PETRONM – 简单毛利计算

目前，PETRONM在全马拥有580间油站。根据管理层在今年股东大会上的描述，PETRONM油站的全马市占率已来到新高的19%。根据2016年数据统计，全马一共拥有27.6m注册车辆。换句话说，全马一共有5.24m车辆在PETRONM添油。

保守估计，假设每一辆车的添油开销平均为一个月RM200，那么每个月添的汽油将是90公升左右，相等于每年大约1,100公升的汽油。由于油站可以从每公升汽油赚取固定5仙的毛利 (Gross Profit) ，PETRONM一年可从每辆车赚取平均RM55的毛利。以19%的5.24m车辆计算，PETRONM一年可从其下游业务稳赚RM288m的毛利。

值得一提，汽油对于车辆就犹如水分对于人类般重要。为了确保可在路上行驶，添油是无法避免的。换句话说，PETRONM的下游业务可说是常做常有。

再换个算法，PETRONM的波德申炼油厂一天可提炼88,000桶汽油，相等于一年32.1m桶。巧合的是，集团在FY16全年也是同样出售32.1m桶汽油。数据显示，一桶汽油相等于大约160公升的汽油，也就是说PETRONM在一年出售5.14b公升的汽油。以油站每公升固定5仙的毛利，集团每年可赚取RM257m的毛利。

这两个算法的结果非常相近，油站一年可取得介于RM250-300m的毛利。必须注意，这只是PETRONM其中一项收入，还未包括炼油利润和一次性库存收益/亏损。

炼油毛利主要是从炼油赚幅 (Crack Spread/Refining Margin) 扣除炼油成本 (Refining Cost)计算出来。根据新加坡期货数据，今年的炼油赚幅平均处于每桶USD9。数据显示，全球市值最大的石油企业【EXON MOBIL】炼油成本为每桶USD3-4。假设估计PETRONM的炼油成本为每桶USD5-6，那么其炼油毛利将会是每桶USD3左右。以一年32.1m桶计算，PETRONM可从炼油活动赚取USD96.3m，相等于RM409m的毛利 (USD/MYR = 4.25)。

综合油站和炼油这两项收入，PETRONM可从中赚取大约RM670-700m的毛利。值得一提，集团在FY15和FY16分别录得RM534m和RM564m的毛利，而在最新季度FY17Q1录得RM183m的毛利。若年度化，集团今年有望交出RM732m的毛利数据。因此，以上推算出的RM670-700m毛利是可被接受的。

别忘了，本专页还未把库存收益/亏损的因素计算在内。在2015年，原油价格从年初的每桶USD53走低至12月的每桶USD35，相等于34%的跌幅。这导致PETRONM在FY15录得RM49m的库存亏损，之后才在FY16录得RM60m的库存收益。然而，其FY16的RM60m收入仅占全年毛利的11%。显然的，原油价格的走势对于PETRONM的影响不大。

今年，原油价格从1月的每桶USD56下滑至目前的USD48，相等于14%的跌幅。那么，大家认为PETRONM又会录得多少的库存亏损呢？这个答案交由大家去思考。再次强调，以上的算法只是专注在毛利润，而非净利润。当然，这只是本专页个人的推断和预算，并不能作准。

Why was Esso sold to Petron

As discussed in my earlier article, Exxon would probably be lesser interested in downstream operations of a mid-size country. My biggest question when Exxon sold the Malaysian downstream operations to Petron - was why would Petron be sold at RM3.59 per share or at total valuation of RM939 million back in 2012.

The final Net Asset value on the books for Esso Malaysia before sold to Petron

If one is to refer here, Exxon basically sold a 88k/bpd refinery (albeit an old one), 560 petrol station business where 420 assets are owned (a very valuable asset), 10 fuel distribution terminals (very valuable as well) and the rights to the retailing business (even more valuable) rather than one starting and building the business one by one - which is almost impossible. Think about it. That to my surprise was sold at a valuation of below RM1 billion.

If one can remember, Petron Philippines which bought the 65% stake, subsequently offered to purchase all the remaining 35% shareholders at the similar RM3.59 offering. About 8+% took up and that is why they now hold 73+% of Petron Malaysia. I made a reference to the Independent Advise by Kenanga during then, which one can read them here and here. Basically, what Kenanga advised was for the 35% minority shareholders to not accept the deal as it was deemed unfair.

For those whom do not intend to read the advise, basically Kenanga based upon the advise from Esso Malaysia's past performances and dividends that it had provided prior to 2012. Needless to say, I am not impress with the information that was provided as they have not much data to provide beyond the past performances.

