Posted by sumato88 > 2017-06-22 13:41 | Report Abuse

Wow, just realized so many "experts" here talking about how oil price crash will erode Petronm's profit. Looks like everyone is worry about that. Believe it or not, I am still a believer and holding my shares in Petronm. I think time will tell who is right or wrong. As I said earlier, if you buy or sell Petronm's share based on oil price movement, my suggestion is to trade crude oil future.

I must admit that crude oil price movement does have impact to Petronm but the impact is only limited to its inventory holding (typically about 3 weeks) where management hedge half of it (makes sense to hedge as you source your crude from independent oil producer, unlike Shell Refining in the past where they don't hedge as they source from the parent co, this also explains the higher volatility of shell's profit)

I think the key to refining profit is still the refining margin where Jay pointed out correctly that 2Q17 refining margin is still better than 1Q17. Someone also pointed out that crude oil price crash from usd100/bbl in 2014 to 55 (average) and 44 (average) in 2015 and 2016 respectively but Petronm doesn't seem to be affected as it reported higher profit in 2015 (rm221m) and 2016 (rm238m).

Some of you may ask why? I attribute that to 3 factors, (1) refining margin is still the major profit driver, (2) whatever inventory gain and loss is 50% hedged, & (3) the inventory holding at any point in time is only 3 weeks, hence the inventory exposure is on 3 weeks rolling basis. That means the impact is limited to 3 weeks out of 52 weeks if oil price stabilizes after the sudden plunge. Oil price move up and down everyday, so refinery will have inventory gain or loss everyday. That is the reason why Petronm's 2015 & 2016 profit doesn't correlate with oil price crash.

And last but not least, I am still bullish on Petronm's retailing biz, which offers stable profit and growing volume. This is the jewel of the biz.

Posted by cpng > 2017-06-22 13:42 | Report Abuse

which the share is considered overpriced based on FCF and earnings?

我们就看看那些很多人吹箫的火热公司，例子一大堆，比如Gdex ,Karex, 要不是老板炒股价比经营生意落力，把本益比PER 炒到100倍&50倍，但是这一年来我们看到这样的高PER 公司的业绩增长放缓放慢。

风险是涨出来的，大家小心谨慎对待那些吹箫文章。

Posted by cpng > 2017-06-22 13:46 | Report Abuse

When the prices hovering $2.70，you can talk east talk west, the downside risk is limited.

But when the prices rocketing $8.70, you still driving a lorry of good news to promote the company, I doubt your sincerely.

Posted by Newmaster > 2017-06-22 13:52 | Report Abuse

Anyway, noted and thanks cpng for your good intention and warning.

Hi sumato88, you are still the most welcome expert here. Like your comments and insight very much. My salute to you.

Posted by AllWin > 2017-06-22 13:55 | Report Abuse

Break support, not looking good. Ayyway, good for long term investors.

Posted by pitbull > 2017-06-22 13:57 | Report Abuse

Cpng
Myeg 算吗??

Posted by TakeProfits > 2017-06-22 14:18 | Report Abuse

Oay, all experts, price drop some more arh!! No one can predict lar. Even if you thunk it's a damn good company..LOL

Posted by Jay > 2017-06-22 14:22 | Report Abuse

@cpng so you have no better ideas to share? I'm disappointed

1. what you said about oil price may be right, short term it is bearish, but what about 6-12 months down the road? or even longer, 3-5 years time? are you so sure it would stay around 40 then? the truth is no one knows for sure so stop acting smart

2. in case you still haven't realise (after so many people shared), oil price drop doesn't benefit or hurt petron directly. it's true the timing difference could affect them but to say they will be hurt like the upstream oil players (Hibiscus, Reach etc.) is simply ignorant

3.If my memory didn't fail me, Gdex and Karex even in better earnings time, never traded below 30 times PE (not to mention current craxy PE of 50-100 times) as people keep saying they deserve a premium (Singpost factor, e-commerce, largest condom maker etc.). are you really comparing them to petron's PE of 6 times? if petron PE is 30 times, now the price should be at least RM27

