Draft: Will email out tomorrow:
Comments are welcome:
Dear Haniza Abdul Hamid,
IR Contact: HRCPD-Corporate-Affairs@hrc.com.my
I am shocked beyond words and cannot believe my eyes how HRC Q2 PBT RM 897,000,000 was totally wiped out by Q3 PBT of RM -894,141,000. The reasons for the huge loss according to the Q3 financial report are as follow:
The recorded loss of RM756mil for 3Q 2022 was attributable to adverse refining margin as compared to a more favourable refining margin during 3Q 2021. Adverse refining margin was mainly affected by sharp reduction in cracks especially for Mogas, coupled with higher crude premium incurred as well as higher stockholding losses due to significant drop in product prices during the quarter. These factors led to a net loss for 3Q 2022.
I have compiled some facts and figures from public available sources and would like the HRC management to give explanation on my questions:
From Petron Corp quarterly report on crack spread
Q1 2022
Prices of Dubai crude USD 95.6/barrel
Gasoline cracks USD 17.8. Price USD (95.6 + 17.8) = USD 113.4 /barrel
Diesel cracks USD 21.6. Price USD (95.6 + 21.6) = USD 117.2/barrel
Kero-jet cracks USD 16.2. Price USD (95.6 + 16.2) = USD 111.8/barrel
Q2 2022
Prices of Dubai crude USD (101.8X2- 95.6) = 108/barrel
Gasoline cracks USD (26.4X2-17.8) = 35. Price USD (108 + 35) = USD 143/barrel
Diesel cracks USD (36.6X2-21.6) = 51.6. Price USD (108 + 51.6) = USD 159.6/barrel
Kero-jet cracks USD (27.7X2-16.2) = 39.2. Price USD (108 + 39.2) =USD 147.2/barrel
Q3 2022
Prices of Dubai crude USD (101.2X3- 95.6-108) = USD 100.3/barrel
Gasoline cracks $ (22X3-17.8-35) = 13.2. Price USD (100.3 + 13.2) = USD 113.5/barrel
Diesel cracks $ (38.1X3-21.6-51.6) = 41.1. Price USD (100.3 + 41.1) = USD 141.4/barrel
Kero-jet cracks $(29.3X3-16.2-39.2) = 32.5. Price USD (100.3 + 32.5) = USD 132.8/barrel
From HRC quarterly report
Quarter 1: The market price during the current quarter and financial period ended 31 March
2022 (“1Q 2022”) surged to an average of USD115 per barrel as compared to the average price of USD66 per barrel in the corresponding period in 2021
2022 (“1Q 2022”) surged to an average of USD115 per barrel as compared to the average price of USD66 per barrel in the corresponding period in 2021
Quarter 2: The product prices during 2Q 2022 and YTD 2022 improved from an average price of USD75 per barrel and USD71 per barrel for the corresponding periods in 2021 to USD151 per barrel and USD133 per barrel respectively.
Quarter 3: The rise in revenue for the current quarter (“3Q 2022”) was supported by a 51% surge in the market product prices at an average price of USD124 per barrel.
Based on above data:
|
Fuel
|
Price
|
Yield
|
Amount
|
|
Mogas/Gasoline
|
113.4
|
0.47
|
53.298
|
|
Diesel
|
117.2
|
0.46
|
53.912
|
|
Kero-jet
|
111.8
|
0.07
|
7.826
|
|
Q1 average
|
|
|
115.036
|
|
Mogas/Gasoline
|
143
|
0.47
|
67.21
|
|
Diesel
|
159.6
|
0.46
|
73.416
|
|
Kero-jet
|
147.2
|
0.07
|
10.304
|
|
Q2 average
|
|
|
150.93
|
|
Mogas/Gasoline
|
113.5
|
0.47
|
53.345
|
|
Diesel
|
141.4
|
0.46
|
65.044
|
|
Kero-jet
|
132.8
|
0.07
|
9.296
|
|
Q3 average
|
|
|
127.685
|
Quarter 3 Revenue should be USD 127.685/barrel.
