There are three factors affecting Heng Yuan earnings and I will discuss each of these separately below.
1. Refinery margin – Net flat
Refinery margin is about flat in 4Q as compared to 3Q. We can see from
the chart below. So I assume the net impact on the changes to Hengyuan
earnings to be zero, means same Gross Profit like 3Q.
Source of the chart is here:
Crude oil price has surged in 4Q and this will lead to stock valuation
gain for Hengyuan. As the Company has RM1.26b of inventory as of end-3Q,
the 16% gain in Brent Crude Oil price in 4Q should result in stock gain
of RM68m. My RM68m is assuming only 5.4% gain on the RM1.26b as the
Company buy and sell their inventories throughout the quarter so the net
impact should be averaged out through the three months.
Note: 31-Dec Brent Crude Oil Price is USD67 vs 30-Sep’s USD57.50
All of Hengyuan borrowing is in USD. So, it benefit when Ringgit
appreciate. As Ringgit has appreciated 4% against USD to about 4.04 as
of end-Dec, the impact to Hengyuan is net gain of RM53m.
Assuming refinery margin to be flat in 4Q, 4Q EPS should be RM1.41
Hengyuan result should be out by end of February. By using all these public information, we can sort of know that Heng Yuan will register super profit in FY17 with EPS of RM3.83... this will be 3.27x of its EPS of RM1.17 in FY16!
FY17 EPS to be RM2.42 + RM1.41 = RM3.83
As I may be wrong, let’s assume a 10% margin of error and 4Q
EPS at RM1.27, still FY17 EPS will be RM2.42 + RM1.27 = RM3.69 (still
very good as it is still 3.15x of FY16 EPS)
