• We continue to like Hibiscus as it provides direct exposure to the upstream business which is poise to benefit from the recovery in crude oil prices.
• We remain excited with its earnings prospect over FY18-20F on the back of higher production from Anasuria and the potential structural growth arising from the new PSC role in North Sabah.

• Maintain BUY call with a revised DCF-derived TP of RM0.85 (from: RM0.65, WACC: 9.0%). Our strong conviction on Hibiscus is also underpinned by its business model which is focused on acquiring quality producing assets from major oil companies.

Well workover programs to boost Anasuria production

Hibiscus plans to execute 4 well workover (of which 1 has been carried out in Jul) projects in FY18. This would boost production to 4,200 bpd from the current level of 3,200 bpd. The increment would be in stages and management expects to achieve the higher flow rate by end FY18.

North Sabah acquisition on track

Hibiscus expects to complete the acquisition of the North Sabah field either in late 2017 or early 2018. We expect the acquisition to come through while management noted that economic interest to Hibiscus has taken effect from 1 Jan 2017. While transaction delays would impact estimates, it is mitigated by the lower cash outlay for the purchase consideration. Management expects to execute its planned capex shortly after the transfer of ownership. This would boost output to 10,000bpd from current 7,500bpd (based on 50% stake) by 2020.

Huge upgrades on higher crude oil price assumed

Hibiscus’ FY17 core performance exceeded our estimates if not for the higher-than-expected effective tax rate. This was largely due to lower average realised price assumed. Adjusting for that and after factoring recent management updates, we raised our FY18/FY19/FY20 earnings forecasts by 235%, 45%, and 48% respectively.

Maintain BUY with a higher TP at RM0.85

We reiterate our BUY call on Hibiscus with a higher DCF-derived TP of RM0.85 which implies 11.8x FY18F PE before easing to 3.6x FY19F PE. Our DCF assumes a WACC of 9.0%.

Fair value sensitivity analysis

Our sensitivity analysis showed that every ±US$5/bbl swing in crude oil price, assuming combined production rate of 11,800bpd (ie. base case) from both fields, would impact our target price by ±RM0.16.

Source: BIMB Securities Research - 26 Sept 2017