the world that are not affected by oil sanctions or turbulent weather will be looking into mega earning season.

Hengyuan refinery will definitely fit into the context.




The price of Hengyuan had dropped from a peak of RM 7.70 to the current price of RM 6.30 is probably due to expiry of call warrants HENGYUAN C22

The exercise price of HENGYUAN C22 is RM 4.75.
As the price of HENGYUAN is above RM 4.75 now, the call warrant holder will be entitled for cash settlement after the maturity date of 30th May 2022.

Hengyuan is expected to post it's largest ever revenue and net profit for the 1st time, which will be 31st May 2022. With the crack margin sustaining at the higher range, HENGYUAN will be the darling stock of 2022.


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Monday, February 28, 2022

IS HENGYUAN WORTH THE WAIT FOR A BIGGER AND BETTER RESULT IN THE NEXT 3 MONTHS?

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Today HENGYUAN had released its quarterly result for the financial performance period of OCT - DEC 2021.

During that period, the crack spread of MOGAS 92 BRENT is averaging at USD 9 to USD 10.



The profit estimation back then from my calculation is around RM 175 million.

As per the official result, the profit is almost RM 180 million.

So moving forward, it is important to know whether HENGYUAN is worth for the next wait on the bigger pie of profit or you are just going to sell it off.

My previous estimation is based on crack spread average of USD 9.

According to the moving price chart, I can foresee that Q1 2022 average crack spread can be lingering around USD 12 to USD 13. Let's take USD 12.50 as a point of calculation.



Crack spread rate of USD 12.5 is approximately an appreciation of 39% from previous average of USD 9.

So most probably next coming quarter can expect earning per share around 80 cents to 85 cents.

I believe next quarter can be seeing HENGYUAN start to give huge dividend to the shareholder again.


HENGYUAN will most likely challenge RM 5 in the immediate term as the resistant line. If the prospect of oil refinery crack spread continue to remain elevated, then the chances of HENGYUAN running above RM 10 will not be a dream too big.

So it will be the investor decision whether it is worth the wait for them to see the bigger piece of prize.


IMPORTANT NOTICE

Projection is based on estimation, and I am not responsible for the accuracy of the data provided. Please be informed, I am not a professional or certified analyst. I am not a licensed consultant, just a normal retail investor. I am just sharing my ideas and opinion on the market outlook. Any company mentioned should not be interpreted as a buy/sell/trade call. Please do your own research and buy/sell/trade at your own risk.

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HENGYUAN IS ON TECHNICAL RETRACEMENT OF AN UPTREND CHART

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With the Russia and Ukraine war going on, energy prices especially in the oil and gas sector continue to stay elevated. Supply chain in the oil and gas sector continue to see higher margin with the higher energy commodities prices.

I would suppose that this will be the same for oil refinery company.

PETRONM had report the quarterly report with positive EPS that had shown the recovery of the oil refinery sector.


As you can see, PETRONM result is very good with EPS 22.4 and even giving out 20 cents dividend for the share holder.


HENGYUAN is going to report the quarterly report later today on 28 FEB 2022 after market hour.

Currently, the share price is on the uptrend, but sitting towards the support line of the uptrend.



I do not hold any insider information about the upcoming result of HENGYUAN.

However, with the positive oil price environment, and also a big margin in crack spread in oil refinery, it should be giving a good profit.

At the current price below RM 4.30 on technical retracement, do you think it is a good point to average down? enter into new position? add your investmet position?


IMPORTANT NOTICE

Please be informed that I am not a professional or certified analyst. I am not a licensed consultant, just a normal retail investor. I am just sharing my ideas and opinion on the market outlook. Any company mentioned should not be interpreted as a buy/sell/trade call. Please do your own research and buy/sell/trade at your own risk.


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Wednesday, February 23, 2022

IT IS THE TIME FOR HENGYUAN TO DRIVE A NOTCH HIGHER WITH RISING CRACK SPREAD

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HENGYUAN REFINING COMPANY BERHAD (HENGYUAN - 4324) will be reporting it's quarterly report in a few days time.

With the rising crack spread margin in the overall industry, it will be safe to say that oil refinery company should be making a profit from their services as the margin enable them for a profit.


Above is the Singapore MOGAS 92 UNLEADED BRENT CRACK SPREAD FUTURES.

The crack spread trading almost to an all time high. The margin is sufficient enough for the company to report very high profit.

As you can see from past historical record, the current price can be considered at the high zone which can delivery promising profit to refinery company.




While every refinery company have their own fixed cost and overhead, HENGYUAN did delivery some stunning record profit back then which had sent the share price over to more than RM 20 per share.



As HENGYUAN price chart movement had finally broken away from the long term downtrend, the current uptrend in 2022 had just started, backed with high crack spread margin for the share to appreciate more when the company delivery the profit.

I do not possess any insider information on HENGYUAN coming quarter report. I got no idea if HENGYUAN can be reporting a big profit, or a big loss again. Technically speaking, it should be able to give a report back to the black. As a normal retail investor, I am still holding this share as prospect of the refinery margin improves.

IMPORTANT NOTICE

Please be informed that I am not a professional or certified analyst. I am not a licensed consultant, just a normal retail investor. I am just sharing my ideas and opinion on the market outlook. Any company mentioned should not be interpreted as a buy/sell/trade call. Please do your own research and buy/sell/trade at your own risk.

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Monday, November 8, 2021

CAN HENGYUAN REPEAT ITS GLORY FORM IN 2017 2018 ?

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As you know that I had mentioned about Hengyuan earlier, hence today I would want to tell you why I am optimistic on Hengyuan performance in the mere future for at least the next 6 months to come.

