Hibiscus delivers on its promise

Analysts were generally positive over the development, with most maintaining their “buy” calls on the Hibiscus stock.

PETALING JAYA: Hibiscus Petroleum Bhd’s acquisition of exploration and production (E&P) assets in Malaysia and Vietnam from Spanish oil and gas company Repsol Exploración, S.A. is value-accretive, especially given the current healthy oil price environment.

Analysts were generally positive over the development, with most maintaining their “buy” calls on the stock.

In a report, BIMB Securities Research said the acquisition which will cost US$212.5mil (around RM877mil) suggested that the company is delivering on its promise to acquire producing assets.

“Once the purchase is completed, we believe this will enhance its profile as a capable and prominent E&P player hence opening up opportunities to acquire larger assets including Exxon’s Malaysian asset, ” it said.

AmInvestment Bank in its report said the value-accretive transaction translates to an attractive US$2.72 (RM11.22) per barrel of oil equivalent, half of Hibiscus’ existing enterprise value/proven and probable reserves or EV/2P, which is a ratio used to value oil and gas companies’ reserves.

Generally, a lower value would imply a potentially undervalued company.

“Based on the enterprise value for the group’s existing 2P reserves precluding any new acquisitions, Hibiscus is currently only trading at US$5.40/barrel (RM22.27) – at a discount of 41% to its closest peer, UK-listed EnQuest, and half of the regional average.

“This is compelling given the more optimistic crude oil price environment, ” said AmInvestment in the report to clients.

Hibiscus has already issued RM204mil convertible redeemable preference shares (CRPS), the initial tranches of a proposed RM1bil programme to fund such an acquisition, it added.

That said, Hibiscus has not said how it plans to fund this purchase.

“The company is committed to announce the full details of the proposed acquisition by June 4 following clearance of the relevant disclosures by industry regulators, ” Hibiscus said on Wednesday.

BIMB said it expected this asset to more than double Hibiscus’ 2P reserves and production.

“Nonetheless, we made no change to our earnings forecasts pending more details from the company, ” it said, reiterating its “buy” call with an unchanged target price of RM1.20.

“We think this is fair given potential earnings contribution from the acquisition of this asset.”

AmInvestment, meanwhile, also maintained its “buy” recommendation on Hibiscus with an unchanged sum-of-parts-based fair value of 85 sen per share.

The company which suspended its stock to make way for this announcement yesterday, will resume trading on Monday.

At last look, the stock was at 65.5 sen, valuing the entire company at RM1.3bil.