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