Something more that was amiss that it missed out in the advise. Esso Malaysia was sitting on very old assets which probably have not been revalued. I am not able to determine what are the Revised Net Asset Value (RNAV) for these assets as most probably these assets are never revalued. It is good to note that for Esso or Petron now, these revaluation is not important as the exercise would probably benefits WTW or Raine and Co rather then the shareholders. However, during a disposal, usually these are done - but in this exercise during 2011/12 it was not considered at all.

In the last probably 9 years of Petron's / Esso's disclosure, these assets are not revealed but I managed to dig through and see what was disclosed in 2005. Many of those assets were bought decades ago and how much would they be valued now? Note that there are 420 of these petrol station assets.

Some of petrol station assets in KL

Some of assets in Selangor

Even more petrol station assets in Selangor

Assets in Perak

Assets in Negeri Sembilan

The ones which I picked are a portion of what they revealed in the 2005 Annual Report. Subsequent to that, Esso (later Petron) just picked the top 10 assets to disclose. Anyway, as in many businesses, I would agree that these assets are for its business and there are little possibilities Petron would be selling them - unless they are really strategic or the assets may not produce the return that is expected of them from the petrol marketing business.

Another key point in the agreement between Exxon, the seller and Petron is the supply. What probably is key is that (as provided below) Petron gets its continuous supply from ExxonMobil. This works both ways as Exxon gets to have its product taken up while Petron's refinery continuously gets its supply. One should note that for a refinery, consistent supply is very important if one is not able to get the supply from its own fields (which Petron does not have any).

Without yet looking at the business profitability and future prospects, one should note that these are very key features for Petron Malaysia to continue to position itself among the downstream players.

My observation is that Petron Malaysia at this stage - its hardest period is perhaps a thing of the past. The early 3 years, I felt that it was at the stage where it had to prove to people as Petron is a new brand in Malaysia - it could have gone the Projet direction, and maybe not as well received as we see in BHP. The way I see it is that Petron is now at ramping up stage.

I have also been asked on my observation on Hengyuan (which purchased the Port Dickson refinery from Shell) as against Petron Malaysia. Again, I am not an expert in this, but based on what I am able to gather Hengyuan seems to be a capable refiner (which is why the Shell petrol that you buy in Malaysia most probably all of them come from Hengyuan's refinery). However, on its operational efficiency, that has yet to be seen as Hengyuan which fully completed the acquisition in early 2016, it seems to me has yet to make the upgrades towards  the current refinery.

On the other hand, Petron Malaysia has done so after taking over the business since 2012. It has managed to be Euro4 compliant. To me, at this stage Petron seems to be the safer hands for an investor but that does not necessarily mean that Hengyuan will not be a good investment in the long term.

Whether Petron Malaysia is expanding its refinery business, that has yet to be finalised. I believe the management would have weighed the situation carefully and smartly. Malaysia itself has enough refinery capacity for our own usage especially for gasoline consumption. And at the moment, Petron's 88k/bpd seems to be not fully utilised. Or it could be going for a much efficient one in the long term. From what I have read, Petron may look for other downstream opportunities from the potential new refinery - i.e. petrochemical products.

Petron Malaysia has a bright future ahead if...

Good article from felicity
 http://www.intellecpoint.com/



Back in 2004, I remember I invested into a stock which would have provided a 10 bagger. That stock was Digi - where at that point of time after the acquisition of the telco from Vincent Tan by Telenor, it had made a dramatic turnaround from losing market share and eating up cashflow to drastically improving its cashflow until it was debt free within 2 years. That Digi which was bought at RM5 during then has split into 10 shares and many "x" of dividends. I of course being not very clever, sold most of them off much too early although I made some good returns.

That discovery will not come very often and once a while, I thought I have seen some resemblance of the same kind of stock or company - but either I was too slow and stupid to make decision or it actually created a false sense of happiness. In any case, we do not need to find a 10 bagger but my believe is to continue to look for a stock which has that similar track.

Petron is a stock which I stumbled upon when reading several comments on the oil retailing stocks. Since then, and over the last 2 - 3 weeks, I have taken an interest to understand the petroleum retail business after at first looking at Petron Malaysia's financials for the first time (in detail).

I am not an expert in oil and gas businesses, however I believe I am good enough with my observation as well as investment research if I put enough efforts to understand the business.

[I had a similar stock which I had bought - PDB probably back in 1996 (or sometime around then), I had the stock for around RM3. Again, I did not wait long enough to reap its RM24 today (and a lot more of its dividends). During then, also I was way too raw to understand these kind of businesses.]

In mentioning oil and gas, actually Petron - unlike companies like Icon Offshore, UMW O&G, Bumi Armada etc. etc. - is in a much different type of business. It is in the retailing business which Lazada, Amazon or 11street cannot replace. (It can be threatened by Tesla or BYD though)

Just to get things started, what makes me spending time to look at Petron is basically because of the below - its net cash or debt position over a short period of time. Of course in investment, it is not as simple as that, but the below signifies strong and consistent free cashflow.

