Reservoir Link Energy (RL) 18FY23 core losses of RM6.8mn was below our profit forecast of RM1.6mn. Notwithstanding, there were several positives in 6QFY23 results including (i) new highest quarterly revenue in RE solar segment at RM38.5mn, (ii) broad improvement in O&G services including higher perforation works and well maintenance activities, and (iii) resumption in perforation services in well decommissioning activity which went missing for 3 previous consecutive quarters. Moving forward, we expect RL to expand its solar orderbook thanks to the roll-out of CGPP program recently. Maintain RL as a BUY with an unchanged TP of RM0.38.

• Below expectation. 18MFY23 core losses of RM6.8mn was below our estimate due to lower-than-expected O&G revenue.

• QoQ. Revenue grew 15% to RM51.8mn mainly driven by expansion in RE solar activities. RE segment revenue grew by another 24.6% to RM38.5mn as clients expedite development works to meet the LSS4 deadline by end of 2023. Meanwhile, O&G revenue was largely flattish at RM13mn as higher revenue from perforation services had partially offset the decline in well testing activities. Notably, the company has resumed its perforation service in well decommissioning activities. This was evident from revenue from Wash and Cement of RM500k which went missing in 3 previous quarters. There was also higher well maintenance activities which boosted revenue for well leak repair and wireline services by 13.7% and 146.2% to RM2.6mn and RM2.2mn respectively. At the bottomline, core PATAMI grew to RM1mn, up by more than 100% mainly due to the low base effect.

• YoY. Revenue grew by 201% mainly driven by expansion in RE solar activities. Positively, this led RL to turn to core profit of RM1mn in 6Q23 from core loss of RM5.6mn in 2Q23. Cumulatively, 18MFY23 revenue grew by 72% to RM194mn mainly due to extension of financial year end. However, the company still accumulated a core loss of RM6.8mn as compared to core PATAMI of RM10.9mn in FY21 which was boosted by the contribution from higher margin perforation, wash and cement (PWC) project in Mauritania in FY21.

• Outlook. RL orderbook declined slightly to RM192.5mn (5Q23: RM205mn) upon significant solar project progress in this quarter. Solar orderbook stands at RM42.9mn which may only last until end of CY23. However, we are optimistic the company will able to replenish its orderbook following the roll-out of Corporate Green Power Programme with 563MW capacity approved by ST recently.

• Our call. Maintain a BUY call on RL with unchanged TP of RM0.38. Our TP is based on SOP methodology which implies 13x FY24F P/E.

Source: BIMB Securities Research - 28 Aug 2023