R e g i o n a l
M o r n i n g
N o t e s
Wednesday, 21 May 2014
COMPANY UPDATE
BUY (Maintained)
RH Petrogas (RHP SP) Investment Thesis Of Deep Value Reaffirmed RH Petrogas’s management announced yesterday that its controlling shareholders have been approached by an investor regarding a potential takeover offer. No offer has been made and investors who are not keen to take on more risks could consider taking some profit. That said, we maintain our BUY recommendation as we see deep value in the stock based on our valuation. Target price: S$1.35. WHAT’S NEW Takeover offer in the making? Yesterday, RH Petrogas (RHP) announced on SGX that the company’s shareholders have been approached by an investor regarding a potential takeover offer although no formal offer has been made yet. We are glad that the rally reaffirms our investment thesis that there is deep value in the stock as its assets offer much upside, especially its oilfield in China, Fuyu 1. We see significant value in its asset in China, Fuyu 1. We believe that RHP’s share price could further re-rate significantly if the overall development plan (ODP) for Fuyu-1, China is approved. Management will immediately convert about 7mmboe of 2C resources to 2P reserves in the first phase of its ODP. We currently value the oilfield at S$467.9m/S$0.64 a share based on our DCF valuation. This forms 40.8% of our projected equity value for its concessions.
Share Price Target Price Upside (Previous TP
COMPANY DESCRIPTION RH Petrogas is an upstream oil & gas company that has exploration, development and production assets
STOCK DATA GICS sector Bloomberg ticker: Shares issued (m): Market cap (SGDm): Market cap (US$m): 3-mth avg daily t'over (US$m):
52-week high/low
1mth
Stock has done very well over the last one month. RHP’s shares have rallied by 29.5% over the last one month, backed by strong volumes. Investors who have high risk appetites should hold on to the stock as the stock could potentially re-rate to S$1.00 if we were to value only its 2P reserves and 2C resources (investors generally discount prospective resources as the lead time to convert them into 2P reserves could be fairly long).
29.5
Base value of at least S$0.71. Assuming investors attach no value to its near-production asset in China, Fuyu 1, given that there is no approval for its ODP yet, we think that RHP’s shares should be worth at least S$0.71 per share.
2012 86 29 18 6 10 1.9 36.1 2.0 18.2 0.0 7.1 7.6 13.2 4.2 -
2013 86 28 17 (66) 11 1.7 39.6 2.5 18.8 0.0 (76.3) (3.0) 8.5 (36.8) -
2014F 126 36 21 6 6 0.8 81.8 2.7 14.7 0.0 4.9 17.4 9.4 3.4 7 0.90
2015F 176 59 42 13 13 1.7 39.3 2.5 9.0 0.0 7.2 32.7 11.1 6.7 14 0.89
2016F 219 76 59 18 18 2.5 27.5 2.3 7.0 n.a. 8.3 47.0 11.1 8.8 18 1.01
734.3 627.8 501.3 2.7
SGD0.920/SGD0.470
3mth
6mth
1yr
YTD
44.9
59.8
72.7
41.3
Major Shareholders
%
Woodsville International
28.9
Sharptone Investments
18.1
RH Capital
15.0
FY14 NAV/Share (USD)
0.25
FY14 Net Debt/Share (USD)
0.04
PRICE CHART (lcy)
Year to 31 Dec (US$m) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (US$ cent) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
Energy RHP SP
Price Performance (%)
STOCK IMPACT
KEY FINANCIALS
S$0.855 S$1.35 +57.3% S$1.40)
RH PETROGAS LTD
RH PETROGAS LTD/FSSTI INDEX
(%)
1.10
220
1.00
200
0.90
180
0.80
160
0.70
140
0.60
120
0.50
100
0.40
80
40 30
Volume (m)
20 10 0
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Source: Bloomberg
ANALYST Danny Chan Tzu Zhung +603 2147 1986
[email protected]
Source: RH Petrogas, Bloomberg, UOB Kay Hian n.m. : not meaningful; negative P/E, EV/EBITDA reflected as "n.m."
Refer to last page for important disclosures.
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Pre-development preparations in China have commenced. As its ODP has not been approved, management is continuing to work hard to lobby for an approval with the National Development and Reform Commission (NDRC). Note that the NDRC has never rejected any ODPs historically so it is a matter of time before it gets approved. While the final approval has not been approved, management has already commenced predevelopment preparations including the procurement of items with long lead items.
Wednesday, 21 May 2014
VALUATION OF RH PETROGAS Value (S$m) Production/Near-production Basin PSC, Indonesia Island PSC, Indonesia Fuyu-1 Shallow Oil Sub-total
198.4 38.9 467.9 705.2
Business as usual even if takeover fails. In the event that the takeover offer fails, RHP still offers deep value via its existing assets and perhaps, new assets. We gathered that management may be looking to acquire additional production assets this year (one in 1H14 and one in 2H14. The acquisition, coupled with other production wells put in place, would enhance its cashflow generating capabilities. While not many details were shared due to confidentiality issues, we understand that management is looking in the Southeast Asia region and is close to securing a concession very soon.
Development/Pre-Development Basin PSC, Indonesia - North Klalin Basin PSC, Indonesia - SE Walio Island PSC, Indonesia - TBC Island PSC, Indonesia - Koi Island PSC, Indonesia - North Sele Sub-total
49.9 12.3 34.1 19.5 27.8 143.6
New production asset to enhance cash flow generating capabilities. The acquisition of the new asset would remove our concerns on its cash flows if the Indonesian government does not renew its concessions in Basin and Island PSC (both are expiring in 2020). For now, our financial model projects negative free cash flow (FCF) in 2014-16 as the company continues to explore for oil & gas in its concessions.
