Hengyang Petrochemical Logistics

Uobkayhian on 30 Mar 2012

Investment Highlights

· Hengyang Petrochemical Logistics (Hengyang)transports and stores liquid petrochemical products such as phenol and ethylene for blue-chip customers including BP, BASF, Shell and Sinopec. The group operates in the Yangtze River Delta, and has facilities in Deqiao and Jiangyin.

· Deqiao expected to boost revenue in 2012. We expect the newly completed Deqiao facility to boost 2012 revenue by up to 40%. The Deqiao facility contributed two months of revenue in 2011.

· Secured prime locations for expansion.Hengyang recently secured three sites at Wuhan,Chongqing and Yueyang to expand its petrochemical storage capacity, which are upstream to its current facilities. These facilities will be located within chemical and industrial parks near the operations of its existing customers.

· Capex of Rmb500m-600m. We expect the group to expend Rmb500m-600m (S$100m-120m) on its expansion plans, with Rmb200m-300m (S$40m-60m) to be used on the first phase of the Chongqing andWuhan projects which will be completed by end-12.

· Completed S$8.2m rights issue. Hengyangrecently raised net proceeds of S$8.2m in a rights issue in February. The rights issue will increase the number of shares by 56m, or 40% of the group’s pre-rights share base. Hengyang has already utilised more than half of its net proceeds for the Wuhan and Yueyang projects.

Our View

· Risk of future fund raising. Although we estimateHengyang’s post-rights net gearing is at a low 15%, we believe bank borrowings may not be sufficient to fund the group’s expansion plans. In our view, the group may embark on another round of equity fund raising in the future.


Valuation

· Discount to peers. Hengyang is trading at a trailing 12-month PE of 13.3x, at a 53% discount to its tank terminal peers’ average of 28.3x.