Eyes on Hibiscus as investors capitalise on the recent oil price rally

Hibiscus Petroleum Bhd looks ripe for further upward movement after a bullish run recently. However, news of heightening geoopolitical tension dragged the positive momentum of the stock, closing lower at RM2.76. Investors may not need to worry as long as the counter does not dip below RM2.60, which is still way above its year low of RM2.12 seen last July.

What makes Hibiscus one of investors’ favourite oil & gas stocks is its status as a pure exploration and production player.

Hibiscus' share price performance is highly correlated with global oil prices, which have surged over US$90 per barrel mainly due to escalating geopolitical tensions in the Middle East, Opec+’s decision to maintain production cuts as well as Ukrainian strikes on Russia’s refineries.

In addition, the counter is seen as highly undervalued growing company with low price earnings ratio, low price to book ratio and strong cash flow.

But investors might hold back as Hibiscus is expected to incur high capital expenditure in FY2024 and FY2025. That said, the ongoing capex should be easily covered each quarter with good PAT and should start to see increasing output/ increased revenues as they are realised.

For the second quarter ended Dec 31, 2023, Hibiscus posted a higher net profit of RM102.33 million from RM70.47 million a year ago despite registering lower revenue of RM627.55 million from RM713.13 million. There is also some sense of certainties for Hibiscus after the Fyne Field oil field development licence for its unit has been extended by 30 months by the UK's North Sea Transition Authority (NSTA).

Hibiscus’ indirect wholly-owned subsidiary Anasuria Hibiscus UK Ltd owns a 42.5% stake in the licence, with Ping Petroleum UK Plc, an indirect subsidiary of Dagang NeXchange Bhd, holding another 42.5% interest. Rapid Oil Production Ltd owns the remaining 15%.

NSTA approved the extension request for the second term of the licence from March 31, 2024 to Sept 30, 2026. Hibiscus and Ping Petroleum bought into the licence in November last year, and the first oil is expected in 2026.

WIth good potential growth for Hibiscus, the current weakness in the share price should provide a sound entry point for investors looking to capitalise on the rising crude oil prices.