UOB Kay Hian (UOBKH) analyst Adrian Loh has maintained his “buy” call on RH Petrogas T13 while lowering his target price from 24.2 cents to 23.1 cents despite the group’s strong 1HFY2024 ended June results.
In his Aug 21 note, Loh notes that the group’s profits after tax and minority interest (patmi) reported a three-fold increase to US$7.3 million ($9.15 million), which is in line with the analyst’s expectations.
This comes on the back of increasing oil prices as well as a “steady” y-o-y oil production at 4,970 barrels of oil equivalent (boe) per day, meeting the analyst’s estimates.
“At the company’s results briefing yesterday, management stated that it remains on track to drill one well in 4QFY2024, with a potential target of around 2 million barrels (mmbbl) of recoverable oil reserves,” says Loh.
The well, in the Arar Block of the northern part of the Basin PSC, could add around 7% to its 2 probable reserves of 30.1 millions of barrels of oil equivalent (mmboe), as per the analyst’s estimates.
Additionally, the analyst highlight’s the group’s “pleasing decline” in costs, with RH Petrogas seeing a 17% y-o-y drop to US$31.40 per barrel (bbl) which is significantly below its full-year guidance of US$33 - US$35/bbl.
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Following the group’s good cost control, the analyst has increased his earnings estimates for 2024 - 2026 by 1% to 3%.
He adds: “The company has indicated that 2HFY2024 costs will increase slightly and should end the year averaging US$33/bbl, or a 12% decline from the US$37.10/bbl seen in 2023.”
This comes alongside a 61% decline in depreciation, depletion and amortisation, resulting in a 62% increase in ebitda for the group which stood at US$9.3 million.
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“We also highlight that management will be optimising its workforce from the Island Production Sharing Contract (PSC) to the Basin PSC, thus potentially increasing its level of cost savings over the next 2-3 years,” writes Loh.
The analyst adds that following the group’s success of the Piarawi-1 exploration well, testing is currently ongoing with the well expected to commence production in the latter part of 2HFY2024.
This could increase the Island PSC’s production by 25% or around 200 barrels per day (bpd), which would lead to a 5% increase to the analyst’s 2025 forecast net profit.
“Given Piarawi’s proximity to oil production infrastructure, management disclosed that a modest 2.7km pipeline will need to be constructed with total capital expenditure estimated at US$0.5 million, which is inexpensive in our view,” concludes Loh.
The analyst has since rolled over his valuation year to 2025, resulting in his lowered target price.
Presently, RH Petrogas does not have any external debt or shareholder loans, and cash and bank balances of nearly US$46 million, as at 1HFY2024.
On an ex-cash price-to-earnings (PE) basis, RH Petrogas trades at a 2025 P/E of 4.8 times, which is “undemanding” in the analyst’s view.
Share price catalysts identified by the analyst include results from the one well to be drilled in 4QFY2024 in the Basin PSC, announcement of the commencement of production from the new Piarawi well and higher oil prices.
Shares in RH Petrogas closed at 0.2 cents higher or 1.42% up at 14.3 cents on Aug 21.
