Hibiscus Petroleum (Hibiscus) achieved its highest ever revenue in FY23 at RM2.3bn (+38% yoy) contributed by higher sales volume from newly acquired Repsol Malaysia asset. Overall, FY23 core PBT of RM725mn (+38% yoy) was inline with both our and consensus’ estimate at 98% and 97% respectively. Moving forward, PAT may continue to be distorted by non-cash UK Energy Profit Levy (EPL) adjustment as the government may reverse its unfriendly tax regime amidst concern that it may jeopardise future O&G development project in UK North Sea. However, it strives to deliver higher volume by 6-10% to 7.5-7.8mn boe in FY24 as it continue to sweat its producing assets while on-going development projects may only contribute to significant incremental production FY25F onwards. Maintain our BUY call on Hibiscus with unchanged TP of RM1.30.

• Within expectation. FY23 core PBT of RM725mn was in line with both our and consensus’ estimate at 98% and 97% respectively.

• Dividend. The company declared a 3 rd interim DPS of 0.5sen which brings YTD DPS of 2sen which is higher than 1sen DPS declared for the same period last year. The company expects to pay a total DPS of 2.5sen for FY23 (i.e., another 0.5sen DPS for final DPS of FY23) which implies a yield of 2.6%.

• QoQ. PATAMI grew 72% to RM123mn mainly due to (i) gain from reversal of Sabah Sales tax penalty amounted to RM25mn, and (ii) lower tax expenses due to reversal of EPL tax in UK. Revenue was largely flattish at RM504mn as stronger USD had partially offset the impact of lower sales volume and oil price. Sales volume was stable at 1.8mn boe while realised oil price was slightly lower at USD82/bbl.

• YoY. PATAMI declined 43% due to lower oil price by 32% (4Q22: USD120/bbl) and lower oil sales volume by 27% (4Q22: 1.4mn bbls).

• YTD. Revenue grew to a record high of RM2.3bn (+38% yoy) whereas core PATAMI grew 19% to RM414mn mainly due to full year impact of Repsol Malaysia asset which was consolidated since 3Q22. Total sales volume rose by 55% yoy to 7.2mn boe from 4.6mn boe in FY22.

• Update on development projects. South Furious 30 (SF30) Water Flood Phase 2 at North Sabah field has reached the first steel cut milestone at Brooke Dockyard on 16 May 2023. The company expects to start its drilling campaign in 2HFY24 which will contribute to incremental production of circa 1,000-1,500 bpd in FY25. Besides that, the UK Teal West’s field development plan (FDP) was approved in Jul 2023. Both projects will require a total capex of USD416mn.

• Outlook. The company target to raise its total sales volume by 6-10% to 7.5-7.8mn boe in FY24F. This posed downside risk to our earnings forecast as it is below our initial projection of 8.4mn boe.

• Our call. We maintain a BUY call on Hibiscus as with an unchanged DCF-derived TP of RM1.30. Our TP implies 0.9x FY24F P/B and 6x FY24F P/E. We favour the company due to (i) proven track record in delivering growth, (ii) lean-cost structure, and (iii) dividend yield 2.6%

Source: BIMB Securities Research - 24 Aug 2023