• 1H19 core earnings grew multi-fold to RM149m (1H18: RM27m) underpinned by structural growth from the North Sabah PSC. Overall, it trailed ours and consensus’ forecast at 43%.

• North Sabah output dipped to 13.4k bpd (1QFY19: 14.9k bpd) on planned maintenance activities while Anasuria’s was boosted by the new GUA P-2 well to 4.0k bpd (1QFY19: 3.2k bpd).

• We expect earnings to pick up in 2H19 in anticipation of North Sabah output normalizing and production ramp up at Anasuria’s GUA-P2 well which were kept below maximum rate to ensure stabilized production over the longer term.

• BUY with an unchanged DCF-derived TP of RM1.60. We believe recent recovery in oil prices could be an immediate catalyst to the stock price in the near term.

Boosted by structural growth from North Sabah

1H19 earnings grew by multi-fold to RM149m (1H18: RM27m) mainly on structural growth from the North Sabah PSC which contributed to earnings from 4Q18. Overall, 1HFY19 core profits of RM149.1m were below ours and consensus forecasts at 43%.

Normalise quarter

On qoq basis, Hibiscus’s earnings halved as it delivered only 2 cargoes of crude oil in 2QFY19 against 4 cargoes in 1QFY19; the latter was inflated by a delayed cargo in 4QFY18 at Anasuria. In 2QFY19 it sold a combined 567k bbls of crude oil comprising of 1 cargo (274k bbls) from Anasuria at US$58.1/bbl and another 293.6k bbls from North Sabah PSC at US$71.3/bbl. These are largely inline with management's guidance of 2-3 cargoes/quarter.

North Sabah’s production dropped on maintenance

North Sabah’s oil production fell c.10% qoq to average at 13,400 bpd in 2QFY19 mainly on planned maintenance activities. Meanwhile, Anasuria's production rose 22% qoq to 3,962 bpd due to incremental output from the GUA-P2 side-track well which was drilled in 1QFY19. Notwithstanding, the operating costs at the respective fields were kept low at US$22.7/bbl and US$16.8/bbl respectively.

Maintain BUY with unchanged TP at RM1.60

Maintain BUY with an unchanged DCF-derived TP of RM1.60. Our valuation is based on finite DCF with WACC of 9% (Table 4). We believe its stock price could be buoyed by recent recovery in oil prices.

Source: BIMB Securities Research - 20 Feb 2019