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Revisiting our warning on Hengyuan
Revisting our Post
Back on July 31st, we published a post titled "3 risks to consider before investing in Hengyuan". We highlighted the risks regarding petroleum refining companies being, 1) Earnings could be too optimistic, 2) Crack spreads are highly volatile and 3) Hengyuan Shandong's low entry price.
2nd Quarter Results Disappointment
Today, Hengyuan reported its results for the second quarter which was lower both year-on-year and quarter-on-quarter. The reasons, in a nutshell, were 2 things:
-
One of its crude distillers was on temporarily shutdown for approximately 3 weeks for a planned minor turnaround maintenance in May 2017.
-
There were minor turnaround maintenance expenses and additional amortisation charges arising from new software/intellectual property assets.
Our Concerns were Valid
In our earlier post, we said that "refineries require maintenance – both planned and unplanned" and "Obvious reasons why Shell disposed of its Malaysian refinery could be due its unwillingness to invest further".
Looking at the reasons for the weak quarter, it is clear that our concerns were valid, i.e. there was a plant shutdown which was unaccounted for and there are higher than expected maintenance expenses as the refinery is aged.
In fact, Petron Malaysia announced its results yesterday that fell short of some estimates as well. The culprit - 25 days shutdown in one of its plants.
It is NOT our Desire for Anyone to Lose Money
We do not take pride in being right, especially when it concerns the possibility of investors losing money. Quite the opposite, when we highlight risks, we hope that we are wrong and everyone makes money.
Our intention is merely to highlight the risks when we feel that investors have become too euphoric. This is something we hope to continue doing in the future.
KT
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Discussions
4 people like this. Showing 34 of 34 comments
i think those sifus they dont understand the reality on the ground of how these refinery works. That could be the reason they calculate these thing so wrongly. Perhaps someone in the biz would have been able to give a better estimation.
2017-08-25 19:38
Bootsmy well done TQVM
We need both positive and negative sides in investment decisions making
2017-08-25 20:10
It's always good to hear different views...or else if all believe EPS RM3 and PE 10= RM30 (or 50% discount) n go Holland bersama-sama
2017-08-25 20:12
Hengyuan
Qtr … Financial … EPS … DPS … NTA
No … Quarter … (Cent) … (Cent) … (RM)
2 … 30-Jun-17 … 28.1 … 0.00 … 4.41
1 … 31-Mar-17 … 93.2 … 0.00 … 4.25
4 … 31-Dec-16 … 69.3 … 0.00 … 3.37
3 … 30-Sep-16 … -27.0 … 0.00 … 2.69
2 … 30-Jun-16 … 35.6 … 0.00 … 2.95
1 … 31-Mar-16 … 33.9 … 0.00 … 2.60
4 … 31-Dec-15 … 32.2 … 0.00 … 2.26
3 … 30-Sep-15 … -50.4 … 0.00 … 1.93
2 … 30-Jun-15 … 107.4 … 0.00 … 2.44
1 … 31-Mar-15 … 28.1 … 0.00 … 1.36
4 … 31-Dec-14 … -305.7 … 0.00 … 1.08
3 … 30-Sep-14 … -66.6 … 0.00 … 4.14
2 … 30-Jun-14 … -9.3 … 0.00 … 4.80
1 … 31-Mar-14 … -14.7 … 0.00 … 4.90
4 … 31-Dec-13 … -12.0 … 0.00 … 5.05
3 … 30-Sep-13 … 7.3 … 0.00 … 2.64
2 … 30-Jun-13 … -19.3 … 0.00 … 2.57
1 … 31-Mar-13 … -8.2 … 0.00 … 2.76
4 … 31-Dec-12 … 1.1 … 7.60 … 2.89
3 … 30-Sep-12 … 18.0 … 0.00 … 2.88
2 … 30-Jun-12 … -78.5 … 5.00 … 5.34
NTA may be the better parameter to reflect the intrinsic value of this company.
Always buy with a discount.
Being a cyclical, commoditised and capital intensive company with volatile earnings and high debts, you will demand a big margin of safety to its intrinsic value.
Do you disagree?
