• Hibiscus Petroleum (Hibiscus) stock price took a beating in 4Q23 in tandem with lower oil price. Nonetheless, we are optimistic that oil price will find a floor at USD70/bbl driven by proactive measure by OPEC+ to deepen its production cut.

• In near term, the company has allocated some USD400mn in total capex for production enhancement projects to arrest the natural production decline at North Sabah and Anasuria Cluster fields.

• Maintain our ‘BUY’ call on Hibiscus with an unchanged TP RM3.40. The recent share price weakness offers a good opportunity to accumulate the stock.

Higher- for-longer Oil Price Scenario Remain Intact

We are cautiously optimistic with higher-for-longer oil price scenario which bodes well for Hibiscus Petroleum (Hibiscus). This is underpinned by OPEC+ role that has regained its status as swing producer and market maker in the oil market. Given its position of influence in the market, we are optimistic that its recent announcement to deepen its production cut will put a floor to the oil price. We believe this is necessary in light of higher US production in recent months (pls refer to our 2024 Sector Outlook report for more details).

Maintaining Production via Production Enhancement Projects

In near term, the company is set to invest in production enhancement projects in Malaysia and UK. This is necessary to maintain production level at both North Sabah and Anasuria Cluster which are currently producing below its 5-year average level of 15,500 bpd and 2,500 bpd respectively (Chart 1 and 2). To recap, it has commenced the execution of the South Furious 30 (SF30) Water Flood Phase 2 at North Sabah field with total capex of USD155mn. It expects to produce first oil from this project by 1QFY25. In the UK, the company plans to develop the Teal West field via an oil producer well linked to existing Anasuria FPSO, followed by the drilling of a water injector well in the subsequent 12-18 months. The company has set aside USD110mn capex for this project with the first oil planned in 1QFY26.

Risk to Earnings Forecast

We project Hibiscus to achieve a healthy profit of RM438mn/RM331mn for FY24F/FY25F owing to its robust production outlook. This is based on our oil price assumption of USD85/bbl. Downside risks to our earnings could emanate from (i) natural decline of production rate, (ii) changes to tax regime in the UK and (iii) unplanned shutdown of production facilities.

Maintain BUY on Hibiscus with TP of RM3.40

Maintain a BUY call on Hibiscus with an unchanged TP RM3.40. Our TP implies 0.9x FY24F P/B and 6x FY24F P/E. We like the company’s proven track record in delivering growth while maintaining prudent financial management.

Source: BIMB Securities Research - 15 Jan 2024