Question 1: Why Q3 only achieved revenue of USD124 per barrel instead of calculated USD 127.685/barrel?
Publication:
Gasoil/diesel/jet fuel crack spread chart (historical highest level range)
Kerosene/ jet fuel crack spread (at historical highest range level)
Gasoline/petrol RON 92 crack spread spread chart (normalize level range)
SINGAPORE MOGAS 95 UNLEADED (PLATTS) FUTURES
As at 31/03/2022
WTI: USD 98.520.490
Brent: USD 102.73
Gasoil crack spread: USD 33.169
Mogas92 crack spread: USD 14.845
Jet-fuel crack spread: USD 22.131
Outstanding refining margin swap contracts Notional value: USD 291,009,000
Assets: RM 45,186,000
Liabilities: RM (339,510,000)
As at 30/06/2022
WTI: USD 103.10
Brent: USD 105.59
Gasoil crack spread: USD 56.125. Peak at USD 59.019 at 23 June 2022
Mogas92 crack spread: USD 31.578. Peak at USD 33.481 at 22 June 2022
Jet-fuel crack spread: USD 41.964. Peak at USD 60.816 at 21 June 2022
Outstanding refining margin swap contracts Notional value: USD 226,945,000
Assets: RM 261,065,000
Liabilities: RM (1,751,332,000)
As at 30/09/2022
WTI: USD 79.490
Brent: USD 85.140
Gasoil crack spread: USD 43.651
Mogas92 crack spread: USD 1.652
Jet-fuel crack spread: USD 27.286
Outstanding refining margin swap contracts Notional value: USD 287,384,000
Assets: RM 169,473,000
Liabilities: RM (1,257,369,000)
Quarter 3 report: Adverse refining margin was mainly affected by sharp reduction in cracks especially for Mogas.
Note: Mogas92 sharp drop from USD 31.578 as at 30/06/22 to USD 1.652 as at 30/09/2022
From 2021 HRC annual report;
The Company purchases crude on an ongoing basis as the Company requires continuous supply of crude to produce petroleum products. As a result of the volatility in crude price, the Company held refining margin swaps designated as hedge of highly probable forecast crude purchases or firm commitments and sales of petroleum products to reduce the volatility of cash flows
The contracts are intended to hedge the volatility of the refining margin (differences between purchase price of crude oil and sales price of petroleum products) for a period between 1 to 33 months (2020: 1 to 12 months).
Hedge Gross margin per barrel (USD) 8.00 to 12.30
As per annual report if HRC management had hedged the Mogas gross margin per barrel (USD) 8.00 to 12.30. Then why when Mogas92 sharp drop from USD 31.578 as at 30/06/22 to USD 1.652 as at 30/09/2022 Q3 HRC hedging still suffered:
Question 2: Other operating losses: RM 73,569,000?
Question 3: Fair value loss on derivatives financial instruments: RM 364,570,000. Cumulative 9 months RM 1,235,534,000?
Question 4: Outstanding refining margin swap contracts as at 30/09/22 Liabilities: RM (1,257,369,000) far exceeded Assets RM 169,473,000?
Question 5: How under other comprehensive (expense)/income: Q3 is RM 422,463,000 when the fair values of outstanding financial instruments were net liabilities of RM 1,113,870,000?
Q3 financial report: Higher stockholding losses due to significant drop in product prices during the quarter
From HRC 2021 annual report:
Commodity options, commodity swap contracts and refining margin swap contracts
The Company also uses commodity options, commodity swap contracts and refining margin swap contracts to manage its commodity price risk and inventory holding cost. The Company does not designate these derivatives as hedging instruments.
The Company also uses commodity options, commodity swap contracts and refining margin swap contracts to manage its commodity price risk and inventory holding cost. The Company does not designate these derivatives as hedging instruments.
