Hengyuan Refining’s Q1 2025: Navigating a Challenging Landscape
Hengyuan Refining Company Berhad, a significant player in Malaysia’s petroleum refining sector, has recently unveiled its unaudited financial results for the first quarter ended 31 March 2025. This report offers a candid look at the company’s performance, highlighting a challenging period marked by a notable decline in revenue and a shift from a profitable position to a substantial loss compared to the same quarter last year.
For Malaysian retail investors closely watching the energy sector, Hengyuan’s latest report underscores the volatility inherent in the global oil market and the operational hurdles faced by refiners. Let’s dive into the core numbers and strategic insights from this quarter.
Key Financial Highlights: A Quarter Under Pressure
The first quarter of 2025 presented significant headwinds for Hengyuan, with key financial metrics showing a sharp reversal from the previous year. The primary factors contributing to this downturn include lower product prices, reduced sales volume due to scheduled maintenance, and higher stockholding losses amid fluctuating oil prices.
Revenue & Profitability: A Sharp Decline Year-on-Year
Comparing the latest quarter with the same period last year reveals the extent of the challenges:
Q1 2025 (Unaudited)
Revenue: RM 2,400.7 million
Gross (Loss): RM 16.1 million
Loss Before Taxation: RM 170.4 million
Loss After Taxation: RM 170.4 million
Loss Per Share (Basic/Diluted): 0.57 sen
Q1 2024 (Unaudited)
Revenue: RM 4,987.4 million
Gross Profit: RM 279.8 million
Profit Before Taxation: RM 1.4 million
Profit After Taxation: RM 1.2 million
Earnings Per Share (Basic/Diluted): 0.39 sen
The company’s revenue plummeted by approximately 52% from RM 4,987.4 million in Q1 2024 to RM 2,400.7 million in Q1 2025. This significant drop is primarily attributed to lower product prices and a reduced sales volume following a scheduled year-end pitstop maintenance exercise in December 2024, which concluded in mid-January 2025. Consequently, the company swung from a gross profit of RM 279.8 million to a gross loss of RM 16.1 million, culminating in a substantial loss after taxation of RM 170.4 million, a stark contrast to the RM 1.2 million profit recorded in the prior year’s first quarter.
The loss per share also reflected this downturn, moving from an earnings of 0.39 sen to a loss of 0.57 sen.
Quarter-on-Quarter Snapshot: Q1 2025 vs Q4 2024
Comparing the current quarter with the immediate preceding quarter (Q4 2024) also shows a softer performance:
Q1 2025 (Unaudited)
Revenue: RM 2,401 million
Loss After Taxation: RM 170 million
Q4 2024 (Unaudited)
Revenue: RM 3,480 million
Profit After Taxation: RM 6 million
Revenue in Q1 2025 was 31% lower than Q4 2024, again due to decreased sales volume post-pitstop maintenance. The shift from a RM 6 million profit in Q4 2024 to a RM 170 million loss in Q1 2025 was primarily driven by softer product crack margins for Mogas (the difference between the price of refined products and crude oil), higher feedstock costs from rising crude premiums, and unfavorable stockholding positions amidst high volatility in oil prices. Q4 2024’s profit benefited from improved crack margins and favorable inventory valuation.
Financial Health Check: Balance Sheet and Cash Flow
While the profitability took a hit, examining the balance sheet and cash flow statements provides a broader view of the company’s financial standing.
Balance Sheet Dynamics (As at 31 March 2025 vs 31 December 2024)
| Metric | As at 31 Mar 2025 (RM’000) | As at 31 Dec 2024 (RM’000) |
|---|---|---|
| Total Assets | 4,499,598 | 3,775,711 |
| Total Equity | 987,107 | 1,150,177 |
| Current Liabilities | 3,141,171 | 2,251,638 |
Total assets saw an increase, mainly driven by a significant rise in inventories (from RM 399.9 million to RM 1,387.9 million), likely as the company restocked after the maintenance period. However, total equity decreased from RM 1,150.2 million to RM 987.1 million, primarily due to the net loss incurred during the quarter. Current liabilities also increased substantially, from RM 2,251.6 million to RM 3,141.2 million, largely due to higher trade and other payables and an increase in borrowings.
