PublicInvest Research

Reservoir Link Berhad - Well-Deep In Value

Publish date: Wed, 29 Jun 2022, 09:42 AM
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Reservoir Link Energy (RL) is a provider of oil and gas (O&G) well services that supports operators in the upstream segment of the O&G industry, encompassing all stages of a well's life, namely the start-up, production and end-of-life stages. RL’s prospect in this segment is encouraging given the current oil prices remaining stable at above USD100/bbl, which should eventually lead to more O&G related jobs being available in the market. This is on the back of Petronas’ planned capital expenditure (capex) of at least RM40bn this year. Furthermore, RL’s venture into the solar industry last year is timely given the increasing importance of renewable energy in Malaysia. The deal comes with a profit guarantee for 24 months, limiting downside risks. Growth potential in this segment is also huge, in line with the government’s aims of achieving a generation mix of 31% from renewable energy by 2025, and 40% by 2035. We initiate coverage on RL with an Outperform call and a TP of RM0.42 based on 10x PE multiple, in line with our valuation to its closest local peer.

  • A specialist in well services. RL is a specialist in well services for O&G operators that carry out upstream activities, encompassing all the aspects of exploration, appraisal, development, production as well as plug and abandonment segments of the industry.
  • Established track record. The Group has accumulated a track record of approximately 14 years. Throughout the years, it has developed good relationships with reputable O&G players such as Petronas Carigali, PTTEP, Exxon Mobil, Shell, Enquest Petroleum and others. The group has also carried out well services not only in the domestic market, but also has an international footprint in Vietnam and Mauritania.
  • Earnings outlook. We foresee RL turning profitable again in 2QFY22 after reporting a core net loss in 1QFY22 on the back of a ramp-up in sector activities, post-monsoon season. This will be supported by its O&G outstanding orderbook of RM134.9m. We believe more investments will be made in the coming quarters in order to meet Petronas’ expectations of a full year capex of at least RM40bn. The RE segment orderbook stands at RM50.4m meanwhile.
  • Growing potential in RE space. RL’s venture into the solar industry via the acquisition of a 51% interest in Founder Energy is timely given the increasing importance of renewable energy in Malaysia. The growth potential in this segment remains huge with the government’s Malaysia Renewable Energy Roadmap (MyRER) aiming to achieve a generation mix of 31% from renewable energy by 2025, and 40% by 2035.
  • Key risks. Key downside risks, include i) weaker-than-expected oil price, ii) lower-than-expected oil majors’ capex spending, iii) lower-than-expected orderbook replenishment, and iv) dependency on major customers.

Source: PublicInvest Research - 29 Jun 2022

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