We are optimistic with Hibiscus’ growth potential given its status as one of the largest home-grown independent exploration and production (E&P) companies in Malaysia. Its average production stood at c.21k barrel of oil equivalent per day (boepd) in 3QFY24. Management remains firm with its target to double its production output to 35-50k boe/day by 2026.
In near-term, we expect Hibiscus’s earnings to remain robust with a healthy profit forecast of RM438mn/RM331mn/RM187mn for FY24F/FY25F/FY26F respectively. The company is currently executing several projects to boost its production such as SF30 Water Flood Phase 2 (SF30 Ph2) and UK Teal West (UKTW) development projects. Management guided that SF30 Ph2 will add 1-1.5k bpd of oil production from 2QFY25 while UKTW will boost production by 4-5k bpd beginning 2QFY26. All in, this should boost its production to c.25k boepd by end FY26. This is higher than our production assumption of 20k boepd as we have not taken these projects into our forecast.
As mentioned above, the 2026 production target can’t be achieved solely based on development projects in the pipeline. Hence, the company will need to pursue another acquisition of producing asset to attain its target. There are several M&A opportunities that is worth pursuing. Petrofac’s ailing financial condition has prompted the company to continue looking for a buyer to its Malaysian asset after a failed process in 2019. Besides that, Chevron could also be looking for a potential buyer for Hess’ Malaysia operation after the acquisition of Hess completed.
Maintain a BUY call on Hibiscus with an unchanged TP RM3.40. Our TP is derived using DCF methodology that implies 0.9x FY24F P/B and 6x FY24F P/E (refer table 1). We like the company’s proven track record in delivering growth while maintain prudent financial management. Key downside risks to our earnings comes from the fallout of OPEC+ which could lead to lower oil price
Source: BIMB Securities Research - 17 Jul 2024
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