• Overview. Reservoir Link Energy (RL) returned to black in 3Q22 with PATAMI of RM0.4mn mainly aided by unrealised forex gain. Revenue jumped by 141% QoQ to RM41.4mn driven by growth in renewable energy (RE) solar projects that contributed to c.80% of topline. EBITDA margin, however, was low at 8.2% (3Q21: 26.6%) as RE solar projects generally carries lower margin than its O&G well services.

• Key highlights. While RE solar project is gaining momentum, O&G activities remained subdued with revenue came in at RM8.7mn which implies a burn rate of 6% over its orderbook. The company’s total orderbook stands at RM190mn which is 1.7x FY21 revenue. It is likely to expand given strong tenderbook in the pipeline amounting to RM1.1bn which is comprised primarily from perforation, wash and cement (PWC) service for a decommissioning activity in West Malaysia, perforating work in Africa and LSS4 job tender

• Against estimates: Below. The 9M22 performance was below our estimate with revenue of RM65mn (-17% YoY) only made up 47% of our full year forecast. The deviation was due to the timing differential between our estimate and actual work done.

• Outlook. Earnings is expected to be lumpy given some project such as M3 field plug and abandonment (P&A) remain outstanding. Hence, no change is made to our projection despite earnings falling short of our forecast.

• Our call. Maintain a BUY call on RL with unchanged TP of RM0.52 which offers a 35% potential upside. Our TP is based 13x to FY23F P/E. We believe RL will benefit from strong solar RE project that is gaining momentum amidst LSS4 project roll-out.

Source: BIMB Securities Research - 21 Nov 2022