• Maintain BUY (TP: RM3.40). Hibiscus Petroleum (Hibiscus) 9MFY24 core PBT of RM650.5mn (+20% YoY) was inline with our estimate at 72%. This is after adjusting out one-off exploration well write-off charges amounting to RM78.9mn. The company declared a 3rd interim DPS of 2sen bringing 9MFY24 DPS to 6sen. Management remain firm with its target to double its production rate to 35-50k boe/day by 2026. Maintain a BUY call on Hibiscus with unchanged DCF-derived TP of RM3.40.

• Key Highlights. The company has expensed the cost relating to South Furious (SF) Ungu ST and SF Ungu Merah exploration wells that were found not commercially viable for development. However, the result of the third exploration well (i.e. SF Ungu well) will only be finalised in early CY25. Thus, the drilling cost amounting to RM46.3mn is currently capitalised as non-current intangible asset. Despite huge well write-off expenses, headline PATAMI was still robust at RM101.8mn driven by (i) tax benefit from the exploration expenses, (ii) reversal of tax overprovision amounted to RM26.7mn, and (iii) lower maintenance cost. Average production slipped 5% QoQ to 21.1k boe/day due to compressor issues at Kinabalu field. Oil sales volume was largely flattish at 1.1mn barrels but average realised oil price was higher by 8% YoY at USD91.3/bbl (3Q23: USD85/bbl). This, coupled with weaker ringgit against US dollar, led revenue to grow by 15% YoY to RM603.5mn. Core EBITDA margin improved to 60.7% (3Q23: 54.6%, 2Q24: 47.6%) mainly due to lower maintenance cost but this is expected to increase in 4Q24 as opex/boe is seasonally the highest in 4Q of any financial year.

• Earnings forecast. No change to our forecast.

• Outlook. Oil sales volume is projected to increase by c.30% to 1.4mn bbls on additional offtake from North Sabah. This is expected to offset higher maintenance cost in 4Q24. However, production rate may only rise substantially upon completion UK Teal West development project (target first oil 1HFY26).

Source: BIMB Securities Research - 23 May 2024