$HIBISCS (5199.MY)$ Axcapital believes that the beaten-down ...
$HIBISCS (5199.MY)$ Axcapital believes that the beaten-down Stocks Hibiscus Petroleum (Hibiscus) holds tremendous value. Today marks the first part of a series of articles where we will outline the investment advantages of Hibiscus, and explain why we think it currently possesses profound value, providing substantial risk-reward opportunities for investors willing to challenge the narrative surrounding Hibiscus. Since 1997, Axcapital has conducted nearly 30 years of cross-industry analysis of Bursa Stocks, and aside from the Asian Financial Crisis, we have never encountered a stock as severely mispriced and undervalued as Hibiscus.
A Brief History of Hibiscus
Hibiscus is the only pure upstream Oil & Gas exploration and production (E&P) listed on the Malaysian Bursa. It was initially a special purpose acquisition company (SPAC) founded in 2011 by Dr. Kenneth Pereira, Managing Director, Dr. Pascal Hos (Head of Malaysia/Vietnam), and Ms. Joyce Vasudevan (Head of Corporate Finance). By 2024, it has transformed into an E&P company with five Assets, holding interests in the United Kingdom, Sabah, Brunei, and Vietnam. As an E&P company, it is no surprise that Hibiscus' stock price is closely linked to oil prices.
A Brief History of Hibiscus
Hibiscus is the only pure upstream Oil & Gas exploration and production (E&P) listed on the Malaysian Bursa. It was initially a special purpose acquisition company (SPAC) founded in 2011 by Dr. Kenneth Pereira, Managing Director, Dr. Pascal Hos (Head of Malaysia/Vietnam), and Ms. Joyce Vasudevan (Head of Corporate Finance). By 2024, it has transformed into an E&P company with five Assets, holding interests in the United Kingdom, Sabah, Brunei, and Vietnam. As an E&P company, it is no surprise that Hibiscus' stock price is closely linked to oil prices.
1. In terms of revenue, EBITDA, and Net income, Hibiscus has grown 3 to 4.5 times compared to four years ago. The production is three times that of 2021, and its oil reserves (2P and 2C) are 1.6 times higher.
2. However, its trading price is a quarter of the multiple from 2021 (3.3 times vs. 11.8 times). This might be understandable if the Brent Crude Oil price had completely collapsed. But according to the table above, the Brent price is only slightly lower than in 2021.
Investors need to remember that in 2021, the world was in the midst of the COVID-19 pandemic. Four years later, Hibiscus’s trading price is at 25% of its COVID multiple! Its Market Cap is 20% lower than in 2021.
3. Last year, oil prices (WTI) ranged between $65 and $85. Currently, it has found support at $65 in three bottoms.
2. However, its trading price is a quarter of the multiple from 2021 (3.3 times vs. 11.8 times). This might be understandable if the Brent Crude Oil price had completely collapsed. But according to the table above, the Brent price is only slightly lower than in 2021.
Investors need to remember that in 2021, the world was in the midst of the COVID-19 pandemic. Four years later, Hibiscus’s trading price is at 25% of its COVID multiple! Its Market Cap is 20% lower than in 2021.
3. Last year, oil prices (WTI) ranged between $65 and $85. Currently, it has found support at $65 in three bottoms.
The conclusion from Axcapital is simple. At the current price, investors are getting a company that is 3 to 4 times larger than four years ago at a 75% discount to the 2021 multiple. There is an investment approach known as GARP, which stands for Growth at a Reasonable Price, where investors look for companies with strong growth potential at reasonable valuations. We believe Hibiscus is also a GARP stock, but investors are getting growth at an absurd price. Such an opportunity only exists as an anomaly and may occur only a few times in a person's investment career.
Imagine that the eventual valuation gap closes to fair value, using an 11.8 times PE ratio, just like in 2021. Hibiscus could trade up to 4.73 Ringgit, a 320% increase from the current level! With strong support at 1.40-1.50 Ringgit and a current dividend yield of over 5%, the risk-reward at the current price level is asymmetrically to the upside.
In future articles, various aspects of Hibiscus Business, capital management, and stock price characteristics will be discussed in more detail.
Imagine that the eventual valuation gap closes to fair value, using an 11.8 times PE ratio, just like in 2021. Hibiscus could trade up to 4.73 Ringgit, a 320% increase from the current level! With strong support at 1.40-1.50 Ringgit and a current dividend yield of over 5%, the risk-reward at the current price level is asymmetrically to the upside.
In future articles, various aspects of Hibiscus Business, capital management, and stock price characteristics will be discussed in more detail.
Source of the article:Hibiscus Petroleum - Rock bottom valuation, outsized risk-reward opportunity.
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