Longwei Petroleum has a large, established presence in gasoline (#90 and #93 commercial blends, as per Chinese Gasoline Grading System), diesel (#10), fuel oils destined for furnaces/boilers, and even unrefined petroleum products like solvents for a variety of end markets. The main corporate HQ and storage facility is in Taiyuan City, at the heart of the PRC’s coal nexus, thriving Shanxi Province and the company has additional infrastructure in nearby Gujiao as well.
The booming vehicle and industrial end markets in Shanxi make today’s announcement by Longwei, that it will wrap up the Huajie Petroleum Co., Ltd. petroleum asset purchase by the end of the month, very exciting. Tacking on another 100k metric tons of storage capacity in the deal via the critical infrastructure in northern Shanxi, LPH and shareholders will be getting a sweet deal at roughly $110.6M, with 78.6% of the sum already paid and only a final, $23.7M payment remaining (slated for on or before the 30th of the month).
The total asset package is in a perfect site, Xingyuan Township, Fanshi County. This is just south of the main train station in northern Shanxi and with all of the necessary accoutrements on hand, from the storage tanks to ancillary facilities and hardware for delivery/distribution, including a dedicated rail spur with loading station, LPH has easily acquired a solid footprint in the center of the northern Shanxi market. There is even ample space (3k square meter office building) for the other major component of LPH’s business, customer service, which has proven to be a real secret of the retail success story. 98 acres of land use rights adjacent to the main rail line are also included in the deal.
Longwei has been making quite a name for itself in recent years and the recent fiscal 2012 data makes it no surprise, with revenues up 6% to $510.6M ($256.3M from Taiyuan and $233.8M from Gujiao) compared to FY11 and GAAP net income attributable to common shareholders of $65.1M, the book value per share is up to $3.31, as stockholders equity increased some 27.4% to $71.8M. Raw performance data like that, set against the backdrop of Shanxi’s 2011 GDP growth rate of 13%, should tell investors everything they need to know about the shrewdness of LPH management. With the local provincial government okaying another $158B for local development projects, in line with the PRC’s regional industrial stimulus plan, and an impressive $790B fixed asset investment envelope estimated for Shanxi over the next five years, Longwei is clearly doubling down on the province’s demonstrably valid growth vector.
The company made the cut out of 15k companies to place on the Forbes influential Asia’s 200 Best Under a Billion list for their exceptional sales/earnings growth and return on equity over the last 1-3 years, with a reported 45% growth in sales, a jump of 28% in the EPS, and a 28% jump in return on equity for the three-year period. These figures are driven by rapid turnover, timely delivery to a wide array of clients, as well as agency fees cleared via purchasing agent operations in the complex and bustling Shanxi regional market.
Chairman and CEO of LPH, Cai Yongjun, noted the execution of the deal without dilution to the shareholder base and expressed the confidence held by management that a cash close, backed up by logistical throughput gained in the deal, was the top momentum-maintaining decision for LPH.
CFO of LPH, Michael Toups, underlined this point and explained to investors that the company has been working very hard to balance working capital and exploit opportunities in the market price of petroleum in order to stitch up this deal at a great value. Toups further underscored the strong inventory and cash flow positions from Q1 FY13 data, affirming confidence in the Huajie asset purchase’s timing held by management. Toups also pointed to the company’s masterful work with the Gujiao facility since 2010, as the company has successfully ramped the facility up to a point where it now accounts for some 48% of total product sales.
The deal almost doubles storage capacity for LPH to 220k metric tons while capturing a key stronghold in northern Shanxi’s burgeoning industrial market, placing Longwei into an even bolder position as the largest non-state-owned fuel storage and distribution business in the province.
For more information on Longwei Petroleum Investment Holding Ltd., please visit the company’s website at: www.LongweiPetroleum.com
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