Rex International Holding’s “record-breaking” profits for FY2021 ended Dec 31 2021 has pushed UOBKayHian (UOBKH)'s Llelleythan Tan to maintain his “buy” call on the counter, at a revised target price of 58 cents.
This is up 12 cents from his previous 46 cents target, indicates Tan in a Mar 8 note.
The higher target price is based on 1.0x FY2022 Re-valued Net Asset Value, he adds.
Rex International is in the business of oil production and exploration and has concessions in Norway and Oman.
The company posted PATMI (profits after taxes minus interests) of US$67.2 million ($91.6 million) in FY2021, a reversal from the US$14 million loss seen the year before. The average realised oil price was US$67/bbl in 2021, compared to US$34/bbl in 2020.
With this, revenue for the year jumped by 239.5% y-o-y to US$158.4 million.
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Other contributions came from US$20 million increase from the other income category resulting from US$18.4 million in fair value gains from the company’s US$42.6 million acquisition of the Brage field.
Rex International’s PATMI and revenue for FY2021 formed 106.2% and 136.8% of Tan’s full-year forecast. “Excluding the other income category, PATMI would have formed around 100% of our full-year forecasts,” says Tan.
The company has announced a maiden dividend of 0.5 cents per share for FY2021, given its strong operating cash flows and healthy net cash position of US$31.3 million.
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Going forward, Rex’s management will consider paying an interim dividend in 1HFY2022 ending in June, depending its performance for the first six months of the year.
They are also looking to set up a regular dividend policy with the setup of a total annual dividend of 2 cents per share being paid out quarterly from 1QFY2023. This aim is to create stable yield to increase shareholder value, notes Tan.
The company’s move from the Catalist to Mainboard on the Singapore Exchange on Mar 8 is also expected to expand its reach to more institutional investors.
The analyst adds that the company stands to gain from its timely acquisition of the Brage field in Norway, in January. With this, its overall production volume will be up by around 3,000 bbl/per day.
In January, the Barge field had an average of around 2,496 bbl/day.
“As oil prices soar to historical highs, we reckon that this timely acquisition would help boost Rex’s profitability for 2022, given that operating costs are estimated at US$50,000/day – lower than Oman’s,” says Tan.
“The of the Brage field would also add estimated net 2P reserves of 7.3mmboe to the current 2C contingent resources of 27.7mmboe from Rex’s existing three discovery assets,” he adds.
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Even as the company’s exploratory drilling of the Fat Canyon came up dry, Tan notes that it could further develop and move into production at the other discovery assets (like PL 1125 Falk, PL433 Tyrving an PL838 Shrek) which it still has interests in.
Over in Oman, production at Rex’s Yumna field was around 7,518 bbl/day in January, down from the typical level of 9,500 bbl/day due to maintenance works on its production system.
Despite expectations of a further increase in oil prices due to the worsening demand-supply imbalance, Tan is of the view that operating costs for Rex’s activities in Oman will remain constant at US$80,000/day.
“Rex is poised to see strong margin and supernormal earnings for 2022, in our view,” he adds.
Against this backdrop, Tan has raised his revenue and PATMI forecasts for FY2022, FY2023 and FY2024. For the current year, he is expecting revenue to come in at US$205.6 million (from US$129.9 million) and PATMI to be US$86.1 million (from US$38.3 million).
Revenue and PATMI is expected to come in at US$149.4 million and US$64.0 million respectively in FY2023. For FY2024, she is anticipating revenue and PATMI to come in at US98.5 million and US$40.2 million.
“We opine that Rex is an attractive pure-play on the ongoing oil super cycle However, we are mindful that any sharp pullback in oil prices would significantly affect our forecasts,” cautions Tan.
With total oil production being currently capped at 11,000-12,000bbls/day, any rise in revenue would mainly be caused by oil price increases and not volume production, he notes.
“Thus, we have incorporated conservative 2022-24 oil price assumptions of US$90/bbl, US$85/bbl and US$80/bbl respectively. Even so, there is still considerable potential upside at current price levels,” adds Tan.
As at 4.17pm, shares in Rex International were down 2.5 cents or 5.21% to trade at 45.5 cents.
Cover image: file photo
