PETALING JAYA: Hengyuan Refining Company Bhd
, which operates a major petroleum refinery, could conservatively deliver RM1.8bil in net profit for the financial year ending Dec 31, 2026 (FY26) with room to surprise on the upside.
BIMB Research said in a report that it conservatively assumed minimal inventory gains in the second half of 2026 (2H26) as well as lower margins.
Even at RM1.8bil, Hengyuan would be trading at a highly discounted 1.2 times FY26 price earnings ratio, it said.
“Naturally, there would be even more room to surprise on the upside if the Iran war were to drag on.
“The main upside for Hengyuan actually comes from the elevated crack spreads for refined products, rather than the higher oil prices alone,” it told clients.
BIMB Research said Hengyuan has been plagued by high leverage, which has weighed on earnings in previous years.
But it estimates the earnings will translate to around RM1.8bil in cash accretion over FY26/FY27.
The delay is largely due to working capital requirements – more upfront cash payments for feedstock, it said, adding that it sees finance costs alone dropping from around RM176mil per year to less than RM40mil by FY27/FY28.
This should lift Hengyuan reliably back into profitability going forward, once the cycle turns, it added.
BIMB Research said given the cyclical nature of the commodity driven upside, we see this as a stock with a six-month runway – at least benefiting from expectation of stellar third/fourth quarter earnings.
“Our fair value on a 3-times price earnings ratio (against 12-months earnings ended mid-2027), is RM4.70.
“Additionally, we have assumed a 33% dividend payout, which translates to RM1 per share and brings potential total shareholder returns to 41%,” it said.
BIMB said while Hengyuan is a trading stock, it is one that is poised to deliver super-normal windfall earnings over the next six months, at least.
The company has already booked RM1.1bil in net profit in 1H26, implying a valuation of less than one-time FY26 price earnings ratio if the 1H earnings were to be annualised, it said.
BIMB Research noted that Hengyuan in 2025 undertook a placement that raised RM232.5mil in additional capital to help ease the group’s leverage.
Still, based on the fourth quarter of 2025 (4Q25) run-rate, Hengyuan would have been annualising towards around RM176mil in finance costs annually.
But as of 2Q26, it is now only at RM20mil per quarter.
“In turn, we see this as one of the major factors turning the group profitable in FY27/FY28, even if the crack spreads and oil prices normalise,” it said.
BIMB Research added that Hengyuan enjoyed zero tax on its earnings in the 1H26, as it has been sitting on some tax reserves from earlier accumulated losses.
The research house expects to see the tax rate normalise in FY27 and have baked in that drag to net profit in its assumptions.
At last look, Hengyuan was at RM3.53 apiece.