2017-08-26 08:22
no choice, the article title is clear. It's only about 'warning'. They won't mention to you the cash stuff =)
2017-08-26 11:05
hi mycongcc5, most will not make money one. You are right. I'm still re calibrating and testing methodologies. Bursa is very different from US, I been listening to the views of many old timers here on their view on bursa. I'm new in bursa, so i need to gather info and understand how the counters in bursa performe. I'm seeing something now after i look at a fund manager writing something. Targeting niche counters.bursa counters underfunded, but there are certain niche counters where funds are there. These counters are targeted by rich fund managers and they have set certain criterias what they like, so is a behaviour. If you can grasp how they think, you can ride with them. OTB set his criterias, while KYY is very different. BUT I noticed OTB logic behind his moves and must say his way of selection has a higher probability, yes, is probability. So the most important thing is to try to understand how they think. But there's one group of ppl most hard to fathom, the day traders and what they called the operators, i no clue how they move
2017-08-26 15:30
For trader is simple, focus on technical analysis, sentiment & liquidity, fundamental is secondary. For long term investors (3-5 years), you have to expand your fundamental "analysis" beyond one year.
2017-08-26 12:08
So, don't use the wrong machines and expect a different results. Some "voters" uses "weighing machines" and some "investors" uses "voting machines", you will have conflicting results.
2017-08-26 12:14
3iii Hengyuan
Qtr … Financial … EPS … DPS … NTA
No … Quarter … (Cent) … (Cent) … (RM)
2 … 30-Jun-17 … 28.1 … 0.00 … 4.41
1 … 31-Mar-17 … 93.2 … 0.00 … 4.25
4 … 31-Dec-16 … 69.3 … 0.00 … 3.37
3 … 30-Sep-16 … -27.0 … 0.00 … 2.69
2 … 30-Jun-16 … 35.6 … 0.00 … 2.95
1 … 31-Mar-16 … 33.9 … 0.00 … 2.60
4 … 31-Dec-15 … 32.2 … 0.00 … 2.26
3 … 30-Sep-15 … -50.4 … 0.00 … 1.93
2 … 30-Jun-15 … 107.4 … 0.00 … 2.44
1 … 31-Mar-15 … 28.1 … 0.00 … 1.36
4 … 31-Dec-14 … -305.7 … 0.00 … 1.08
3 … 30-Sep-14 … -66.6 … 0.00 … 4.14
2 … 30-Jun-14 … -9.3 … 0.00 … 4.80
1 … 31-Mar-14 … -14.7 … 0.00 … 4.90
4 … 31-Dec-13 … -12.0 … 0.00 … 5.05
3 … 30-Sep-13 … 7.3 … 0.00 … 2.64
2 … 30-Jun-13 … -19.3 … 0.00 … 2.57
1 … 31-Mar-13 … -8.2 … 0.00 … 2.76
4 … 31-Dec-12 … 1.1 … 7.60 … 2.89
3 … 30-Sep-12 … 18.0 … 0.00 … 2.88
2 … 30-Jun-12 … -78.5 … 5.00 … 5.34
NTA may be the better parameter to reflect the intrinsic value of this company.
Always buy with a discount.
Being a cyclical, commoditised and capital intensive company with volatile earnings and high debts, you will demand a big margin of safety to its intrinsic value.
------
correct to use NTA as a parameter to buy ...
2017-08-26 18:18
These sentences are beutiful
We need someone to warn us not to do something that we are not supposed to do , especially when you have a lot of cash in your pocket , you may want to try your luck when everybody is shouting
it is good buy with all the fact and data. Stick strictly to your own stock selection criteria is still the safest.
"Our intention is merely to highlight the risks when we feel that investors have become too euphoric. This is something we hope to continue doing in the future."
2017-08-27 11:40
ANSWERING THE CONCERN IN A FUNDAMENTAL AND RATIONALE WAY.
Back on July 31st, we published a post titled "3 risks to consider before investing in Hengyuan". We highlighted the risks regarding petroleum refining companies being, 1) Earnings could be too optimistic, 2) Crack spreads are highly volatile and 3) Hengyuan Shandong's low entry price.
