4 Stocks This Week (Hin Leong Trading) [24 April 2020] DBS; OCBC; UOB; Sembcorp Industries

While COVID-19 has naturally taken the attention of most people around the world, oil prices were pushed to the limelight this week as oil’s future for May went into negative price (which is totally NOT NORMAL and has since recovered). The fall in demand meant that there was too much oil in supply, and the cost of having to pay for oil storage outweighs the value of the oil itself.

Oil prices have been declining quickly since March 2020. As of 2 March, WTI crude oil, which is a benchmark for oil prices, was at US$46.75 a barrel. As of 24 April, it’s at US$16.94 after seeing itself in negative territory earlier this week.

One of Singapore’s top trading oil company – Hin Leong Trading, has found itself in a dire situation lately because of the collapse of oil prices. According to the Financial Times, Hin Leong Trading has debts of US$3.85 billion, while its assets are worth only about US$714 million. Singapore’s three local banks are said to have exposure of at least US$600 million to Hin Leong Trading.

In this edition of 4 Stocks This Week, we look at some local stocks that may be impacted by the current situation facing Hin Leong Trading.

Do note that Hin Leong Trading is a privately-owned company and not listed on the exchange.

DBS (SGX: D05)

According to an SGX Market Update report, DBS has the highest exposure to the transport, storage and communication sector, with 8.7% of their gross loans worth about S$31.5 billion in the sector (4Q2019). Oil and gas bank loans are classified under this sector.

Of the loans in the transport, storage and communication sector, about S$3.1 billion are considered non-performing loans, or about 9.8% of total loans under the category. This is much higher as compared to the overall 1.5% non-performing loans that DBS has.

Since the start of the year, year-to-date (YTD) returns for DBS is at – 27.6%.

OCBC (SGX: O39)

OCBC has a lower exposure to the transport, storage and communication sector as compared to DBS, with 5.0% of their gross loans worth S$13.3 billion in the sector. However, non-performing loans in this sector are at S$1.56 billion, which represents 11.7% of total loans for this sector. This is the highest among the three local banks. Overall, non-performing loans stand at 1.5% as of end 4Q2019.

Since the start of the year, year-to-date (YTD) returns for OCBC is at – 21.5%.

UOB (SGX: U11)

Of the three local banks, UOB has the lowest exposure to transport, storage and communication sector, with 4.1% of their gross loans worth S$11.0 billion from this sector. Non-performing loans are also at the lowest among the three local banks at $650 million, which represents 5.9% of loans from the sector.

However, do note that similar to both DBS and OCBC, overall non-performing loans for UOB is also at 1.5%.

Since the start of the year, year-to-date (YTD) returns for UOB is at – 25.8%.

Sembcorp Industries (SGX: U96)

Sembcorp Industries has a subsidiary company call Sembcorp Cogen, which owns powerplants that generates electricity for Singapore. In 2009, SembCorp Cogen signed a deal to purchase oil reserves from Hin Leong. Hin Leong also provides storage and management services for oil reserves on behalf of Sembcorp Cogen.

Earlier this week, it was announced that Sembcorp Cogen had terminated its agreement with Hin Leong. According to Sembcorp Industries, the book value of its reserves with Hin Leong is worth $94 million as of 31 December 2019.

The past 12 months have not been good for Sembcorp Industries. Even before the COVID-19 outbreak, its share prices have been declining steadily from 2.72 as of 25 April 2019, to 1.50 as of 24 April 2020.

Read Also: We Attended My Money Seminar 2019 To Search For The Secret Recipe To Smart Investing

If you are keen to find out more about what happened to Hin Leong trading, we would recommend reading this article from Bloomberg.

4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.

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