Diverging fortunes of Hengyuan and Petron Malaysia

KUALA LUMPUR: Two Port Dickson-based refiners are seeing sharply diverging fortunes on Bursa Malaysia, with Hengyuan Refining Co Bhd outperforming Petron Malaysia Refining & Marketing Bhd as investors weigh their ability to benefit from elevated refining margins.

Hengyuan's shares have surged more than fourfold this year, with the refiner emerging as a major outperformer amid heightened US-Iran tensions.

The stock has jumped 353 per cent to RM3.49 from 77 sen on Jan 2 so far this year. From end of February, when the US-Iran conflict began, Hengyuan's share price has rallied by more than 250 per cent.

Since both companies reported their second-quarter (Q2) results on Aug 28, Hengyuan's share price has surged about 77 per cent to RM3.45 as at Sept 14, from RM1.95.

The rally accelerated alongside the renewed escalation in the US-Iran conflict on Sept 1.

Petron, meanwhile, saw its shares edge up only about 5.7 per cent to RM3.53 from RM3.34 over the same period.

The share price also has fallen about 9.0 per cent year to date from RM3.88 at the start of the year.

The stock initially gained during the February escalation, rising 10.6 per cent from RM4.15 to RM4.59.

It subsequently reached a 2026 peak of RM4.90 before retreating 31.8 per cent to RM3.34, although it has since recovered to RM3.53.

Petron's market capitalisation stood at about RM953 million.

The divergent share-price performance means Hengyuan has added roughly RM1.6 billion to its market value since the start of the year, while Petron's market value remains below RM1 billion.

Tradeview Capital fund manager Neoh Jia Man said the divergence comes as Hengyuan is able to capture the improving refining economics, while Petron Malaysia's operation continues to face disruptions following the collapse of its product jetty at its Port Dickson refinery last year.

"As a result, Petron is unable to fully capture the upside from the higher refining margins.

"In addition, unlike Hengyuan, Petron Malaysia has sizable fuel retail and commercial supply businesses, which dilute its overall exposure to the refining sector," he told the Business Times.

With the new jetty only targeted for commissioning in the first quarter (Q1) of 2027, Neoh said Petron's refinery operations remain constrained in the interim, requiring the company to rely primarily on imported refined products.

This limits its ability to fully benefit from the current refining-margin upcycle compared with Hengyuan, he said.

The diverging fortunes of the two listed oil refineries on Bursa Malaysia can also be seen through their financial results over the last two quarters.

In the first quarter ended March 31, 2026, Hengyuan staged a remarkable turnaround, chalking a net profit of RM525.55 million, from a net loss of RM170.45 million in the corresponding quarter.

Its net profits continued to increase in the second quarter ended June 30, 2026, at RM600.54 million, a 14.3 per cent increase quarter-on-quarter. In the first half of the year, Hengyuan's net profits exceeded RM1.13 billion, compared with a net loss of RM353.7 million a year ago.

On the other hand, Petron Malaysia suffered a net loss of RM35.04 million in Q1 FY26, as production halted during the quarter due to the destruction of its product jetty following tropical storm Senyar in November 2025.

The group continues to chalk a net loss of RM34.5 million during Q2 FY26.

REFINERIES ENJOYING ELEVATED CRACK SPREADS

Crude oil refineries have been enjoying elevated crack spreads – the price difference between a barrel of crude oil and the average output of refined product – since the outbreak of the US-Iran war starting Feb 2026.

According to data compiled by Trading Economics, the crack spread index of US refineries stood at 62.36 points as of Sept 15, near the multi-year high of 70 points reached early this month.

While the spread has fallen 10.06 per cent over the past month, it is still 136.85 per cent higher than a year ago.

Neoh noted that Hengyuan is positioned to capture any further improvement in crack spreads, with the company having no major refinery turnaround scheduled until 2028.

Based on Tradeview Capital's estimates, he said Singapore's complex refining margin had moderated substantially in September but remained at an elevated level.

"We believe Hengyuan is well positioned to capture any further widening in crack spreads, given that it has no major refinery turnaround scheduled until 2028.

"Furthermore, only around 20 per cent of its crude supply is sourced from the Middle East, limiting its exposure to potential supply disruptions arising from the current geopolitical instability in the region," it said.

HOW MUCH LONGER WILL AN ELEVATED MARGIN STAY?

The conflict in the Middle East continues to disrupt the global oil trade as flow of the liquid through the Strait of Hormuz is interrupted, as both the US and Iran are unable to come to an agreement of a cease fire.

Iran's attack on Saudi Arabia's oil facilities, including the huge east-west oil pipeline, threatens loss of 4% of global oil supply. Meanwhile, the Islamic Republic's proxy – the Houthis in Yemen – have seized control of the Bab al-Mandeb strait – the only route to access the Suez Canal.

However, BIMB Securities Research noted that this escalatory cycle is unlikely to be sustained, due to logistics limitations for the US.

"Our bullish tilt on oil prices (US$110 to US$120 highs) is likely to reverse within a two to four week window, based on the previous patterns," said the research firm in a note on Sept 15.

The research firm reiterates its trading tilts on Hibiscus Petroleum Bhd, which is a direct proxy to oil prices, Petronas Chemicals Group Bhd (benefitting from the higher fertilizer prices) and Hengyuan. The firm does not cover Hengyuan.

"Of the three, we see Hengyuan having the most room to surprise on the upside, including earnings, thanks to its exposure to the crack spreads.

"However, as highlighted earlier, we remain mindful that the current surge in oil prices is unlikely to persist – and likewise the catalyst for the stocks," the research firm noted.

It said that Hengyuan's windfall profit of RM1.1 billion in 1H FY26, which translates into an earnings per share of RM1.78, when annualised could reach around RM3.60 per share.

"Despite the 358 per cent YTD share price rally, this would still imply a price-earnings multiple of only around one time, suggesting that valuation remains undemanding relative to the prevailing earnings run rate.

"In our view, the key question is therefore not how far Hengyuan's share price has risen, but how long the current elevated crack spread environment can persist," the research firm said.