Here  I would want to show you the past trading chart of Hengyuan against the oil refinery crack spread. I will use the nearest regional global spot price, which is the Singapore Morgas 92 unleaded as a benchmark on Hengyuan pricing

If you want to refer to this oil crack spread in the future, here is the link

So what is packing in for Hengyuan in the coming short term future?



As you can see, Hengyuan had an exceptional run up in share price when it start to deliver stellar result from the quarterly earning. The share price had started to run in November 2017, and shot up to above RM 17 at the end of December 2017 heading into Jan 2018.

If you compare the chart on Singapore Morgas 92, there is a period of peak oil demand where refinery capacity is very fully loaded, where the oil crack spread shot above USD 14 per barrel.

This is usually an indication of a bottleneck whereby supply is limited and demand is furiously high, which is back in 2017.


Now coming to the end of 2021, where are we looking at?

Demand pull factor
1. Economy reopening from the coronavirus pandemic. Heavy industry restart operation, logistic and machinery are starting their engine and running again.

2. Higher pricing in Natural Gas and Coal had pushed power plant to take up crude oil as substitute feed stock for power producing in China. Coal price higher due to flooding in China.

3. Winter season which is coming to the northern hemisphere will pent up demand for power due to switching on of house heating equipment


Supply drag factor
1. Hurricane Ida disrupted 2 month of oil refinery operation in the US, which account for more than 30% of the US output

2. Oil cartel OPEC+ decision to follow the gradual increase of oil production will scramble buyer to buy more oil now in fear of price getting higher and higher which will spike high feed in cost due to demand more than supply.

Conclusion
With the above factor combining together, we might be able to see Hengyuan going back into 2017 2018 where result will be greatly improved.

At the current price of below RM 4.30, Hengyuan is definitely a attractive option for any investor looking for medium term oil sector exposure.

I had to informed that I had invested into Hengyuan based on my own research on the information I had researched on. However, this should not be construe as an investment decision for you as a reader. Please do your own concluding research and make your own investment decision to buy sell or trade in Hengyuan.

IMPORTANT NOTICE

Projection is based on estimation, and I am not responsible for the accuracy of the data provided. Please be informed, I am not a professional or certified analyst. I am not a licensed consultant, just a normal retail investor. I am just sharing my ideas and opinion on the market outlook. Any company mentioned should not be interpreted as a buy/sell/trade call. Please do your own research and buy/sell/trade at your own risk.



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Tuesday, November 2, 2021

Hengyuan Refining is at the right timing to capture the market boom on oil refining with big double digit margin in overall industry

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Oil price are rallying high, and will be expected to go higher. Oil refinery margins are going higher as the northern hemisphere of the earth enter into winter season.

With LNG gas at a tight supply and elevated high price, fossil oil had came into the picture. The reopening of the global economy after a series of Covid19 lockdown measure also continue to draw down on oil reserve in the US and China.

As an investor, what is there for you to capture the shifting of energy prices?

Hengyuan Refining Company Berhad (HENGYUAN - 4324) might be one of your consideration if you are looking to expose your investment in the oil and gas sector.

The pandemic from Covid19 had make prices very volatile, and had damage the demand of oil previously, hammering refinery margin into a tight spot. However, a series of global event had ensure that refinery company will be enjoying sweet margin at least for the next 6 months.

Source news from REUTERS

According to the news, refinery margin in Asia are hitting above USD 8 per barrel

Excerpt taken from the source news

REFINING MARGINS

Singapore complex refining margins, a proxy for refiner profitability in top oil consuming region Asia, hit their highest since September 2019 above $8 a barrel this month.

The margins had turned negative last year, plumbing a record low in May, as the pandemic eroded demand.

In Northwest Europe, refining margins topped $9 last week, the highest since April 2020, while U.S. Gulf Coast refining margins are currently around $14, up nearly three-fold from the same period a year ago, Refinitiv Eikon data shows.



Why Hengyuan refining will be all out in the balance month of 2021?

1. Demand for oil increase (transportation fuel - diesel, petrol)
2. Coal and natural gas supply crunch lead to higher price, power plant shift to oil as input to produce power.
3. Winter season in northern hemisphere of the earth
4. Hurricane Ida damage oil refinery capacity at US
5. Hengyuan to maximize refinery production before entering Year 2022 to save on Malaysian imposed prosperity tax for Year of Assessment 2022





The current price range had indicated that Hengyuan is rested at support line from the uptrend movement.

Technical rebound on the up trending line will potential see Hengyuan trading at RM 5.50. The uptrend movement is supported with brighter oil and gas investment sentiment. Fundamentally, it is backed with good refinery margin. Prospect of Hengyuan going for a big gain is very high.

The current price range below RM 4.30 will be a strategic entry to invest into Hengyuan to benefit from the booming refinery business.



HOW MUCH CAN HENGYUAN MAKE FROM THIS OIL REFINERY BOOM???

According to data, Hengyuan refinery capacity is 156000 barrel a day


Let's take refinery margin for HENGYUAN AT USD 9 per barrel.

156000 barrel x USD 9 x RM 4.15 (conversion) x 30 days = RM 174.8 million

Since we can expect the refinery margin to last for at least the coming 6 months, HENGYUAN POTENTIAL GROSS MARGIN EARNING for next 6 month can be as high as RM 1.05 billion.

That will be looking at a potential of 50 cents earning each for the next 2 quarters.

At the current price which is below RM 4.30, Hengyuan definitely look very attractive especially with the rising demand of oil and better oil refinery margin in play.



IMPORTANT NOTICE

Projection is based on estimation, and I am not responsible for the accuracy of the data provided. Please be informed, I am not a professional or certified analyst. I am not a licensed consultant, just a normal retail investor. I am just sharing my ideas and opinion on the market outlook. Any company mentioned should not be interpreted as a buy/sell/trade call. Please do your own research and buy/sell/trade at your own risk.



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