Hengyang Petrochemicals Logistics

UOBKayhian on 20 June 2013

Valuation

·         Discount to peers’. Hengyang is trading at a forward 12-month PE of 17.4x, or a 19% discount to its tank terminal peers’ average of 21.5x.

Investment Highlights

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

·         New facilities to boost storage capacity. The group is currently developing new facilities in Wuhan, Chongqing and Yueyang at the middle and upper reaches of Yangtze River. These facilities are located within chemical and industrial parks near the operations of its existing customers. With these facilities developing in phases,Hengyang will boost its current storage facility from 265,000 cubic metres to 962,600 cubic metres in 2014 and up to 1.39m cubic metres by 2016.

·         Strategic investor MEGCIF5 took up a 35% stake in Hengyang Holding Pte Ltd (HHPL). Macquarie Everbright Greater China Infrastructure Fund Investments 5 Ltd (MEGCIF5) has agreed to invest Rmb271.25m for a 35% stake in HHPL, with Hengyang owning the rest. HHPL is the holding company for all storage facilities assets in the company. This transaction values Hengyang’s stake in HHPL at Rmb504m, or about S$100m.

·         MEGCIF5 is a global infrastructure fund managed by Macquarieand Everbright. According to the official website, the fund has a total committed capital of US$870m and specialises in infrastructure project investments, such as toll roads, airports, water treatment facilities, ports, and renewable energy projects in Hong Kong andChina.

·         We view the transaction as positive as it may reflect the true market value of Hengyang’s net assets at S$100m vs a market capitalisation of S$67.1m. With the cash in hand, the group may be able to speed up the construction and commissioning of the storage facilities in order to drive revenue and boost net profit going forward.

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.

Hengyang Petrochemical Logistics

OCBC on 29 Mar 2012

We visited Hengyang Petrochemical Logistics’ port and storage facilities at Deqiao and Jiangyin along the Yangtze River in China. We anticipate that revenue could increase by ~38% in 2012 with a full-year contribution from the Deqiao facility, which came into operation in Nov 2011. In addition, the company has won coveted logistics sites at Chongqing and Wuhan. In 2012, it expects to complete the first phases of these sites and a site in Yueyang. Hengyang will need to raise additional funding for these sites. We have NO RATING on Hengyang. Although it does not currently offer dividends, it is trading at a historical P/E of 13x, which is lower than its peer group’s average of 22x. According to Bloomberg, there is no target price available for this stock.

Servicing oil majors.
We visited Hengyang’s port and storage facilities at Deqiao and Jiangyin. Listed on Catalist since Oct 2009, Hengyang is chiefly engaged in the storage and transportation of liquid petrochemical products in the Yangtze River Delta. At the mouth of the Yangtze sits Shanghai, the nexus of petrochemical logistics in China. Hengyang clients include BP, Shell, BASF, Sinopec, CNPC and CNOOC. Hengyang believes that there are few peers where it operates with as impressive a list of clients. With the Deqiao facility operating since Nov last year, we anticipate that revenue could increase by ~RMB33.5m in 2012, representing a ~38% YoY increase from 2011 revenue of RMB89.0m, given that RMB$6.7m of revenue in 2011 was due to the two-month contribution from Deqiao.

Prime locations.
Hengyang won coveted petrochemical logistics sites along the Yangtze River at Chongqing and Wuhan. The Wuhan site is in a large industrial zone which has been designated as a petrochemical park. The Chongqing site is at the Chongqing Chemical Park in Changshou district. These sites are its current priority. Hengyang is also developing a site at Yueyang. The three sites are upstream of where the Hengyang currently operates. The company will need to raise additional funds for the projects. It expects to spend RMB500m on the Chongqing and Wuhan projects combined, with RMB200-300m on the first phases that they are aiming to complete in 2012. The company recently raised S$16.8m in a S$0.30 rights issue this year.

Undervalued compared to peers.
Hengyang currently does not offer dividends. However, it appears undervalued with its historical P/E of 13x, versus a median P/E of 22x among peers listed in Singapore and China. 

Not Rated.
We have NO RATING on Hengyang. According to Bloomberg, there is no target price available for this stock.