Net Debt improved dramatically from RM1 billion in 1Q14 to almost no debt now

Before, we even look at numbers in detail - many would have (as well as me), been wondering why would I invest into a Philippines controlled oil and gas company where firstly the country does not even have a strong O&G industry.

Then, as I have seen what really happened to BP (which turned into BHP, under Boustead) as well as Projet (if anyone remembers - which was later sold to Shell) - the same could happen to Petron. It is not an easy business. This is not entirely a technology business but involves operational execution strength and marketing - which is what San Miguel, the parent company of Petron is strong at.

One may also say that Petron is also doing refinery then retailing. Correct. That is one of the concerns, but it seems that it is able to cope well. Its 88,000 barrel/day refinery in Port Dickson is smaller than competitors like Petronas (obviously) and Hengyuan (bought from Shell) at 156,000 barrel. However, it manages to bring back profitability from the refinery - which is important.

What is questionable is that why was it Esso which sold the entire business (refinery and retail) to Petron back in 2012 could not really make much money from this refinery - but Petron could as it has shown especially over the last 8 quarters.

Petron has turnaround from losses in 2013 - 2014 to strong profits over last few quarters

Of course, when one questions oneself - if it could be such a good business, why would Esso sell. And in that same period Shell sold its refinery to Hengyuan while BP has left the country having sold the retailing arm to Boustead. These are the oil majors leaving the country in the downstream operations except for Shell and Caltex (owned by Chevron) which keeps the retailing business.

That answer lies in them being "focused" and the Malaysian market being not big enough. However, what is not big enough for Esso is big enough for San Miguel. In the era of consistent and extreme competition, the big giants can only focus on few things that they think they can be better and make much more money than others. ExxonMobil, Shell and BP are strong in exploration and pretty much the upstream business - an area which not all players can be deemed to be good at. Beyond technology, it is also involving geo-political relationship. Why would then, a CEO of Exxon-Mobil be given a Secretary of State position...

At the same time, as many would know - this business is getting challenged from the shale guys (using a different technology and business model). They are also being challenged from the alternative energy guys such as solar, battery technologies, wind, biofuel etc. Hence, downstream, refining especially is the least of their problem.

It is like manufacturing to Apple and Google.

Petron actually was having a similar deal back in 1973 when Esso sold its business to the government of Philippines. Today, Petron is the largest petrol station operator in Philippines with 40% of market share and operating 1900 stations. In Malaysia today, Petron has close to 600 by now being the 3rd largest player after Petronas (1000+) and Shell (900+). That 600 stations over time, however may bring in very significant return to San Miguel group as one must note that Malaysian oil consumption is about 600,000 barrels a day while in Philippines it is below 300,000 (if I am not wrong).

With that backdrop, more importantly to us investors, Petron is willing to invest in a competitive ground with the backdrop having players like Petronas and Shell. It is growing at a pace of 30 - 50 stations a year now while the likes of Shell is growing in teens. Caltex (400+ stations) and BHP are even further behind, if I am not wrong.

Although the petrol retailing business is growing at just an average 3 - 5% yearly, Petron is probably the ones that has the highest growth. Fighting against negative perceptions in the first few years of its operations, it is now growing faster than Shell and Petronas (which I will show in my future article). This is probably as I believe, the other guys have a larger giant to slay. Shell, Caltex have much bigger agenda to worry about than Malaysia's petrol station business while Petronas will continue to worry over the low oil price environment and its revenue contribution to the government. BHP? Well nothing much to say. Maybe not so competent.

Further from the very nice cashflow which I shown above, Petron is now trading at just below RM2 billion (RM7.25) market capitalisation. Against the significantly bigger giant of about 2.6x revenue larger, Petronas Dagangan - it is really cheap as PDB is now trading at RM24 billion market capitalisation. Translating into PE over last 12 months, it is even a nicer story. Nevertheless, I am also careful over the fluctuation in the oil price which will have some impact to the bottomline numbers - hence I am not reading too much into the profit numbers over the last 2  - 3 quarters. I believe the rise and drop in oil price has some impact as it has certainly has some inventories to hold. When oil price drops, the inventory value will drop, vice versa.

Over time, however this should not be an important benchmark - as we cannot do a projection over the price of oil into the future. The more important benchmark is whether their refinery is creating a healthy margin and secondly - is it able to sell through its petrol pumps as most of the oil that it refines - goes to the pump - if not mistaken. THAT, over the last 2 years have shown mark improvement for Petron - and it is a very important denominator for this business.

I know, I am a bit late in the game - as Petron climbed from around RM5 - RM6 last year - at its current valuation and if it is manages to continue its growth momentum, this is not expensive at all. In fact, it is cheap.

(Over next articles, I may want to discuss the impact of technology - electric cars etc. and introduce more financial numbers towards this business. Obviously, I do not have all the answers.)

