Excerpts from UOB KH report

Analyst: Llelleythan Tan

Rex International Holding (REXI SP)
Expect Significant Cash Flow For 2H20 And Multiple Catalysts
Rex has been awarded a DOC in Oman, extending its concession period by 20 years.

Oman is generating cash flow and we expect cash flow of around US$20m for 2H20 and US$40m for 2021.

Rex 

Share price: 
18.8 c

Target: 
30 c

We raise our SOTP-based target price to S$0.30, after increasing our DCF forecast period.

Key catalysts are the release of an updated Qualified Person’s Report, potential dividend policy, and being upgraded into theMainboard.

Rex trades at an 4.5x 2020F net cash flow. Maintain BUY.


WHAT’S NEW
Awarded declaration of commerciality (DOC) in Oman. Following the successful test production of the Yumna 1 well (Yumna), the Ministry of Oil and Gas in Oman has awarded a DOC to Rex and approved the Field Development plan for Yumna Field.

This is significant as Rex can now fully develop Yumna while continuing to explore the rest of Block 50 Oman.

Also, the concession period has been extended by 20 years.

According to a Qualified Person’s Report done by oil services company AkerGeo in 2011, the prospective resources found in Yumna could only represent 0.5% of the total prospective resources in Block 50 Oman.

Yumna production expected to contribute significant cash flow for 2H20. Having already produced more than 1m barrels of oil, Yumna is currently producing over 8,000bbl/day through a one-inch choke.

Rex has also released the drilling rig from Yumna and replaced it with a Mobile Offshore Production Unit (MOPU).

With the MOPU along with an Aframax storage tanker, this new permanent installation helps reduce production costs.

"Rex has already sold its first three cargoes of crude oil in Apr, May and Jun 20 and will continue to do so for 2H20.

"Assuming an all-in production cost of US$25/bbl, we expect Yumna to generate around US$20m cash flow for 2H20. Also, Rex is targeting to drill a second hole in Yumna in early-21 to further increase its production."

-- UOB KH report

Our oil price assumptions are US$35.00/bbl, US$40.00/bbl, US$42.00/bbl for 2020, 2021 and 2022 respectively.

Growing Norwegian portfolio. Rex currently holds interests in 10 licenses in Norway, up by five licenses from 4Q19.

If these prospects are discovered to contain oil, Rex could unlock huge value through divestment or entering oil production.

The Rolvsnes discovery was sold for US$45m while we expect the Shrek discovery to be valued around US$28m (19-38m barrels of oil).

We think there is a chance for Rex to unlock value for its Shrek discovery in the near to medium term.

Looking forward, Rex is set to participate in the drilling of the Appolonia Prospect, the Fat Canyon Well and Orkja Prospect.

Discovery of oil in any of these prospects would unlock more value for Rex.

EARNINGS REVISION/RISK
We have adjusted our revenue and net profit estimates for 2020-22 based on higher production numbers. With oil prices stabilising and gradually recovering from its April-May lows, we have adjusted our revenue and net profit forecasts for 2020-22, as well as our bbl/day assumptions.

Taking a conservative approach, we have not incorporated the divestment of Shrek Prospect in 2020.

Revenue for FY20-22 are forecasted at US$50.8m (from US$97.9m), US$82.7m(US$74.0m) and US$86.9m (US$54.3m) respectively while PATMI is forecasted at US$9.9m (from US$36.3m), US$24.5m (US$7.6m) and US$25.9m (US$1.8) respectively.

The drop in 2020 revenue and net profit forecasts are due to a delay in oil production from our previous assumptions and the extremely low oil price in 1H20.

The large increase in revenue and netprofit forecasts for 2021 and 2022 are due to full-year contributions from Yumna, absence of start-up costs and higher oil price assumptions.


VALUATION/RECOMMENDATION
Maintain BUY with a higher SOTP-based target price of S$0.30, based on 1.0x 2019NAV and revaluation of both the Omani and Norwegian assets.

We have also lowered our RNAV valuation for the Norwegian assets due to our lower oil price/barrel assumptions for the Shrek Discovery of US$5/bbl to US$3.2/bbl.

Llelleythan Tan"Looking forward to 2021 when there is full-year contribution from Yumna, Rex is trading at 6.1x 2021F PE, way below peers’ average P/E mean of 17.7x.

"We reckon this is unjustified, based on its strong net cash position and earnings compared with peers as well as its undervalued assets in Oman and Norway."

-- Llelleythan Tan
Analyst, UOB KH

After Rex was awarded the DOC, we understand that the concession period of Block 50 Oman has been extended by 20 years.

Thus, we have increased our DCF forecast period from 5 to 10 years, resulting in a higher revaluation of Oman.

We have also removed cash from the DOC from our valuation. Rex is currently trading at 14.0x 2020F PE, slightly above peers’ average PE mean of 11.4x.

However, this is largely attributed to a delay in oil production for 2020.

SHARE PRICE CATALYST

• Stronger-than-expected oil production volume from Oman and crude oil prices.
Unlocking value from Norwegian concessions.
Release of an update Qualified Person’s Report for Oman assets.

Full report here.  


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