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.