• Maintain BUY (TP: RM3.40). Hibiscus Petroleum (Hibiscus) 1HFY24 core PBT of RM424mn (+8% YoY) was inline with our estimate at 47%. That was despite lower core PBT in 2QFY24 which declined 38% QoQ and 22% YoY to RM163mn mainly due to lower oil sales volume of 1.2mn barrel (2QFY23: 1.3mn barrels, 1QFY24: 1.4mn barrels). The company declared a 2nd interim DPS of 2sen bringing 1HFY24 DPS to 4sen. Despite earnings was weaker in the quarter, higher O&G production volume pointed to potential higher earnings in 2HFY24. We maintain a BUY call on Hibiscus with unchanged DCF-derived TP of RM3.40. Our TP implies 0.9x FY24F P/B and 6x FY24F P/E.

• Key Highlights. Average production rose by 11% QoQ to 22,000 boe/day which is its highest quarterly production ever. This was bolstered by higher production by FIPC subsidiary following completion of KNB infill well drilling at Kinabalu PSC.

• Earnings forecast. No change to our forecast. However, there is upside risk to our DPS forecast of 6.3sen in FY24 as the company targets to distribute 7.5sen DPS for FY24 which implies 2.8% yield.

• Outlook. We expect earnings to remain robust in coming quarters underpinned by higher production from Kinabalu field. Its production will rise further upon completion of SF30 Water Flood Phase 2 project (target first oil in 1HFY25) and UK Teal West development project (target first oil 1HFY26). Key downside risk to our earnings forecast is the potential negative outcome of its exploration work which entails drilling of 3 wells at SF Ungu, SF Ungu ST and SF Merah in North Sabah and 1 well at Bunga Aster in PM3 CAA with potential exposure of USD20mn.

Source: BIMB Securities Research - 21 Feb 2024