KUALA LUMPUR: Despite tracking the surge in crude oil prices over recent months, Hibiscus Petroleum Bhd remains a bargain with strong growth prospects in the coming quarters, says Hong Leong Investment Bank (HLIB) research.
The research firm, which has initiated coverage on the company, said Hibiscus is "conspicuously undervalued" given its strong foothold in the upstream energy space.
It expects an earnings boost from the acquisition of Fortuna International Petroleum Corp (FIPC) from Repsol Exploración S.A, which it predicts will increase production output by almost threefold over the next two financial years.
"We note that the total forecasted production output for Anasuria and North Sabah assets in FY22-23f are 7.8k and 8.8k boepd respectively.
"FIPC assets would boost an additional 14.3k and 14.6k boepd for FY22-23f, effectively increasing production output by almost 3-fold to a total of c.22.1k and 23.4k boepd respectively," it said.
It noted that as the group's acquisition of FIPC was only completed on Jan 25, the asset's contribution will only be seen in the upcoming 3QFY22 results and beyond.
Meanwhile, HLIB also expects oil prices to remain elevated to above pre-war levels as oil producers are not incentivised to expand their production capacity due to ESG mandates, activist shareholders and difficulty in securing loans from banks.
"Besides, there is also an overhanging concern that in the event that the war deescalates and the sanctions were lifted, the Biden administration may revert to its efforts to push for a transition away from the oil industry.
"We find that oil producers are not likely to invest in further supply as they enjoy record high prices that provide their investors with big dividends," it added.
HLIB forecasts Hibiscus's core net profit to increase more than three times to RM336.2mil in FY22 and to rise another 86% to RM625.6mil in FY23.
It initiated its coverage on Hibiscus with a "buy" call and target price of RM1.85 a share.