Quarter 1: Inventories written down: RM 131,558,000
Quarter 2: Inventories (written back): RM (52,825,000)
Quarter 3: Inventories written down: RM 70,045,000. Cumulative 9 months RM 148,778,000
Question 6: Please explain why commodity options, commodity swap contracts did not mitigate the stockholding loss/gain? Note: Cumulative 9 months fair value loss on derivatives financial instruments RM 1,235,534,000
Question 7: Please explain how HRC computed the quarter to quarter inventories written down/(written back) and how did the audit committee verified these quarter to quarter Inventories written down/(written back)?
Quarter 3 financial report: Fair value of financial instruments that were outstanding as at the reporting date are detailed below:
|
|
|
|
Notional amount
|
Assets
|
(Liabilities)
|
|
30.09.2022
|
|
|
USD’000
|
RM’000
|
RM’000
|
|
Forward foreign currency contracts
|
131,000
|
7,778
|
(70)
|
||
|
Forward priced commodity contracts
|
35,768
|
543
|
(15,599)
|
||
|
Commodity swap contracts
|
|
45,993
|
|
(9,014)
|
|
|
Refining margin swap contracts
|
287,384
|
159,473
|
(1,257,369)
|
||
|
Interest rate swap contracts
|
|
34,375
|
388
|
|
|
|
Total
|
|
|
534,520
|
168,182
|
(1,282,052)
|
Other receivables and prepayments: RM 894,581,000
Question 8: Place explain how you compute forward priced commodity contracts, commodity swap contracts and refining swap contracts notional amount, assets and liabilities?
Question 9: For financial assets of total notional amount of USD 534,532,000 how much prepayment was required and expenses incurred per quarter?
Question 10: Is the prepayment and expenses tied to the USD interest rate?
Note: Petron Malaysia managed to turn Q2:
Derivatives: Realized loss: RM 207,862,000 or USD 207,862,000/(8,700,000x4.35)= USD 5.49/barrel
Unrealized loss: RM 166,799,000 or USD 166,799,000/(8,700,000x4.35) = USD 4.41/barrel
To Q3:
Derivatives: Realized gain: RM 139,957,000 or USD 139.957,000/(8,600,000x4.50)= USD 3.62/barrel
Unrealized gain RM 7,588,000
Quarter 2 financial report:
Revenue: RM 6,894,160,000
Purchases: RM 5,981,218,000
Q2 revenue of USD 151 per barrel
Average Q2 USD: MYR exchange rate: 4.35
Volume sold = 6,894,160,000/(4.35 x 151) = 10.496 million barrels
HRC oil refinery yield of 1.05: Purchase crude oil volume = 10.496/1.05 = 9.996 million barrels
Fair value loss on derivatives financial instruments: RM 438,758,000
Inventories written back: RM (52,825,000)
Foreign exchange loss realized: RM 61,559,000
Foreign exchange loss unrealized: RM 23,711,000
Total RM 471,203,000
Assume this is charged to purchase hence purchase for crude oil is RM (5,981,218,000 - 471,203,000) = RM 5,510,015,000
Purchase crude oil price per barrel: USD 5,510,015,000/(4.35 X 9,996,000)= USD 126.71
Quarter 3 financial report: Coupled with higher crude premium incurred
Revenue: RM 5,030,795,000
Purchases: RM 5,751,607,000
Q3 revenue of USD 124 per barrel
Average Q3 USD: MYR exchange rate: 4.50
Volume sold = 5,030,795,000/(4.50 x 124) = 9.016 million barrels
HRC oil refinery yield of 1.05: Purchase crude oil volume = 9.016/1.05 = 8.586 million barrels
Fair value loss on derivatives financial instruments: RM 364,570,000
Inventories written down: RM 70,045,000
Foreign exchange loss realized: RM 23,422,000
Foreign exchange loss unrealized: RM 21,169,000
Total RM 479,206,000
Assume this is charged to purchase hence purchase for crude oil is RM (5,751,607,000 - 479,206,000) = RM 5,272,401,000
Purchase crude oil price per barrel: USD 5,272,401,000/(4.50 X 8,586,000)= USD 136.453
From Petron Malaysia quarter 3 reports:
Dated Brent dropped by 11% to USD 101/barrel in Q3 from the USD 114/barrel in Q2
From Petron Corp quarterly report Dubai crude dropped to USD 100.3/barrel in Q3 from the USD 108 /barrel in Q2
Question 11: Please explain per above calculation crude purchase in Q3 USD 136.453/barrel even higher then Q2 of USD 126.71/barrel when average Dated Brent dropped to USD 101/barrel in Q3 from the USD 114/barrel in Q2?
