Hibiscus Petroleum to record moderate growth for next two years
KUALA LUMPUR: Hibiscus Petroleum Bhd (Hibiscus Petroleum) has been projected to record moderate growth for the next two years, followed by a sharp escalation in financial year 2023 (FY23F).
AmInvestment Bank Bhd (AmInvestment Bank) recapped that in FY20, the group had delivered only 10 shipments (seven in Malaysia and three in the UK) in FY20 which, together with a lower crude oil prices, contributed to the group’s losses.
“The lower deliveries stemmed largely from a temporary fourth quarter of FY20 (4QFY20) decline in Anasuria’s daily production, which led to a delayed shipment in early July 2020,” the research firm said.
“Based on a lower crude oil price of US$50 per barrel for FY21F versus an average of US$58 per barrel in FY20, we are projecting the group’s core net profit decrease by 11 per cent to RM64 million despite an increase in cargo shipments from 10 to 12 cargo shipments - four deliveries in Anasuria and eight for North Sabah.”
For FY22F, AmInvestment Bank forecasted a higher crude oil price of US$55 per barrel which supports a core net profit growth of 12 per cent to RM71 million, partly offset by a natural decline of six per cent in daily net production.
For FY23F, the research firm projected the group’s core net profit to rise more sharply by 28 per cent to RM91 million due to doubling in Anasuria’s daily net production to 6,000 barrels with the commencement of the Teal West field production by the end of 2022.
On another note, AmInvestment Bank gathered that Hibiscus intends to utilise the net proceeds of RM1.9 billion to purchase up to three oil and gas (O&G) assets in Southeast Asia.
“The group intends to only approve the investment in assets which generate a minimum project internal rate of return (IRR) of 12 per cent with a maximum cash flow payback period of up to five years.
“Based on these investment parameters together with cost of equity of 10 per cent, we estimate that such an acquisition translates to a five sen or six per cent dilution in sum of parts (SOP) per share due to the massive share base expansion assuming a conversion price of RM0.66 for the remaining RM1.8 million convertible redeemable preferred stocks (CRPS) which will be issued to fund the investment.”
To mitigate any potential dilution from the CRPS issuance, the research firm estimated that the prospective asset would need to generate an IRR of at least 15 per cent.
“Nevertheless, any dilution from the additional CRPS issuance could be mitigated if the conversion price is set higher at RM0.73 per share due to improving share price.”
AmInvestment Bank estimated that the group’s 1QFY21 net cash balance of RM77 million together with FY21F-FY22F free cash flows of RM610 million should be sufficient to fund the group’s capex programme, which could reach RM440 million over the next two years.
“Hence, Hibiscus’ own operating cash flows should be able to fund the needed capex to maintain and enhance the production levels for North Sabah and Anasuria.
“However, the group will need to trim its stakes in the M&S and Australian assets to fund the development capex upon reaching final investment decisions, which have been deferred until the end of this year.
“For the funds needed for the next phase of acquisition growth, Hibiscus’ CRPS programme is awaiting the successful results of the group’s bidding process for the regional O&G assets currently on offer.”