4. when it was 2.70 it was still making losses under Exxon brand, now EPS for the past 2 years are above 80c each year and last 2 quarter more than 40c each quarter, still RM2.70? if follow your kindergarten logic where earnings doesn't matter, Maybank was RM2 back in 2008, now is RM9.50, oh my gosh so overvalued? Top Glove IPO price 2.70, if you count bonus issue and share split, now adjusted price should be above RM100, wow the most overvalued stock! since I have pointed them out, if you really have faith in your logic, please go to Maybank and Top Glove page and tell the shareholders and analysts how overvalued their company is. whoever that speaks against you is definitely insincere

I don't usually name-call but when you doubt others yet cannot back it up with evidence or logical reasoning, then you deserve it. some people it's better for them to stay mysterious and not to explain themselves, because once they open their mouth then you know it's rubbish

Posted by TakeProfits > 2017-06-22 14:24 | Report Abuse

The company probably getting advise from IB, so major consideration is still ccontrol. If rights issue, stay away for a while , and when dust settles, look at it again. Investors don't like dilution and rights issues..

Posted by Jay > 2017-06-22 14:35 | Report Abuse

those who shared great info here are going to get questioned when price comes down, but people forget what about when price was up? did they get paid when they recommended petron at below RM5?

it's the same thing like ekovest all over again when too many idiots crowd out the comment section and all the "I told you so/it's coming down/the company is a sham etc." when the price dropped.

maybe I should also leave the petron page temporarily before my IQ drops reading those comments

Posted by skyea > 2017-06-22 14:36 | Report Abuse

dunno why u think that a chance of breaking even next year is something that allows u to namecall, rather than locking in profits and let the potholes pass.. i mean even putting that cash in FD now and wait is doing better investment return wise. 9-12 months down the road, what have u got to show for this? 0% return. laugh die people lah. if the stock is so good, it wont fall like this one lah. wake up lah.

Posted by probability > 2017-06-22 14:40 | Report Abuse

exactly Jay..i am also exhausted.

But, keep up the good work of having logical discussions when needed... as it is precisely because of such idiots in large quantity the market is inefficient giving plenty of opportunities to make huge $$ (just that it can be slow at times).

Posted by Joblessrich > 2017-06-22 14:45 | Report Abuse

Sifu Jay, Please don't go away, we highly value your opinion and sharing of knowledge and info. Same feelings for Sifus Paperplane, Sifu Probability and Sifu 逍遥子 and many more Sifus. I have been quietly reading and learn from you guys.
I find that This Petronm blog is the most informative room of all.
Pls ignore the stupid noises.
Thank you and keep up the good work.

Posted by Newmaster > 2017-06-22 14:54 | Report Abuse

Jay, don't do that.

Your comments are perfectly alright. Those who comment badly about the share price (when it comes down) are immature investors or having some hidden objectives or just waste their time talking nonsense. Just continue commenting what you think is right.

Who says good stock won't drop, anything can happen in equity market. No share will go up in straight line.

Those who agree with me, please come forward and comment. I am pretty sure they are many readers who like the professional and indepth comments from those who share.

Posted by Equityengineer > 2017-06-22 14:58 | Report Abuse

Jay input always the most outstanding.

Posted by soojinhou > 2017-06-22 15:02 | Report Abuse

Since bulls need reinforcement, I also join in to get hentam lah. At the end of 2013, Petron had a net gearing of 0.93. And as at 31/3/2017, they are nearly net cash. Throughout the 3 years, crack spread has been through highs and lows, oil prices have also saw highs and lows. Regardless of oil price fluctuations, the business is highly cash generative. The ability of the company to pare down debt over the past 3 years is a testament to that. So if you all are scared of inventory write down, take a look across the border at a company called China Aviation Oil. When oil price collapsed and they had to do inventory write down, share price got crushed to 50 cents. It's sitting pretty at 1.70 now. If you cannot look past a single quarter of poor result, yes please sell. I'm sure there are many patient investors out there willing to look past the inventory writedown.

