Stripping-off exceptional items totaling RM2.2m, Reservoir Link Energy (RL) reported core net loss of RM1.1m in its 2QFY22 results from a core net profit of RM3.9m in 2QFY21. The weaker performance was attributed to lower topline contribution from its oil and gas (O&G) well services segment (-73.4% YoY) and delayed activities from on-going projects, though the impact was cushioned by the presence of renewable energy (RE) contributions. Cumulatively, the Group widened its core net loss to RM4.1m in 1HFY22 against core net profit of RM4m reported in 1HFY21. Gross profit margin stands at 9.2% as of 1HFY22, against 25.1% in 1HFY21 on the back of lower revenue. Performance was below our and consensus expectations of full year net profits of RM8m and RM6m respectively. Considering this quarter’s weaker earnings as well as anticipation of slower-than expected recovery, we revise our FY22-24 earnings forecasts lower by an average of 35.7% though 3QFY22 is expected to be profitable on the back of higher activities in its both key divisions. Our TP is adjusted lower to RM0.38 (from RM0.42) after the revisions, based on unchanged PE multiple of 10x over FY23 EPS. Our call is downgraded to Neutral given limited share price potential.
- QoQ performance. RL reported core net loss of RM1.1m in 2QFY22 against core net loss of RM2.9m in the previous quarter. This is on the back of higher revenue of RM17.2m (+165.1% QoQ), attributed mainly to improved topline contribution from its two key divisions, i.e., oil and gas well services (+85.4% QoQ) and renewable energy (+>100% QoQ). Gross profit margin improved to +14.3% from the previous quarter’s -4.2%, though the improvement is not sufficient to cover other costs (admin, interest, and tax expenses), hence 2QFY22 bottom line still in a loss position.
- YTD performance affected by lower oil and gas contribution. The Group widened its core net loss to RM4.1m in 1HFY22 against core net profit of RM4m reported in 1HFY21. The poorer performance was attributed to lower topline contribution from its oil and gas well services segment (-71.1% YTD) due to the absence of the Mauritania project contribution as it was completed in October 2021, as well as delayed activities from both O&G and RE segments in the 1QFY22 results.
- Earnings outlook. While we think recovery may be slower-than-expected, we expect RL to be profitable in 3QFY22 due to a ramp-up in sector activities. This will be supported by its outstanding orderbook of c. RM168m, comprising of O&G (~RM127m) and renewable energy (~RM41m). In addition, we believe more investments will be incurred in the coming quarters in order to meet Petronas’ expectations of a full-year capital expenditure (capex) of RM60bn
Source: PublicInvest Research - 30 Aug 2022