Advantage seen for Reservoir Link


ACE Market-bound Reservoir Link Energy Bhd’s fair value (FV) has been estimated at between 47 sen to 52 sen ahead of the oil and gas (O&G) services providers’ listing on July 15 at an offer price of 41 sen per share.

Inter-Pacific Research Sdn Bhd stated the company is a beneficiary of the “Malaysianisation Plan” whereby Petroliam Nasional Bhd (Petronas) intends to groom more local vendors.

Besides being a Petronas-licensed company, Reservoir Link’s main competitive strengths include a proven track record in providing well services and offering services that cover all stages of an O&G well’s lifecycle.

“As at IPO price of 41 sen, after excluding listing expenses and recognition of tax adjustments, Reservoir Link is priced at a historical price-earnings ratio (PER) of 12.1 times earnings for the financial year ending Dec 31, 2019 (FY19),” Inter-Pacific wrote in a recent note.

“We value Reservoir Link at a 10 times target PER on FY21 earnings per share (EPS) and arriving at an FV of 52 sen.”

The group’s main revenue stream is derived from providing O&G well services to support the exploration, appraisal, development and production segment of the upstream O&G industry.

Its competitors include Weatherford Malaysia, Uzma Bhd, Halliburton Energy Services (M) Sdn Bhd, Expro Oilfield Services Sdn Bhd, Schlumberger WTA (M) Sdn Bhd and Bakers Atlas.

Malaysia is its principal market, though the firm’s footprint includes Mauritania, Vietnam and the UK.

Inter-Pacific envisages group earnings to grow 24% or 22% year-on-year in FY20 and FY21, driven by current work orders on hand.

“However, the group may experience flattish earnings growth in 2020 if the work contract in Mauritania remains suspended. Future growth catalyst lies on revenue and gross profit margin expansion, underpinned as a full-service provider for the well testing activities in conjunction with its purchase of well testing equipment,” it said.

Upon completion of the IPO, the group will be in a net cash position with no fixed dividend policy.

Risks to the firm include its dependence on three major suppliers, namely AGS International, Petrotechnical Inspection (M) Sdn Bhd and Archer Malaysia for the supply of some products and services.

The group also depends on two major customers, Roc Oil Sarawak and the Petronas group of companies, which accounted for more than 65% of its 2016- 2019 revenue.

Further downside risks are disruptions to group operations amid the Covid-19 pandemic, as well as the effects of low crude oil prices on the timing of Petronas’ capital expenditure deployment.

PublicInvest Research in a separate note yesterday derived an FV of 47 sen on the group.

“We derive an FV of 47 sen based on an 11 times PE multiple to its forecast FY21 EPS of 4.3 sen,” it said.

Reservoir Link expects to raise RM23.42 million from its IPO, which entails the public issuance of 57.13 million new shares.

Some 42.7% of the IPO proceeds will be utilised for the purchase of well testing equipment, while another 21% will be allocated as working capital earmarked for future growth.