Reservoir Link Energy (RL) posted a core PATAMI of RM0.2mn in 5Q23 mainly driven by continuous profit contribution from RE solar segment. The full recovery in O&G segment has not materialised amidst a seasonally weaker quarter in 1Q. However, revenue growth from well testing services (which underwent expansion using IPO proceeds) has cushioned the impact. Overall, we cut our FY23F/FY24F earnings forecast by 96%/26% as we are being more cautious on the timing of its call-out O&G contracts. Notwithstanding, we still maintain RL as a BUY but with a lower TP of RM0.36.
- Below expectation. 15MFY23 core losses of RM8mn was below our estimate. The deviation was due to the timing differential between our estimate and actual work done.
- Dividend. No dividend is declared as expected.
- QoQ. Revenue rose by 39% driven by an expansion in RE solar activities. However, core PATAMI still declined or by 66% to RM200k hampered by RE solar projects lower margin. In the O&G segment, revenue rose by 8.8% driven by an expansion in well testing services which grew by 74% to RM5.7mn which made up 40% of total O&G segment.
- YoY. RL turned to core profit of RM200k in 5Q23 from core loss of RM3mn in 1Q23 driven by recovery in activities in both O&G and RE segments. Cumulatively, 15MFY23 revenue grew by 27% to RM142mn. However, the company still accumulated a core loss of RM8mn as compared to core PATAMI of RM11mn in FY21 which was boosted by the contribution from perforation, wash and cement (PWC) project in Mauritania in FY21.
- Change in forecast. We cut our FY23F/FY24F earnings forecast by 93%/26% to account for weak 15MFY23 performance as well as being more conservative with our assumptions.
- Outlook. We are more cautious on the recovery of RL’s earnings given the lack of visibility on the timing of its work schedule particularly on its call-out O&G contracts. To recap, its orderbook stood at RM205mn with O&G made up c.70% of the orderbook.
- Our call. Maintain a BUY call on RL with lower TP of RM0.36 (from RM0.52). Our TP is based 9.5x to FY24F 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 - 23 May 2023