From Company's Prospectus
1. Business Operation
Independent oil and gas exploration
and production (E&P) company with a set of proprietary exploration
technologies (“Rex Technologies”). Scheduled to be listed on the Catalist, Rex is a small cap
independent oil and gas E&P company with a set of proprietary exploration
technologies - Rex Technologies. This is the 2nd E&P company listed on the
SGX after the recent stellar performance of Mainboard's KrisEnergy.
Rex Technologies
From Company's Prospectus
Developed by the founders. Rex Technologies were developed by the founders of Rex
Partners Ltd, Dr Karl Ligren and Mr Hans Lidgen, It comprises 3 key proprietary
and innovative exploration technologies: Rex Gravity, Rex Seepage and Rex
Virtual Drilling.
From Company's Prospectus
REX claims its high success ratio compared to the peers. According to the prospectus, Rex
Technologies were 100% accurate in its predictions based on the 18 external
tests conducted over the last 24 months. The worldwide success ratios in
exploration drilling using Rex Technologies is estimated to be in excess of
50%, and Rex's Directors are of the opinion that this is much higher than the
estimated average world wide and industry-wide success ratio of 10% to 15%. NOTE: Theoretically, this sound wonderful
and exciting. However, I have my doubt see 5. Investment Risk.
New Start up firm
with first production expected in 4Q13. Rex is a relatively young start up, incorporated only in
11 Jan 2013. Rex
recently commenced a 80-well onshore drilling in the United States (7May13) and
plans to drill two offshore wells in its Oman concession in late 2013 as well
as the first well in each of its other two offshore concessions in the Middle
East in 2014.
From Company's Prospectus
Geographically diversified
concessions at more stable regulatory regimes than KrisEnergy. Rex has a diversified geographic concession
in Middle East ,
Norway and USA
From Company's Prospectus
The table
below provides a detailed breakdown on its concession:
From Company's Prospectus
2. Use of Proceeds
From Company's Prospectus
Note: Most of the proceed
(S$36m) will be funded to its drilling expenses. It basically means
that you are betting on the company's ability to achieve high success rate in
its drilling.
3. Financial Highlights
Offering price of
S$0.50 represents 229.2% premium above the Net Tangible Asset (NTA). At an offering price of S$0.50,
investor are paying 229.2% premium above its NTA. Thus the huge premium is
equivalent to the growth potential you are paying for the company.
From Company's Prospectus
Offering price is 20%
higher to pre-IPO investor. From table below, the offering price is 20% higher to the
pre-IPO investors. I think this is fair given that they are taking more risk.
From Company's Prospectus
Don't expect dividend anytime soon.
Do note that Rex
is a new start up and investor should not expect any dividend within the foreseeable
future unless their production start stabilizing.
Financial Statements is similar to
a new start-up company. Nothing unusual on its financial statement. Pretty common for a new
start-up company.
From Company's Prospectus - Income Statement
From Company's Prospectus - Balance Sheet
From Company's Prospectus - Cash Flow
4. Investment Highlights
Pure growth play. Like I mention above, Rex is a pure
growth play. Unlike KrisEnergy which already has existing producing fields, Rex
only starts its first concession in May 2013. Thus basically you are betting on
the company ability to deliver on all its promises. This is really a case of
high risk, higher reward.
Geographic
diversified concession with stable regulatory regime. This is definitely one of the
highlight investing in this company. It has a geographic diversified
portfolio and they are all in stable regulatory regime. Thus you can be sure that
the company is not dealing with some dodgy 3rd world countries (the likes of some
Africa and Latam countries) whereby you are
exposed to high political risk.
Ability to enter into
partnership deals. Rex prides that they are able to
get into strong partnerships with strategic partners. Well, to a certain
extent, this is definitely a strength, given that being a new company, more
established guys are willing to believe in them to form a partnership deals.
Nevertheless, I don't think it is anything to shout about as they are not the
major oil & gas players (e.g. Exxon, Shell & etc).
From Company's Prospectus
5. Investment Risk
Rex Technologies
might be over-hyped. So
according to the Prospectus, it mentioned that Rex Technologies has a
higher-than-average success ratio and it delivered 100% accurate predictions
based on 18 external tests conducted over the last 24 months. Well unless you
believe that 18 is a big sample size, this type of so-called tests is always
subjected to statistical basis. So, unless they are able to give me a HUGE
sample size, I would not buy the number easily.
Why do an IPO if
their technology is so good and accurate? Again, this baffle me. If Rex is such a good growth
story, why IPO the company to raise equity. Recall your Finance 101, equity is
ALWAYS an expensive cost of capital. If the success ratio is so high, they
could easily project its cash flow and go to the bank to borrow debt. Debt is
cheaper and it will provide them with leverage too. By doing so and getting the
production online and stabilize, I believe they can get an even higher IPO
valuation!!
If I can think of that, why can't they. It makes me wonder
if it is because the banks don't buy their story that's why they come out to
issue equity.
Note: I need to disclaim a bit on this argument. It might sound a bit too
extreme, but at guaranteedrisk.blogspot.sg, I will do this. I think it is my
duty to point out all the risk factors. As per Murphy's law, anything that can
go wrong will go wrong.
Management lacks the
track record compared to KrisEnergy. With all due respect, I think the management are all great
and capable guys. It's not easy to IPO a company, I'm not even sure if I can even do that. But unlike the KrisEnergy guys, the Rex's management lacks the track
record. You should know I'm a firm believer
of good management. Thus, I will need to monitor and access them myself as
the time goes on to conclude on this.
6. Technical Analysis
On the
back of the stellar performance of KrisEnergy, I would say the bid for oil
& gas E&P guys might be good.
Nevertheless, the stabilizing manager this time round is not CLSA but UOB Kay Hian. Thus I think the technical bid for this company will only at most be fair.
7. Conclusion
The recent IPO action has been
doing pretty well and flippers should be in the money. (with the exception of OUE H-Trust which I was never a big fan for
flipping it, see my article below)
Thus, investors will ask if they should do a flip on Rex?
Personally, I will be staying away from it this time round.
My strategy is take a break and see how bullish & strong the IPO market
really is.
Nevertheless on a fundamental perspective, Rex represents a
high risk and higher return stock. If you believe the company can deliver on
their production level, go in and GRAB it. If not, it is safer to stay away
from such a risky investment.
Personally, at offer price of S$0.50, I will not be overly
excited. However, if it eventually drop to around the pre-IPO investors' level
of S$0.40, I might then go in
to add some. I'm targeting the S$0.40 level, as I believe this is the
"correct level" where the smart money (the pre-IPO guys) values the company.
Thus, just follow the smart money =)
8. Timetable
From Company's Prospectus
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