2nd Quarter Results Disappointment
Today, Hengyuan reported its results for the second quarter which was lower both year-on-year and quarter-on-quarter. The reasons, in a nutshell, were 2 things:
One of its crude distillers was on temporarily shutdown for approximately 3 weeks for a planned minor turnaround maintenance in May 2017.
There were minor turnaround maintenance expenses and additional amortisation charges arising from new software/intellectual property assets.
BTW THIS 2 THINGS ONLY RESULT IN ADDITIONAL COST OF ROUGHLY RM 8 MILLION, RAIDER CONSIDER MINOR IMPACT LOH...!!
MORE LOSSES COME FROM INVENTORIES AND FOREX MAH...!!
HOWEVER IT IS ONE TIME EXCEPTIONAL CHARGES, WE ARE SEEING SUNNY SKY GOING FWD.
Our Concerns were Valid
In our earlier post, we said that "refineries require maintenance – both planned and unplanned" and "Obvious reasons why Shell disposed of its Malaysian refinery could be due its unwillingness to invest further".
Looking at the reasons for the weak quarter, it is clear that our concerns were valid, i.e. there was a plant shutdown which was unaccounted for and there are higher than expected maintenance expenses as the refinery is aged.
YES IS VALID...THE AMOUNT IS TOO SMALL TO MAKE A MAJOR IMPACT MAH..!!
IT IS JUST LIKE MAKING MOUNTAIN OUT OF MOTHBALL LOH..!!
In fact, Petron Malaysia announced its results yesterday that fell short of some estimates as well. The culprit - 25 days shutdown in one of its plants.
It is NOT our Desire for Anyone to Lose Money
We do not take pride in being right, especially when it concerns the possibility of investors losing money. Quite the opposite, when we highlight risks, we hope that we are wrong and everyone makes money.
Our intention is merely to highlight the risks when we feel that investors have become too euphoric. This is something we hope to continue doing in the future.
RAIDER LIKE TO POINT OUT THE AUTHOR ARE RIGHT ON HIGHER MAINTENANCE COST, BUT BOTH HRC AND PETRON RECORDED GOOD PROFIT AND OVERCOME THE DIFFICULT CHALLENGE MAH...!!
LETS BE RATIONAL AND THINK...IS THE SHARE PRICE OF PETRON AND HRC EUPHORIC WHEN BOTH OF THEM TRADE AT A PE FAR BELOW PE 10X COMPARE WITH PET DAG 24X LEH ??...!!
NO LOH !!...U JUST LOOK AT THE LATEST BALANCE SHEET BOTH HRC AND PETRON SHOWS TREMENDOUS GROWTH IN CASH HOLDING AND REDUCTION IN BORROWING, AN INDICATION OF HIGHLY PROFITABLE BUSINESS GENERATED BY OPERATIONS MAH...!!
2017-08-27 12:03
Hengyuan (Review)
Historical Prices
Date ..........Close..... Vol('000)
27/8/2017 (Sunday)
Raider apologised for misleading his followers and this forum on his valuation of $22 for Hengyuan.
25/8/2017
(Q2 2017 results announced eps 28 sen)
17/8/2017 ......................(Raider reappeared, with permission from his senior analyst :-) )
16/8/2017.... 7.60 ... 1,621
15/8/2017….. 7.58 ….. 2,423
14/8/2017.... 7.50.... 2,003
11/8/2017.... 7.71.... 3,441
10/8/2017.... 7.77.... 3,395
(10/8/2017 raider unilaterally stopped posting to this thread)
9/8/2017..... 8.08.... 1,714
8/8/2017...... 8.21..... 3,625
Poor market sentiment affecting share prices
---------------------------------------------
(7/8/2017 5.19pm KYY advised those who have sold to buy back. Those who have spare money, Hengyuan is the best buy and those owners of Hengyuan not to sell too early.)
