Towards Financial Freedom
RH Petrogas - O&G Assets Deeply Undervalued
The stock of Singapore-based O&G exploration & production (E&P) firm RHP is deeply undervalued - at 37% and 55% discounts to its producing and development assets and our risked NPV respectively, with potential upside from: i) proving of its resources, ii) M&A, iii) contracts extension, iv) entry into Myanmar, and v) higher oil prices. RHP is now priced at takeover levels. Initiate coverage with BUY, SGD1.47 TP.
- RHP should trade at SGD1.05 on today's assets. An alternative valuation is via SOP of its 2P (both proven and probable) reserves and 2C resources (best estimates of contingent resources). For RHP, we value these at SGD1.05 per share, assigning zero value to its exploration assets. This implies EV/(2P+2C) of USD7.1/boe, less than the global average of USD7.9/barrel of oil equivalent (boe).
- Resource base similar to KrisEnergy's. RHP and KrisEnergy (KRIS SP, NR) have 73 million barrels of oil equivalent (mmboe) and 76mmboe respectively of combined 2P reserves + 2C resources. The enterprise value of the two should converge even though KrisEnergy's current EV/(2P+2C) is 2.6x that of RHP.
-Non-traditional valuation metrics. As the key valuation metric for an E&P company is the NPV of its oilfields, an acceptable alternative is a valuation of its 2P reserves and 2C resources. Thus P/E, P/BV and ROE measures tend to underestimate the true value of an E&P company.
- Drilling results will be key catalysts. The movement of prospective resources to 2C resources, then to 2P reserves will drive valuations. A takeover bid may also present a sharp revaluation catalyst.
- Potential entry into Myanmar. RHP recently walked away from a farm-in option for an oilfield in Myanmar. Clearly, it has connections and potential opportunities in this country. We believe that future Burmese oilfield production sharing contracts (PSCs) could materialise and provide further upside to our estimates.
- Under-researched E&P play. Initiate with BUY, SGD1.47 TP. Our TP is based on parity to our NPV-and-risking model. Adjusted for a potential 20% new share placement to raise USD60m, RHP would still be worth SGD1.32 per share.
Source: RHB
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
