Brokers’ take: UOBKH initiates coverage on RH PetroGas with ‘buy’

UOB Kay Hian (UOBKH) initiated coverage on RH PetroGas (RHP) on Thursday (Apr 6) with a “buy” call, noting the growth of the company’s oil and gas reserves from 2017 to 2022 without any acquisitions, and its plans to drill three wells this year.

The brokerage set a target price of S$0.255, which implies an upside of 27.5 per cent from the last traded price of S$0.20 as at 3.20pm.

Analyst Adrian Loh said the company is currently trading at a discount to its regional peers respectively. 

He noted shares of RHP were trading 6.1 times above the brokerage’s FY2023 earnings estimates. RHP’s enterprise value is also 2.3 times its earnings before interest, taxes, depreciation, and amortisation.

Between 2017 and 2022, RHP sold a high-cost oil production asset in China and an exploration asset in Malaysia, and now operates two mature oil fields in Indonesia. 

Since then, the company has seen a slow but steady growth in oil and gas production numbers to 4,820 barrels of oil equivalent per day (boepd) in 2022, from 3,910 boepd in 2017, representing a five-year compound annual growth rate (CAGR) of 4.3 per cent.

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Assuming oil prices continue to stay above the US$60 per barrel level, Loh expects the oil and gas company to grow at a CAGR of 2.5 per cent from 2022 to 2025, as he thinks the company’s assets are “relatively mature and benefit from capital investment for enhanced oil recovery projects”.

Loh also noted that RHP’s proved oil and gas reserves have grown by a 6.3 per cent CAGR between 2018 and 2022, to 28.6 million barrels of oil as at Jan 1, 2023.

In the same time period, the company’s probable oil and gas reserves grew at a 63.8 per cent CAGR to 21.6 billion cubic feet, implying a reserves-to-production ratio of over 18 years.

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Furthermore, RHP’s balance sheet was strengthened in 2021 when major shareholders converted their interest-free shareholder loans, which amounted to US$15.5 million, into equity in the company at a price of S$0.172 per share. As at end 2022, the company had no debt and US$57 million in cash.

RHP’s plans to drill three wells within its Indonesian assets this year are expected to generate potentially positive newsflow, said Loh. 

This includes one exploration well and one development well in the Kepala Burung production sharing contract (PSC), and another exploration well in the Salawati PSC.

Shares of RHP were trading S$0.001 or up 0.5 per cent at S$0.2 on Thursday as at 3.38 pm.