7/8/2017...... 8.31.... 4,341 (Peaked)
4/8/2017..... 7.97.... 2,837
3/8/2017.... 7.78.... 1,549
2/8/2017.... 7.8..... 4,169
1/8/2017 ..... 7.4 .... 8,246
31/7/2017 .... 7.86 .... 8,241 (UMA issued)
28/7/2017.... 6.9..... 7,832
(Mr. Koon on 28/7/2017 posted he bought already sometimes back.)
http://klse.i3investor.com/blogs/koonyewyinblog/129678.jsp
Volume shot up 5x
----------------------------------------------
27/7/2017..... 6.36.... 1,479
26/7/2017..... 6.34.... 2,990
25/7/2017.... 6.14..... 3,508
(Mr. otb recommended a buy at 5.95 on 25/7/2017)
Volume transacted increased 2x again.
24/7/2017.... 5.9..... 1,742
On Monday, 24/7/2017, the volume transacted, increased 5x
-----------------------------------------------
Weekend 22/7/2017 to 23/7/2017
otb's visit to KYY in Ipoh (revealed by KYY on 28/7/2017)
21/7/2017..... 5.79..... 305
20/7/2017..... 5.68..... 564
19/7/2017..... 5.78.... 392
18/7/2017..... 5.86..... 401
17/7/2017...... 5.8..... 555
14/7/2017..... 5.74..... 393
13/7/2017..... 5.77..... 762
12/7/2017..... 5.84.... 1,504
24/5/2-17 Quarterly results announced.
(Next quarterly announcement August 2017)
2017-08-27 13:35
Repeat what OTB's statement & try to understand it, it's the risk that we need to take when come to business or stock investment, nothing is sure thing:
It is always difficult to predict quarter result because we base on all information available to public. We do not have any insider information.
I had done my forecast for many stocks, the probability of correct is around 70%. Many time, it is wrong even I spend many hours to do it.
2017-08-27 22:55
Hengyuan (Review)
Historical Prices
Date ..........Close..... Vol('000)
28/8/2017 ?
(25/8/2017 Q2 2017 results announced eps 28 sen, lower than Q2 2016 and lower than Q1 2017)
25/8/2017 ….. 8.12 ….. 3,341
24/8/2017 ….. 8.24 ….. 1,475
23/8/2017 ….. 8.21 ….. 2,955
22/8/2017 ….. 8.5 ….. 2,091 ASB SOLD
21/8/2017 ….. 8.59 ….. 3,180 (Highest price) ASB SOLD
18/8/2017 ….. 8.32 ….. 6,250 ASB SOLD
17/8/2017 ….. 8.22 ….. 4,232
16/8/2017 ….. 7.60 ….. 1,621
15/8/2017 ….. 7.58 ….. 2,423
14/8/2017 ….. 7.50 ….. 2,004
11/8/2017 ….. 7.71 ….. 3,441
10/8/2017 ….. 7.77 ….. 3,395
9/8/2017 ….. 8.08 ….. 1,714
8/8/2017 ….. 8.21 ….. 3,625 Poor Market Sentiment
(7/8/2017 5.19pm KYY advised those who have sold to buy back. Those who have spare money, Hengyuan is the best buy and those owners of Hengyuan not to sell too early.)
7/8/2017 ….. 8.31 ….. 4,341 (Price peaked)
4/8/2017 ….. 7.97 ….. 2,837
3/8/2017 ….. 7.78 ….. 1,549
2/8/2017 ….. 7.80 ….. 4,169
1/8/2017 ….. 7.40 ….. 8,246
31/7/2017 ….. 7.86 ….. 8,241 (UMA issued)
28/7/2017 ….. 6.90 ….. 7,832 (Big Volume increased)
(KYY revealed he bought already)
27/7/2017..... 6.36.... 1,479
26/7/2017..... 6.34.... 2,990
25/7/2017.... 6.14..... 3,508 (Volume increased.)
