Hibiscus completed the NSPSC acquisition for US$25m and assumed ownership of the asset on 31 Mar 2018 after it met all the conditions and precedents under the SPA. The economic benefit accrued to the company was from 1 January 2017, which would partially offset the total purchase consideration that is payable to Shell.
NSPSC’s production has been declining at c.10% per annum over 2015-2017 as natural pressure at the wells decline. We understand that plans are underway to spend up to US$50m worth of capex over 2-3 years to boost output. The capex would be financed by internal funds and bank borrowings.
We are excited with the company’s prospect as the field is expected to contribute to its bottomline from 4QFY18 (Jun YE) onwards and adds c.RM200m per annum based on production flow rate of 8,000 bpd. We estimate that this would enhance Hibiscus’ earnings to sustain over RM300m or by 13-fold over FY18-20 from the levels seen in FY17.
We upgrade to BUY following the recent share price weakness while we believe fundamentals are intact amidst our expectations of crude oil price stabilising at US$65-70/bbl in 2018 and US$70-75/bbl in 2019. Our DCF-derived (WACC: 9%) TP is unchanged at RM0.97.
Post analyst briefing, we remained positive on the company’s long-term outlook with the completion of the NSPSC acquisition on 31 Mar 2018. Key highlights from Hibiscus’ recent analyst briefings are as follow: ?
We forecasted Hibiscus’ earnings to grow by 13-fold over FY18-20 from levels seen in FY17. The growth is underpinned by structural production boost from NSPSC and higher crude price. Our key assumptions for NSPSC (Table 1) assumes average output to hit 9,500 bpd by FY20F on the back of several production enhancement programs to be carried out over the next 2-3 years.
We upgrade to BUY following the recent share price weakness while we believe fundamentals are intact amidst our expectations of crude oil price stabilising at US$65- 70/bbl in 2018 and US$70-75/bbl in 2019. Our DCF-derived (WACC: 9%) TP is unchanged at RM0.97.
Source: BIMB Securities Research - 3 Apr 2018
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