HENGYUAN Refining Firm Bhd is probably not well-identified amongst Malaysian stock market punters but that is fast-altering.
For those who haven’t even heard of this stock, it is basically the brand new title of Shell Refining Firm (Federation of Malaya) Bhd. Hengyuan is the Chinese language conglomerate which bought out Shell. And right here is the place it will get interesting.
The inventory is up a massive 300% since the beginning of the 12 months. Regardless of that hefty acquire, it still trades at an undemanding value earnings (PE) a number of of 4.8 instances, compared with its peer Petron Malaysia Refining & Advertising and marketing Bhd which commerce the next PE of 7.65 times.
So what offers? To be sure, one level to notice is that both stocks are quite illiquid, level out sellers.
They say this partly explains the stellar rise of those stocks. Petron’s stock rose 133% year to this point.
It was solely since the beginning of 2017 that both Petron and Hengyuan saw enormous jumps of their buying and selling volumes. They even secured a spot on high most-traded stocks on Bursa Malaysia, after years of being sleepy stocks.
“Hengyuan is classic turnaround story that may entice investors, says a remisier.
Hengyuan was a loss-making firm from 2012 to 2014. Within the monetary year ended Dec 31, 2014, it recorded a lack of near RM2bil.
The plunge in oil costs in end-2014 and a few restoration since mid-2016 has been a boon for refineries.
Note that Malaysian petroleum refineries typically solely produce petrol products.
Hengyuan saw its profit greater than double to RM279.5mil in the first quarter ended March 31, 2017, from RM102mil a 12 months earlier on increased common product prices.
This led to its earnings per share leaping to 93.16 sen from 33.88 sen. Income for the quarter rose greater than fifty five% to RM2.9bil from RM1.9bil a yr earlier.
On the again of envelope calculation, Hengyuan’s profit margins improved to 9.6% in the primary quarter of 2017 from 5.5% a yr earlier.
The valuation hole between Hengyuan and Petron has driven the former’s share price within the current weeks.
Though Hengyuan is buying and selling at lower valuations and posting bigger income than Petron, it needs to be noted that Petron is sitting on a healthier monetary guide and had dished out dividends to its shareholders in 2016.
Hengyuan has borrowings of about RM1.4bil as at March 31, and didn’t dish out any dividends United in 2016. It’s gearing stands at 1.Four times.
Additionally it is in the midst of embarking on major projects at its refinery in Port Dickson which is crucial to ensure the sustainability of the enterprise and to meet the industry’s requirements.
Malaysia Hengyuan International Ltd, finally owned by China’s Shandong Hengyuan Petrochemical Co Ltd, completed the acquisition of a fifty one% equity stake in Shell Refining Company for US$66.3mil (RM296mil) or at RM1.92 a Multi-Stage Separator For Pyrolysis share. The value was almost half of its internet asset worth.
Following the entrance of the Chinese language buyers, the corporate introduced its plan to embark on two initiatives costing a total of US$160mil (RM684.5mil) at its refining complicated in Port Dickson.
“The present focus of the administration staff is to ensure rigorous compliance and additional enhance operational and financial reliability to be able to seize good refining margins and ensure we deliver the market specifications for fuels like Euro 4M Mogas and Euro 5 Gasoil well timed, the corporate said it latest annual report.
With the investment obligation and debt place, it remains to be seen when Hengyuan will start dishing out dividends.
Hengyuan was not able to comment at press time.
“Refinery margins are expected to remain uncertain.
“Operational efficiency, product quality, and financial risk management will continue to remain the company’s key focus in maximising margin alternatives for 2017, it mentioned not too long ago in a filing with Bursa Malaysia.
Petron, alternatively, saw its share worth surge 133% year to date pushed by improved margins and gross sales.
Other than having refineries, it is usually a petrol station operator. As such the corporate may secure greater enchancment in margins.
Its e-book additionally has improved significantly with a gearing level of 0.26 times as March 31, 2017.
For the first quarter ended March 31, 2017, Petron posted greater than a six times leap in net earnings to RM108mil from RM16.6mil a 12 months earlier. Income for the quarter rose by 54% to RM2.56bil from RM1.6bil previously.