• We are upbeat with Hibiscus’ near-term earnings outlook following the completion of FIPC acquisition which has boosted its oil production rate by c.50% to 12,000 bpd. It will also improve its earnings quality due to monthly gas sales generation from FIPC’s production of c.7,200 boepd.

• We expect Hibiscus to post stellar earnings in the upcoming 4QFY22 result to be driven by additional sales volume from North Sabah field as well as a full quarter contribution from FIPC.

• Upgrade Hibiscus to a BUY with lower DCF-derived TP of RM1.17 (from RM1.40). At current price level, we believe the market has not fully reflected the value of FIPC to Hibiscus. Note that our TP is based on long-term oil price projection of USD70/bbl which provides further upside risk to our conservative valuation.

Emerging Stronger with New Asset

We remain optimistic with Hibiscus Petroleum (Hibiscus) as its newly-acquired FIPC asset has boosted its oil production capacity by c.50% to 12,000 bpd. Its earnings quality will improve through FIPC’s recurring gas sales which are invoiced monthly as compared to oil sales which are more volatile due to the timing of the offtakes. Its gas production capacity currently stands at c.7,200 boepd.

Fantastic Earnings Prospects in 4QFY22

Hibiscus is set to announce a stellar earnings in the upcoming 4QFY22 result as it will recognise the full quarter impact from FIPC. Recall that 1 crude oil cargo from Kinabalu field was sold prior to the completion of the acquisition on 24th January 2022. Besides that, 3QFY22 earnings was also impacted by the timing of crude oil offtake from North Sabah field. It managed to deliver only 1 cargo of crude oil in 3QFY22 out of the 6-7 average annual offtakes.

No Change in Earnings Forecast

Based on the projected lifting schedule presented in Hibiscus’ 3QFY22 Corporate Business Update, we estimate that Hibiscus is likely to double its revenue to more than RM600m (3QFY22: RM297m) in 4QFY22. This is due to additional cargoes from North Sabah, PM3 CAA and Kinabalu fields which will boost its oil sales volume to 1.4m bbls (3QFY22: 472k bbls). This is still our initial estimate however and therefore, no change to our forecast.

Upgrade to a BUY but with lower TP RM1.17

Hibiscus stock price has fallen by half from its peak of RM1.51, in tandem with the correction in oil market. Nonetheless, we remain optimistic that Hibiscus will emerge stronger given new earnings contribution from FIPC. Therefore, we upgrade Hibiscus to a BUY (from a HOLD) with lower DCF-derived TP of RM1.17. This implies 1.1x FY23F P/B (Table 1).

Source: BIMB Securities Research - 19 Jul 2022