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Hibiscus' fundraising to pose massive impact on EPS: PublicInvest

NST Business

KUALA LUMPUR: Hibiscus Petroleum Bhd's earnings per share (EPS) will be diluted massively over the medium term as a result of its huge fundraising, Public Investment Bank Bhd (PublicInvest) said.

PublicInvest, however, said the impact of the issuance of new shares upon the conversion of the convertible redeemable preference shares (CRPS) would be offset by the earnings accretion from the acquisition of new producing assets, expected from financial year 2022.

Yesterday, Hibiscus announced that it was raising RM2 billion via a private placement of up to two billion CRPS.

Hibiscus said about RM1.9 billion would be utilised within 24 months for a maximum of three acquisitions in good-value high-quality producing oil and gas assets in Southeast Asia.

Hibiscus added that the assets would need to have a payback period of less than five years and an internal rate of return of more than 12 per cent.

"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," PublicInvest said.

"With its new asset i.e. Marigold & Sunflower taking some time to kick-off and being capex-heavy, the current operating environment is more appropriate for an investment into a producing asset which will simultaneously generate good returns for the group," it added.

PublicInvest said while it liked the longer-term prospects of the group, the fundraising would be dilutive near to medium-term, with significant generation of earnings from its new portfolio asset only likely from 2022.

"We see possible upward adjustments to production and offtakes, hence the potential enhancements to our DCF (discounted cash flow) valuations," it said in a note today.

PublicInvest said for now however, it was too preliminary to gauge the effects given the lack of details of potential acquisitions.

It said the fundraising exercise might result in an estimated maximum finance cost of RM103.9 million.

This represents the accretion of the liability component of the CRPS over the period until financial year endinf June 30, 2021, although this will be mitigated by potential income from the investment in funds placed in the Trust Account.

"The finance cost also assumes that the entire CRPS units are issued in one tranche with no CRPS being redeemed or converted, which isn't likely to be the case, hence the actual impact being lower than the quantum quoted," it said.

PublicInvest has maintained its "neutral" call on Hibiscus with an unchanged target price of 65 sen.

At 10.34am, Hibiscus is at one sen lower, or 1.79 per cent, at 55 sen.

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