• Hibiscus’s 1QFY18 core earnings grew by multi-fold yoy as higher ASP more than offset lower production volume.

• 1QFY18 oil production rate fell to 2,575 bpd level (4QFY17: 3,204 bpd) on scheduled FPSO maintenance for 31 days from mid-Sept.

• Hibiscus remains our favourite oil and gas stock for being a direct beneficiary of crude oil recovery and the potential structural growth in store from the North Sabah acquisition.

• Maintain BUY with an unchanged SOP-derived TP of RM0.85 which implies an FY18E PE of 12x before easing to 5x in FY19. We reckon recent pullback in share price was a market reaction to lower headline PAT which provide a buying opportunity into the stock.

Modest performance amidst planned shutdown

Hibiscus started its FY18 campaign with a modest performance amidst planned FPSO shutdown for scheduled maintenance. Its 1QFY18 core EBITDA grew marginally by 5% yoy to RM25.9m. This was on the back of higher revenue +6% as higher ASP more than offset lower sales volumes. In 1QFY18, it sold 246k bbl of crude oil at US$51.5/bbl (1Q17: 272k bbl @ $45.2/bbl) which accounts for 18% of our Anasuria’s full year forecast. Overall, the 1QFY18 core earnings came in at only 12% of our full year forecast.

Core PAT grew multi-fold

Adjusting for a one-off tax credit amounting RM78.4m in 1Q17, Hibiscus’s core PAT grew by multi-fold yoy driven mainly by lower depreciation charges and effective tax rate. The qoq growth, however, was distorted as tax expenses are back-end loaded.

Facilities uptime to improve in coming quarters

The 31-day shutdown of the Anasuria FPSO was for a planned maintenance specifically to improve facilities uptime. As such, we expect production volume to improve in coming quarters.

Keep our forecast

Despite Hibiscus’s 1QFY18 core earnings coming in at only 12% of our forecast, we deem this as being inline as we expect Anasuria’s average production level to increase to 4,200 bpd by end FY18 (mid-2018). This is complemented by contribution from the North Sabah PSC which we expect would complete in early 2018.

Reiterate BUY call with unchanged TP at RM0.85

Hibiscus’s share price has retreated possibly on market reaction to its lower headline PAT. We believe this makes a good buying opportunity as core earnings pointed to multi-fold growth while we continue to see fundamentals are intact. Maintain BUY.

Source: BIMB Securities Research - 29 Nov 2017