Cash Flow Dynamics (Q1 2025 vs Q1 2024)
| Cash Flow Category | Q1 2025 (RM’000) | Q1 2024 (RM’000) |
|---|---|---|
| Net Cash Used in Operating Activities | (351,727) | (411,335) |
| Net Cash From/(Used in) Financing Activities | 71,183 | (194,665) |
| Cash & Cash Equivalents (End) | 358,839 | 384,774 |
While still negative, net cash used in operating activities improved from RM 411.3 million in Q1 2024 to RM 351.7 million in Q1 2025. Notably, cash flow from financing activities shifted to a positive RM 71.2 million in Q1 2025, compared to a net cash outflow of RM 194.7 million in Q1 2024. This positive shift was driven by higher proceeds from new borrowings offsetting repayments, indicating active management of its debt profile. Despite this, cash and cash equivalents at the end of the period saw a slight decrease to RM 358.8 million.
No dividend was declared for the current quarter ended 31 March 2025.
Risks and Future Prospects: Navigating the Headwinds
Hengyuan acknowledges the highly volatile global oil market, influenced by geopolitical tensions and an uncertain global economic outlook. These factors pose significant risks to both crude oil supply and demand, as well as refining crack margins.
Key Challenges Identified:
- **Global Oil Market Volatility:** Geopolitical tensions and economic uncertainties continue to drive price fluctuations in crude and refined products.
- **Trade Issues:** Escalating global trade issues threaten economic growth and the oil demand landscape, potentially disrupting the delicate balance between supply and demand.
- **OPEC+ Output:** An unexpected increase in output by OPEC+ members has added further downward pressure on oil prices.
Company’s Strategic Response:
In response to these challenges, Hengyuan remains focused on a multi-pronged strategy:
- **Continuous Operational Efficiency:** Streamlining operations to reduce costs and improve productivity.
- **Maintaining Product Quality:** Ensuring high-quality refined products to remain competitive.
- **Prudent Hydrocarbon Hedging Strategies:** Employing derivatives like futures, swaps, and options to mitigate margin risks and manage exposure to price fluctuations.
- **Implementing Financial Risk Strategies:** Actively managing foreign currency and interest rate risks to protect financial performance and capture opportunities.
Summary and
Hengyuan Refining’s Q1 2025 results clearly reflect the challenging operating environment, marked by lower product prices, reduced sales volume due to maintenance, and volatile oil prices leading to significant stockholding losses. While the shift from profit to a substantial loss is concerning, the company is actively pursuing strategies to mitigate risks and improve efficiency.
Key points from the report:
- Significant revenue decline and a return to loss in Q1 2025 compared to both the previous year and the immediate preceding quarter.
- Operational challenges, including a scheduled pitstop maintenance, impacted sales volume and increased costs.
- Market volatility, softer product cracks, and unfavorable stockholding positions were major contributors to the loss.
- The company is focused on operational efficiency, product quality, and prudent hedging to navigate current market conditions.
Looking ahead, the global oil market remains unpredictable. Investors should carefully consider these factors when evaluating Hengyuan’s future performance. The company’s ability to execute its stated strategies will be crucial in the coming quarters.
From a professional standpoint, Hengyuan’s Q1 2025 report underscores the inherent cyclicality and external dependencies of the refining business. The impact of scheduled maintenance and volatile commodity prices is evident. While the immediate outlook is challenging, the company’s focus on operational efficiency and robust hedging strategies is a positive sign of its commitment to navigating these turbulent times. The increase in current liabilities and inventories bears watching, but the improved cash flow from financing suggests active treasury management.
What are your thoughts on Hengyuan Refining’s Q1 2025 performance? Do you believe their strategies will be effective in navigating the volatile oil market in the upcoming quarters? Share your insights in the comments below!
