KUALA LUMPUR (Jan 4): Shares of Reach Energy Bhd jumped 3.79% this morning after Hong Leong IB Research initiated coverage on the stock with a “Buy” rating at 66 sen and target price of 83 sen and said the company was now an oil and gas (O&G) Junior.

At 9.09am, Reach Energy added 2.5 sen to 68.5 sen with 1.25 million shares traded.

In a note today, the research house said that upon getting vote acceptance for QA on 16th Nov 2016, Reach has now a become a full-fledged exploration and production (E&P) oil junior.

It said the acquisition price of oil asset was determined when Brent was at US$37/bbl, not far off from its multiyear low of US$27/bbl, indicating that it’s a cheap purchase.

“MIEH (vendor for the QA) has already invested in a Central Processing facility (CPF).

“Phase 1 of the facility is expected to be completed in early 2017 which could easily double its oil production to more than 10,000 bbls/day.

“Phase 2 (expected 2020) would again bring its oil production to level in excess of 20,000bbls/day upon completion,” it said.

The research house said that at the current share price, market seems to be pricing in long term nominal oil price of US$67/bbl (for 20-year time frame) based on our backward calculation assuming other variables being constant, implying overly conservative market view on the stock.

“Our discounted FCFE (10% discount rate) approach has yielded a target price of 83 sen at fully diluted level.

“Near term exercise of warrants is unlikely as the expiry date has been extended for another 5 years post acceptance of QA by its shareholders.

“To illustrate, excluding dilution impact from warrants, our target price would be at 91 sen. Initiate with Buy,” it said.