• 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.

Source: BIMB Securities Research - 21 Feb 2023