Hibiscus Petroleum (Hibiscus) reported that it has entered into a conditional sale and purchase agreement with Repsol Exploración, S.A. (Repsol) for the acquisition of the entire equity interest in four production sharing contracts within Malaysian and Vietnamese waters for a cash purchase consideration of USD212.5m or approx. RM879.5m. We view this development as positive as it will boost Hibiscus’ production and earnings significantly upon completion, in light of current oil price environment. Based on our rough estimates, these assets will enhance the Group’s bottom line by >100% from FY22 onwards with upside to our DCF valuation expected to be around 80%. Pending release of full details of the proposed acquisition on Friday, 4 June 2021, we are leaving our forecasts unchanged at this juncture. Maintain Outperform with an unchanged target price of RM0.76 for now.

• The producing assets consist of i) 60% interest in the 2012 Kinabalu Oil PSC located off the coast of Sabah, Malaysia, ii) 35% interest in PM3 CAA PSC located between Malaysia and Vietnam, iii) 60% interest in each of the PM305 and PM314 PSCs located off the eastern coast of Peninsular Malaysia in the Malay Basin, and iv) 70% interest in Block 46 (Cai Nuoc), a tie-back asset to the PM3 CAA PSC located in Vietnam. These assets represent approximately 2% of Repsol’s global current net output, translating to c. 14,300 boe/day. We understand that Hibiscus beat rival bidder Medco Energi of Indonesia during the race for the assets.

• Funding. The assets are valued at USD212.5m or approx. RM879.5m, with partial deposit of USD7.5m (or equivalent to RM31m) to be paid upon execution of the SPA. No other financing terms have been disclosed so far. The Group is currently undertaking a funding exercise in which RM2bn will be raised via a private placement of up to 2bn units of convertible redeemable preference shares (CRPS). To date, RM203.6m has been raised from this exercise. It is understood that the Group is continuing to engage with financial institutions and industry players to explore funding options and capital raising initiatives. The Group’s cash balance stands at RM105.5m as of March 2021 while borrowings are RM20.6m.

• Expanding portfolio. We view this development positively as it will boost Hibiscus’ production and earnings immediately given that these are producing assets. The Group is currently producing c. 9,000 boe/day through its two assets i.e. Anasuria Cluster and North Sabah. This acquisition will see an additional ~14,300 boe/day to existing production. Earnings momentum will also be supported by the current favourable oil price at >USD60/bbl. Based on our rough estimates, these assets will enhance the Group’s bottom line within the 135.6% to 155.7% range from FY22 onwards. Full details on acquired assets will be revealed on Friday, 4 June 2021. In the meantime, trading of its shares will continue to be suspended till 5.00pm on Friday 4 June 2021.

Source: PublicInvest Research - 3 Jun 2021