KUALA LUMPUR (May 9): Hong Leong Investment Bank (HLIB) Research has initiate coverage of Hibiscus Petroleum Bhd at RM1.40 with a “buy” recommendation and a target price (TP) of RM1.85 based on the NPV of all of its producing assets’ future cash flows (FCF) — based on each asset’s targeted lifespan.

In a note on Monday (May 9), the research house said it strongly believes that investors have not priced in the exquisite prospects of Hibiscus’s profits and cash flows in the upcoming quarters — mainly from: i) additional production volumes from the completed acquisition of FIPC (Repsol) assets in Jan 2022; and ii) significantly higher crude oil prices.

“At about only 4.5x FY23F P/E, we believe that Hibiscus is a compelling case and is conspicuously undervalued given its strong foothold in the upstream energy space.

HLIB is forecasting Hibiscus’s core net profit to increase more than three times to RM336.2 million in FY22 and to rise yet again by another 86% to RM625.6 million in FY23 — representing a superior CAGR of 146%.

“Our average realised crude oil price assumptions for the group is relatively conservative at US$90/bbl for FY22 and FY23,” it said.