There is a bullish commodity rally in 1H 2022, can these 4 energy stocks continue its growth?

The first half of 2022 was a good half for energy stocks. The latest data on global energy commodity prices indicate that energy prices have risen by 50% from December 2021 to July 2022.

In particular, international coal prices  have risen by 157% from December 2021 to September 2022.

While global commodity prices have gradually softened in the months of August and September, they still remain elevated and beneficial for energy companies.

Here are 4 energy stocks that can be worth a second look…

1. Golden Energy and Resources

Golden Energy and Resources (GER) is a coal and goal mining company with operations mainly in the Asia Pacific region, It is also involved in several renewable energy projects.

Most of GER’s revenue is derived from the central Asia region, where China, India, Japan, and South Korea encompass about 70% of its total revenue.

GER had one of its best financial performances to date in the first half of 2022 (1H 2022). Revenue tripled from SG$1.1 billion in 1H 2021 to SG$3.4 billion in 1H 2022.

Likewise, profits also grew by 7 times from SG$0.1 billion to SGX0.7 billion over the same period. More impressively, GER was able to generate a healthy operating cash flow of SG$1.6 billion in the 1H 2022.

GER could be a potential investment opportunity for the following reasons:

1. Diversified revenue base from about 10 countries. GER has recently started selling to Germany and Brazil in 2022.
2. Strong revenue and profit growth with potential to scale up even more.
3. Trading at relatively cheap valuations.

Trading at a price earnings (PE) ratio of 4.0x currently, this is much lower than its 2021 PE ratio of 13.7x. This represents a potential upside of about 300% if GER trades back to 2021’s PE ratio and coal prices stay elevated.

As GER is aggressively expanding now (GER took on long-term liabilities that are worth SG$2.4 billion to fund its acquisition of SMC in Australia), GER is not currently distributing any dividends for 2020 and 2021. It last gave out dividends in 2019 at a dividend yield of 6.5%.

2. Geo Energy Group

Geo Energy Group (GEG) is another coal mining group with operations mainly in Indonesia. It owns 4 mining concessions in Kalimantan, Indonesia and collaborates with BUMA, Macquarie and Trafigura.

GEG exports most of its coal overseas, with China being its biggest customer at 72% of total revenue. It generates about 15% of its revenue from Indonesia, its second biggest market.

GEG has proven resilient in its financial performance even during the pandemic. In 2020, revenue continued to grow by 21.1% while 2021 proved to be even a better year with revenue doubling to S$869.5 million.

Profits also doubled from S$126.1 million in 2020 to S$242.6 million in 2021, reversing its losses in 2019.

For 2022, GEG is on track to achieve its highest revenue, with the trailing 12 months (June 2022) revenue reaching SG$1.1 billion.

GEG could be worth looking into for the following factors:

1. Relatively well-diversified revenue sources, with 85% of its revenue generated from overseas countries.
2. China’s continued economic recovery expected to increase demand for coal.
3. Trading at cheap valuations.
4. Strong dividend yields.

Trading at a price earnings (P/E) ratio of 1.6x currently, this is much lower than its historical average (2018 to 2021) P/E ratio of 9.0x. This represents a potential upside of about 463% if GER trades back to the historical P/E ratio.

GEG recorded its highest dividend yield of 37.0% in 2021, with dividend yields ranging from 3.7% to 7.0% from 2015 to 2020.

3. RH Petrogas

RH Petrogas (RHP) is an oil and gas company concentrated on the upstream portion of the industry. It is mainly engaged in the exploration and development of oil and gas deposits.

RHP currently has 3 upstream assets in Malaysia and Indonesia, with only Indonesia generating revenue for the company at the moment.

In terms of financial performance, revenue grew by a strong rate of 48.4% from SG$53.1 million in 1H 2021 to SG$78.9 million in 1H 2022. On the other hand, profits almost doubled from SG$11.1 million to SG$21.2 million over the same period.

Profit margins are now near record high at 26.9% for 1H 2022 (2H 2022: 44.3%), with 2017 registering the highest previously at 14.3%.

RHP could be part of your investment portfolio if you are positive on the following factors:

1. Strong profit margins currently at above 20%. RHP registered losses in 4 out of the 6 years from 2015 to 2021.
2. High potential for revenue expansion if investments in oil and gas exploration materialises.
3. Trading at cheap valuations.

RH Petrogas is currently trading at a P/E ratio of 3.7x, which is still below its 2021 P/E ratio of 4.6x. It doesn’t offer any dividends at the moment.

4. Rex International Holding

Rex International Holding (RIH) is an offshore oil and gas exploration company with a focus in Oman, Norway and Malaysia. Currently, it has made 1 and 3 discoveries in Oman and Norway respectively.

RIH’s revenue skyrocketed from only S$182,000 in 2019 to S$214 million in 2021, as RIH production ramps up in Oman and Norway.

With that, RIH reversed its loss of S$20.1 million in 2020 to a profit of S$106.7 million in 2021.

Investors could look into RIH for the following reasons:

1. Potential ramping up of production in Norway and Malaysia. RIH has already started new oil and gas exploration in Malaysia.
2. Return to profitability and possible stabilisation of revenue with existing fields now ramping up production.
3. Plans to distribute steady dividends starting from 2023, subject to stable profits.
4. Trading at cheap valuations.

RIH is currently trading at a P/E ratio of 4.6x, which is below the 2019’s P/E ratio of 11.5x. This represents an upside of 150% should RIH trades back up to 2019’s PE ratio.

RIH’s dividend yield stands at 2.3% for 2021.  Meanwhile, it has also proposed a dividend policy where it will pay at least a 2 cents dividend annually going forward. Based on the share price of $0.255, investors can expect at least a 7.8% dividend yield.

Conclusion

The bullish rally of global commodity prices in 2022 are expected to be positive on energy stocks. With the jump in profits, the 4 stocks mentioned above are trading at below 5x P/E ratios trailing 12months.

While this rally has fizzled out in recent months, elevated energy prices remain conducive for investors who want to take advantage of energy plays in the market.