• We are more assured of Hibiscus’ outlook as the North Sabah PSC (NSPSC) SPA is expected to conclude by 31 Mar 2018 while capex spent on Anasuria raised output to c.3,800 bpd from Jan 2018.

• We estimate Hibiscus’ would net c.US$7.5m from Shell upon SPA completion (economic benefit since Jan 2017) lowering deferred payment to Shell in FY19/20 to just US$2.5m.

• We think crude oil price could be capped by potential production boost from US shale producers capitalising on recent rally and OPEC signalling possible cooling measure should market overheat.

• We raised our DCF-derived TP to RM1.05 (from RM0.85) following the changes but downgrade the stock to HOLD as its share price have moved in tandem with the crude rally. Revisit at lower levels.

North Sabah PSC becoming a reality

We recently met management and left reassured that Hibiscus is on track to complete the SPA by 31 Mar 2018. We estimated net economic benefit accrued to Hibiscus over the 15-month period since 1 Jan 2017 would be no less than US$20m. This implies that Hibiscus would receive proceed of at least US$7.5m from the working capital adjustment upon SPA completion. We estimate the NSPSC field would add c.RM200m to the bottomline on full year basis.

Anasuria production enhancement projects in the pipeline

With completion of the FPSO turnaround maintenance in Sep/Oct 2017 and two well workover projects, we believe management’s guidance to increase output level to 3,800 bpd in 3Q18 is attainable. The production level would be further boosted to 5,000 bpd with another c.GBP45m of capex to be invested through 2019.

Changes in earnings estimates

We revise our FY18 core earnings estimate by 28% due to the difference in timing of the NSPSC SPA completion. Meanwhile, factoring in higher crude oil price, we raised FY19F earnings by 16% and FY20F by 4%.

Fully valued at RM1.05, downgrade to HOLD

The recent share price rally, in our view, was largely in tandem with the crude oil price recovery and the market pricing in potential benefits from the NSPSC field. While we still view Hibiscus as the best O&G proxy for its direct exposure to crude oil, we throw caution on the potentially significant increase in US shale oil production in 2QCY18. Downgrade to HOLD with a revised DCF-derived TP of RM1.05. Revisit at lower levels.

Source: BIMB Securities Research - 23 Jan 2018