Higher production, sales volumes power Hibiscus Petroleum profit growth

PETALING JAYA: Oil and gas exploration and production outfit Hibiscus Petroleum Bhd are among companies that are benefitting from higher crude oil prices.

BIMB Research has raised the company’s financial year ending June 30, 2027 (FY27) earnings by 60% year-on-year to RM468mil on higher production volumes from estimated FY26 earnings of RM295mil.

“Notably, the earnings growth is primarily driven by higher production and sales volumes rather than a materially higher oil price assumption. Our FY27 forecast is based on an average oil price of US$85 (RM347) a barrel, broadly similar to the oil price assumed for FY26,” it said.

Following the earnings revision, the research house has raised the target price (TP) to RM2.90 from RM2.80 while maintaining a “buy” recommendation on the stock.

“The company remains one of the clearest beneficiaries of the stronger crude oil price environment given its direct exposure to upstream production,” it pointed out.

It estimated that every US$5 a barrel change in the oil price assumption results in approximately RM52mil change in FY27 earnings.

“However, the corresponding impact on our TP is limited to around five sen a share because the sensitivity analysis only captures the effect on a one-year earnings horizon (FY27),” it said.

“However, when assessed on a full asset life-cycle basis (note that we are still using US$75/barrel as our long term oil price assumption for FY28 onwards), we estimate that every US$5/barrel change in long-term oil price assumptions would alter our fair value by approximately 15 sen to 20 sen per share for oil prices above US$75/barrel and 25 sen to 30 sen a share for oil prices below US$75/barrel,” it added.

“The lower sensitivity at higher oil prices is consistent with the presence of Malaysia’s windfall tax regime, which limits Hibiscus’ ability to fully capture upside from elevated crude prices.

“Based on our valuation framework, the prevailing share price implies a long-term oil price assumption of approximately US$65/barrel throughout the asset life cycle, which is below our long-term base-case assumption of US$75/barrel,” it said.

The research house noted that the more than 80 sen discount of the share price based on current share price of RM2.10 and the TP of RM2.90 suggests that investors continue to place limited value on the company’s upcoming production growth.

“In our view, investors remain overly focused on short-term oil price movements while underestimating earnings and cash flow uplift from Teal West.

“This view is reinforced by the lack of meaningful share price outperformance relative to the recent rally in Brent crude, despite Teal West providing an incremental production catalyst,” it said.