Hengyuan vs Petronm
To all the readers of my blog, many thanks.
Thank you also for the many complimentary comments, these really made my day.
Questions / alternative views raised, I will try to answer / comment as best as I can.
I have never written before and this is my first try. It has been exciting and strenuous at the same time. Strenuous to ensure all statement are factual, again my apology for error and omission; exciting, first time is always exciting. And there is apprehension also – whether it will turn out ok or not (just like making love).
Right, lets get down to business:
I must thank all the other bloggers that highlighted the potential value of refineries counter and as they said, the rest is history…..
1) Hengyuan better than Petronm? petronm better than hengyuan?
- First I must declare I also hold Petronm and Hengyuan is by far the larger of the two.
- Why Hengyuan (HY), because I am too lazy to analyze four companies, four? Yes, there is Petronas (owner of refineries, yes they also issue Annual Reports), Petronas Dagangan (retail) and Petronm and possibly Petron Philippine (refinery and retail)
- I have made comment that fundamentally retail make money regardless of crack spread or oil price movement. Buy marked up and sell, easy. PetD is much like 7-11, Aeon, etc. profit growth is growing the number of outlets and be more efficient in logistic, financial management and finally continuous MARKETING. Petronm in this (marketing) sphere loses out to PetD, Shell – think F1. So it is a big challenge just to maintain awareness what more to increase sales (same store/station sale, not growing stations).
- And, Petronm refinery is small and simple (I need to verify this later). Even in this good time will not make much money compare to HY, also massive upgrade required to meet Euro4 and later Euro5
- Whether a refinery should have petrol stations or not, I think it is not important. The refined product is "liquid", easy to turn to cash and they are many buyers. Also easy to buy feedstock too. Of course nice to have upstream as well as petrol stations but they all requires different management skill set. Beside most upstream companies hold these as separate companies. Maybe I go do a postgraduate degree on this on who make the most money and how risk (very different for these different sectors) is managed.
- HY better than Petronm or Petronm better than HY, depending on your risk profile, etc, I really do not know.
- One thing I know, do not mix – retail just retail, manufacturing just manufacturing; once mix, the valuation become more difficult and blur. This is one of the reason conglomerate always trade at a discount (jack of all trade master of none).
- HY cannot grow its profit by growing refineries. Its profit is dictated by the crack spread!
- It is risky, yes, but there is a “valuation gap” i.e. perception is pessimistic and further upside is potentially there – part of investing is to capture this mis-pricing.
2) Be careful if counters were purchased heavily with margin accounts – yes indeed, how much is moot.
3) Do you know how much hedging is done by Hengyuan? – I am sorry I do not know, anyone out there knows, please share, thank you.
4) and what if all the money that is made goes to China and none for you miserable minorities in Malaysia? – I think my discussion on the Directors make-up and loan 1's terms should dismiss this concern. But if you are still uneasy, OK fair enough.
5) plus the fact this is an old plant without depreciation........low PE during cyclical high earnings is to be expected. – Yes (to the cyclical part) and no, depreciation is still running at about RM 150 + million yearly. And need to invest RM 750m for upkeep and Euro4 and Euro5 later, so more depreciation going forward.
6) Thus fair PE for hengyuan should be 7.5x loh....!! EPS rm 3.10 loh...!! – as I said, there is no right and wrong, but do provide the rational why 7.5 and not 8. EPS RM3.10 – why?
7) JUST HANG ON HENGYUAN FOR ANOTHER 6 TO 12 MTHS....SHARE PRICE SHOULD EXCEED RM 20.00 LOH...!! – why should I beieve you (you are not god), please provide reasons to support your statement that it will exceed RM20. I love to know and if I find your reasons reasonable, I might invest more or follow the “rich” to get margin too.
Thank you anywhere for your effort to highlight this undervalued company since 2016.
But allow me to say this – not everyone is as clever / smart as you, please allow some leeway for our slowness, especially mine. I am old and my brain is no longer as sharp as before and everyone is entitle to his / her opinion and let’s share (politely) and be HAPPY.
On electric vehicles here are some other considerations:
a) Manufacturing EV – notorious example is Telsa 3
b) Recharging infrastructure (like Petrol Stations all over the world)
c) The need to increase electricity supply to recharge all the EVs’ batteries - the last I checked, USD 12,000 each
I am not trying to belittle EV but being practical / realistic.
And to this comment “Although I will never buy hengyuan due to the China parent company is the pollution king of the universe.”
Fair enough, this is your principal, very noble, I respect that.
Finally, Merry X’mas and a Happy New Year to all readers.
http://klse.i3investor.com/blogs/teoct_blog/142257.jsp
