• Hibiscus completed its first infill drilling project at Anasuria involving the GUA-P2 well. We expect this to raise Anasuria FY19 production to 4,000 bpd.
• We reaffirm our belief on NSPSC potential earnings contribution as Hibiscus focuses on enhancing facilities uptime in the interim until it achieves FID for infill drilling program at the field.

• We raise our FY19/20/21F earnings forecast by 3%/21%/25% on higher crude oil, stronger USD and lower tax rate assumption following more extensive capex project at Anasuria.

• Upgrade to BUY (from HOLD) with a new RM1.35 (from RM0.97) DCF-derived TP. We believe the recent share price weakness is a good opportunity to buy into the stock.

Completed first milestone at Anasuria

Hibiscus completed its first infill drilling project at Anasuria with side tracking the P2 well at Guilemot A field (GUA-P2) in early Sep 2018. We expect the well to contribute no less than 500 bpd of additional barrels, bringing Anasuria average oil production to 4,000 bpd (net to Hibiscus) in FY19.

Reaffirm North Sabah (NSPSC) potential

In short span of time, Hibiscus managed to arrest the natural decline of production rate at NSPSC on the back of high facilities uptime of above 90%. The production rate recovered to 16,000 bpd in 4QFY18 from 14,000 bpd in 1QFY18. We believe production level at the field will be sustainable as the company put much emphasis to maintain the uptime including the short 1-week maintenance in Oct 2018.

Earnings revision

We raised our FY19/20/21F earnings forecast by 3%/21%/25% as we revisit our key assumptions. Our forecasts imply earnings growing by a massive 12-fold over FY19-21F from FY18. The growth is underpinned by structural production boost from NSPSC, higher crude oil price and favourable forex exchange.

Upgrade to BUY; TP raised to RM1.35

We upgrade Hibiscus to BUY (from HOLD) with a higher TP of RM1.35 (from RM0.97) as we roll-over our valuation to FY19. Our valuation is derived using finite DCF methodology based on WACC of 9%. We continue to favour Hibiscus as (i) beneficiary of higher crude oil price and (ii) beneficiary of stronger USD and (iii) net cash position which provides the opportunity to gear up for future acquisition of new field and/or increase 2P reserves.

Source: BIMB Securities Research - 24 Sept 2018