Reservoir Link Energy Bhd (RL) is an Oil and Gas (O&G) company specializing in providing well services for the O&G operators that support the upstream segments of the industry. Apart from its core perforation service, RL also provides well leak repair, well testing, wireline services and consultancy services. In addition, RL has recently entered the solar and renewable energy business via a 51% acquisition of Founder Energy Sdn Bhd.

EMERGENCE OF DATO EDDIE ONG CHOO MENG AS A PROMINENT SHAREHOLDER

In the 2021 RL annual report released last week we find Dato Eddie Ong’s name as the 4th biggest shareholder list with a total shareholding of 12 million shares, which equates to 4.1% of the company. Upon further checking from the Direct Business Transaction (DBT) transactions on Bursa in March, we observed a DBT of 12 million shares traded off market by the majority owners of RL, ie. RL Holdings Sdn Bhd on 7 March 2022 with 8.2 million shares transacted at RM0.42 and 3.8 million shares at RM0.40. If this is the block of shares that were sold to Dato Eddie Ong, his average cost is calculated at RM0.414 per share.

Dato Eddie Ong is, of course, the controlling shareholder at the Hextar Group of companies as well as a host of other public listed companies. It is well documented that Dato Eddie Ong’s entry into any public listed company usually stirs some excitement in those companies, both from a corporate development standpoint as well as share price movements.

Let us try to handicap what Dato Eddie Ong sees in RL.

1) Good proxy to the current bull market in commodity prices

WTI crude oil has pierced through the USD100 mark on the 1 March 2022 on the outbreak of the Russia and Ukraine conflict. It has reached an 8 year high of USD130 per barrel on 7 Mar 2022 and has remained stubbornly above USD95 since then. (WTI Crude is currently at around the  USD103 level at time of writing)

Commodities across the board are mostly trading in bull market territory, from food commodities, fertilizer prices, metals to the oil complex. Dato Eddie Ong’s core companies, the Hextar group of companies, are doing exceedingly well as they are in the bullish agrochemical sector, with prices in Hextar Global up 20% YTD while Hextar Industries is up a staggering 140% YTD!

2) RL is a company with solid fundamentals

RL has reported  a profit for 8 consecutive quarters since its listing in July 2020. Although the most recent quarter showed a sharp decline in profits, from RM5.8 million to RM871,000 QoQ, this included an Impairment of Intangible Assets of RM1.56 million which was not present in the previous quarter. 

RL is also has a net cash position of RM18 million or 6.2sen per share. Based on a Ex cash PER, RL is trading at a prospective PER of only 10.5 times.

In recent announcements to Bursa Malaysia, RL has continued securing new contracts for both its O&G as well as the renewable energy division. Since March 2022, RL has already been awarded 4 new contracts, including from ExxonMobil Exploration and Production Malaysia, and Petronas Carigali Sdn Bhd and Solarvest Bhd. These contracts are expected to have a positive contribution to the bottomline of FYE2022.

3) Price chart is at the bottom of the range

RL has a relatively short technical history since it was only listed in July 2020. From its debut price of RM0.68 on 15 July 2022, RL has traded in a wide range of RM0.54, from a low of RM0.29 low on 5 October 2020 to a high of RM0.83 on 13 April 2021.

The price structure is in a symmetrical triangle pattern with the lower boundary providing strong support at RM0.41 (which also represents the IPO price and Dato Eddie Ong’s entry price). On the upside, the current upper boundary sits at around RM0.545.

4) IPO was 11.5X oversubscribed

RL was listed in July 2020 and the IPO received an oversubscription of 11.5x at an offer price of RM0.41. Given the strong financial performance since its listing, the current price of RM0.47 seems reasonable since it only represents a premium of only 15% over the IPO price and a 31% discount over the debut price of RM0.68 on listing day!

5) Impending transfer to the Main Board

RL had submitted the application to transfer its listing to the Main Board on 28 Sept 2021 as it has managed to achieve an accumulated profit of RM25.4 million for 3 consecutive financial years. A successful transfer to the Main Board would further increase the company’s investibility and reputation in the eyes of the investment community.

CONCLUSION

The prolonged conflict in Ukraine could only mean continous uncertainties over oil supply disruptions and oil prices to stay elevated for the medium term. We still believe that that RL has yet to reflect its fair value as the Oil and Gas sector on Bursa Malaysia is still lagging the overall market and price performance in crude oil.

One of the cited reasons for the underperformance of the O&G sector include ESG concerns, which was also the same reason cited for plantation companies’ underperformance in 2021. Well we all know that changed in 2022 as the continued rise and sustainability of high Crude Palm Oil prices can no longer be ignored! 

Will the same re-rating occur for the O&G sector and RL soon? Dato Eddie Ong has surely placed his bets!

Disclaimer: This blog is created for sharing of trading ideas only. It is not in any way or form meant to be an inducement or recommendation to buy or sell any stocks. Consult your financial consultant before making any financial investments.