KUALA LUMPUR (Sept 10): PublicInvest Research said Hibiscus Petroleum Bhd’s fundraising exercise will be dilutive in the near to medium term, with significant generation of earnings from its new portfolio assets only likely from 2022.
PublicInvest Research analyst Nurzulaikha Azali said the research house sees possible upward adjustments to production and offtake, hence the potential enhancements to its discounted cash flow (DCF) valuations.
“That said, we maintain our earnings forecasts and DCF-based TP (target price) of 65 sen for now, pending further details of potential asset acquisitions,” Nurzulaikha wrote in a note today.
Nurzulaikha, who maintained her "neutral" call for Hibiscus Petroleum, said the group is planning to undertake a funding exercise in which an estimated RM2 billion will be raised via a private placement of convertible redeemable preference shares (CRPS) of up to two billion units.
“We welcome this move as it capitalises on the group’s strong growth trajectory as the probable acquisition of a new producing asset will boost its earnings immediately.
“With its new assets, i.e. Marigold and Sunflower, taking some time to kick off and being capex-heavy, the current operating environment is more appropriate for an investment in a producing asset which will simultaneously generate good returns for the group,” she added.
To recap, Hibiscus Petroleum acquired its Anasuria and North Sabah producing assets in a low oil price environment, said Nurzulaikha.
She said the issuance of the CRPS is expected to raise total gross proceeds of up to RM2 billion, with RM1.9 billion to be utilised within 24 months for a maximum of three acquisitions of good-value, high-quality oil and gas producing assets in Southeast Asia.
The assets will need to have a payback period of less than five years and an internal rate of return of more than 12%.
The analyst noted that earnings per share of the group will be diluted massively as a result of the issuance of the new Hibiscus Petroleum shares upon the conversion of the CRPS.
“However, the impact is short-term and will be offset by earnings accretion from the acquisition of new producing assets, expected from FY22 (the financial year ending June 30, 2022).
“For now, however, it is too preliminary to gauge the effects given the lack of details of potential acquisitions,” said Nurzulaikha.
At 11.16am today, shares in Hibiscus Petroleum were 1.5 sen or 2.68% lower at 54.5 sen, bringing its market capitalisation down to RM865.58 million. It saw some 14.94 million shares traded.