Brokers' take: KGI raises Rex International target price to S$0.54 on higher oil prices

OIL and gas company Rex International 5WH : 5WH 0% is set to benefit from rising oil prices as well as its strong balance sheet, said KGI Securities.

In a report on Friday (Mar 11), analyst Joel Ng raised his target price on the counter to S$0.54 from S$0.40, and maintained his "outperform" call, after raising forecasts for oil prices.

Shares of Rex were trading at S$0.37 at 10.25 am on Friday, down S$0.02 or 5.1 per cent.

The brokerage had raised its oil price forecasts to US$90 per barrel from US$75, amid recent price rallies due to supply disruptions and the Ukraine conflict.

Ng said while market estimates for oil prices are ranging from US$120 to US$150, a more sustainable and healthy oil price should be between US$90 and US$110 per barrel to avoid demand destruction.

Rex's FY2021 profit after tax of US$78.9 million was a "significant turnaround" from the US$15.2 million loss it reported in FY2020, driven by a higher average realised oil price of US$67 per barrel, from US$34 a year earlier.

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From FY2022 onwards, the company will also recognise revenue and profits from the oil-producing Brage Field in Norway, the acquisition of which was completed at the end of 2021.

As for its increased cash flow, it provides it "a sizeable war chest" to fund growth and diversification plans, Ng said. He expects Rex's production sharing contracts in offshore Malaysia to also provide a great opportunity to expand its oil reserves and diversify its source of cash flows.

The analyst said Rex's strong balance sheet, free cash flow generation and access to capital differentiates it from other exploration and production companies.

In addition, Ng expects Rex's transfer to the mainboard of the Singapore Exchange to help the company reach a wider investor base and facilitate greater access to equity and debt markets.

READ MORE:

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