Posted by paperplane2016 > 2017-06-22 15:03 | Report Abuse

Jay. Ignore those idiots lah. Run super duper once in lifetime deal. That's why I said never underestimate the stupidity of Malaysia investor. Anyway, wanna ask you how you find top glove new ventures. I guess it will be super duper good for future

Posted by nsfatt > 2017-06-22 15:08 | Report Abuse

Thanks to sifus like sumato, jay and probability who have deep knowledge about the industry / company based on facts and figures. Their comments are always objective and helpful to investors in making decision.

Posted by fattmoney > 2017-06-22 15:45 | Report Abuse

Yup sifus like Probability, Jay, Sumato and 逍遥子 have very good knowledge about the industry and are willing to share selflessly and for free. Their comments gave us newbies confidence in holding this stock during this volatile time. Just ignore those empty tins who make loud noises without a concrete basis to backup their claims.

Posted by 逍遥子 > 2017-06-22 16:01 | Report Abuse

@ Jay, take it easy. I know it is very annoying, that is why I choose to stay away from the forum whenever there is a big up or big drop cause there will be many so call experts jump up to put up a show to "show off".

Investment is fun learning process.

Cheers

Posted by George888 > 2017-06-22 16:23 | Report Abuse

Buy and HOLD great companies.

Posted by invest turtle > 2017-06-22 16:44 | Report Abuse

Too many weak holder

Posted by Bizfuneng > 2017-06-22 16:48 | Report Abuse

Thanks Jay for the good analysis. I bot low this morning but it went down lower. Haha...I bot more at lower price and now it beginning to rebound. Dun be too concerned with those gamblers comments. We buy for its future growth.

Posted by invest turtle > 2017-06-22 17:31 | Report Abuse

Yes. Such a rare opportunity to buy at low price. I'm buying for long term.

Posted by Chong Jiunn Hau > 2017-06-22 17:36 | Report Abuse

Hi Probability. Wah, u r one of the sifu here. Haha. Has been watching this stock quite some time. Waiting the right time to enter

Posted by TakeProfits > 2017-06-22 18:08 | Report Abuse

Hey guys, skyea and some of us are not party spoilers. It's being prudent. This is the real world. Sure petron us a good stock. We all need to get around market players too. Stock investing us much more than being positive all the time. Take Profits and as skyea says sit on it and come back when we have clearer picture. I hope the best to those holding. Mind you I have been in stocks long time. Your returns will be better, if you play it well. Of course I want to see the stock at 13 now. But not that easy assumption. Cheers to everyone. And remember it is important to preserve capital. So it's good to learn from each other.

Posted by TakeProfits > 2017-06-22 18:18 | Report Abuse

I value everyone's comments. Please no name calling. We are all different and have different strategies. Please no make fun of each other. One mst have strategy, make 39% they cabut. It's not wrong to do that. Another want to hold longer term, as long as good company . All these strategies has its + and -. We call.it risk appetite. I have gut feel petron Will do well longer term and we hinge on good management and their executions. In meantime I am cautious and I am not wrong to decide on this way. Be cool with your strategy but try to learn from each other. I will enter at right price. Now we should be watching about their expansion plans....and how they gonna finance it.

Posted by aseng > 2017-06-22 18:38 | Report Abuse

I don't understand
1. How HY and PETRONM operate with a fixed refinery margin
2. How with the low crude oil price the companies still can maintain a profitable margin.
3. Sifu seem to say that it is the demand and supply that determine the refinery profit margin, then how the companies manage the demand and supply to ensure there is continuous profitable margin.

sifu probability is very kind, had made an effort and had taken all the troubles to explain and share with us . but we still feel half known half unknown, may be sifu probabilty can lower slightly his level of reasoning , put it in a most explicit language so that we are very confident that 1 + 1 is none other than 2.
I am not teaching you how to present your facts, but I know very well that what you are talking is something very valuable and useful for a wise trading decision or a clear indication as to what to do next
that is what we called not to follow blindly, right ?

