Listed in 2011, HIBISCUS is one of the pure play exploration & production (E&P) companies, principally engage in the exploration, development and production of oil and gas.

Over the past 4-week, oil prices has resumed its upward trajectory on the back of supply disruption due to the Hurricane Ida, reflation trade activities by investors, higher demand worldwide with the easing of pandemic restrictions, as well as difficulty in raising output from the OPEC+ as under-investment or maintenance delays persist from the pandemic. Being an E&P player, HIBISCUS is deemed to be a great proxy for higher oil prices.

Moreover, upon the completion of the proposed acquisition of high-quality offshore O&G assets in Malaysia and Vietnam from Repsol (purchase consideration ~USD213m in June 2021) by end 2021, HIBISCS daily net oil and gas output is expected to triple to 26,800 barrel of oil equivalent (BOE) per day, while its 2P net entitlement reserve will increase by more than 1.5 times. In anticipation of buoyant oil prices in the next 2-3 years (consensus Brent oil USD72.12 to USD 63.1 for 2021- 2023) as well as the earnings consolidation from Repsol assets from 2HFY22, HIBISCS earnings is expected to enjoy a massive surge of 89% CAGR from FY21-23.

After falling 15.3% from 52-week high of RM0.785 to RM0.665 yesterday, we reckon that the risk-reward is getting attractive as the HIBISCS is currently only trading at 5.7x FY22E P/E (46.7% lower than its 5-years average of 10.7). Technically, the stock is poised for a downtrend reversal in anticipation of a double bottom formation soon. A successful breakout above its neckline (RM0.67) will spur the prices toward RM0.70- 0.74-0.785 territory. Cut lost at RM0.625.

Source: Hong Leong Investment Bank Research - 28 Sept 2021