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RHP took a 20% dive yesterday amid a slew of trading-negative news which had no fundamental bearing. Malaysian media reported that Sona Petroleum is not taking a stake in RHP, which triggered the selloff on top of traders taking profit to cover losses elsewhere.
RHP is again trading at takeover valuations. Maintain BUY, with SGD1.33 TP.
Solid fundamental value
RHP?s large pool of reserves and resources has a solid intrinsic value. News that Sona Petroleum is not taking a stake in RHP proved to be trading-negative (media articles implied rather inaccurately that RHP?s rise was due solely to rumours of Sona?s acquisition). We believe RHP?s intrinsic value stands on its own legs and needs no validation from an outsider purchase.
We were right and wrong simultaneously
Yesterday, we said that traders were selling profitable positions to cover losses in Blumont/ Asiasons/ Liongold. We were right on this, but wrong on the impact. Our sources inform us that, smelling blood in the water, other traders took a short position on the stock, causing the stock price to fall to artificially-depressed levels far below what we thought was a sensible entry point.
Placement shares begin trading today
RHP also announced that new placement shares will begin trading today. We believe the stock?s increased free float will contribute to long-term liquidity and thereby also reduce the price impact of non-fundamental-motivated trading.
Back at takeover levels
With its price collapsing to less than half of our conservatively-estimated TP, RHP is again trading at takeover levels. We firmly believe that the margin of safety at this level is extremely wide and that longer-term investors who can ride out the volatility stand to reap supernormal gains.
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Maintain BUY, with SGD1.33 TP
We reiterate our BUY recommendation with an unchanged SGD1.33 TP, based on parity to our net present value (NPV)-and-risking model.