Analysts from KGI Group Research are maintaining their “outperform” stand on Rex International at a slightly higher target price of 54 cents.
This is up 14 cents from their previous 40 cent call and is expected to give the counter a 39.3% upside from its 39-cent price on Mar 10, analysts Joel Ng and Chen Guangzhi write in a research note.
Their move comes as Rex International is seen to be “rolling like the good old times,” as oil prices tend upwards. For one, the company posted net profits of US$78.9 million ($107.6 million) in its FY2021 ended Dec 31 2021 oil prices per barrel averaged at US$67.
For comparison, the company had posted losses of US$15.2 million in FY2020 as the oil price per barrel averaged at US$34.
Rex International is in the business of oil production and exploration and has concessions in Norway and Oman.
The company stands to gain from the surge in the Brent oil price to over US$130 last week as the effects of the international sanctions on Russia disrupted global supply chains.
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“Brent is now trading at the levels when oil & gas companies were partying like there was no tomorrow, in 2012 and 2014,” observe Ng and Chen.
While the price of oil when demand destruction starts to set in is quite varied, market estimates put it between US$120 to US$150.
Conversely, Ng and Chen reckon that US$90 to US$110 per barrel is “the sweet spot to maintain healthy dynamics in the sector”.
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Meanwhile, Rex International is set to enjoy higher production once upgrading works at its site in Yumna complete. The site was shut for 24 days in Feb and Mar for the changing of the floating storage tanker.
While the replacement is only likely to increase production from 2HFY2022, Ng and Chen say it will have some impact on the company’s revenue and earnings in the ongoing 1HFY2022.
The analysts add that any impact from the downtime during the upgrading works will be offset by higher average oil sales prices, revenue and profits from the Barge field in FY2022 ending in December.
Additionally, contributions are also expected to come from the company’s acquisition of a 33.84% stake in the oil producing Barge Field in Norway.
“Beginning Jan 2022, revenue and profits will be fully recognised by Rex in its profit and loss statement, which we have factored into our FY2022-2024 forecast,” according to Ng and Chen.
Going forward, the company will have two production sharing contracts in offshore Malaysia.
These will be its maiden oil field project in Asia and will provide a great opportunity for the company to expand its oil reserves and diversify its source of cashflows, say Ng and Chen.
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For now, the duo have not factored in the Malaysian production sharing contracts into their valuation for they are awaiting more visibility on Rex International’s exploration plans.
Shares in Rex International closed down 3 cents or 7.895% at 35 cents on Mar 14.
Cover image: Rex International