What I learnt from Petron AGM - Jay

Yesterday was Petron’s AGM but unfortunately I’m out of town. However, my nephew was there to attend on my behalf and so below are the notes in Q&A form he took down for me. Hope this would help shareholders who are not present and also appreciate if shareholders who are present can add on or correct if there are any missing or inaccurate points.

1.     Retail market share
1Q15: 16.6%, 1Q16:17.4%, 1Q17:19%
2.     Breakdown of gross profit

	2016	2015
Marketing margin	418	321
Refinery margin	86	262
Inventory gain/(loss)	60	(49)
Gross profit	564	534

3.     Reason for profit improvement in 2016?
Improvement in gross margin
4.     Reasons for decrease in other income, increase in other operating income and decrease in other operating expenses
Lower realized forex hedging gain, higher service station license fee and higher deposits, lower realized forex losses
5.     Factor of increase in sales volume
Expansion program, innovative products, customer service, promotions
6.     Expansion plans
16 new stations so far this year, 23 completed and to be opened soon, target at least 50 for full year
7.     RON100 and Turbo 5 sales
So far encouraging and they help in branding
8.     Hedging policy
Commodity 40%, Forex 80-90%, the remaining natural hedge from exports
9.     Capex plans
RM150m for 2017 to expand network and logistics and improve refinery efficiency
10.   $1.5b expansion of refinery and new petrochemical plant
Still reviewing options, including debt and equity funding, will update shareholders once they have decided
11.   Impact of weekly petrol pricing
No impact on profitability as retail petrol still under APM for gross profit of around 5c per litre (5c calculated based on refined product price), net profit depends from station to station
12.   1Q17 cost of sales increased by 15% while Brent only increased 8%, why?
Forex ringgit depreciation
13.   Are the good performances sustainable? Is management confident of repeating the good results?
Volume and operating efficiency yes, marketing business is also doing very well
Margins are up to market forces, best if there is a stable market
Overall management is confident
14.   High % held by Petron holding and plans to address public spread
Due to MGO last time. No plans for now
15.   RPT with Petron Fuel International (PFI)
Buy and sell products with PFI. Depending on the distance between service stations and terminal, if Petron station is near to PFI terminal will buy petrol from PFI, vice versa
16.   Fire incident
No effect on operations and supply, refinery operational again within a week. Have risk management, emergency response and business recovery plans when somehow preventive steps fail
17.   Litigation case
Already won the case in Court of Appeal and Federal Court, plaintiff still not satisfied and appeal to Federal Court to review the decision, hearing on 24 Aug 2017.
18.   Fair value instrument (pg 100 of AR)
Mark to market hedging instrument for commodity
Realised gains go into cost of sales, unrealized gains go to other income/expenses
19.   Strong cashflow, higher dividend?
Petron Corp has 25% dividend policy but Petron Malaysia not subject to it. Will review annually and decide whether to have a policy and how much to pay shareholders
20.   Is lower crude price beneficial to Petron Malaysia?
As downstream player, more concerned on margins
21.   % of revenue from retail and commercial
70% retail, 30% commercial
22.   LPG market share
12%
23.   How are properties valued? Any revaluation?
Cost basis. No revaluation as it is costly and not Petron’s plan to profit from land appreciation
24.   Is the refinery Euro-4 compliant and where is RON100 produced?
Already compliant, RON100 produced locally in Port Dickson
25.   How much export sales
Very low less than 5%, only by-products
26.   Out of 580 stations, how many owned by listed Petron?
55-60%, new expansions will also be around that %
27.   Next mandatory shutdown date
2018
28.   Refinery at full capacity, does Petron import from Philippines?
Refinery at 60% utilization, all sold for domestic, except by-product
29.   Amortization of PPE
Leases and turnaround costs back in 2015. Lease amortised based on terms of lease, turnaround based on 3 years to the next maintenance
30.   Why are there sister companies and how are RPT conducted?
All these date back to Exxonmobil times when Exxon and Mobil merged. Part of the anti trust provision is that both companies have to be segregated even though branding may be shared. So are Exxonmobil Malaysia before Petron Corp bought over. So nothing sinister and all RPT are conducted on arm’s length

My takeaway
1.     Marketing/retail biz is doing very well
They are gaining market share and has robust expansion plans
2.     No major capex in the near term
Only expansion of service stations and refinery efficiency improvement since refinery already Euro-4 compliant. RM150m capex plan shouldn’t eat much into its cashflow, so the company should achieve net cash by next quarter or at least end of the year
3.     New plant expansion still premature
No details provided. If eventually it happens, most likely majority of funding will come from debt since they have a plant as security and the company has strong cashflows.
4.     Main source of profit is not dependent on crude price
Dependent on the price differential/margin/crack spread
5.     Number of petrol stations still room to grow
Now we know the listed Petron owns around 320-350 stations, the rest are by its sister companies. This may be relatively low compared to Shell around 900 or Petdag more than 1,000. But good thing is Petron is growing faster both in terms of number of stations and market share
6.     No hanky panky with related companies
The explanation provided on why related companies exists and how they conduct RPT are perfectly understandable. And I don’t suspect that there are any transfer pricing issue between them

