Overview. Reservoir Link Energy (RL) posted a core PATAMI of RM0.7mn in 4Q22 mainly driven by recovery in O&G’s well testing services. Revenue declined by 22% QoQ and 4% YoY to RM32.4mn however due to slower activities in RE solar projects. O&G segment’s contribution to the company’s top line improved to 39% (3Q22: 21%). This led to an improvement in EBITDA margin to 11.7% (3Q22: 8.2%) as O&G well services generally carries higher margin than RE solar projects.
Key highlights. Despite some recovery in earnings in 2H22, RL still ended FY22 with a core LATAMI of RM8mn. Revenue declined by 13.3% YoY to RM98mn no thanks to the completion of perforation, wash and cement (PWC) project in Mauritania in October 2021.
Against estimates: Below. The FY22 performance was below our estimate with revenue of RM98mn making up only 70% of our full year forecast. The deviation was due to the timing differential between our estimate and actual work done.
Orderbook. RL’s orderbook grew by 15% QoQ to RM219mn (3Q22: RM190mn) mainly driven by new contract awards in the RE space which currently made up c.35% or RM76mn of the total orderbook. Its tenderbook stood at RM723.8mn as at end FY22.
Outlook. Based on the recovery achieved in 2H22, we are cautiously optimistic that RL will return to profitability in 2023. This will be driven by higher demand for well-related services. According to Petronas Activity Outlook 2023-2025, it expects to drill 96 wells (25 exploration, 2 appraisal and 69 development wells) in 2023. In addition, 21 producing wells are planned for workover activities (i.e., to increase production) whereas 28 wells are identified for decommissioning.
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 PER that is pegged to FY23F EPS of 4 sen. We believe RL will benefit from strong solar RE project that is gaining momentum amidst LSS4 project roll-out.
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