• Overview. 3QFY22 headline PATAMI rose sharply to RM307m mainly due to one-off negative goodwill gain worth RM317m arising from Repsol’s Malaysia acquisition (FIPC). This was partially offset by impairment of its Australia’s intangible assets worth RM45m (which is now carried at a nominal value of RM2m). Excluding these items, core PATAMI rose 32% yoy to RM39m mainly due to income from FIPC which contributed c.RM18m or almost half of its core earnings. On qoq basis, core earnings declined 21% mainly dragged by weak sales volume from North Sabah (only had 1 offtake of crude oil in 3QFY22 out of average 6-7 offtakes p.a) which was impacted by production shutdown. It could have been an improved qoq if we include the sales volume conducted prior to the completion of the M&A transaction (24th Jan 2022).

• Key highlights. Average daily production rose by a step change to 19,632 boepd (2QFY2022: 8,334 boepd) due to consolidation of FIPC. Average realised oil price surged 37% qoq and 74% yoy to USD102/bbl (3QFY21: USD58/bbl, 2QFY22: USD74/bbl).

• Against estimates: Inline. 9MFY22 core PATAMI made up 40% of our FY2022 estimate. We deem this as within our forecast in anticipation of stronger 4QFY22 profit.

• Dividend. 1sen DPS is declared for 3QFY22 (3QFY21: 0.5sen) which implies payout ratio of 15%.

• Outlook. 4Q22 core earnings will jump due to full quarter earnings contribution from FIPC as well as normalisation of oil offtake from North Sabah. This could more than triple its oil sales volume to 1.4m bbls (3QFY22: 472k bbls) according to management. In the long run, it targets to achieve production of 35k-50k boepd by 2026.

• Our call. We downgrade the stock to HOLD (from BUY) with unchanged TP of RM1.40 after its share price appreciates strongly by 122% within a year.

Source: BIMB Securities Research - 26 May 2022