Posted by probability > 2017-06-22 18:40 | Report Abuse

aseng...i think you and me need to drink more milk...come to HRC forum...i have a nice milk example to share with you...

Posted by Newmaster > 2017-06-22 18:45 | Report Abuse

aseng gor, noticed you have changed your communication style and become very professional in this forum. It's good to see that........haha. Welcome back.

Later sifu probability will explain to you the above doubts as sifu probability is a very forgiving individual. Trust me.

Posted by Newmaster > 2017-06-22 18:52 | Report Abuse

By sifu probability, what a great illustration !

Stock: [HENGYUAN]: HENGYUAN REFINING CO BHD
Jun 22, 2017 06:42 PM | Report Abuse

guys, for once and for all, view HRC refinery as per the following milk business model and try to really understand it:

(1) you have pipeline (or milk barrels in stock) of say 10m3 = 10,000 liter volume inside. This is the only batch you bought from a the cow owners before making any deal with the buyer - retails.

(2) Next you buy from the cow owner a fixed batch size of 20,000 liters at say RM10/liter and always sell with the prevailing milk margin of RM 1/liter to the retailers. Meaning you will sell at RM 11/liter to the retailers.

(3) Market milk margin (RM 1) changes as per the market dynamics and every purchase you make with the cow owner is justified by a deal made with the cow milk buyer (retail) at the SAME QUANTITY.

Meaning, if you buy from the cow owner a fix batch of say 20,000 liters at price of RM10/liter, you make sure first you have made the deal with the retailers at RM11/liter for a batch of 20,000 liters.

(If HRC dont do this...they might as well be an oil trading company than a refinery)

So your CCS margin = 20,000 liters x RM 1 = RM20,000
for this Contract no.1.

Now, while you are making the second Contract no.2, the market milk price say drop to RM5/liter, you make Contract no.2 with the same market margin of RM 1/liter and if the batch size = 20,000 liters , you still make the same CCS margin of = RM 20,000. If the market margin is RM1.5/liter you deal with retailers is at RM230k with gross profit of RM 23,000.

So..it goes to Contract no.3, no.4 and so on...your profit is purely determined by the market margin. This is exactly the same as refinery crack-spread margin which had been very healthy from the beginning of the year 2017.

So if you have 10 such contract for a qtr, your profit is:
= 10batch x RM 20,000/batch
= RM 200,000


(4) Now what did you lose because the price of milk had dropped?
You only lose the value of the stock in pipeline which is 10,000 liters by a drop in the price of RM5/liter = 50,000 which is one time event recoverable when the price rises back.

Posted by paperplane2016 > 2017-06-22 18:59 | Report Abuse

No need to complicate one self. Crude oil down, buy petronm, hngyuan. Why? Idiots selling.

When crude up to 100, sell petronm. Why? Idiots think their profit going skyrocketed soon. Clever right

Posted by Newmaster > 2017-06-22 19:03 | Report Abuse

Sifu paperplane2016 is damn smart...............hahahahaha good one.

Posted by aseng > 2017-06-22 19:13 | Report Abuse

this is very bad !!!!!!
if you know and you do not share , then what is the different you know and you don't know



Posted by 逍遥子 > Jun 22, 2017 04:01 PM | Report Abuse

@ Jay, take it easy. I know it is very annoying, that is why I choose to stay away from the forum whenever there is a big up or big drop cause there will be many so call experts jump up to put up a show to "show off".

Investment is fun learning process.

Cheers

Posted by aseng > 2017-06-22 19:19 | Report Abuse

Christ was nailed to a cross to save man , what is so big deal of getting questioned when price comes down?



Posted by Jay > Jun 22, 2017 02:35 PM | Report Abuse

those who shared great info here are going to get questioned when price comes down, but people forget what about when price was up? did they get paid when they recommended petron at below RM5?

Posted by probability > 2017-06-22 19:20 | Report Abuse

aseng..i am not happy because you have not confirmed you have understood and agreed with my explanation using the milk business example.

Posted by Newmaster > 2017-06-22 19:27 | Report Abuse

aseng gor, pls revert on the good deed................would you ?

