KUALA LUMPUR (July 1): PublicInvest Research, in an initial public offering (IPO) note today, has derived a fair value of 47 sen for ACE Market-bound Reservoir Link Energy Bhd.

Reservoir Link, a provider of oil and gas (O&G) well services that supports operators in the upstream segment of the O&G industry, is scheduled to be listed on July 15 at 41 sen per share.

Reservoir Link’s services encompass all stages of a well's life, namely the start-up, production and end-of-life stages, and are demanded by exploration, appraisal, development and production segments of the O&G industry.

PublicInvest Research said in the note that Reservoir Link also supplies oilfield equipment and technical personnel, and provides construction and consultancy services.

Reservoir Link’s footprint includes Mauritania, Vietnam and the UK but Malaysia remains the principal market for its products and services.

“Apart from progressive introduction of new well services, Reservoir Link intends to develop its business capabilities and enhance its ability to provide well testing services.

“We derive a fair value of 47 sen based on an 11 times PE (price-earnings) multiple to its FY21F EPS (financial year 2021 forecast earnings per share) of 4.3 sen,” it said.

The research house noted that the IPO is expected to raise approximately RM23.4 million from the issuance of 57.1 million new shares.

It said in addition to utilising 42.7% of the IPO proceeds for the purchase of well testing equipment, 21% of the proceeds are allocated as working capital earmarked for future growth.

According to the research house, Reservoir Link’s competitive strengths include: having specialty in provision of well services; having an established track record in provision of well services; being a Petroliam Nasional Bhd (Petronas)-licensed company to participate in the Malaysian O&G industry; service coverage of all stages of an O&G well's life cycle; and having an experienced management team.

It also highlighted key risks to Reservoir Link, including: a competitive industry; existing contracts do not provide assurance of future revenue; changes in Petronas or other production sharing contract (PSC) operators' capital investment or operating expenditure; dependency on two major customers; dependency on three major suppliers; and foreign exchange rate fluctuation.