• Maintain BUY (TP: RM3.40). Hibiscus Petroleum (Hibiscus) 1QFY24 core PBT of RM261mn was inline with our estimate at 29% but above consensus’ at 34%. It rose by 41% YoY mainly driven by higher O&G sales volume of 2mn barrel of oil equivalent (boe) that arose from inventory drawdown and timing of oil offtake at North Sabah. The company declared a 1st interim DPS of 2.5sen. While we expect earnings to remain robust in coming quarters, we foresee downside risk from its exploration drilling campaign that will be completed in 2HFY24. Nonetheless, maintain a BUY call on Hibiscus with unchanged DCF-derived TP of RM3.40. Our TP implies 0.9x FY24F P/B and 6x FY24F P/E.

• Key Highlights. Core PBT rose 44% QoQ and 41% YoY to RM261mn mainly due to higher sales volume from North Sabah field which arose due to timing of crude oil offtake. Overall, oil sales volume rose by 36% QoQ and 41% YoY to 1.4mn bbls. Total oil and gas sales stood at 2mn boe which made up 26-27% of its FY24 sales target of 7.5- 7.8mn boe. Meanwhile, average production rose slightly by 4% QoQ to 20,000 boe/day due to higher gas production which made up 38% of production mix. However, this is still below its highest level of 21,200 boe/day recorded in 3QFY23.

• Earnings forecast. No change to our forecast. However, there is upside risk to our DPS forecast of 6.3sen in FY24 as the company targets to distribute 7.5sen DPS for FY24 which implies 2.8% yield.

• Outlook. Its SF30 Water Flood Phase 2 project is progressing as planned to achieve the first oil in 1HFY25. However, the planned first oil for Teal West project is delayed to 1HFY26 amidst supply chain delivery issue. Nonetheless, we expect earnings to remain robust in the coming quarters as its average production sustains at 20,000 boe/day. Key downside risk to our earnings forecast is the potential negative outcome of its exploration work which entails drilling of 3 wells at SF Ungu, SF Ungu ST and SF Merah in North Sabah and 1 well at Bunga Aster in PM3 CAA with potential exposure of USD20mn.

Source: BIMB Securities Research - 23 Nov 2023