Reservoir Link Energy (RL) slipped into core loss after tax and minority interest (LATAMI) of RM1.8m in 3QFY24, from a marginal profit of RM0.9m in 2QFY24. This is due to weakness in both the oil and gas (O&G) and renewable energy (RE) segments, with overall revenue dipping to RM30.2m (-32.3% QoQ, -32.8% YoY). Losses in the current quarter has dragged overall 9MFY24 PATAMI close to zero, thereby below our and consensus FY24 full year estimates of RM6.5m and RM7.2m respectively. Setback from the RE segment amid delays in finalization of the Corporate Green Power Purchase (CGPP) will continue to be a drag on its performance until 4QFY24. Underperformance in the RE segment will be partially mitigated by the O&G segment as more robust offshore activity is expected post monsoon season in the next two quarters. On the basis of continuous weakness in the RE segment in 4QFY24, we trim our FY24 earnings forecast to RM3.2m from RM6.5m. Nevertheless, we maintain our Neutral call and TP of RM0.31 as we peg our sum-of-parts (SOP) valuation to an unchanged FY25F earnings.

• O&G segment slightly weaker amid monsoon season. RL’s O&G segmentalrevenue was slightly lower from RM17.2m in 2QFY24 to RM16.0m 3QFY24,down by -6.9% QoQ. This is due to the unfavourable monsoon season whichtypically sees lesser offshore activities. Despite that, on YoY basis, segmentalrevenue increased from RM13.9m (+15.3%) in 5QFY23, signalling robustoffshore activity for CY2024 as compared to the previous year.

• RE segment shows significant weakness. RL’s RE segmental revenuedropped to RM16.4 from RM29.4m in 2QFY24 (-44.3% QoQ) and RM30.9m (-47.0% YoY). Significant weakness in the RE segment is largely attributed tothe delays in finalisation of CGPP. We expect weakness in RE segmentalrevenue to continue until 4QFY24. To recap, CGPP power producers have tofinalize all the documentation with the authorities prior to initiating constructionworks with the targeted commercial operation date (COD) by end 2025. Webelieve 12-18 months of EPCC works i.e. being awarded in 3QCY24 is crucialfor the power producers to meet the COD deadline. As such, we expect therecovery of RE segmental revenue would kick-start earliest in 1QYF25 uponthe initiation of CGPP construction works.

Source: PublicInvest Research - 17 May 2024