We maintain BUY on Hibiscus Petroleum (Hibiscus) with a lower sum-of-parts-based fair value of RM1.29/share (from RM1.40/share previously) after lowering our daily production rate and realised oil price assumptions. Our fair value includes a premium of 3% for an ESG rating of 4 stars.
This also implies an enterprise value (EV)/proven and probable reserve (2P) valuation of US$7.82/barrel, at a discount of 34% to the regional average of US$11.90/barrel.
Hibiscus’ 9MFY23 core net profit (CNP) of RM355mil underperformed, coming in at 62% of our FY23F earnings and 70% of consensus’. Therefore, we trimmed our FY23F/FY24F earnings by 22%/23% upon lowering our daily production rate and average realised oil price assumptions.
The group also declared an interim dividend of 0.75sen/share, bringing the 9MFY23 total dividend to 1.5 sen/share – which represents a dividend payout ratio of 11%.
YoY, 9MFY23 revenue more than doubled (+2.2x YoY) to RM1.8bil anchored by higher contribution from Hibiscus Peninsular (also known as Repsol assets) coupled with higher crude oil sales volume and average realised oil price. As a result of the higher revenue, 9MFY23 net profit also surged by +2.9x YoY despite being partially dragged by lower profit margins and a higher effective tax rate.
QoQ, 3QFY23 revenue dropped by 27% as a result of slightly lower volume of oil and condensate sold and lower average realised selling prices. North Sabah’s sales volume fell 44% QoQ with only 1 offtake, compared to 2 offtakes in 2QFY23. This was mitigated by higher sales volume from Kinabalu Oil (+9% QoQ), PM3 CAA (+21% QoQ), and Anasuria (+7% QoQ).
Notably, PM3 CAA recorded higher revenue by 26% QoQ despite lower average realised oil price, mainly propelled by higher crude oil sales volume amid higher net daily production rate of 11,180 barrels of oil and oil equivalents (boe) – up 27% QoQ from 2QFY23.
Subsequently, the group’s 3QFY23 CNP declined by 38% QoQ in tandem with the lower revenue and margin contractions. However, we note that the decrease in effective tax rate by 14%-point QoQ to 52% in 1QFY23 moderately cushioned the drop in earnings.
Operationally, PMA CAA’s daily production rate continued to rise for the second consecutive quarter and is expected to further increase to 15K boe levels from the ongoing drilling of new production wells over the coming quarters. In the meantime, North Sabah’s average daily net production also improved slightly by 2% QoQ to 4,704 barrels of oil per day (bopd) in 3QFY23.
However, Kinabalu and PM305 & PM314 fields recorded a lower daily production rate of 2,442 bopd (-26% QoQ) while Anasuria’s daily production also dipped lower to 2,699 bopd (-10% QoQ).
The management has revised its full-year FY23F sales target to 7.2 million barrels of oil and oil equivalents (mmboe), down from 7.2-7.5 mmboe previously.
Over the coming 2-3 years, the group’s earnings growth trajectory will be underpinned by ongoing organic expansions, namely the SF30 Waterflood Phase 2 project in North Sabah and Teal West project in Anasuria. Both projects, which are scheduled to be completed in 2HCY24, are estimated to increase Hibiscus’ daily production by an additional 5K-6K barrels of oil equivalent per day (boe/day) or 26%-32% to 26K boe/day.
The group also targets to reach a daily production of 35K-50K boe/day by 2026, which hinges on an aggressive pipeline of exploration and development opportunities within the existing portfolio as well as the addition of new assets via acquisition and bidding of new licenses.
Currently, Hibiscus is trading at an appealing EV/2P reserve of US$5.72barrel, at a discount of 24% to its closest peer, UK-listed EnQuest, and 52% to the regional average.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....