It is normal to increase borrowings when crude oil price is high. They need it for working capital/turnaround which is normally short term in nature. And I really hope it is short term. Let's see how much free cash flow that they generated in q2.

Only if you can produce 159 litres of Ron 97... no one in the market did that.

Totally agreed!

@march10
it's bcos hartalega financial year end is 31 March 2022. as simple as that.

HRC 2021 pre-tax was only 128m. the effective tax rate of 35% in 2021 was merely due to under provision of tax of 15.5m in 2020 and before.

Correct. It is for year of assessment 2022 i.e. any financial year end fall within the calendar year 2022.

@Probabilty
Layman may not know how much time and effort you have contributed to the analysis but I did. Better don’t say something contradictory that tarnish your effort.

@OTB you may erase now

@Probability
To clarify, there 2 types of derivatives:
1) Hedging
2) Trading - It can be speculative one or those contract entered for hedging purpose but does not meet the hedging criteria under hedge accounting.
In their AR, they claimed no speculative. The trading portfolio is due to second one i.e. not meeting the hedging criteria....the movement of the hedging instrument does not move in tandem with the hedged item within the range of 80%-125%.

@OTB
By the way, mind telling me how to subscribe to your channel for information sharing? Just want to get some investing ideas to broaden my knowledge and study further by myself. Invest or not invest is at my own risk.

@Probability
Hedging means hedging, speculating means speculating. I've never seen speculative hedging unless you are saying that the company is switching the % of hedging from time to time, to me it is still hedging.

As long as the derivatives are held for hedging purpose, it shall not be of any concern. The trading derivatives held is minimal which I think it is just bcos it doesn't meet the hedging criteria. Both companies claim no speculative derivatives.

@OTB
We will only know the MTM derivative position by end of June 2022. Same happen to how much we will have our capital gain in Q2'22.
Anyway, my understanding is as below:
1) HRC entered into refining margin swap contracts for a period of 1 - 33 mths since Dec 2021 (2020: 1 - 12 mths) comparing to Petron which is still less 12 months. This explain the volatility of HRC book due to longer duration.
2) All derivatives entered by both companies are hedging in nature i.e. no speculative contracts.
3) The MTM loss from the derivatives consist of 2 parts
- Spot element: losses will offset with actual margin gain
- Forward point element: losses will eventually reset to zero when maturity (and this is the element much driven by demand and supply i.e. how many short buyers vs how many long buyers)
4) For the spot element, it should not be a concern as an investor as this is merely for hedging purpose.
5) For the forward point element it is also not a concern as we know the losses will eventually reversed, just a matter of time knowing as their hedging period has been extended 1-33 months i.e. longer duration.
6) What I know is that this forward point element will continue to create volatility in the p&l year on year until the maturity. In fact, HRC profit has been volatile all these years comparing to Petron due to different hedging strategy.
7) Both companies will continue to enter into hedging derivatives regardless of crack spread is in the higher end or lower end, as long as the margin is positive and giving them protection.
8) I wouldn't sure whether their hedging is 25% of output or 50% of output. If 25%, 75% true profit margin shall be reflected in their results.
9) Due to structural refineries issue, layman will go for HRC with higher capacity for greater benefit i.e. how much you can produce will definitely translated into how much you can earn (similar to top glove).
9) For long term investors, both companies work well for capital gain based on current market environment.
10) For traders, HRC fare better than Petron due to liquidity of the shares just if you minus out the shares held by the major shareholders.
11) Dividend wise, HRC is stingy all this while and Petron is consistent with its dividend payout.
To me, oil price is the once off gain/loss item. The main buying criteria is how long the current crack spread can be sustained (same as how long the Russian sanction will end).
I will definitely go for HRC knowing that the losses on the forward point element will eventually be reversed and the gap between HRC and Petron is widening of which HRC is now much cheaper comparing to Petron.

@Rabbit2,
I do not have good knowledge on this derivative.
I like to seek your opinion, what is the estimated derivative loss in Q2 2022 result ?
Please enlighten me.

I do enjoy any analysis shared here with basis to support it.

@otb
As per accounting rules, all derivatives are to be measured at fair values i.e. the current price for a contract if you were to enter now with same remaining maturity. It consists of 2 elements i.e. current spot element and the forward point (forward element). Other than the spot element (Hedged) which is creating noise in your position, the forward element (unhedged element) is just a temporary noise due to current market volatility (and you can ignore that) of which it will become zero when the contract near to maturity.

Hope it helps as I do appreciate your (and probability) analysis which save my time preparing my own :). I only focused on the hedging part disclosed in the annual report (more informative) comparing to their interim report.

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

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.

Do note that the duration for those derivatives that hrc entered since last year end are up to 3 years with crack spread of usd8-12 whereas Petron is less than 1 year. think that makes the difference between them due to different hedging strategy applied.

hello chi wei

Very funny, date of change on the 20mil disposal by Ng Sio Peng is on 29/5/15 with the price of RM0.10 but total market volume of the warrants for that date is only 520,000 with the price range of between RM0.12 - 0.125

Very funny, date of change on the 20mil disposal by Ng Sio Peng is on 29/5/15 with the price of RM0.10 but total market volume of the warrants for that date is only 520,000 with the price range of between RM0.12 - 0.125

Should file a complaint to Bursa on non-disclosure by BNYM as a substantial shareholder else they will repeat their action.

By seeing the trend of the price movements, experienced investors for sure will sell earlier and buy later.

Just wonder who is behind BNYM.

At current share price of RM0.40, it's a good move to dispose warrants and buy in mother shares

It seems weird that BNYM as a substantial shareholder who holds 7.29% since 2013 has never disclosed of its disposal of Xinquan shares to the Bursa on a continuous basis. Isn't that against Bursa requirements? We should highlight it during the AGM.

Looks like the disposal was taking place before the issuance of free warrants (% of shares and warrants are the same).

And now its position is only 5.12% and by disposing another 0.12% will definitely get himself out from any disclosure requirements.

I would think that the massive sell down in the past few months was caused by other investors and not BNYM and you should now who is pressing the price down.

Mr Koon in fact increasing his holdings based on the latest annual report