Brunei Projects Will Expand Production Amid Tax And Market Uncertainties

Key Takeaways

• Strategic asset acquisitions and production enhancements are set to elevate revenue and profit margins through increased operational efficiency and production capacity.
  
• Shareholder value is being prioritized through tax optimization, share buybacks, and dividend increases, potentially enhancing investor returns and EPS.
  
• External and operational challenges, including new tax liabilities, forex volatility, and integration risks, could strain Hibiscus Petroleum's margins, cash flow, and revenue growth.

Catalysts

Engages in the exploration, development, and sale of oil and gas.

• The Brunei asset acquisition is expected to significantly increase production volumes, which could drive higher revenue as more barrels of oil equivalent are being realized in future quarters.
  
• The planned increase in production capacity through infill wells and well intervention campaigns is set to enhance the company's operational efficiency and production rates, potentially improving net margins.
  
• The upcoming LPC project in Brunei, slated for completion in late 2025, is likely to bolster production capabilities and revenue, particularly as condensate sales are expected to generate high margins due to low associated costs.
  
• Hibiscus is strategically managing its tax position in the UK by carefully planning capital expenditures to optimize deferred tax assets and minimize cash tax outflows, which could positively affect net earnings.
  
• With ongoing share buybacks and plans for dividend increases, investor returns are poised to improve, potentially boosting earnings per share (EPS) and making the stock more attractive to investors.

Hibiscus Petroleum Berhad Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hibiscus Petroleum Berhad's revenue will decrease by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 14.9% today to 14.3% in 3 years time.
• Analysts expect earnings to reach MYR 327.5 million (and earnings per share of MYR 0.42) by about May 2028, down from MYR 369.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting MYR430.4 million in earnings, and the most bearish expecting MYR160.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.7x on those 2028 earnings, up from 3.1x today. This future PE is lower than the current PE for the MY Oil and Gas industry at 13.9x.
• Analysts expect the number of shares outstanding to decline by 5.01% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.39%, as per the Simply Wall St company report.

Hibiscus Petroleum Berhad Future Earnings Per Share Growth

Risks

• Uncertainties surrounding the U.K.'s Energy Profits Levy (EPL) may lead to future tax liabilities, impacting net margins due to increased taxation on oil and gas revenues.
  
• The decline in realized oil and gas prices may offset gains in production and sales volume, affecting revenue growth even amid operational improvements.
  
• The company's high level of planned CapEx for drilling and maintenance, particularly in North Sabah and PM3, could strain cash flows or increase financial risks if not efficiently managed.
  
• Foreign exchange volatility, especially the fluctuations between the U.S. dollar and Malaysian ringgit, could impact the valuation of assets and liabilities, leading to possible impairments that affect the financials.
  
• The dependence on successful integration and performance of newly acquired assets, such as in Brunei, comes with execution risks and uncertainties, which could affect expected earnings and operational cash flows.

Valuation

• The analysts have a consensus price target of MYR2.208 for Hibiscus Petroleum Berhad based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MYR2.81, and the most bearish reporting a price target of just MYR1.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MYR2.3 billion, earnings will come to MYR327.5 million, and it would be trading on a PE ratio of 5.7x, assuming you use a discount rate of 10.4%.
• Given the current share price of MYR1.55, the analyst price target of MYR2.21 is 29.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.