HLBank Research Highlights

Hibiscus Petroleum - To Start FY23 With a Clean Slate

HLInvest
Publish date: Wed, 05 Oct 2022, 09:38 AM
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This blog publishes research reports from Hong Leong Investment Bank

Overnight, Hibiscus announced a few key updates: (i) declared a final single tier dividend of 1 sen for FY22, (ii) on 21 Sep, Hibiscus has proposed to pay the Sabah State Government a total of RM85.7m in regards to the sales tax debacle, and (iii) reversal of prior tax provision totalling RM125.5m in relation to its 35% owned PM3CAA for additional taxes and penalties for 2014-2016. Hibiscus has decided to incur items (ii) and (iii) in 4QFY22 (previous quarter’s results) rather than in 1QFY23, allowing it to move on a clean slate for FY23. We are positive on this development. Post-revision of earnings, we maintain BUY on Hibiscus with a slightly lower TP of RM1.54/share.

NEWSBREAK

Overnight, Hibiscus Announced a Few Key Updates:

i) Hibiscus has declared a final single-tier dividend of 1 sen for FY22 – with both ex-date and payment date to be announced at a later date;

ii) On 21 Sep 2022, Hibiscus has agreed to pay the Sabah State Government a total of RM85.7m in regards to the sales tax debacle; and

iii) Recall that the Inland Revenue Board of Malaysia (IRB) raised assessments on Hibiscus’s 35%-owned PM3CAA for additional taxes and penalties for 2014-2016. PM3CAA had disputed these assessments and in Sep 2022 has made full provision for the payments. The unit and the IRB reached an amicable settlement on this matter – which resulted in a reversal of provision for a total of RM125.5m.

HLIB’s VIEW

Starting FY23 on a clean slate. Including the recent declaration, dividends for FY22 totaled to 2 sen/share. With Hibiscus proposing to pay the Sabah State Government, this resolves the SST debacle that was brought up in Jul 2022. We highlight that this is at a discount to the initial sum of RM97.3m (comprising RM66.0m in SST and RM31.3m in penalty incurred for late payment). Hibiscus has decided to incur both the Sabah SST expense (RM85.7m) and the non-cash reversal of tax provision (RM125.5m) in its previous quarter 4QFY22, rather than in 1QFY23. With that, the restated core net profit for 4QFY22 and FY22 would be RM257.3m and RM382.5m respectively (from RM217.5m and RM342.7m previously) – see Figure #1. Going forward, the group will move on with a clean slate. We are positive on this development as we believe that there was a share price overhang previously, mainly due to the Sabah SST debacle.

Forecast. We trim our FY23-25f net profit forecasts by 6%, 12% and 17% respectively to account for: (i) an additional 5% royalty payment annually to the Sabah government in regards to the SST; and (ii) some housekeeping tweaks in our earnings model.

Maintain BUY, lower TP: RM1.54/share. Post adjustment of earnings, we maintain BUY on Hibiscus with a marginally lower TP of RM1.54/share (from RM1.63/share previously). Our TP is derived based on NPV of all its producing assets’ future free cash flows (FCF), after accounting for each asset’s targeted lifespan. At about only 3x revised FY23F P/E, we believe that Hibiscus is a compelling case and is conspicuously undervalued given its strong foothold in the upstream energy space.

 

Source: Hong Leong Investment Bank Research - 5 Oct 2022

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