Background: R H Energy is one of the leading integrated specialist technical services providers to the oil, gas and petrochemical industries in China. Its production and manufacturing facilities are strategically located in Langfang, Hebei Province, close to its three major customers, PetroChina, CNOOC and Sinopec.
Recent development: The group recently announced that it has won the largest pipeline inspection services contract by PetroChina, which has an expected revenue of RMB42.67m over a two‐year period. Under the contract due to be completed by 3Q13, R H Energy will provide engineering inspection services to the natural gas pipeline project in south China.
Key ratios…
Price‐to‐earnings: 4.8x
Price‐to‐NTA: 0.86x
Dividend per share / yield: S$0.025 / 18.0%
Net cash/(debt) per share: (US$0.011)
Net gearing: 8.5%
Share price S$0.139
Issued shares (m) 284.93
Market cap (S$m) 39.61
Free float (%) 40.5
Recent fundraising activities July 2007: IPO comprising 72.0m new shares @ $0.32 per share
Financial YE 31 December
Major shareholders Petchem Holdings (59.0%); Jin Weihua (3.6%)
YTD change ‐12.4%
52‐wk price range S$0.129‐0.184
Our view
Moving upstream in the value chain. Earlier in July this year, the group also obtained shareholders’ approval at the EGM to diversify its business to include the exploration, development and production of oil and gas resources. Separately, it will dispose of its two subsidiaries, namely, Hunan Baili and Wuhan Petrochemical. According to management, the strategic move is complementary to its existing service offering in the oil and gas industry.
Improved working capital position. The asset sale is expected to be completed by the end of 3Q11. With the receipt of net proceeds of about US$28.8m, management believes this will provide the necessary cash flow to fuel further growth of its existing business, which has an outstanding orderbook of US$33.5m.
Completion of new acquisition. In the meantime, the acquisition of Zoneda Energy is still on track to be completed in 3Q11. Zoneda is in the process of applying for the relevant permits to conduct feasibility work on the oil properties in Alberta, Canada. In view of China’s credit tightening policy, the cash proceeds will help to fund its initial capital requirements to develop the newly‐acquired oil properties.
Trading below book value. There is currently no analyst coverage on this stock but we note that it is trading at 0.86x NAV of US$0.123 (or S$0.16) as at end‐June 2011. The group has declared a tax‐exempt one‐tier special dividend of 2.5 Singapore cents for its 1H11 results.
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