SINGAPORE (Mar 27): RHB is maintaining its “buy” call on GSS Energy with a target price of 25 cents.

Analyts from the research house came away quite positive on the company’s outlook after visiting GSS’s Batam factory.

In a Tuesday report, analyst Jarick Seet understands the group is planning to shift to a bigger site in 2019 to cope with additional orders.

In addition, Seet also expects it to produce and sell oil by 1H18 which would benefit from the rising trend in oil prices.

Formally set up by the Japanese, GSS Energy unit Giken Sakata's focus and expertise lie in high precision engineering (PE) capabilities, accompanied by high quality standards.

This has helped GSS Energy secure several blue-chip names like Phillip, Panasonic with its high quality standards. It is also the only listed SGX manufacturer to have Lego as a customer.

Management said demand from the group's existing customers is staying strong, with orders growing 10-20% y-o-y.

Meanwhile, the group has also been engaged in ongoing testing with a new customer in the consumer space, and expects to start full-scale production by 1H18, which could help boost the PE division’s topline by up to 20% in FY18.

Since the group is currently already operating at more than 80% utilisation, it has earmarked another bigger site to shift in 2019 to cope with all the additional orders.

Seet says, “We understand that GSS Energy has its own engineering team which focuses on automating some of the labour-intensive processes.”

This would be done by designing and customising some of the machines to better suit its needs, including writing its own software and driving down the total number of workers despite increasing sales orders.

Meanwhile, the group on Dec 13, 2017, discovered hydrocarbons in its Trembul operating area, whereby production of gas is expected to commence in 4Q18.

See: GSS Energy seeks to be valued as O&G play

“The company is re-entering a makeover well and we expect it to start producing 100-200 bbls of oil a day by 1H18 – and to enjoy better margins and profitability if oil prices continue to increase (an ongoing trend for the past few weeks),” says Seet.

The analyst also believes that the group is currently at an inflection point with a positive outlook ahead affirmed by recently implemented dividend policy.

“We think that the current weakness represents a good opportunity to accumulate at lower levels,” adds Seet.

See: GSS Energy to pay out at least 20% dividend for FY18, FY19

See also: A 'significantly undervalued' stock to ride on the tech and oil & gas sectors

As at 10.30am, shares in GSS Energy are trading at 17 cents, or 8.5 times FY18 forecast earnings, with a dividend yield of 1.9%.