Tuesday, November 19, 2013

Rex International : Encouraging progress from Rexonic well stimulation (UOBKH)

Rex International
Share Price S$0.66
Target Price S$1.27
Encouraging progress from Rexonic well stimulation

Results
• No revenue recognised for 3Q13, as Rex had been involved only in exploration and drilling activities with no production activities.

Takeaways from results briefing
• Rexonic signed three new contracts. In the results briefing, we were encouraged by news that Rexonic has signed contracts to provide the eco-friendly Rexonic solution to three MNCs till 2016. The contracts will be fee-based and charged on a daily rate. According to management, they believe Rexonic (the JV) will be profitable in the next FY.


• Results of first exploration well to be known in Dec 13/Jan 14. According to management, spudding of the Oman well will commenced in 20-25 November, and drilling will take about a month.

• Drilling plans in 2014. According to the tentative schedule by management, Rex will be drilling 5-8 offshore wells and 40 onshore wells in 2014.

Our View
• Start of something big. The increased scrutiny on pollution by oil companies is likely to prompt more oil companies to seek eco-friendly well stimulations like Rexonic solution to improve their oil production. This coupled with the higher efficiency claims, Rexonic solution could be a big hit among oil production companies once it gains market acceptance. Based on the 70 global well stimulations done, Rexonic solution has shown to improve oil production by 30-380%. Rexonic solution could provide Rex with a steady income base to its relatively lumpy E&P business.

• Small but encouraging. We believe the three new customers signed are likely oil production companies that were won over by the impressive results of the test well stimulations. While we are not expecting major contributions from the three new contracts, we are encouraged by the progress made as the contracts showed signs of market acceptance. Given that the technological concept behind Rexonic solution has been used in other industries such as the cleaning of optical lenses and jewellery, we believe it may be easier for Rexonic solution to gain acceptance among oil production companies.

• Recent price weakness on poor market sentiment. We believe the recent weakness in stock price was due to poor market sentiment, as Asian markets have become more cautious on tapering fears. As such, high-risk-high-return upstream E&P counters have been hit.

Valuation/Recommendation
• Maintain BUY with a target price of S$1.27.



Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date: 15/11/13

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