Results

• Within: 3Q17 core loss came in at RM6.7m, further drag 9M17 core loss to RM15.6m, deemed within HLIB’s loss forecast at 70.9%.

Deviations

• None.

Dividends

• No dividend declared.

Highlights

• QoQ: Core loss narrowed to RM6.7m from RM9.6m attributed to: (i) higher EBIT margin due to higher realized oil prices despite lower sales volume affected by unfavourable weather; and (ii) admin and staff cost savings.

• 9M17: Loss of RM15.6m was recorded as a result of: (i) low oil prices; (ii) low oil production due to unfavourable oil price during the transitional of ownership change of oil field; and (iii) low oil export sales volume upon suspension of oil shipment affected by bad weather.

• The group is still below its oil production target of 5,000 bbls/day due to the unexpected long process of transferring ownership of field and hiccups in crude shipment caused by bad weather.

• Since gaining effective control of Emir Oil operations on 25 th May 2017, the group has been aggressively ramping up its oil production by conducting intensive workover activities on existing producing wells within Kariman field.

• Further contribution of oil production is expected to come from North Kariman well NK-1 during its test production period. Conversion process of North Kariman and Yessen fields (currently under development stage) into production contracts is expected to be completed by mid-2018.

• Central Processing Facility is scheduled to commission in a phased manner starting 4Q18 on planned pipeline tie-in.

Forecasts

• Maintain forecast.

Rating

HOLD

• The group’s oil production ramp up is slower than expected and significant earnings recovery will only be realized in years beyond FY18 due to production bottleneck and uncertainty in export shipment sales of crude oil.

Valuation

• DCF-driven TP is maintained at RM0.43. 

Source: Hong Leong Investment Bank Research - 30 Nov 2017