We maintain our BUY recommendation on Hibiscus Petroleum (Hibiscus) with a higher sum-of-parts-based fair value of RM0.85/share (from an earlier RM0.79/share), which implies an enterprise value/proven and probable reserves (2P) valuation of US$7.10/share (from an earlier US$6.10/barrel). This is at discounts of 22% to EnQuest's US$9.12/barrel and 39% to regional average of US$11.60/barrel, and reflects a 3% premium for a 4-star ESG rating.
The higher valuation stems largely from the 12% increase in FY21F production assumption to 2.7mil barrels of oil for North Sabah production sharing contract together with a US$5/barrel increase in crude oil price to US$60/barrel for FY22F onwards. This raised our FY21F–FY23F earnings by 6%–21%.
Hibiscus’ 9MFY21 core net profit of RM61mil was above expectations, accounting for 82% of consensus and almost reaching our earlier FY21F earnings. This was mainly due to its 50%-owned North Sabah production sharing contract’s (PSC) 9MFY21 sales rising 28% YoY to 2.1mil barrels.
Even though 3QFY21 average crude oil prices rose by 32% QoQ to US$54/barrel for North Sabah PSC and surged 52% QoQ to US$60/barrel for the group’s 50%-owned Anasuria concession, the 9MFY21 average of US$46/barrel is still in line with our FY21F estimate of US$50/barrel.
QoQ, the group’s 3QFY21 net profit surged 2.7x to RM35mil mainly due to the higher crude oil prices and partly from 18% lower operating costs, partly offset by a 31% drop in North Sabah’s sales to 600K barrels.
YoY, Hibiscus’ 9MFY21 net profit fell 42% YoY from the 23%–24% drop in crude oil price to US$46/barrel due to the Covid-19- inflicted demand collapse last year, partly offset by a 20% sales volume increase to 2.8mil barrels.
By the end of 2022, Hibiscus may be looking to achieve first oil from its recently acquired 70% interest in the Teal West field together with an 85% working interest and operational control of the nearby Eagle pre‐producing area, which was a farm-in arrangement with EnQuest. This will be achieved via a tie-back to Anasuria’s facilities and FPSO. Meanwhile, production commencement from its 50% equity stake in Block 15/13a of the Marigold and Block 15/13b of the Sunflower concessions, which were acquired for US$37.5mil cash from Caldera Petroleum in October 2018, could be delayed to late 2023.
Based on the enterprise value for the group’s existing 2P reserves, Hibiscus is currently only trading at US$5.09/barrel, at a discount of 44% to its closest peer, UK-listed EnQuest and less than half of the regional average (Exhibit 6). This is compelling given the higher Brent crude oil price of US$68/barrel currently vs our US$60/barrel assumption, while the group’s valuation can be driven even further by a significant regional asset acquisition.
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