GEORGE TOWN (Jan 15): Hengyuan Refining Co Bhd (KL:HENGYUAN) aims to return to profit in the current financial year ending Dec 31, 2026 (FY2026), following three consecutive years of losses.

The group, which has been hit by oil price and supply volatility, has revised its financial strategies and secured feedstock supply to facilitate its return to profitability, according to Hengyuan chief financial officer Yeo Bee Hwan.

“Our rights issue exercise, completed in October 2025, raised RM234 million, a milestone achievement that will strengthen our balance sheet and secure more reliable crude supply. 

“Hengyuan now enjoys a stable feedstock supply, allowing us to optimise refinery crude intake at a lower cost of production to support healthier margins and places the company on a firmer footing for sustainable profitability,” Yeo told The Edge in an interview.

Hengyuan began making losses in FY2022, amid heightened global geopolitical tensions, particularly the prolonged Russia–Ukraine conflict.

The resulting volatility in global oil prices — it traded between US$70 (RM283.85) and US$112 per barrel in the span of one year — severely disrupted the balance of crude oil supply and demand, leading to sharp distortions in market prices for both crude oil and refined petroleum products.

Hengyuan then unwound its hedging positions, which significantly impacted its financial performance. 

The years of losses since has resulted in Hengyuan halting dividend payments. Since 2022, Hengyuan's share price has retreated by about 74%. The stock hit its record low of 73 sen last November, compared with RM3.23 at the start of 2022.

The group has since revised its risk management approach, Yeo said.

“We have recalibrated our hedging strategy towards shorter-term contracts for greater flexibility and responsiveness to rapid movement in global market oil prices to allow us to manage price volatility better and protect margins,” Yeo added.

Signs of financial recovery are evident this year. Revenue bottomed in the Jan-March quarter, and its July-Sept quarter (3QFY2025) net profit of RM21.04 million was its best since 2QFY2022. 

Revenue for 3QFY2025 nonetheless declined to RM3.62 billion from RM4.12 billion a year ago, reflecting prevailing market conditions. 

For the nine months ended Sept 30,2025 (9MFY2025), Hengyuan still booked a net loss of RM332.65 million, mainly due to losses incurred in the first half of the year. 

Crude oil prices nonetheless have stabilised at a lower range of US$63-64 per barrel.

Based in Port Dickson, Negeri Sembilan, Hengyuan refines crude oil into refined petroleum products; its core outputs include gasoil (diesel), mogas (RON95), and jet fuel, supplying via its prime customers to Malaysia’s transport and logistics sectors. 

Oil refining is a highly capital-intensive downstream operation, Yeo said, with extensive mandatory compliance to meet optimal quality standards requiring high-technology solutions and an experienced team to ensure full compliance, plant efficiency and financial discipline for sustainable profitability. 

Since 2017, Hengyuan has invested more than RM2.2 billion in upgrading its refinery, utilising internal funds with minimal bank borrowing. 

The refinery has a production capacity of up to 156,000 barrels per day. 

Its current operational production volume ranges from 110,000 to 120,000 barrels per day; hence, there is room to increase output. 

“Our key customers are Shell, the principal customer, and others include PETRONAS, Petron and Five. Currently, Hengyuan is fulfilling approximately 60% of Shell’s refined petroleum products requirement. 

“The demand for our refined petroleum products is never an issue, as long as we ensure stability of the feedstock supply,” said Yeo. 

Yeo also added that Malaysia’s petrol subsidy programme Budi95 has had a positive impact on Hengyuan, as the government directly compensated the price difference. 

In fact, Hengyuan benefits from this subsidy programme, as it is likely to boost higher consumption of mogas (RON95).

Malaysia's petrol subsidy programme Budi95, which began on Sept 30, 2025, provides eligible citizens with a monthly quota of 300 litres of RON95 petrol for RM1.99 per litre.

At end-September, Hengyuan had bank balances of RM676.37 million against borrowings of RM1.47 billion. The group had a net gearing ratio of 1.02 times. 

Shares of Hengyuan settled at 85 sen on Wednesday, giving it a market capitalisation of RM507 million. The stock is up over 9% since the start of the year.