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Rex International intends to upgrade listing to Mainboard; KGI raises target price to 40 cents

Khairani Afifi Noordin
Khairani Afifi Noordin10/18/2021 03:51 PM GMT+08  • 3 min read
Rex International intends to upgrade listing to Mainboard; KGI raises target price to  40 cents
Rex’s strong balance sheet, free cash flow generation and access to capital differentiates it from many other E&P companies
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Riding on rising oil prices, which has sent its market cap to above the $300 million threshold, Rex International Holding intends to upgrade its listing from the Catalist to the Mainboard "at the appropriate juncture".

In an announcement earlier this morning on Oct 19, the company said that a Mainboard listing will enhance long-term value for shareholders as the company will now have a larger investor base to reach out to, including institutional investors.

By doing so, it can possibily have greater access to equity and debt markets to fund growth.

A Mainboard listing will also promote its corporate and business development profile and give it more visibility and attract more research coverage.

The company's change in fortunes has already attracted more positive analysts' coverage.

For example, KGI Securities’ analysts Joel Ng and Chen Guangzhi have maintained an “outperform” recommendation for Rex International, raising its base case target price to 40 cents from 33 cents previously on the back of strong oil prices.

On Oct 15, the West Texas Intermediate and Brent crude futures were trading at around US$82 and US$85, which were near their 7-year and 3-year high, respectively.

The analysts say the shortages of natural gas in Europe and Asia continue to boost demand for oil, as supply remains tight. On Oct 14, the US Energy Information Administration (IEA) said the energy crunch is expected to boost oil demand by 500,000 barrels per day.


See: KGI starts LHN at 'outperform', target price of 49 cents

Meanwhile, on the supply side, the EIA said that crude oil output in the US in 2021 is expected to decline more than the previous forecast.

The analysts highlight that Rex’s average realised oil price was US$62 per barrel in 1H2021 - an almost threefold increase from the US$23 per barrel it realised in 1H2020.

Based on US$75 oil price per barrel, KGI forecast Rex’s net cash position to surge to US$217 million by end-FY2022F. This is equivalent to $293 million or 73% of the company’s current market capitalisation, based on 31 cents share price.

In August, Rex was awarded two production sharing contracts (PSCs) for the Rhu-Ara and Diwangsa clusters offshore Malaysia. This is its maiden oil field project in Asia, in partnership with local company Duta Marine.

The PSCs will provide a great opportunity for Rex to expand its oil reserves and diversify its source of cash flows, say the analysts. They add that the Malaysia PSCs have not been factored into KGI’s valuation.

Rex has two oil-producing fields, located offshore Oman and Norway. The latter, an acquisition of the 33.84% interest in Brage Field, is pending regulatory approval and is expected to be completed in 4Q2021.

For more stories about where the money flows, click here for our Capital section

Brage Field will add around 3,400 barrels of oil production per day net to Rex’s subsidiary, Lime Petroleum, the analysts say.

“Rex’s strong balance sheet, free cash flow generation and access to capital differentiates it from many other exploration and production companies.

“Rex is the only game in town (at least on the SGX) for investors looking for direct exposure to the neglected oil and gas sector,” say the analysts.

As at 3.51pm, shares in Rex are trading 1.61% higher at 31.5 cents.

Photo: Bloomberg

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