Up, up and away
TP raised to MYR1.90. BUY
Our higher TP, pegged to USD10/boe 2P reserves largely incorporates for higher crude oil price outlook (+USD10/boe), which lifts FY22-24 earnings estimates by 9-28%. Hibiscus is the best play for a cyclical, rising energy price market – fundamentally sound, financially resilient and offers compelling growth (3-year NP CAGR of 80%) with undemanding valuations. Extension to Repsol’s PSC, asset monetisation deals on its 2C resources or additional 2P reserves upside would add to upside.
Best play for a cyclical, rising, energy price market
Hibiscus, a pure upstream O&G operator, with a relatively low lifting cost (P&L break-even oil price of sub-USD40/boe), is the most leveraged O&G play to capitalise on the strong energy push. Oil price has surpassed USD100/ bbl and should sustain over an extended period, for the energy market is facing a trilemma: (i) stronger demand growth post-pandemic, (ii) supply disruption (structural under-capacity) and (iii) rising geopolitical risk (Russia-Ukraine crisis).
Strong 3-year NP CAGR of 80% (FY21-24)
We: (i) raise our crude oil price outlook by USD10/boe to USD90/ USD85/ USD85/boe in FY22/ 23/ 24 but (ii) lowered Repsol’s FY22 output by 2k boe, which raises its OPEX/ boe by USD3. The Repsol acquisition
(completed on 24 Jan 2022) is timely, to ride on the higher oil price outlook. All in, we expect Hibiscus to see strong earnings growth in FY22 (3.1x YoY) and FY23 (1.9x YoY) respectively (3-year NP CAGR of 80%).
Upsides: Repsol PSC extension, monetising UK assets
Our TP (+12% revision), 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: (i) securing Repsol’s PSC extension, (ii) converting some of its sizeable 2C resources (73.2m bbls) to 2P reserves and/ or (iii) monetise some of its development fields (i.e. Marigold, Australia) along the way.