• We maintain BUY on Hibiscus Petroleum (Hibiscus) with an unchanged sum-of-partsbased fair value of RM1.29/share. Our fair value, including a premium of 3% for an ESG rating of 4-star, implies an enterprise value (EV)/proven and probable reserve (2P) valuation of US$7.82/barrel, at a discount of 34% to the regional average of US$11.90/barrel.

• Hibiscus’ FY23 core net profit (CNP) of RM394mil was (excluding RM22.6mil unrealised loss and RM29mil net reversal of Sabah tax penalties) 10% below our forecast but within street’s. Even so, we maintain FY24F-FY26F earnings which incorporate softer crude oil price assumption of US$80/barrel for FY24F and US$75/barrel for FY25F-FY26F vs Malaysia’s US$94/barrel in FY23. The group also declared a final dividend of 0.5sen/share, bringing FY23 total dividend to a flattish 2 sen/share – which represents a dividend payout ratio of 10%.

• QoQ, 3QFY23 core earnings slid 5% to RM85mil in tandem with a revenue decline of 4% to RM504mil mainly from a 36% sales volume reduction in Kinabalu production sharing contract due to technical disruptions from a malfunctioning high pressure gas compressor (rectified in July 2023) and a platform crane.

• Over the coming 2-3 years, the group’s production growth trajectory will be underpinned by ongoing organic expansions, namely the SF30 Waterflood Phase 2 project in North Sabah and Teal West project in Anasuria. Both projects, scheduled to be completed in 2HCY24, are estimated to increase Hibiscus’ daily production by 5K-6K barrels of oil equivalent per day (boe/day) or 26%-32% to 26K boe/day.

• Currently, Hibiscus is trading at an appealing EV/2P reserve of US$5.72barrel, at a discount of 24% to its closest peer, UK-listed EnQuest, and 52% to the regional average. The group has also proposed a 5-to-2 share consolidation, which could translate to an ex-FV of RM3.23/share, for higher intrinsic valuation to deter speculators and improved price stability.

Source: AmInvest Research - 24 Aug 2023