• Overview. 2Q20 core profits jumped 16% yoy to RM58m mainly due to higher oil sales volume from North Sabah but partially offset by higher effective tax rate. The average realised oil price was also higher at US$69.8/bbl (7% yoy and 14% qoq).
• Key highlights. Crude oil sales volume rose 62% yoy and 52% qoq to 921k bbls. Average oil production rose 20% qoq to 9,000 bpd (2Q19: 8,920 bpd, 1Q20: 7,524 bpd) contributed by higher production from new completed wells in North Sabah. North Sabah’s average gross production was at 17,000 bpd which is the highest level since Hibiscus took over the operation from Shell.
• Against estimates: Below. 1HFY20 core profits of RM75m (-50% yoy) were behind both our and consensus’ forecasts at 20%/28%. The deviation against our forecast was mainly due to lower-thanexpected average oil production rate.
• Outlook. Despite rising oil production, there is downside risk to our oil production assumption as there was slight delay in the North Sabah’s Water injection project due to additional work scope and adverse weather. Meanwhile, Anasuria’s Water Injection project at Cook field also faced hurdle due to failure of subsea component. We cut our FY20F/21F/22F earnings forecast by 26%/10%/10% (Table 6) as we turned more conservative with our production assumption.
• Our call. Maintain BUY with lower DCF-derived TP of RM1.15 (from RM1.50) (Table 5). We remain sanguine on Hibiscus’ growth potential amidst rising M&A opportunities as oil major continues to divest non-core assets. The weakness in share price presents an opportunity to accumulate.

Source: BIMB Securities Research - 26 Feb 2020