• Hibiscus Petroleum (Hibiscus) is executing several development projects, potentially boosting its production by 20% to 25k boepd by end FY2026.

• Management remains firm with its target to double its production output to 35-50k boe/day by 2026. This requires another acquisition of producing asset to attain the said target.

• The company has distributed a total of 6sen DPS for 9MFY24. It targets to distribute 7.5sen DPS for FY24 which implies c.3% yield.

• Maintain our BUY call on Hibiscus with an unchanged DCF-derived TP of RM3.40. We are upbeat with its strategy to grow its production in the long-term while providing investors with a decent dividend yield.

Marching Towards 2026 Production Target

We are optimistic with Hibiscus’ growth potential given its status as one of the largest home-grown independent exploration and production (E&P) companies in Malaysia. Its average production stood at c.21k barrel of oil equivalent per day (boepd) in 3QFY24. Management remains firm with its target to double its production output to 35-50k boe/day by 2026.

Robust Earnings Outlook in Near-term

In near-term, we expect Hibiscus’s earnings to remain robust with a healthy profit forecast of RM438mn/RM331mn/RM187mn for FY24F/FY25F/FY26F respectively. The company is currently executing several projects to boost its production such as SF30 Water Flood Phase 2 (SF30 Ph2) and UK Teal West (UKTW) development projects. Management guided that SF30 Ph2 will add 1-1.5k bpd of oil production from 2QFY25 while UKTW will boost production by 4-5k bpd beginning 2QFY26. All in, this should boost its production to c.25k boepd by end FY26. This is higher than our production assumption of 20k boepd as we have not taken these projects into our forecast.

Another Asset Acquisition is Likely

As mentioned above, the 2026 production target can’t be achieved solely based on development projects in the pipeline. Hence, the company will need to pursue another acquisition of producing asset to attain its target. There are several M&A opportunities that is worth pursuing. Petrofac’s ailing financial condition has prompted the company to continue looking for a buyer to its Malaysian asset after a failed process in 2019. Besides that, Chevron could also be looking for a potential buyer for Hess’ Malaysia operation after the acquisition of Hess completed.

Maintain BUY on Hibiscus with TP of RM3.40

Maintain a BUY call on Hibiscus with an unchanged TP RM3.40. Our TP is derived using DCF methodology that implies 0.9x FY24F P/B and 6x FY24F P/E (refer table 1). We like the company’s proven track record in delivering growth while maintain prudent financial management. Key downside risks to our earnings comes from the fallout of OPEC+ which could lead to lower oil price

Source: BIMB Securities Research - 17 Jul 2024