Friday, December 29, 2017

C'mon Hengyuan is no Nestle, Dutch Lady

Don't be misled, Hengyuan is no Nestle, Dutch Lady, BAT. Not even Oldtown. It is not even Top Glove or Hartalega or Airasia. Hengyuan is Not near.

In investment, the most popular word as provided by Warren Buffett is the "moat" - which means certain strength - being special i.e. in another words think of it as a brand cult aka Nike, Nestle (Milo, Nescafe), Starbucks, Google, Facebook. In those companies, we do not even look at NTA value.

What is Hengyuan? Before the rapid share rise - less than 10% in Malaysia I guarantee would not even heard of the name. It has a 10 year supply contract with Shell. Luckily, at this moment due to global oil supply constraint, margins for refineries (oil processing) has gone sky high. That is in playing cyclical stocks, and one gets lucky or may not through luck but perhaps some level of manipulation these stocks goes up. Sometimes certain companies may see profit performance goes up but the share price does not rise the same.

A Nestle or Dutch Lady has sustainability. They can control their own destiny. They can control supply i.e. in Nestle's case milk, coffee beans, cocoa and put back the price control into the market i.e. consumers like you and I. Companies like Nike for example may price their products much higher than a much lesser branded goods, but they still sell. There are still people who buys.

Hence, companies like Hengyuan will not get the 30x PE. This is crazily manipulative. Nike, Nestle, Dutch Lady, Maxis can get the 30x PE.

30x PE means one is preparing to pay the price now and profits stays the same for 30 years, we will get back our money from this investment. As much as oil and gas refineries are a decent business, imagine this! By 2040, many cars will be much much more fuel efficient or even using electric. This is a clear and present danger in investing in refineries although I have put my money into Petron. This is probably why Shell sold off its refineries - so that they can reuse the funds to focus onto areas which they think it better for their growth. If it is 30x PE, they would not sell.

Hengyuan is not Shell. It is part of the oil and gas value chain and happens to be at this time refineries are doing well. Cyclical and it does not last.

A person who claims to have build IJM should understand that concept.

7 comments:

Zuo De said...

Always insightful. Thank you very much.

mine Des said...

I don't understand why KYY don't show the manner like a Investment Master...
The Investment Master at this age should not behave like this...

Big Sea said...

He knew it very well. That's why he is trying to push up as soon as possible to offload.

XiuHa said...

agree... he keep promote let public become moat when he sell

Jack Chew said...

He promote not to buy coastal contract too hehe

Jack Chew said...

He also promote not to buy coastal contract. Hehehe.

robert tan said...

Shakespeare's quote " I am not what I am " comes to mind when you meet the man in person.