Posted by aseng > 2017-06-22 19:35 | Report Abuse

probability sifu ,

I still have not read your story in HY
I will go through every single word after dinner

whether I have the brain to understand your wisdom or not I still wish to say a big thank you for your hard works and generosity.

sincerely from aseng : THANk YOU

Posted by paperplane2016 > 2017-06-22 19:35 | Report Abuse

No need so complicated. Proven. Malaysia investor idiots

Posted by probability > 2017-06-22 19:37 | Report Abuse

Glad to hear that aseng...trust me its not complicated.

Just position yourself as the milk businessman...and how you would actually conduct the business...it will appear like common sense.


Posted by aseng > Jun 22, 2017 07:35 PM | Report Abuse

probability sifu ,

I still have not read your story in HY
I will go through every single word after dinner

whether I have the brain to understand your wisdom or not I still wish to say a big thank you for your hard works and generosity.

sincerely from aseng : THANk YOU

Posted by neotang > 2017-06-22 20:02 | Report Abuse

if it is that simple, why FY13, FY14, petronm kept losing money?

Posted by probability > 2017-06-22 20:03 | Report Abuse

why it shouldnt?

Posted by neotang > 2017-06-22 20:03 | Report Abuse

look at FY13, FY14, management struggle with margin when external environment is not in their favour.

Posted by soojinhou > 2017-06-22 20:06 | Report Abuse

Lose money? Forget about eps, why don't you look at fcf? In 2013, FCF is 96.5m. In 2014, it is 201m. In 2015, it is 295m. In 2016, it is 307m. For the past 3 years, FCF is consistently above 10% of market cap.

Posted by probability > 2017-06-22 20:08 | Report Abuse

PetronM refinery margin (CCS):

2015 = 4.5 USD/brl
2016 = 1.3 USD/brl

HRC reported (CCS):

2015 = 7.0 USD/brl
2016 = 4.06 USD/brl

The difference or 'premium' on average of HRC over PetronM is ~ 2.6 USD/barrel.

From Jay's table (data extracted from AGM) we know that Retail (marketing) segment on average is giving a gross profit of 105M per qtr. Assume the latest qtr it had improved to 110M/qtr. This means the refinery gross profit contribution on the recent quarter is ~ 120M.

Thus the current CCS margin of PetronM is:
= 120M / (48k brl/day X 90 days)
= RM28/brl
= 6.6 USD/brl

now, if you add the same premium of 2.6USD/brl to derive HRC margin, you will get the following:
= 6.6 + 2.6
= 9.2 USD/brl

Check out the throughput of HRC and the reported Gross margin...it will exactly match this.

Posted by probability > 2017-06-22 20:11 | Report Abuse

year 2016 is exceptionally low for refinery margin. it was a tough time.. the norm should be at least at 2015 level.

to fully realize these margins...of course there should not be any stock loss...like it used to suffer when oil drop all the way from 100 usd to 50USD/brl level..

Posted by soojinhou > 2017-06-22 20:18 | Report Abuse

31/12/13, cash 97.6m debt 900m
31/3/17, cash 205m debt 251m.

Got lose money ah? I mean seriously, from 1/1/13 to 31/3/17, we are looking at FCF generation of 991m for a 2b company.

Posted by Newmaster > 2017-06-22 20:26 | Report Abuse

Sifu probability, thought Sumato88 mentioned the inventory was 50% hedged ? So why still affecting the margins so much ? This part a little confused to me ? Need clarifications, thks.

Posted by probability > 2017-06-22 21:00 | Report Abuse

Newmaster , the margins above are CCS margins. It has nothing to do with inventory gain/loss.

Posted by probability > 2017-06-22 21:04 | Report Abuse

the above CCS margins were derived based on Jay's article below:

2. Breakdown of gross profit

http://klse.i3investor.com/blogs/purelysharing/125486.jsp

and based on:

HRC's annual report for 2016 (Pg 48 & 52) and 2015 (pg 36).

You need to understand the difference between CCS margin and FIFO margins.