(otb recommended buy at 5.95)
24/7/2017.... 5.90..... 1,742
(22/7/2017 to 23/7/2017 weekend: otb visited to KYY in Ipoh, this was revealed by KYY on 28/7/2017)
21/7/2017..... 5.79..... 305
20/7/2017..... 5.68..... 564
19/7/2017..... 5.78.... 392
18/7/2017..... 5.86..... 401
17/7/2017...... 5.8..... 555
14/7/2017..... 5.74..... 393
13/7/2017..... 5.77..... 762
12/7/2017..... 5.84.... 1,504
2017-08-28 07:28
25/9/2017 Results announcement:
Q2 2017 eps 28.14 sen NTA RM 4.413
Q1 2017 eps 121.3 sen
Q2 2016 eps 35.56 sen
2017-08-28 07:38
I wish to record my most sincere appreciation for all of Mr. OTB's contribution to I3. I have learned a lot from your contribution, even though you may not be right all the time. The important fact is that you've done out of good fate.....
2017-08-28 17:52
THE THEME SONG OF GENERAL RAIDER HRC BATTLE CRY IS " WE SHALL OVERCOME"!!
LETS SING AGAIN THIS BEAUTIFUL SONG;
"We Shall Overcome"
We shall overcome,
We shall overcome,
We shall overcome, some day.
Oh, deep in my heart,
I do believe
We shall overcome, some day.
We'll walk hand in hand,
We'll walk hand in hand,
We'll walk hand in hand, some day.
Oh, deep in my heart,
We shall live in peace,
We shall live in peace,
We shall live in peace, some day.
Oh, deep in my heart,
We shall all be free,
We shall all be free,
We shall all be free, some day.
Oh, deep in my heart,
We are not afraid,
We are not afraid,
We are not afraid, TODAY
Oh, deep in my heart,
We shall overcome,
We shall overcome,
We shall overcome, some day.
Oh, deep in my heart,
I do believe
We shall overcome, some day.
2017-08-28 17:54
I think it would be fair to give credit to those who warned on overly optimistic forecast. There are a few who did the warning it in polite manner but got humiliated , whacked from right to left, being called stupid / bodoh , being called low class blogger for their work/opinion.
This is the problem with the participants, they only like what they want to hear when they are in heavy position. Any differing opinions are like death penalty to them.
2017-08-28 21:36
HANG ON...THE WRONG FORECAST ONLY MEAN THE CURRENT HRC TP RM 37.00 NO LONGER VALID LOH.....!!
GENERAL RAIDER ADVICE FROM NOW ON JUST BE CONSERVATIVE LOH...DO NOT USE FORECAST USE ACTUAL FIGURE LOH....!!
THIS MEANS WE ANALYSE BASED ON FACTS AND NO LONGER ESTIMATES LOH...!!
WITH Q2...EPS RM 0.28....THE ROLLING TRAILING HISTORICAL EPS WILL BE RM 1.62 PER SHARE LOH....!!
THE FREE CASHFLOW PER SHARE OF HRC BASED ON 6 MTHS Q1 & Q2 IS NET CASH GENERATION PER SHARE IS RM 1.44 FOR 6 MTHS LOH...!!
LOOK AT THE BALANCE SHEET OF HRC, THE CASH HOLDING INCREASE TO RM 743 MILLION IN JUNE FROM RM 238 MILLION IN 31-3-2017.
THIS MEANS THE NET BORROWING REDUCE FROM RM 1.07 BILLION IN MARCH TO RM 572 MILLION IN JUNE, RESULTING IN IMPROVEMENT OF RM 498 MILLION WITHIN 3 MTHS.
THUS PE 4.3X BASED ON SHARE PRICE OF HRC RM 7.03 LOH...!!
THE LATEST HISTORICAL EARNINGS AND CASHFLOW OF HRC LOOKS IMPRESSIVE LOH..!!
THE NEW TP IS RM 15.00 GENERAL RAIDER SET BASED ON ACTUAL HISTORICAL EARNINGS LOH...!!
VERY CONSERVATIVE LOH...!!
NOW WE NO USE FORECAST TO BE CONSERVATIVE LOH...!!
2017-08-28 22:32
REMEMBER THE CURRENT ROLLING EPS OF HRC ARE AS FOLLOWS LOH....!!
Q2 2017 RM 0.28
Q1 2017 RM 0.93
Q3 2016 RM -0.27
Q4 2016 RM 0.69
ROLLING ANNUAL EPS RM 1.63
2017-08-28 22:43
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Flintstones
Fair article. Good.
2017-08-25 19:32