What I still do not understand
1.     Breakdown of gross profit
Refinery profit is much lower in 2016. When I look at crack spreads data, it is lower in 2016 compared to 2015 but not that much lower. I suppose maybe we need to include inventory gain/loss together since crack spread already take into account your crude oil price. So maybe when crude price dropped in 2015, there’s inventory loss but refining gross profit benefited as a result. The opposite happen in 2016. Just a guess.
Meanwhile, it is weird when marketing/retail profit increased by 30% in 2016 when I don't think their volume grew that much. As Petron refine crude oil and pass it down to its stations or dealers before selling to final customers, I’m not sure how they classify between refinery and marketing profit. Maybe some of the refining gain is passed down to marketing?
2.     Refinery apparently not at full capacity and they do not import
As pointed out by others, we understand that its refinery is not running at full capacity but initially we thought that it was by design and it is insufficient for them to cater to their local sales. However, it doesn’t seem like the case based on what they answered.

Summary
Overall, I’m quite happy with the info I got (I will give my nephew a big angpow next CNY).
The company gives me the impression that it is very well-run and is a growth company with ambitions to expand.
Unfortunately I don’t think I can claim to fully 100% understand the business. However with the new info, my investment case hasn’t changed. I still like Petron for its growing biz, stabilizing refining margins and strong free cashflow. Previously I expect RM1-1.20 EPS for 2017, this haven’t changed post results but probably I’m looking at the higher end rather than lower end.
Why am I so conservative? Because ultimately they are still in commodity biz and like what management guided, their profitability is still to a certain extent dependent on market forces. So I still treat 40c EPS a quarter as bonus but would still be perfectly happy for around 30c EPS each quarter. If it achieves RM1.20 EPS, it is trading at slightly less than 7 times PE.
Alternatively, I prefer to look at free cash flow. Using market cap/FCF may not be comprehensive as companies may have different capital structure, so I prefer EV/FCF.  I compare the EV/FCF of Petron against Hengyuan, PetDag and another supposedly cashflow generating machine, Litrak. As some of you may know, cashflow sometimes may fluctuate over time so I took past 2 years plus latest quarter annualised and their average. With that I get this result which I think is pretty self-explanatory.

	Market cap	Cash	Debts	EV	FCF	EV/FCF
	RM million	RM million	RM million	RM million	RM million	times
Hengyuan
2015	1,491.00	175.52	1,481.05	3,147.58	685.36	4.59
2016	609.00	355.61	1,416.91	2,381.53	(32.63)	(72.98)
1Q17	1,743.00	339.72	1,414.01	3,496.73	(46.14)	(75.78)
Average				3,008.61	202.19	14.88
PetDag
2015	24,685.98	(1,291.27)	211.82	23,606.53	344.72	68.48
2016	23,633.40	(2,431.64)	118.77	21,320.53	1,856.72	11.48
1Q17	24,030.60	(2,323.68)	104.98	21,811.91	818.15	26.66
Average				22,246.32	1,006.53	22.10
Litrak
2015	2,635.00	(334.64)	1,283.00	3,583.36	257.36	13.92
2016	3,098.76	(424.45)	1,291.39	3,965.69	242.20	16.37
1Q17	3,109.30	(552.65)	1,229.71	3,786.36	387.01	9.78
Average				3,778.47	295.52	12.79
Petron
2015	1,350.00	(159.27)	543.82	1,734.55	249.73	6.95
2016	1,120.50	(171.64)	307.96	1,256.82	302.64	4.15
1Q17	2,211.30	(204.84)	251.49	2,257.95	359.09	6.29
Average				1,749.77	303.82	5.76

If Petron trades at 10 times EV/FCF (similar to Litrak but still below its average), EV should be RM3.6b. Excluding net debt, market cap should be around RM3.5b or roughly RM13!
With stable margins, growing retail biz (more than 300 petrol stations and counting), strong free cashflow of >RM300m a year, strong balance sheet (turning net cash soon), does it deserve to trade at current valuation?
I will leave it to market to decide

Lastly, again a share of some crack spread data
2Q17 vs 1Q17 vs 4Q16
Tapis: 8.50/8.47/6.78
Minas:11.95/11.95/11.03
Gulf: 12.91/11.96/10.61
Northwest: 11.59/9.50/9.42

