JBWere's View:CY11 slightly below our expectations; Zhao Dong...

JBWere's View:


CY11 slightly below our expectations; Zhao Dong reserves boosted
What surprised us
Roc Oil reported underlying NPAT of US$13.7 mn, which was slightly
below our expectation of US$14.8 mn driven by higher tax than we had
forecast. Key item in the result was an add-back of prior year Zhao Dong
impairments.
Zhao Dong 2P reserves increased by 1.4 mmboe to 5.9 mmboe, after
supplementary drilling improved ultimate recovery factor estimates
(however Roc’s overall 2P reserves reduced by 1.1 mmboe to 15.1 mmboe
primarily due to production).
The Beibu Gulf project received environmental approvals from the Chinese
Government which will allow offshore development activities to
commence (Roc is awaiting final National Development and Reform
Commission approval).
What to do with the stock
We maintain our Neutral rating on Roc. Roc has the strongest leverage to
oil prices in our small cap energy coverage (almost all of Roc’s revenues
were derived from oil in 2011). However, the oil price has been one key
driver of Roc’s share price in recent weeks, and oil is currently trading
above our annual estimate of US$120/bbl. The stock is currently trading at
a 25% discount to our DCF valuation, which places it centrally among our
comparable small cap coverage – with AWE and TAP trading at a 13% and
29% discount to DCF respectively.
We increase our 12-month SOTP-based price target by 8% to A$0.41
primarily reflecting updated reserve estimates. We have reduced our EPS
estimates for CY12-13 by 5%-9% following a review of our production cost
and D&A forecasts. Our CY14 EPS estimate is US7.8cps, based on our
normalized Brent oil price of US$85/bbl.
Upside Risks: Oil price, production updates, Beibu Gulf progress,
Malaysian project progress. Downside Risks: Oil price, exploration