• Post-acquisition of Repsol Malaysia, we remain optimistic on Hibiscus’ growth potential leveraging on its (i) strong free cash flow generation from expanded production of 20,000 boepd, and (ii) robust balance sheet with low net gearing.

• In near term, the company is busy executing its development projects in UK and Malaysia while keeping an eye on any M&A opportunities that may arise.

• Maintain our BUY call on Hibiscus with an unchanged TP RM1.30. We think the recent share price weakness offers a good opportunity to accumulate the stock.

Solid Shape for Growth

We are optimistic with Hibiscus Petroleum (Hibiscus) post-acquisition of Repsol Malaysia which has expanded its production to 20,000 barrel of oil equivalent per day (boepd). With a strong free cash flow generation and low gearing level, we believe the company is in good shape to pursue a rapid expansion amidst elevated oil price environment. To recap, the company has set a target to grow its production to 35,000 boepd and to achieve a 2P reserves of 100MMboe by 2026 (FY22: 72.3 MMboe).

Near-term Target

In near term, the company looks to pursue development projects in Malaysia and UK. In Malaysia, it has commenced the execution of the South Furious 30 Water Flood Phase 2 at North Sabah field. This project entails the drilling of 6 water injectors and 5 oil infill wells that will be drilled from a newly installed well head platform (WHP), bridge linked to an existing jacket. Meanwhile, in the UK, the company plans to announce a final investment decision (FID) on the Teal West project whereas field development plan (FDP) for Marigold remain as work-in-progress.

Looking for M&A Opportunities

We understand the company remains open to any value-accretive acquisition. We think the potential disposal of SapuraOMV by Sapura Energy and/or OMV is a good M&A opportunity for the company given its plan to grow its gas portion in its portfolio. However, the price tag could be a barrier given Hibiscus’ preference of buying good asset at bargain in the past.

Risk to Earnings Forecast

We project Hibiscus to achieve a healthy profit of RM438mn/RM331mn for FY24F/FY25F owing to its robust production outlook. This is based on our oil price assumption of USD85/bbl. Downside risks to our earnings comes from (i) natural decline of production rate, (ii) changes to tax regime in the UK and (iii) unplanned shutdown of production facilities.

Maintain BUY on Hibiscus with TP of RM1.30

Maintain a BUY call on Hibiscus with an unchanged TP RM1.30. Our TP implies 1x FY23F P/B. We like the company’s proven track record in delivering growth while maintaining prudent financial management.

Source: BIMB Securities Research - 14 Jul 2023