Energy beast
Initiate with BUY. MYR1.70 TP
Hibiscus is the best play for a cyclical, rising energy price market. It is fundamentally sound (low P&L break-even oil price; sub-USD40+/ boe), financially resilient, well-run and offers compelling growth (3-year NP CAGR of 53%) with undemanding valuations. Our TP is conservatively pegged to USD10/ boe of EV/ 2P valuation (@ 10x FY23 PER), a 45% discount to its peer average of USD19/ boe. Accretive M&As, asset monetisation deals or additional 2P reserves upside would add to upside.
A direct proxy to oil price play; proven to deliver
Hibiscus, a pure upstream O&G operator is the most leveraged O&G play to capitalise on the strong energy push. FY22-24 earnings will grow by 35%- 54% for every USD10/bbl rise in oil price. It has a relatively low lifting cost (P&L break-even oil price of sub-USD40/boe). A remarkable feature of Hibiscus is its impeccable M&A track record. It has been proven able to: (i) discover (Anasuria, North Sabah & Repsol deals), (ii) develop (grow 2P reserves, 2C resources & production) and (iii) deliver (earnings growth,
cashflows) while (iv) maintaining a strict capital discipline, testament to its cost-focused & bottomline-driven philosophy.
Latest Repsol M&A brings many positives
We are positive on this Repsol M&A. The deal, transacted at USD212.5m: (i) is undemanding; equates to USD6.16/ boe 2P reserves, a 25% discount to RPS Energy’s valuation, (ii) lifts its production/ 2P reserves/ 2C resources by almost 3x/ 2x/ 2x, (iii) offers Hibiscus the prospect to diversify its assets portfolio to 17% gas: 83% oil (vs. 2% gas: 98% oil previously); a crucial aspect, in its ESG and energy transition quest.
Deeply undervalued with compelling upside
Our TP, based on USD10/ boe of EV/ 2P reserves, is undemanding vis-à-vis its peers that trade at higher multiples (USD12-31/boe). We prefer this valuation method over others for it captures the cyclical nature of its operations and takes into account its balance sheet and cashflows aspects. We see further upside should it succeed in converting some of its sizeable 2C resources (73.2m bbls) to 2P reserves and/ or monetise some of its development fields (i.e. Marigold, Australia) along the way.