• Overview. Hibiscus’ 3QFY20 core profits declined 44% yoy and qoq to RM33m mainly due to softer oil market amidst Covid-19 threat. Its average realised oil price dropped by 30% qoq and 24% yoy to USD48.5/bbl (3QFY19: USD66/bbl; 2QFY20: USD70/bbl) whereas oil sales volume was largely flat at 850k bbls on the back of 2 crude oil offtakes from North Sabah and 1 cargo from Anasuria.
• Key highlights. Average daily oil production rose marginally by 3% qoq to 9,240 bpd (2QFY20: 9,000 bpd) contributed by higher production from both North Sabah and Anasuria cluster. This is only c.45% of its 2021 production target of 20,000 bpd which can only be achieved upon successful acquisition of producing asset.

• Against estimates: Inline. 9MFY20 core PBT declined by 37% yoy to RM191m driven by lower average realised oil price of 15% yoy to USD60/bbl and lower sales volume by 5% to 2.3m bbls. While this made up 102% of our full year forecast, we deem this as inline in anticipation of weak 4QFY20 financial result.

• Outlook. While the company is on track to achieve its FY20 production target of 3.2m bbls, it is likely to delay its scheduled oil offtake in 4QFY20 to garner higher price possibly in 2HCY20.

• Our call. Downgrade the stock to SELL (from HOLD) with unchanged DCF-derived TP of RM0.54 (Table 5). We expect oil price to remain subdued in near-term which posed significant risk to the company’s profitability in coming quarters. As such, we view current rally in the stock price as an opportunity to sell on strength and investors shall revisit at lower level. Key risks to our call is potential M&A opportunities leveraging on its recent funding partnership with Trafigura as oil major continues to divest non-core assets.

Source: BIMB Securities Research - 20 May 2020