Happy investing
Jay

Petronm: It's Time for a Math Class

http://klse.i3investor.com/blogs/sumato88/122720.jsp
Wow, I am so surprised that many ppl don't get my logic and my calculations for Petronm's 1Q17 profit. Let me put things in order and hopefully you can see it now.
1) Malaysia operations (listed co + 2 non-listed co in Malaysia owned by Petron Corp) reported Peso 1.5bn net profit in 1Q17, +335% yoy. So, 1Q16 net profit from Malaysia operation = Peso 345m
     Workings
       a) (1Q17 profit /1Q16 profit) - 1 = yoy growth
       B) (1500/345) - 1 = 335%  (In case you are still confuse, ask yourself, what's the yoy growth rate if your profit increase from 100 in     1Q16 to 150 in 1Q17? The answer is 50% right? Pls apply the same formula.)
2) Peso 345m net profit in 1Q16 equal to RM30m. This was the profit from Malaysia operation in 1Q16, including 2 non-listed co. So what's the profit belong to non-listed co? Petronm (listed co) reported RM16.6m net profit in 1Q16, so
       A) Petronm's 1Q16 profit + 2 non-listed co 1Q16 profit = RM30m
       B) RM16.6m + 2 non-listed co 1Q16 profit = RM30m
       C) 2 non-listed co 1Q16 profit = RM30m - RM16.6m = RM13.4m

3) Given that 2 non-listed co is involved in fuel marketing and retailing (basically means petrol stations la), the profit growth should be steady due to fixed margin, so it should grow in tandem with sales volume growth. Petron Corp mentioned Malaysia sales volume + 6% yoy in 1Q17, so we can safely assume 2 non-listed co profit grow 10% yoy in 1Q17, from RM13.4m to about RM15m.

4) So how much of RM130m or Peso 1.5bn 1Q17 profit attributes to Petronm?
   RM130m - RM15m (2 non-listed co estimated profit) = RM115m (42.6 EPS)

My final advise, if you still don't understand, please don't buy any stocks anymore as stock investment could be way too complicated for you.

Petronm: A Simple Math, 5x PE even after the 100% rally YTD?

First, I would like to congrats to all the shareholders of Petronm who do not sell the shares due to oil price volatiliy. The coming quarter results will be a reward to the believers. As some of you may have aware, Petron Corp (the parent co of Petronm) has released a press statement on 8 May 2017 and mentioned that net income from Malaysia operation in 1Q17 surged 335% to Peso 1.5bn. Many are guessing the profit that the listed co, Petronm will report in the upcoming 1Q17. Well, let me try to solve this simple math.

1) Peso 1.5bn = RM130m net income in 1Q17, given that Petron Corp didn't mention this is net income after minority, we can safely and conservatively assume this is the Malaysia operation net income before minority.

2) 335% yoy increase implied 1Q16 net income from Malaysia operation = Peso346bn or about RM30m

3) Both of these numbers include 2 non-listed sister co that Petron Corp owns in Malaysia, hence, we need to figure out how much is the profit belongs to the non-listed entities.

4) Petronm reported RM16.6m net income in 1Q16, as a result, non-listed sister companies should have contributed RM13.4m in 1Q16.

5) Given that the 2 non-listed sister companies are in fuel marketing and retailing biz, it is safe to assume that the profit growth is likely to be very steady, rise according to the volume + some margin improvement due to operating leverage. As Petron Corp mentioned Malaysia sales volume +6% yoy in 1Q17, we can assume 10% net income growth for non-listed sister co for 1Q17, which probably works out to about RM15m profit.

6) If you minus RM15m out of RM130m net income reported by Malaysia operation, we can get a profit estimate of RM115m for Petronm in 1Q17, this is a whopping 7-fold increase from 1Q16 and another quarter of RM100m profit!

7) I understand that the crack spread is still relatively stronger qoq in April and May to date. If this sustain throughout the 2Q17, we will probably see another RM100m profit in 2Q17, paving way for Petronm to achieve net cash position and record profit in 2017. Initially I was looking at RM300m profit in 2017, but now it seems to be easily beaten if Petronm can achieve RM200-230m profit in 1H17.

In conclusion, I think there is still plenty of upside from current share price, even though the stock had a good rally YTD (almost 100%). At 5x PE (assuming RM400m profit, +63% yoy), I personally think this stock is too cheap to sell.



PETRON Corp's Media release entitled "PETRON POSTS RECORD QUARTER, HITS P5.6 BILLION IN NET INCOME".

