• We are upbeat on Hibiscus’ growth outlook as it set to be one of the main beneficiaries of foreign PSC exiting the country. We believe the acquisitions that it intends to embark on will transform it into one of prominent oilfield operators in Malaysia.
   
• We raised our FY21-23F earnings forecast by more than 100% due to higher oil price assumption, but upside risk remains as we do not factor in any earnings contribution from new M&A assets and Marigold development into our forecast at this juncture.

• We upgrade Hibiscus to BUY (from TRADING SELL) with a revised TP of RM1.20 (from RM0.56) based on 1.3x FY22 P/B. This is equivalent to +1SD to its 5-year forward P/B.

A good match for Petronas

We are optimistic with Hibiscus’ enormous growth potential as it could become one of prominent oilfield operators in the country amidst the exodus of foreign PSC from the region. Leveraging on its lean cost structure and experience in monetising late-life fields, we believe Hibiscus could provide a good value proposition as well as stability to become a local partner to Petronas.

Excellent track record in M&As

Hibiscus has performed quite well in conducting previous M&As. Both the Anasuria cluster and North Sabah fields were acquired at such an attractive price of below USD3/bbl and they were fully paid within a short period of less than 3 years. Furthermore, its actual entry price (initial cost) into these assets was very low at c.10% of the stated price tag, as the remaining considerations were paid using the cashflow from the assets itself. As such, should it be able to raise RM2bn in full, we estimate that it could acquire assets with a combined value worth RM20bn (USD5bn).

Earnings revision

We upgrade our FY21-23F earnings forecast by more than 100% upon revising our oil price assumptions to USD50-60/bbl. Our forecasts imply a 3-year earnings growth of 21% CAGR to RM124m over FY20-23F. We believe there is significant upside risk to our forecast as we still have not factored in any potential earnings from new assets and Marigold development pending new development on these measures.

Upgrade to BUY with revised TP RM1.20

We upgrade Hibiscus to BUY (from TRADING SELL) with a revised TP of RM1.20 (from RM0.56) as we peg 1.3x P/B to its FY22F book value. This is equivalent to +1SD to its 5-year forward P/B. We think this is fair as we believe that the company is the best candidate to replace foreign PSC operators, hence potentially transforming the company into one of the prominent oilfield operators in Malaysia.

A growth oil and gas producer

We are upbeat on Hibiscus’ future outlook as it is set to acquire new producing assets amidst the exodus of foreign Production Sharing Contract (PSC) contractor from Malaysian oil and gas fields. Since its inception, Hibiscus has been growing from strength to strength leveraging on successful acquisition of producing assets supported by its lean cost operation. Moving forward, we expect it will continue to deliver structural earnings growth through acquisitions, as well as development of Marigold cluster (North Sea, UK) into production. Our positive view on Hibiscus is further affirmed as follow:

• Potentially be Petronas’ preferred partner to monetize and extend economic life of Malaysia’s late-life field. Several reports indicated that some foreign PSC operators in Malaysia were looking to exit Malaysia including Exxon, Repsol and Petrofac. Based on the reports, asset valuations range between USD100m to USD2bn while reserves are between 15-500 m barrels of oil equivalent (boe) (see Table 1). On the production front, both Exxon and Repsol are producing 2-6x more than Hibiscus’ current production of 9,000 bpd, hence potentially boosting its production by several multiples should it be able to secure these assets.

Source: BIMB Securities Research - 17 Mar 2021