Stripping off exceptional items amounting to RM274.2m which is attributed mainly to the negative goodwill of RM317.3m and impairment of intangible assets of RM44.9m for its Australian assets, Hibiscus Petroleum (Hibiscus) reported a core net profit of RM338.9m for full year FY22 as compared to RM116.2m in FY21. This is after the Group posted strong earnings of RM216.6m in 4QFY22, with performance boosted significantly by the recently acquired assets as well as higher realised oil prices of USD119.86/bbl. Overall, the Group had sold around 1.4 mbbls of crude oil and 590,000 of gas in 4QFY22, bringing the total oil sold for the full year FY22 to 4.6 mboe. Performance was above our and consensus expectation, meeting 126% and 117% of full-year forecasts. Earnings momentum is expected to continue as FY23 would see full-year earnings consolidation of the Repsol assets. We adjust our forecasts higher by an average of 16.9% considering higher realised oil prices though we think our forecasts are still conversative as we remain cautious over the Sabah sales tax issue. We are of the view that this unresolved dispute with the state may cloud the Group’s outlook, nonetheless, potentially causing prolonged disruptions to operations in Sabah. Our Neutral call is maintained with a revised SOTP derived TP of RM1.05 (from RM0.96 previously).

• Higher realised oil prices. The Group reported core net profit of RM216.6m in 4QFY22 as compared to RM31.3m in 3QFY22. This is in line with higher revenue reported during the quarter of RM868.4m against RM297.1m in the previous quarter. Higher revenue reflects revenue recognition of the newly-acquired assets at RM444.5m, coupled with higher revenue generated by the North Sabah and Anasuria fields of RM316m and RM106.8m respectively, on the back of 1.4 mbbls of crude oil and 590,000 of gas sold, and higher realised oil prices of USD119.86/bbl.

• Total 7 offtakes in North Sabah. The asset sold 2.1 bbls of crude oil at an average realised oil price of USD90.44/bbl. As a result, the field recorded revenue of RM791.3m in FY22. Gross profit and EBITDA were RM556m and RM411m, translating to gross profit and EBITDA margins of 70.3% and 51.9% respectively. The healthy profit margins were largely driven by the high average realised oil price and a relatively low average OPEX/bbl (operating expenditure per barrel) of USD18.01. OPEX for the current quarter was slightly higher as it incurred the on-going annual planned major maintenance campaign for 2022. The campaign commenced in March and is expected to complete in September.

• Performance boosted significantly by the new assets. Kinabalu, PM305, and PM314 fields generated a combined EBITDA of RM165.2m for FY22. Hibiscus sold 350,236 bbls of crude oil in May at an average realised oil price of USD121.15/bbl for Kinabalu. For PM305 and PM314, it sold 18,130 bbls at an average realised oil price of USD116.96/bbl. Meanwhile, the PM3 Commercial Arrangement Area generated revenue and EBITDA of RM380.5m and RM404m from the sale of Gas (around 5,982 mscf) at an average realised price of USD7.57/scf and crude oil of 383,015 bbls at USD116.26/bbl.

• Earnings forecasts. Hibiscus is targeting to sell a total of 1.6 mboe in 1QFY23 and 2.6 mboe in 2QFY23. For the full year FY23, the Group targets to sell a total of 7.2 – 7.5 mboe, comprising 4.4 – 4.7 mbbls of oil and 2.8 mboe of gas. Earnings momentum is expected to continue as FY23 will see full year earnings consolidation of the Repsol assets. We adjust our forecast higher though we think our estimates are still conservative as we remain cautious over the Sabah sales tax issue. This unresolved dispute with the state may cloud the Group’s outlook, potentially causing prolonged disruptions to operations in Sabah with issues involving manpower movement and/or shortages. This will limit its operational efficiency, which will eventually impact its output.

Source: PublicInvest Research - 25 Aug 2022