• 3QFY18 core earnings grew 88% yoy mainly on tax credit recognition. Overall, 9MFY18 was inline with estimates at 79%.

• The completion of North Sabah SPA contributed to negative goodwill gain of RM112.4m in 3QFY18 while 15-month net economic benefits accrued to Hibiscus amounted to RM107.9m (US$27.9m).

• 3QFY18 Anasuria oil production rate recovered to 2,798 bpd (1QFY18: 2,071 bpd) in tandem with higher facilities uptime as production hiccup at Guillemot A was completely resolved.

• Downgrade to HOLD (from BUY) with an unchanged DCF-derived TP of RM0.97. While the recent crude oil price decline may weigh on sector in the near term, we believe Hibiscus is fundamentally stronger with consolidation of the North Sabah PSC.

Boosted by North Sabah PSC

3QFY18 headline profits jumped RM83.1m from RM6.5m mainly due to huge negative goodwill gain recognised worth RM112.4m from the North Sabah PSC. The amount is excess values of North Sabah’s net asset against the consideration value of RM91m (US$25m). Excluding non-core items, 3QFY18 core profits grew 88% to RM14.1m (3QFY17: RM6.5m) on recognition of RM1.2m tax credit against tax expenses of RM10.2m. Overall, 9MFY18 core profits were inline with our forecast at 79% but trailed consensus at 41%.

Positive net economic benefit from North Sabah

Recall that under the North Sabah SPA, the economic benefit accrued to Hibiscus is effective 1 Jan 2017 while the field was operated by Shell up to the acquisition completion date (31 Mar 2018). As a result, Hibiscus’ net economic benefit over the 15-month period amounted to RM107.9m (US$27.9m). This was more than sufficient to pay the remaining deferred consideration of US$10m over next 2 years.

Production restored at Anasuria

Anasuria’s production normalised in the quarter as facilities uptime hit 82% (2QFY18: 57%). Recall that 2QFY18 production was interrupted by gas facilities problem subsequent to a planned FPSO total shutdown. With production normalising, average oil production rebounded to 2,798 bpd (2QFY18: 2,071 bpd). This lowered the average production opex to US$24/bbl (2QFY18: US$34.3/bbl).

Downgrade to HOLD with unchanged TP of RM0.97

The crude oil market corrected after Saudi and Russia planned to increase output on concern over higher price may hurt consumer. We think this would negatively impact sentiment towards the sector. Downgrade to HOLD (from BUY) with an unchanged TP of RM0.97. Revisit at lower level as we believe consolidation of the North Sabah PSC would strengthen Hibiscus’ fundamentals moving forward.

Source: BIMB Securities Research - 30 May 2018