AmInvestment maintains ‘Buy’ call on Hibiscus following its Repsol asset

This also reflects a premium of 3% from its ESG rating of 4 stars, the research house says 


AMINVESTMENT Bank Research has maintained its ‘Buy’ rating on Hibiscus Petroleum Bhd with a sum-of-parts-based fair value of RM1.30, which also reflects a premium of 3% from its environmental, social and governance (ESG) rating of four stars. 

Its analyst Alex Goh said this also implies an enterprise value or proven and probable reserves (2P) valuation of US$7.10 (RM29.75) per barrel, half of its closest peer, UK-based EnQuest plc’s US$13 per barrel at a 57% discount to the regional average of US$16 per barrel. 

“Given that crude oil prices are currently trading above US$90 per barrel, our higher valuation stems from earnings increase of 7% for the financial year of 2022 (FY22F) and 32% for FY23F,” Goh said in a note. 

The research house also raised its FY22F crude oil price by US$5 per barrel to US$80 per barrel together with FY22F–FY23F weighted average crude oil price by 26% 

to US$54 per barrel for the group’s new Repsol assets. 

“However, we have largely maintained FY24F earnings with an unchanged oil price of US$60 per barrel thereafter on expectations of normalisation in global supply-demand dynamics,” he said. 

Besides, Goh expects that the recently announced prosperity tax in 2022 will not substantially impact Hibiscus’ income tax rate of 38%. 

“We view Hibiscus’ first half of 2022 (1H22) net profit of RM91 million as above expectations mainly due to higher realised crude oil prices,” he noted. 

AmInvestment also estimated that the results accounted for 41% of its earlier FY22F net profit of RM251 million after excluding any earnings projections from the completed Repsol acquisition in 2HFY22. 

“We also maintain our dividend forecasts for now as the 1H22 dividend per share of one sen appears ambitious against the backdrop of the Repsol purchase,” he said. 

On a quarterly comparison, the group’s second quarter of FY22 (2Q22) revenue rose 15% quarter-on-quarter (QoQ) largely from an 11% increase in total sales volume to 844,000 barrels, amid flattish realised oil price. 

“While this included an optional sale of an overlift volume of 90,000 barrels from the Cook field at the Anasuria cluster in December 2021 — the impact to earnings was neutral given the reimbursement to main joint venture partner Ithaca Energy Ltd in the subsequent quarter,” he added. 

Excluding the overlift volume, Hong Leong Investment Bank Research estimates that 50%-owned Anasuria concession’s North Sea sales declined by 13% to 166,000 in 2Q22 due to the continued subsea riser malfunction which is only expected to be rectified in 3Q of the calendar year of 2022. 

“However, North Sabah which accounted for 75% of 1H22 net profit, registered a 12% QoQ increase in 2Q22 daily production to 509,000 barrels with the relaxation of Covid-19 measures, driving down operating expenses by 32% QoQ to RM13 per barrel,” he noted. 

Slightly dampened by a 1%-point QoQ increase in 2Q22 effective tax rate of 45%, Hibiscus’ 2Q22 core net profit (excluding unrealised foreign exchange loss) rose 19% QoQ to RM50 million. 

“We remain positive on the upcoming contribution of Repsol assets which will double the group’s daily production to 18,500 barrels of oil (boe) and increase its 2P reserves by 72% to 81 million boe,” he further said.