Results

• Below: 4Q17 core loss came in at RM26.0m, further dragging FY17 core loss to RM54.6m, below HLIB’s expectations (-RM22m).

Deviations

• Lower than expected production level.

Dividends

• No dividend declared.

Highlights

• QoQ: Core loss widened to RM26.0m from RM6.7m mainly due to higher depreciation expenses.

• FY17: Loss of RM54.6m 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 optimal 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. We understand that the company is targeting to achieve its optimal production target in May 2018 and further ramp up the production target to 9,000 bbls/day in FY19.

• 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 the 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

• Cut FY18 earnings forecast to core loss and FY19 earnings forecast by 30% after taking into account lower than expected oil production target.

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

• Maintained HOLD with lower TP of RM0.40 (from RM0.43 previously) post earnings forecast adjustment.

Source: Hong Leong Investment Bank Research - 1 Mar 2018