Market leader Petron Corporation continued its strong momentum in the first three months of 2017 posting a consolidated net income of P5.6 billion – the highest quarterly income in the company’s history – double the previous year’s first quarter earnings of P2.8 billion. Net income from Philippine operations grew 69% to P4.1 billion and accounts for 74% of consolidated figures while income from Malaysian operations surged 335% to P1.5 billion.
Petron’s exceptional performance in both markets is mainly due to its strong focus on more profitable segments, production of higher-margin fuels and petrochemicals, and aggressive market expansion.
In the Philippine retail segment, Petron’s volumes grew by another 6% while its LPG and Lubricants businesses grew by 5% and 16%, respectively. Currently, Petron has the highest network count with about 2,300 service stations – more than its next three competitors combined – which retail its cutting edge fuels and serves as outlets for its other products and services.
Petrochemical export volumes more than doubled over the period allowing Petron to capture better margins from benzene, toluene, mixed xylene, and propylene. Meanwhile, exports of fuels were lessened as more volumes were sold locally as part of the company’s strategy to optimize margins.
The company’s Malaysian operations also experienced steady growth with domestic volumes growing by another 6%, fueled by double-digit growth from the Commercial and Lubricants sectors.

 

Petronm: A Snapshot Speaks for Thousands Words

Comparison (Shell VS Petronm VS PetDag)

Petronm: Growing evidence of record 1Q17

Spike in maintenance expected to boost oil refining margins
http://www.reuters.com/article/us-oil-refinery-maintenance-idUSKBN15G55W

Reuters, 2 Feb 2017- Increased refinery maintenance in Asia and the Middle East is expected to boost profits for operators in other regions in the first half of this year, market watchers said on Wednesday.

Refineries worldwide ran hard during the past two years to capitalize on low oil prices, with Chinese refineries processing a record amount of crude in 2016, meaning that some units now have no choice but to carry out maintenance.

Outages in the first half will equate to nearly 1 million barrels per day (bpd) more than in the same period last year, speakers told the Platts Middle Distillates conference in Antwerp. 

Though this is likely to help to clear the stocks of oil products such as diesel, gasoline and jet fuel that poured into the world's storage tanks over the past two years of excess, it is also likely to cut into demand for crude oil just as prices recover on the back of production cuts led by the Organization of the Petroleum Exporting Countries (OPEC). 

Trading house Gunvor's chief economist, David Fyfe, said that he expects "healthy and robust" refinery margins in the first half of the year.

Gunvor data shows that maintenance in February and March will take close to an additional 1 million bpd offline compared with the same months in 2016. 

Both Fyfe and James McCullagh, oil products analyst with Energy Aspects, said the bulk of the work will be concentrated in Asia and the Middle East, offering a reprieve to Europe's comparatively less advanced refineries, which have depended largely on demand -- or supply problems -- in other regions to underpin profits.

Energy Aspects expects Asian refineries alone to account for 900,000 bpd more in offline capacity in April, compared with the prior year, and 250,000 bpd more over first half of 2017. Those shutdowns, paired with diesel stocks in China that it estimates are near record lows, would underpin refinery profits in most regions, he said. 

Fires and other issues at refineries worldwide this month suggest that many units are feeling the effects of the ramp-up in output over the past year or two.

"The strong margins have in a way stored up unplanned outages," McCullagh said.

This month's outages included Abu Dhabi National Oil Company's Ruwais refinery, two refineries in West Africa and others in India, Indonesia and Brazil.

S.Korea's S-Oil expects firm refining profits in 2017

http://www.cnbc.com/2017/02/01/reuters-america-update-1-skoreas-s-oil-expects-firm-refining-profits-in-2017.html

SEOUL, Feb 2 (Reuters) - South Korea's S-Oil Corp expects healthy refining profits this year, buoyed by growing demand for oil products in places such as China and Southeast Asia.

The country's third-largest oil refiner said in a quarterly earnings statement on Thursday that global oil demand would grow soundly in 2017, although the rate of increase could ease slightly from last year.

"Healthy margins are expected as 1.32 million barrels per day (bpd) of oil demand growth will outstrip an incremental net capacity increase of 574,000 bpd," the company said, referring to the profit margin on refining barrels of crude oil.

Inventory gains and a recovery in refining margins helped S-Oil, whose top shareholder is Saudi Aramco <IPO-ARMO.SE>, notch up a 444 billion won ($386 million) profit in the last quarter of 2016, compared with a loss of 42.9 billion won the year before.

S-Oil treasurer Shin Kwan-bae said on a call with analysts that the company expected the official selling price (OSP) for Arab Light crude, supplied by Saudi Arabia, to remain steady in Asia from last year.

He said that even if Middle Eastern crude supply drops in the wake of a deal by producers to curb output, Saudi Arabia would not want to harm its market share in Asia by increasing OSPs.

A company official said S-Oil planned to carry out less scheduled maintenances this year, limiting such work to a condensate fractionation unit (CFU) and a No.2 paraxylene unit. He did not give further details.

Industry sources have said S-Oil would shut down its No.1 residue hydro desulphurisation unit (RHDS) and crude oil refining unit in April for about a month.

