Share Price S$0.65
Target Price S$1.60
9M13: Top-line Weighed Down By Lower Average Oil Price And Oil Production
RHP recorded a 9M13 net loss of US$15.2m. Revenue dropped by 4.3% yoy due to the decrease in average oil price for the period and decline in production. Nonetheless, we remain encouraged by near-term events, which will boost shareholders value, ie a) receiving final approval for its oilfield in China and b) successful oil discovery at Klagalo-1 in Indonesia. Maintain BUY. Target price: S$1.60.
• Top-line hampered by decline in production. RHP’s 9M13 revenue of US$57.8m was lower by 4.3% qoq and 4.3% yoy due to the decrease in average oil price for the period and decline in production due to its field’s operational issues and oilfield’s natural production decline. Given that oil prices have been on a short-term downtrend, we believe that RHP’s revenue in 4Q13 would likely remain weak unless it is able to increase production.
• Bottom line hampered by write-offs. RHP’s 9M13 net loss of US$15.2m could have been worse if not for its lower cost of production this quarter. The losses were mainly due to one-off write-offs for three unsuccessful exploration wells drilled in the Basin production sharing contract (PSC) worth US$14m and obsolete inventories worth US$3.8m. Without these one-offs, RHP would have made a stronger profit yoy (US$1m in 3Q13 compared to US$70,000 in 3Q12.
• Hoping for final approval in China. Recall that RHP received an approval from the National Development and Reform Commission (NDRC) for its additional supporting study, which was a new requirement forming part of the overall development (ODP) plan submission. While this is not the final approval, it is a positive step towards obtaining full approval for its ODP, which would likely be given very soon.
• Upside of S$0.20 in the near term. Recall that the Klagalo-1 exploration well onshore Basin PSC was drilled and reached a total depth of 7,077 feet recently. 150 feet of oil columns was discovered during its drilling campaign translating into potential contingent resources of 50m (30m net to RHP based on its 60% stake). Assuming a 50% risking factor and US$8.4/boe, this would translate into a value of S$0.20 per share in addition to our target price as it has not been factored into our valuation model.
• Developments in other PSCs. RHP also disclosed that the geological and geophysical (G&G) works in the West Belida PSC in Indonesia are ongoing, with a re-mapping and further analysis of the Gitar-1 well. In the SK331 PSC in East Malaysia, RHP has completed 12,414 line kilometers of Full Tensor Gradiometry (FTG) survey. The data acquired will facilitate the design and layout of the seismic programme scheduled in 2014.
• Lowering our 2013 forecast marginally. Due to the lower-thanexpected revenue this quarter, we lower our 2013 revenue forecast by 10.3% and net profit forecast by 33.3% while retaining our 2014 and 2015 forecasts.
• Maintain BUY with target price of S$1.60 based on NPV and risking model. 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 and new funds raised from its recent private placement exercise.
• Downside to our target price at S$1.00. Assuming investors attach no value to its near-production asset in China, Fuyu 1, we think the downside for RHP’s share price to our target price is capped at S$1.00.
• In a blue-sky scenario, RHP could be worth S$2.02 in 2014 and S$3.21 in 2015. Based on our alternative valuation method for RHP in 2014 and 2015, by valuing RHP’s assets individually, RHP could be worth S$2.02 in 2014 and S$3.21 in 2015. This is because its share price would likely re-rate if its exploration and development initiatives are successful.
Share Price Catalyst
• Successful discovery of O&G in its exploration assets.
• Final approval obtained for its overall development plan for its oilfield in China, Fuyu 1.
• Higher-than-expected oil prices, resulting in additional revenues for RHP.