Nicolas Van Broekhoven

Insight Provider

Actionable bottom-up long/short Insights on equities

Equity Bottom-Up

Rex International Holding Limited is a production and exploration oil company with concessions in Norway, UAE, Oman, and the US.

<ul>
<li>Last month a new options program was announced, board members have two milestones to meet by 8/4/2024: get the stock over 0.45 SGD (50% vesting) &amp; 0.60 SGD (50% vesting)</li>
<li>Rex's production in Oman has disappointed but AGM commentary makes us believe the worst is now behind us. A recent Straits Times interview confirms 20K BPD remains the LT target.</li>
<li>Rex has instituted a good dividend policy and should now max out its 10% annual buyback authorization before dividends are paid later in FY22; win-win situation for shareholders and board.</li>
</ul>

<ul>
<li>Rex will soon close a disappointing 1H22 as equipment upgrades and maintenance hamper production in Oman. Recently production was halted again due to a small oil leak in its flowline.</li>
<li>Norway's production has been declining in 1H. Rebound hopefully in 2H. New bond financing was announced for more Norwegian M&amp;A. Malaysian assets to get the green light in 2H22.</li>
<li>Rex remains very cheap but needs to deliver on operational milestones to unlock value. YTD share price performance has lagged sector peers substantially.</li>
</ul>

<ul>
<li>Rex reported a disappointing set of results mainly due to continued struggles in Oman. While Oman production was well over 10K bpd in 1H21 it deteriorated every month in 1H22.</li>
<li>Revenue was 99.45M USD (+31%) but we estimate it would have been closer to 149M USD if the Yumna field wouldn't have stopped producing for almost 70 days in 1H22.</li>
<li>YTD stock is -23% and can only reverse if management proves Oman is ready to rebound. Dividend payments will start on a quarterly basis as of October 2022.</li>
</ul>

<a href="https://www.smartkarma.com/entities/rex-international-holding" target="_blank" data-smartkarma-citation="entities:17074:1" rel="noopener">Rex International Holding (REXI SP)</a> has been trading up recently (+61% YTD) on the back of strong oil prices (consistently above 70 USD/bbl) and expectations that its 1H21 report in August will show shareholders the significant cash flow which is being produced from its Oman assets.The deal to buy some of Repsol's Norwegian assets (see previous insight) also increases optionality for Rex's management to create value for shareholders should the SGX listing continue to trade at depressed levels. Rex has successfully completed a 60M USD bond sale to finance the transaction effectively reducing risk for equity holders.Historically, Rex owned around a dozen exploration licenses in Norway but the Repsol transaction means they will now become a producer with corresponding cash flow. Once the transaction closes later this year that creates the option to consider an IPO of its Norwegian assets on the Oslo exchange in 2022/2023. Norwegian investors are very familiar with oil producers/exploration companies and might give Rex's 90% owned subsidiary Lime Petroleum a better valuation. Rex would then hold a stake in the Yumna field (Oman) and a certain percentage in publicly listed Lime Petroleum. The eventual end-game has not changed: given the age of the principle shareholders we believe Rex will see a lot of corporate activity going forward. We are unsure of the timeframe and shape/form this takes (spin off, partial divestments, partial return of capital, one-off dividends, large share buybacks, 100% sale to different owners etc) but the latest Norway news increases the optionality for the better.

<a href="https://www.smartkarma.com/entities/rex-international-holding" target="_blank" data-smartkarma-citation="entities:17074:1" rel="noopener">Rex International Holding (REXI SP)</a> has fallen back from 0.25 SGD last month to below 0.19 SGD recently. This is despite oil prices staying around 70 USD/bbl and Rex reporting fantastic 1H21 results.Rex also announced that after Oman and Norway it is studying to develop some oil fields in Malaysia. Rex is looking to diversify its production base so they are less dependent on one country. Cash is literally gushing in from its Oman assets and will accelerate in 2H21 as its Norwegian purchase of the Brage field will be accounted for in 2H.Rex's stock is up 29% YTD but remains deep value on an absolute basis and relative to peers such as <a href="https://www.smartkarma.com/entities/hibiscus-petroleum-bhd" target="_blank" data-smartkarma-citation="entities:20775:1" rel="noopener">Hibiscus Petroleum (HIBI MK)</a>. We continue to believe Rex will at least double from current levels as at some point the growing cash flows can no longer be ignored by investors. The eventual end-game has not changed: given the age of the principal shareholders, we believe Rex will see a lot of corporate activity going forward. We are unsure of the timeframe and shape/form this takes (spin-off, partial divestments, partial return of capital, one-off dividends, large share buybacks, 100% sale to different owners, etc).

<ul>
<li>
<a href="https://www.smartkarma.com/entities/rex-international-holding" target="_blank" data-smartkarma-citation="entities:17074:1" rel="noopener">Rex International Holding (REXI SP)</a> will report results around 25/2/2022; we expect a major 2H21 performance inflection as the Norwegian Brage field cash flow is included from 01/01/2021.</li>
<li>According to a press release on 13/1/22 the company is actively applying to uplist from Catalist to the mainboard. We see no reason why SGX should not grant this application.</li>
<li>Rex's Oman production has disappointed in 4Q21 but cash flow-wise shortfall should be made up by higher oil prices and Brage. Maiden dividend announcement should be forthcoming.</li>
</ul>

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