Question 12: Please explain why paid high crude premium (who make this decision) until Q3 incurred gross (loss) of RM (720,812,000)
Quarter 3 financial report:
Revenue decreased by 27% for the quarter under review as a result of an adverse movement in product prices by 18% and a drop in sales volume by 14% due to production downtime.
Squeeze in the refining margin arose from production downtime, sharp reduction in cracks especially for Mogas and higher crude premium recorded for the quarter. This was further exacerbated by stockholding losses during 3Q 2022.
Question 13: When was the date of production downtime and number of days lost to downtime?
Question 14: Please explain and quantify the squeeze in the refining margin that arose from production downtime?
Thank you
Your prompt response will be appreciated
Best Regards
Lee Soon Sheng
P/S: I hope HRC management will respect the right of minority shareholders to hold Management accountable and answerable by promptly responding to my enquiry (Give explanation and answers to my questions).
Failure to respond will leave me with no choice but to make a formal complaint to SC and Bursa to investigate whether HRC gave false representation on their Q2 and Q3 2022 financial report thus in violating Bursa/SC listing rule and regulation.
Note: I am extremly sorry if my overconfident on HRC Q3 result based on public avilable data had misled anyone to lose money in HRC.
Below my HRC lose:
| 102796276 | 01/11/2022 | Brought Forward | 20,000 | 4.3065 |
| 102947637 | 02/11/2022 | Sell | 2,000 | 4.9000 |
| 102947728 | 02/11/2022 | Sell | 1,000 | 4.9100 |
| 102947939 | 02/11/2022 | Sell | 1,000 | 4.9200 |
| 102947952 | 02/11/2022 | Sell | 1,000 | 4.9300 |
| 102948031 | 02/11/2022 | Sell | 1,000 | 4.9400 |
| 102948088 | 02/11/2022 | Sell | 1,000 | 4.9500 |
| 103056572 | 17/11/2022 | Buy | 10,000 | 4.4000 |
| 103056790 | 17/11/2022 | Buy | 2,000 | 4.3800 |
| 103092838 | 22/11/2022 | Buy | 4,000 | 4.4100 |
| 103108751 | 23/11/2022 | Buy | 2,000 | 4.4600 |
| 103136387 | 25/11/2022 | Buy | 2,000 | 4.5700 |
| 103136452 | 25/11/2022 | Buy | 3,000 | 4.5600 |
| 103136541 | 25/11/2022 | Buy | 2,000 | 4.5300 |
| 103139072 | 25/11/2022 | Buy | 2,000 | 4.5200 |
| 103139670 | 25/11/2022 | Buy | 2,500 | 4.5100 |
| 103140459 | 25/11/2022 | Buy | 2,500 | 4.5100 |
| 103153030 | 29/11/2022 | Buy | 2,000 | 4.5400 |
| 103160130 | 29/11/2022 | Buy | 3,000 | 4.5500 |
| 103161718 | 30/11/2022 | Sell | 10,000 | 3.7200 |
| 103161758 | 30/11/2022 | Sell | 10,000 | 3.7500 |
| 103162653 | 30/11/2022 | Sell | 5,000 | 3.6100 |
| 103163740 | 30/11/2022 | Sell | 5,000 | 3.7200 |
| 103164062 | 30/11/2022 | Sell | 5,000 | 3.7200 |
| 103164198 | 30/11/2022 | Sell | 5,000 | 3.7300 |
| 103165315 | 30/11/2022 | Sell | 5,000 | 3.6900 |
| 103165607 | 30/11/2022 | Sell | 5,000 | 3.7000 |
| 103174389 | 30/11/2022 | Buy | 500 | 3.5700 |
| 103892766 | 01/12/2022 | Brought Forward | 500 | 3.5700 |
