Hibiscus Petroleum to ride on oil price momentum

The brokerage maintained its “buy” recommendation on Hibicus, with an unchanged sum-of-parts-based fair value of 79 sen per share.

PETALING JAYA: Rising oil prices will help boost the prospects of Hibiscus Petroleum Bhd and lift investor sentiment towards its shares.

According to AmInvestment Bank Research, the oil and gas company is currently trading at a compelling valuation amid the prevailing oil price momentum, while the group’s environmental, social and governance (ESG) quality will enhance the attractiveness of the stock.

The brokerage maintained its “buy” recommendation on Hibicus, with an unchanged sum-of-parts-based fair value of 79 sen per share.

This implied an enterprise value/proven and probable reserves valuation of US$6.10 per barrel.

This presented a discount of 35% to the valuation of its closest peer, UK-listed EnQuest, of US$9 per barrel and 48% to regional average of US$11.80 per barrel.

“This is compelling given the more optimistic crude oil price environment.

“Additionally, Hibiscus is listed on the FTSE4Good Bursa Malaysia Index with the highest four-star ESG rating, which ranks among the top 25% in the FBM Emas Index, ” AmInvestment Bank Research wrote in its report yesterday.

“Our valuation is unchanged even though we have reduced financial year (FY) ending June 30,2021, to 2022 earnings by 7% due to higher non-cash amortisation and decommissioning assumptions for the group’s 50%-owned Anasuria concession, ” it said.

Hibiscus’ core net profit for the first half (H1) of FY21 fell 67% year-on-year (y-o-y) to RM25mil.

This came in below expectations, accounting for 38% of AmInvestment Bank Research’s earlier forecast earnings for FY21 and 41% of consensus.

The decline was mainly due to a RM16mil increase in amortisation charge for intangibles and RM4mil provision increment for decommissioning costs in the second quarter of FY21 for the Anasuria cluster, which will be mostly recurring.However, the brokerage pointed out that Hibiscus had declared its maiden dividend, with a first interim 0.5 sen, although the H1’FY21 weighted average crude oil price dropped 40% y-o-y to US$40 per barrel.

“As Brent crude oil price is currently higher than US$60 per barrel, we have incorporated FY21–FY23 dividend per share of one sen, ” it said.

Meanwhile, the brokerage also noted that the company was reviewing the development sequence of either its recently acquired 70% interest in the Teal West field or its 50% equity stake in block 15/13a of the Marigold and block 15/13b of the Sunflower concessions, which was acquired for US$37.5mil cash from India-based rig operator Aban Offshore’s wholly-owned Caldera Petroleum in October 2018.

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