UOB Kay Hian has maintained its " sell" call on oil producer Rex International Holdings but citing heavier losses last year and expectations of lower production this current FY2024, has trimmed its target price from 10 cents to 8 cents.

 

For FY2023, the company reported a loss of US$64 million, from just US$1 million worth of red ink in the prior FY2022.

 

Rex attributes the weaker numbers to a combination of higher-than-expected depletion, impairment of its oil and gas assets, plus heavier interest burden.

 

The company' s ebitda, meanwhile, increased by 31.6% y-o-y to US$54.6 million.

 

In their March 12 note, UOB Kay Hian analysts Llelleythan Tan, John Cheong and Adrian Loh want the company to improve its disclosures as well.

 

" Whilst a commendable practice to issue monthly production numbers, we highlight that Rex did not disclose its total oil production for 2023 nor its realised oil price which is common practice with oil & gas companies globally during their annual and interim results. 

 

" Although the company has two oil fields in Norway (Brage and Yme), it has chosen to disclose only an aggregate Norway production number from 4QFY23. 

 

In addition, we were surprised that Rex did not host a 2023 results briefing which may lead to some investor questions regarding its governance standards," the analysts state.

 

While noting that Rex remains " an adventurous" explorer, they flag the need to raise funds for capex if the company is to push ahead to commercial production.

 

For FY2024, they' ve cut their earnings estimates by 56% to US$3 million as they see a US$6 per barrel drop in oil prices to US$85.

 

Of greater impact is their lowered assumption that the Yumna Field will produce just 2,000 barrels in FY2024, down from an earlier projection of 5,000 barrels previously.

 

Their reduced target price of 8 cents is pegged at 1x P/B. 

 

The analysts note that Rex International has experienced a material yoy decline in its FY2023 shareholders' equity after undertaking a US$168 million capital reduction exercise last year, slashing the book value to just 8.1 cents per share.

 

" Without decent visibility on the company' s oil production nor its realised oil price, we have elected to use a book value methodology instead of a discounted cash flow or earnings multiple," state Tan, Cheong and Loh.

 

Separately, in its monthly update, Rex International says on March 12 that production for February was 10,905 barrels or equivalent per day, versus 11,900 for January.