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UNITED ENERGY GROUP(467.HK):A FAST-GROWING MEDIUM-SIZED IOC

招银国际 ·  {{timeTz}}
United Energy Group (short for “UEG”) is a leading independent exploration and production company listed on the HKEX. The Company achieved proved and probable (2P) working interest of 1.07bn barrels of oil equivalent (“boe”) by end- 2020, successfully growing into a medium-sized independent oil & gas company.

We think UEG offers a unique investment angle on oil and gas development in reputable emerging markets. Initiate BUY with a TP of HK$1.70.

A Fast-Growing Independent Oil & Gas Company. UEG has business presence in emerging countries like Pakistan, Iraq and Egypt, and is dedicated to upstream oil and gas exploration and production. The Company located its headquarters in Hong Kong, regional center in Dubai, UAE, and also an operating center in Beijing. By end-2020, UEG had working interest 2P reserve of 1.07bn boe and a reserve-production ratio of 31.6. In 1H21, UEG achieved average working interest production of 91,435 boe per day (“boed”).

High-quality assets portfolio in emerging markets. UEG had established high-quality assets portfolio in the past decade through a series of strategic assets acquisition. Among UEG’s valuable assets portfolio, Block 9 in Iraq is the crown jewel of the Company. UEG made long term development for the field, and it will be a key earnings growth driver in the coming few years.

Excellent operating efficiency leads the way to success. We are quite impressed by UEG’s earnings performance in the past nine years. We think outstanding cost contol measures, high efficienct resouce development, and prudent financial planning are the key aspects leading to UEG’s excellent operating efficiency. We believe those aspects will pave the way for UEG’s long term success.

Net profit to surge with 44.0% CAGR in 2020-23E. UEG realized strong 1H21 earnings of HK$959mn, exceeding that of FY20. On the back of production growth strategy in Block 9 and strict cost control measures, we expect 2021-23E net profit to be HK$1,741/2,366/2,580mn respectively, reflecting a net profit CAGR of 44.0% in 2020-23E. Based on 18.8x FY22 PER, we derive a TP of HK$1.70, implying 58.5% upside. Initiate BUY.

Risk factors: 1) country risk; 2) unfavorable oil price movement.

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