HLIB Research maintains 'buy' call on Hibiscus

KUALA LUMPUR: Hibiscus Petroleum Bhd plans to achieve 35-50 kilo barrels per day (kbpd) by 2026 from its current rate of 22kbpd. 

Hong Leong Investment Bank (HLIB) Research stated that with net incremental barrels coming from the recently drilled Bunga Aster-1 under PM3 CAA by May 2024 as well as Teal West and South Furious 30 by the end of 2024, the Hibiscus production rate will grow to 27–28 kbpd by 2025. 

"To supercharge its production rate towards its ambition, we understand that Hibiscus is on the lookout for brownfield acquisitions. 

"Although the mode of funding is still uncertain at this juncture, management guided that the hurdle rate would be 15 per cent and a payback period of less than four to five years," it said in a note. 

The firm maintained "buy" on the stock with a target price of RM3.20. 

Hibiscus recorded a core net profit of RM110.6 million in the second quarter of 2024 (Q2 2024).

"We expect sequential weakness in Q3 2024 given the lower guided offtake volume of 1.77 million boe, with a flattish average Brent oil price of US$82/bbl. 

"Nonetheless, we anticipate Hibiscus's earnings to bounce back in Q4 2024, backed by a higher guided offtake volume of 2.06 million boe with the assumption that Brent oil prices will stay above US$80/bbl in the quarter."

Hibiscus has earmarked US$200 million in capital expenditure (capex) each in financial years 2024 (FY24) and FY25 for its producing assets, which are mainly used for UK Teal West development and North Sabah's South Furious projects. 

The research firm stated that capex will be sufficiently funded by internally generated funds. 

"Even if the price hovers at US$70–80/bbl, it will not warrant a drawdown from its existing debt facilities. 

"In our view, the capex plan is not expected to strain its balance sheet given its unrestricted net cash position of RM486 million as of end-C202323 and its ability to generate an ebitda of RM1.3 billion in FY23."

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