Rex International - UOB Kay Hian 2022-03-08: 2021 Record-breaking Year, Yet To Be Surpassed By 2022

REX INTERNATIONAL HOLDING LTD (SGX:5WH)

Rex International - 2021 Record-breaking Year, Yet To Be Surpassed By 2022

Rex International returned to profitability as 2021 PATMI reached US$67.2m, vs a US$14m loss in 2020. The ramp up in production, backed by higher oil prices, contributed to the surge in earnings.
Rex International’s completed US$43m acquisition of the Brage field would boost production volumes by around 3,000bbl/day.

We reckon that Rex International is an attractive pure-play on surging oil prices and see potential upside surprise to our forecasts given cautious oil price assumptions.

Rex International (SGX:5WH) reported strong profitability for 2021 as oil liftings increased from seven to 12 in 2021, backed by higher oil prices. 2021 revenue (+239.5% y-o-y) and PATMI (vs US$14.2m loss in 2020) skyrocketed, forming 106.2% and 136.8% of our full-year forecasts. The higher-than-expected PATMI was contributed by a US$20m increase in other income, resulting from US$18.4m fair value gains from Rex International’s Brage field acquisition.
Excluding other income, its PATMI would have formed around 100% of our full-year forecasts. 2021 gross profit and EBITDA margins expanded sharply as 2021 average realised oil price was US$67/bbl compared with US$34/bbl in 2020, against stable y-o-y operating costs.
Maiden dividend declared as balance sheet remains healthy. With strong operating cash flows and a healthy net cash position of US$31.3m, Rex International declared its first maiden dividend of S$0.005/ordinary share pending approval. Management is considering paying an interim dividend in 1H22, depending on Rex International’s financial results for 1H22.
Also, to increase shareholder value via stable yield, Rex International is aiming to set up a regular dividend policy whereby a total annual dividend of S$0.02/share would be paid out quarterly starting 1Q23, subject to Rex International’s profitability and the Board’s discretion.

Starting Jan 22, Rex International’s US$42.6m completed dry, Rex International still owns interests in several discovery assets (PL1125 Falk, PL433 Tyrving, PL838 Shrek) that could be developed further and may move into production in the coming years.

For Jan 22, production from Rex International’s Yumna field amounted to 7,518bbl/day, dragged down Rex International is poised to see strong margin expansion and supernormal earnings for 2022, in our view.

Oil prices face unprecedented volatility as geopolitical tensions in Ukraine and Russia have resulted in Russian banking sanctions and the major risk of US/European import bans on Russian oil. As Russia currently exports 7% of global crude and oil products supply, an embargo on Russian oil could see oil prices reach US$160-200/bbl, according to industry estimates.
Also, a delay in Iranian nuclear talks has helped support oil prices even though the resumption of Iranian oil exports would not help replace the loss of Russian exports.

We have increased our revenue and net profit estimates for 2022-24 based oil production is currently capped at 11,000-12,000bbls/day, and any rise in revenue would mainly be caused by oil price increases and not volume production. Thus, we have incorporated conservative 2022-24 oil price assumptions of US$90/bbl, US$85/bbl and US$80/bbl respectively. Even so, there is still considerable potential upside at current price levels.
Also, Rex International is moving onto SGX’s mainboard as of 8 Mar 22, allowing the company to reach out to more institutional investors moving forward.
See
Catalysts:
- Stronger-than-expected oil production volume from Oman and crude oil prices.
- Unlocking value from Norwegian discovery assets.

Llelleythan Tan UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-03-08

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