Excerpts from KGI Research report

Analysts: Joel Ng & Chen Guangzhi, CFA

Benefiting from high oil prices. On 28 Feb, Rex reported FY2021 net profit of US$78.9mn, a significant turnaround from the US$15.2mn loss in FY2020. This was on the back of US$67 per barrel average realised oil price in FY2021, almost double compared to US$34 it realised in FY2020.


Share price: 
39 c

54 c

Record free cash flows. In FY2021, Rex generated US$110.2mn in EBITDA. The group’s cash and equivalents and quoted investments totalled US$86.9mn as at end2021, an 88% increase from US$46.4mn as at end-2020.

Good old times. Oil prices are now trading at levels when oil companies were partying like there was no tomorrow (2012 to 2014). However, most of the price increase in the past month was driven by supply disruptions due to Russia’s attack on Ukraine. We believe a more sustainable and healthy oil price should be between US$90-110 per barrel in order to avoid demand destruction.

We maintain an Outperform recommendation while raising our DCF-backed target price to S$0.54, mainly as we factor in higher oil prices of US$90 in our base-case.


Harvest time for oil & gas companies.

Total cash + quoted investments amounted to US$86.9mn as at end2021, a sizeable war chest to fund its growth and diversification plans.

After seven years of famine in the oil & gas industry, companies who stayed faithful are now reaping a bountiful harvest. Rex’s FY2021 revenue surged 240% YoY to US$158.4mn as Rex achieved a higher average realised oil price sold of US$67 per barrel, up from US$34 in FY2022.

More importantly on the cash flow and balance sheet aspect, the group increased its cash and cash equivalents by US$38.1mn in FY2021, bringing its overall cash and cash equivalent to US$60.6mn as at end-2021. 

Upgrading works at Yumna to increase production.
Production at Yumna was shut for 24 days in Feb/Mar 2022 for changing of the floating storage tanker. It is the midst of replacing the Mobile Offshore Production Unit (MOPU). While the replacement will potentially help increase production starting 2H2022, it is expected to have an impact on 1H2022 revenue and earnings.

However, the higher average oil sales prices, revenue and profits from the Brage field will help offset the downtime and even add to higher profits in FY2022.

Something to brag about.
The acquisition of the 33.84% interest in the oil producing Brage Field in Norway was completed on 31 Dec 2021. Beginning Jan 2022, revenue and profits will be fully recognised by Rex in its P&L statement, which we have factored into our FY2022-2024F forecast.

Expansion in Asia.
Rex’s two production sharing contracts (PSCs) in offshore Malaysia will be its maiden oil field project in Asia. The PSCs will provide a great opportunity for Rex to
expand its oil reserves and diversify its source of cashflows. We have not factored in the Malaysian’s PSCs into our valuation until we have visibility on its exploration plans.

It’s the good old times again.
Brent oil price surged to more than US$130 last week as the effects of the international sanctions on Russia disrupted global supply chains. Brent is now trading at the levels when oil & gas companies were partying like there was no tomorrow, in 2012 to 2014. The price of oil when demand destruction starts to set in is quite
varied, with market estimates ranging from US$120 to US$150. In our view, we think US$90-110 is the sweet spot to maintain healthy dynamics in the sector.

Valuation & Action: We maintain Outperform while raising our base case TP to S$0.54, as we raise our oil price forecast from US$75 to S$90.

JoelNg919Joel NgOur DCF-backed valuation assumes a WACC of 10.0%.

Accordingly, we raise our bull case TP to S$0.71 and our bear case TP to S$0.39.

Rex’s strong balance sheet, free cash flow generation and access to capital, differentiates it from many other E&P companies.

The successful transfer to the SGX mainboard will also help Rex reach a wider investor base, in addition to facilitating greater access to equity and debt markets.

Risks: The direction of oil price is the biggest contributing factor of profits. There is an ongoing claim against two of Rex’s subsidiaries in Oman; Rex has assessed that there will be no material financial impact from the claim.

Full report here.

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