Hibiscus’s RM2b fund raising dilutive, TP 65c


  • Analyst Reports
  • Thursday, 10 Sep 2020

“We welcome this move as it capitalises on the group’s strong growth trajectory as the probable acquisition of a new producing asset will boost its earnings immediately, ” Public Invest Research said.

KUALA LUMPUR: Public Invest Research expects Hibiscus Petroleum’s RM2bil fund-raising exercise to be dilutive near to medium-term, with significant generation of earnings from its new portfolio asset only likely from 2022 onwards.

In its research report issued on Thursday, it sees possible upward adjustments to production and offtakes, hence the potential enhancements to its discounted cashflow (DCF) valuations.

“That said, we maintain our earnings forecast and DCF-based TP of 65 sen for now, pending further details of potential asset acquisitions. Maintain Neutral, ” it said.

PIVB Research said that overall, it likes the longer-term prospects of the group despite concerns about the fund-raising exercise.

The exercise to raise RM2bil will be via a private placement of convertible redeemable preference shares (CRPS) of up to two billion units.

A total of two billion CRPS will be issued at RM1 per CRPS, hence RM2bil being raised in single or multiple tranches. The proposals are expected to be completed by the first half of 2021. § Funding its growth.

“We welcome this move as it capitalises on the group’s strong growth trajectory as the probable acquisition of a new producing asset will boost its earnings immediately, ” it said.

With its new asset i.e. Marigold & Sunflower taking some time to kick-off and being capex-heavy, the current operating environment is more appropriate for an investment into a producing asset which will simultaneously generate good returns for the group.

Recall, the group acquired its Anasuria and North Sabah producing assets during the low oil price environment.

Of the RM2bil, with RM1.9bil to be utilised within 24 months for a maximum of 3 acquisitions in good-value high-quality producing oil and gas assets in South East Asia.

The assets will need to have a payback period of less than five years and an internal rate of return of more than 12%.

“Earnings per share of the group will be diluted massively as a result of the issuance of the new Hibiscus shares upon the conversion of the CRPS.

“However, the impact is short-term and will be offset by the earnings accretion from the acquisition of new producing assets, expected from FY22 onwards, ” it said.

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