Hibiscus reported a 1QFY23 core net profit of RM135.3m (-47% QoQ, +226% YoY). We deem the results to be within expectations at 25% of both ours and consensus full-year estimates respectively. Core net profit dipped 47% QoQ due to: (i) significantly lower offtake volume throughout the quarter of 1.5m boe in 1QFY23 (vs. 2.0m boe in 4QFY22); and (ii) lower average realised crude oil price across all of its major assets throughout the quarter. All-in, we maintain BUY on Hibiscus with an unchanged TP of RM1.56/share, which is derived based on NPV of all its producing assets’ future free cash flows (FCF) – after accounting for each asset’s targeted lifespan.

Within expectations. Hibiscus reported a 1QFY23 core net profit of RM135.3m (-47% QoQ, +226% YoY). We deem the results to be within expectations at 25% of both ours and consensus full-year estimates respectively.

Dividend. No dividends were declared in 1QFY23 – which was well expected.

QoQ. Core net profit dipped 47% QoQ due to: (i) significantly lower offtake volume throughout the quarter of 1.5m boe in 1QFY23 (vs. 2.0m boe in 4QFY22); and (ii) lower average realised crude oil price across all of its major assets throughout the quarter.

YoY. Core net profit grew more than 3x YoY due to: (i) recognition of FIPC assets’ sales volume in 1QFY23 – Kinabalu Oil and PM3CAA; and (ii) significantly higher realised crude oil prices YoY across all of its major assets throughout the quarter.

Key briefing takeaways. Below are our key takeaways from our discussion post results with Hibiscus’s key management team yesterday:  

1) The subsea riser for the group’s Anasuria asset has been successfully replaced (at end-Sept 2022).  

2) Management has guided that the 1Q of every financial year will be the heavy maintenance quarter annually.  

3) Realised gas prices in the PM3CAA asset dipped 28% QoQ to USD5.78/mscf. The group has guided for slightly lower gas prices over the next few months because of a huge influx of supply post-embargo of Russian refined products (high sulphur fuel oil) in the Asian market.  

4) The group has guided for its tentative offtake volume schedule for the next 2 quarters – which is 2.1m boe and 1.8m boe for 2-3QFY23 respectively. Also, the group has added that it remains on track to sell a total of approximately 7.2m to 7.5m boe in FY23 (vs. 4.6m for FY22).  

5) We highlight that the group is currently in discussion with Petronas and PetroVietnam to extend the recently acquired PM3CAA’s producing license by another 10 years (till 2037). If approved, Hibiscus aims to drill more wells for the asset in 2024-2025. We gather that the minimum project IRR for Hibiscus to take on this extension and additional capex stands at 15%.  

6) Tentatively, Hibiscus is targeting at a total offtake volume of 7.2-7.5m boe for FY23 (vs. 4.6m boe for FY22). See Figure #4 for more details. 

7) Hibiscus expects the first oil for the Teal West asset to be at mid-CY24 (net production of about 4-5k bpd) and Waterflood Phase 2 to be at 2HCY2024 (net production of about 6k bpd).

Forecast. Minor tweaks after updating the group’s latest annual report figures.

Maintain BUY, unchanged TP: RM1.56/share. We maintain BUY on Hibiscus Petroleum with an unchanged TP of RM1.56/share, which 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 4x FY24F 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 - 23 Nov 2022