Exploration Basin PSC, Indonesia Island PSC, Indonesia Fuyu-1 Deep Gas West Belida PSC, Indonesia SK331 PSC, Malaysia Sub-total
85.1 105.0 10.1 1.5 33.8 303.1
EARNINGS REVISION/RISK No changes are made to our forward earnings estimate. Key risks include: a) exploration risk, b) development risk, c) production risk, d) oil price risk, e) regulatory risk and f) acquisition risk. VALUATION/RECOMMENDATION Maintain BUY with target price of S$1.35 based on NPV and risking model. We lower our target price to S$1.35 from S$1.40 as we update our NPV and risking model to incorporate RHP’s latest reserve and resource estimates coupled with its planned capital expenditure. Our valuation is based on the NPV of the company’s current production/near-production fields, plus risked estimates of its 2C resources and prospective resources, less net debt adjusted for its committed capex. We still see more value. As there is nothing concrete on the table currently, we advocate investors who are not keen to take on more risks to take profit at this level as the stock has done very well, returning 29.5% over the last one month. While we are excited with the deep value the stock offers, the stock may de-rate if it is unable to secure the ODP for its oilfield in China. Hence the stock may trade back towards S$0.60-0.70 if the takeover offer is off the table, in our view.
Total Value (S$m) Net Debt (S$m) Minus Committed Capex (S$m) Total Equity Value (S$m) Existing Shares Outstanding (m) NAV per Share (S$) Source: UOB Kay Hian
1,084.3 (39.8) (50.6) 993.8 734.3 1.35
2014 WORK PROGRAMME – CAPEX ESTIMATED AT US$41M
Source: RH Petrogas (24 April 2014 Presentation Slides)
SHARE PRICE CATALYST Successful discovery of O&G in its exploration assets, as evidenced by the successful discovery at Koi-2 appraisal well. Final approval obtained for its ODP for its oilfield in China, Fuyu 1, which would result in a re-rating of S$0.64 per share based on our DCF calculation. Higher-than-expected oil prices, resulting in additional revenues for RHP.
Refer to last page for important disclosures.
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BALANCE SHEET
PROFIT & LOSS Year to 31 Dec (US$m)
2013
2014F
2015F
2016F
Year to 31 Dec (US$m)
Net turnover
86
126
176
219
EBITDA
28
36
59
76
Other LT assets
Deprec. & amort.
11
15
18
17
Cash/ST investment
EBIT
17
21
42
59
Other current assets
0
0
0
0
Total other non-operating income Associate contributions Net interest income/(expense) Pre-tax profit Tax Minorities Preferred dividends Net profit Net profit (adj.)
Operating
Fixed assets
Total assets
2013
2014F
2015F
2016F
75
140
170
201
171
171
171
171
52
45
43
37
36
38
54
67
334
394
438
475
0
0
0
0
ST debt
14
44
74
104
(3)
(4)
(5)
(7)
Other current liabilities
67
71
99
122
(63)
17
36
52
LT debt
34
34
34
34
(3)
(11)
(24)
(34)
0
0
0
0
0
0
0
0
(66)
6
13
18
11
6
13
18
2013
2014F
2015F
2016F
CASH FLOW Year to 31 Dec (US$m)
Wednesday, 21 May 2014
Other LT liabilities Shareholders' equity Minority interest Total liabilities & equity
44
62
35
1
177
183
196
214
0
0
0
0
335
394
438
475
2013
2014F
2015F
2016F
KEY METRICS Year to 31 Dec (%)
12
34
36
31
Profitability
(63)
17
36
52
EBITDA margin
32.7
28.9
33.7
34.7
Tax
(5)
(11)
(24)
(34)
Pre-tax margin
(72.8)
13.9
20.6
23.7
Deprec. & amort.
11
15
18
17
Net margin
(76.3)
4.9
7.2
8.3
0
0
0
0
ROA
(20.1)
1.7
3.1
4.0
(14)
21
21
18
ROE
(36.8)
3.4
6.7
8.8
0
0
0
0
84
(9)
(15)
(22)
Growth
Investing
(50)
(48)
(48)
(48)
Turnover
0.0
45.3
40.3
24.4
Capex (growth)
(48)
(48)
(48)
(48)
EBITDA
(3.3)
28.3
63.3
28.2
Capex (maintenance)
0
0
0
0
Pre-tax profit
Investments
0
0
0
0
Net profit
Proceeds from sale of assets
0
0
0
0
Others
(2)
0
0
0
Financing
63
20
20
20
0
0
0
0
Leverage
Issue of shares
58
0
0
0
Debt to total capital
Proceeds from borrowings
11
20
20
20
Loan repayment
(6)
0
0
0
Others/interest paid
(1)
0
0
0
Interest cover (x)
Net cash inflow (outflow)
25
6
8
3
Beginning cash & cash equivalent
25
50
45
43
3
(10)
(10)
(10)
52
45
43
37
Pre-tax profit
Associates Working capital changes Non-cash items Other operating cashflows
Dividend payments
Changes due to forex impact Ending cash & cash equivalent
Refer to last page for important disclosures.
(488.3)
n.a.
108.1
42.9
(1,179.5)
n.a.
108.1
42.9
Net profit (adj.)
12.6
(44.7)
108.1
42.9
EPS
(8.9)
(51.6)
108.1
42.9
21.0
29.6
35.4
39.0
Debt to equity
26.6
42.1
54.7
64.1
Net debt/(cash) to equity
(3.0)
17.4
32.7
47.0
8.5
9.4
11.1
11.1
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R e g i o n a l
M o r n i n g
N o t e s
Wednesday, 21 May 2014
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M o r n i n g
N o t e s
Wednesday, 21 May 2014
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