S-Oil also said on Thursday that its 2018 expansion project was on track to complete in the first half of next year.

Under the project, the company will build a residual fuel oil upgrading system and an olefin production system that will churn out 405,000 tonnes of polypropylene a year, along with other products.

 

 

Asian Oil refinery margins jump on outages in Mideast, Asia

 

http://www.reuters.com/article/us-asia-crude-refineries-idUSKBN151183 

 

 

Reuters, 17 Jan 2017- Several refineries in the Middle East and Asia have shut down in the past week due to fires and other technical problems, leading to a jump in profit margins for facilities still operating.

The higher Asian refining margins have beat back concerns that profits would fall as crude oil prices gained as the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers began to implement their agreed production cuts from January to reduce global oversupply. 

Besides the fires and other shutdowns, maintenance and repairs at refineries in Indonesia by Pertamina [PERTM.UL] and in Singapore by Royal Dutch Shell have further boosted oil product margins. 

"Margins will be supported as these outages will affect the ability of the region to stock up before maintenance picks up in March," said Nevyn Nah, a fuel analyst at Energy Aspects in Singapore. 

Profits for processing a barrel of Dubai crude at a Singapore refinery jumped to $7.64 a barrel on Jan. 16, the highest since Nov. 30, Reuters data showed.

 

 

(richDad) - PETRONM: More than 50% upside (PETRON CORP media release says 1Q earnings to TRIPLE)

1. Main business = oil refinery and retail. These descriptions are from their website which says “Petron Subsidiaries in Malaysia comprise of Petron Malaysia Refining & Marketing Bhd (formerly known as Esso Malaysia Berhad), a public listed company listed on Bursa Malaysia; Petron Fuel International Sdn Bhd (formerly known as ExxonMobil Malaysia Sdn Bhd); and Petron Oil (M) Sdn Bhd (formerly known as ExxonMobil Borneo Sdn Bhd). As a major and reputable company in Oil & Gas, our involvement in refining and retailing of world-class quality of petroleum products and related services, helps the country to meet its energy demands and contributes to the overall socio-economy advancements. Our robust petroleum marketing business that encompasses over 550 service stations nationwide bring high quality, clean energy products to motorists.” 
In lay man term, the retail business is the petrol station that we see and possibly pump petrol. In order to get the oil to the station, they need to refine it first (from the crude oil). So, PETRONM is also involved in refining the crude oil to petrol and other products. If you ever wonder how many stations does PETRONM has, it is 550 from the website.
To fully understand what PETRONM does you can visit their website here
http://www.petron.com.my/web/site/slider/9


2. Stellar earnings growth in 4QFY16 (+593% to RM112.62m). Accordingly, EPS also jump 593% to 4171sen. Reason for the earnings surge can be seen below. It is mainly due to 13% increase in sales volume (which means this is operation improvement and is sustainable).



3. Consistent paid dividend (10 out of 11 years) in the past. FY16 dividend has increased by 10% to 22 sen (against 20 sen in FY16). The Company has consistently paid dividend in the past with only one miss in FY14 (but that one is due to loss in that financial year under previous management).

4. SUPER CATALYST = 1QFY17 earnings to triple??? Sometimes, you need to monitor global news as it is increasingly hard to make ALPHA GAIN from the market in Malaysia. Just three days ago, PETRON CORPORATION (parent company of PETRON MALAYSIA made an announcement of its 1Q profit which doubled. BUT the most important thing is it mentioned that
Income from Malaysia operation surged 335% to Peso 1.5 billion (about RM130m). AND Malaysia investors may not fully realize this because it is not annouced yet in the BURSA!!!
You can read the full Media Release from Singapore Exchange here
http://infopub.sgx.com/FileOpen/05%2008%2017%20-%20Media%20Release%20-%20Petron%20Posts%20Record%20Quarter%20Hits%20P5.6%20Billion%20in%20Net%20Income.ashx?App=Announcement&FileID=452503

5. Long term value is between RM12 to RM15 per share. There is more than 50% upside that I am looking at. I think that the Company is worth between 8x to 10x PE. The 8x PE is if you take oil and gas Company PE. While the 10x PE is the minimum for consumer sector PE. I think PETRONM is a mixture of O&G and CONSUMER because its petrol station business is basically similar to 7 ELEVEN. For FY17, the 1Q net profit is assumed at RM130m and I multiply this by 3 to get the full year earnings. I purposely ignore one quarter for conservativeness purpose in my calculation (that's why not multiplying by 4).
That gives me FY17 earnings of around RM390m (or RM1.45 of EPS).
8x PE * RM1.45 FY17 EPS = RM11.60 (round up to RM12)
10x PE * RM1.45 FY17 EPS = RM14.50 (round up to RM15)
For record keeping purpose, I am using last Tuesday closing price of RM7.97