Investment Highlights

• We maintain our BUY recommendation on Hibiscus Petroleum (Hibiscus) with an unchanged sum-of-parts-based fair value of RM1.18/share, which also reflects a premium of 3% from our ESG rating of 4 stars.

• We lower FY22F earnings by a slight 2% for FY22F as the acquisition of Repsol’s upstream assets was completed on 24 January this year, later than our assumption by 31 Dec 2021.

• This was mostly offset by the raising of FY22F–FY23F crude oil assumption by US$5/barrel to US$75/barrel (at the higher range of our US$70–75/barrel expectation for 2022–2023) given that Brent oil is currently trading above the US$80/barrel threshold. However, this also raised our FY23F earnings by 12% and a milder FY24F increase of 3% given that our oil price assumption for 2024 onwards is maintained at US$60/barrel.

• The finalised purchase price for Repsol’s assets has been lowered by 35% from US$212.5mil to US$138.7mil cash from the distribution of dividends from cash flows of the acquiree since January last year, net of time value adjustments. We note that the finalised price is at a slight 2% below our earlier assumption as guided by management.

• As Hibiscus has already paid the deposit of US$15mil, the US$124mil outstanding balance will be paid from the RM197mil proceeds raised from the earlier RM204mil convertible redeemable preference shares that were issued in Nov 2020, US$80mil Trafigura prepayment facility (which has an implied interest rate of below 4%) up to Dec 2023 and internal cash flows.

• Recall that the combined Repsol assets registered an EBITDA of US$80mil 1H2021 when Brent crude oil prices averaged at US$65/barrel vs. over US$80/barrel currently. These assets are:
  • 60% interest in 212 Kinabalu Oil off Sabah, Malaysia (expiry on 25 Dec 2032) which produces an effective 5K boe/day;
  • 35% interest in PM3 CAA within the Commercial Arrangement Area between Malaysia and Vietnam which produces an effective 12.4K boe/day (expiry on 31 Dec 2027);
  • 70% interest in Block 46 (Cai Nuoc) (expiry on 31 Dec 2027), a tieback asset which only produces around 500 barrels/day for PM3 CAA in Vietnam; and
  • 60% interest in each PM305 (expiry on 26 Nov 2029) and PM314 (expiry on 30 March 2033) in the Malay Basin off the eastern coast of Peninsular Malaysia, which have ceased production in 2019 and currently in the process of being abandoned. The proposed acquisition involves 10 producing fields – Bunga Orkid, Bunga Pakma, Bunga Raya, Bunga Kekwa, ASCU, Bunga Seroja, Kinabalu Main, Kinabalu East, Cai Nuoc and Bunga Tulip – as well as 205 dry-tree wells, 17 platforms and 32 pipelines covering over 650km.
• We remain positive on Hibiscus’ completed acquisition of Repsol’s assets which will transform the group’s earnings trajectory, effectively tripling the group’s daily production to 26.8K barrels of oil equivalent and increase its 2P reserves by 72% to 81mil boe. Based on the EV for the group’s expanded 2P reserves, Hibiscus currently trades at only US$4.55/barrel, at an unjustified discount of 65% to its closest peer, UK-listed EnQuest and 70% of regional average (Exhibit 2).

Source: AmInvest Research - 26 Jan 2022