20220413-招银国际-联合能源集团-00467.HK-Acceleration_of_volume_growth_+_Higher_price_in_2022E_6页_936kb

UEG (467 HK) Company Update Summary

Core Content

UEG (United Energy Group) is a fast-growing medium-sized international oil and gas company, with a focus on production and pricing trends in key markets. The report highlights the company's expected performance in 2022E-24E, emphasizing the growth in production and realized prices, which are expected to significantly improve profitability and dividend yields.

Main Points

• Production Growth:
  UEG is expected to accelerate oil & gas production growth from 5% to 13% in 2022E-24E, driven by strong output in Iraq's Block 9.

  • Iraq Block 9: Achieved a 63% YoY growth in working interest production in FY21, reaching 9.6mm boe.
  • Pakistan and Egypt: Production growth slowed, but UEG managed to maintain stable cash flow from these mature fields.

• Price Growth:
  Realized oil and gas prices are expected to increase by 28% YoY in 2022E and 4% YoY in 2023E, due to a regional mix change.

  • Modelled Brent Crude price assumption: US$90/barrel in 2022E-24E.
  • Realized price estimate: US$61/boe in FY22E, US$64/boe in FY23E.

• Profitability and Margins:

  • FY21 net income surged 132% YoY to HK$2bn, with revenue growth of 20% YoY to HK$7.4bn.
  • Gross margin improved by 12.3ppt YoY to 45.1%, driven by higher realized prices and lower operating expenses.
  • Operating expenses dropped 3% YoY to US$4.35/boe.

• Dividend and Cash Flow:

  • UEG announced a special dividend of HK$0.04/share in FY21, with a payout ratio of 52.4%.
  • Operating cash flow in FY21 reached HK$4.28bn, surpassing net profit.
  • Expected to have sufficient operating cash flow to support rising capex and potential M&A activities.

• Valuation and Target Price:

  • UEG is currently trading at 5.7x 2022E P/E, which is a discount compared to global peers (6-7x) and its historical average of 16x.
  • Target price is set at HK$1.40, based on a 10x 2022E P/E, representing a 40% discount to the historical average.
  • Dividend yield is projected to reach 9% in 2022E, with potential increases to 11.425% in 2024E.

• Financial Performance (FY21A - FY24E):

  • Revenue is projected to grow from HK$7,437m in FY21A to HK$13,077m in FY24E, with a CAGR of 15.1%.
  • Net profit is expected to increase from HK$2,001m in FY21A to HK$4,501m in FY24E, with a CAGR of 12%.
  • EPS is forecasted to rise from HK$0.08 in FY21A to HK$0.17 in FY24E.

• Balance Sheet and Leverage:

  • Total assets are expected to grow from HK$25,032m in FY21E to HK$36,528m in FY24E.
  • Net gearing is projected to decrease from 19.7% in FY21E to 10.6% in FY24E.
  • Net debt/EBITDA is expected to drop from 0.6 in FY21E to 0.2 in FY24E.

• Key Ratios:

  • Operating margin is projected to increase from 37.1% in FY21E to 46.0% in FY22E.
  • Net margin is expected to rise from 26.9% in FY21E to 35.8% in FY22E.
  • ROE is forecasted to increase from 14.1% in FY21E to 22.9% in FY22E.

Conclusion

UEG is expected to benefit from a combination of volume growth, higher realized prices, and improved operational efficiency. The company's strong operating cash flow and disciplined payout ratio suggest a robust dividend policy. The BUY rating and target price of HK$1.40 reflect the analysts' confidence in UEG's growth potential and valuation discount. The report highlights the company's strategic focus on high-growth assets and its ability to manage costs and maintain profitability despite production slowdowns in certain regions.