Reservoir Link Energy Bhd (RL), provider of well services for oil and gas (O&G) operators, has been downgraded to ‘Underperform’ by a local equity research house as its current share price is deemed to have run ahead of its fundamental valuations.
Public Invest Research downgraded the O&Q provider despite its announcement to the local exchange yesterday that it has secured a purchase order (PO) worth RM11.4 million for the supply of mounting structure for large-scale solar photovoltaic (LSS PV) plant development.
The PO was secured from Fabulous Sunview Sdn Bhd, a wholly-owned subsidiary of Sunview Group, through its 51% owned subsidiary, Founder Energy Sdn Bhd.
“While RL is building on its momentum in securing new RE contracts, we remain cautious on the short-term earnings prospects for this segment amid inflationary pressures. We lower our call to Underperform as we see the current share price having run ahead of its fundamental valuations,” Public Invest Research said in the research note released today.
It has an unchanged 12-month target price of 31 sen on the stock, which closed at 39 sen yesterday.
Established in 2008 as Reservoir Link Sdn Bhd, RL supports the upstream segments of the O&G industry. Its portfolio covers all stages of a well’s life, starting from perforation as part of the completion process to prepare the wells suitably to be functional , perforate the well to allow well to produce hydrocarbon, wash and cement services as part of plugging and abandonment services to seal the well when it reaches the end of its useful life, according to information at the company’s website.
The company said it now actively provides services for well leak repair, perforation, testing, wash and cement, wireline services, production enhancement, and other services consisting of supplying oilfield products, equipment and technical personnel, and providing construction and consultancy services.
In the report, Public Invest Research said that it expects RL to deliver all the purchase orders by April 2023.
“Despite no specific location being mentioned for the delivery of PO, our checks reveal Fabolous Sunview currently having 8 on-going LSS PV plant projects across Malaysia to be completed by 2024. Despite this being a relatively positive development for the Group as it deepens the Group’s foray into the renewable energy (RE) space, we lower our call to Underperform (from Neutral) as we see the current share price having run ahead of its fundamental valuations,” it said.
It noted that Fabulous Sunview is one of the key LSS EPCC contractors in Malaysia.
“Based on our checks, Fabulous Sunview currently has eight ongoing EPCC contracts across Malaysia (Penang, Perak, Kedah, Pahang, Selangor, Labuan & 2 projects in Sabah) to be completed by 2024. Its current portfolio consists of 204MW with an aggregate value of RM751.8 million,” it said. – TMR