Can Hibiscus Withstand the Slide in Oil Prices?

In 2024, Hibiscus can be described as a regionally focused, independent upstream oil and gas company. It has operatorship control over a diversified portfolio of producing and development assets across Malaysia, Vietnam, and the United Kingdom.

This marks a significant evolution from just six years ago, when Hibiscus had only two core assets. Since then, its total assets have nearly tripled, from RM2.4 billion in 2019 to RM6.6 billion in 2023, reflecting the company’s strategic acquisition-led growth.

To fund this expansion, Hibiscus has tapped both debt and equity markets. Between 2019 and 2024:

• Total debt increased from RM5 million to RM749 million

• Total equity expanded from RM1.2 billion to RM3.1 billion

While ROA improved from 11.6% in 2019 to 13.1% in 2024, the enlarged capital base has diluted returns to shareholders. ROE declined to 16.1% in 2024, down from 20.6% in 2019, despite a spike to 35.5% in 2022 following the Repsol acquisition and elevated oil prices.

With crude oil prices declining in the wake of ongoing trade tensions and tariff-related uncertainties, there are concerns about Hibiscus’s ability to sustain its current profit levels.

Lower demand and weaker pricing could pressure margins, particularly given the company’s increased cost base. The declining share price since the start of the year may be a reflection of these market concerns.

However, one mitigating factor is the historically moderate correlation between oil prices and Hibiscus’s ROE. Over the past 12 years, the correlation between year-end Brent crude prices and the company’s ROE has only been about 40%.

This suggests that while oil prices do influence profitability, ROE is shaped by a more complex mix of factors — including production volume, capital discipline, cost control, and timing of investments. As such, the potential profit impact of lower oil prices may not be as severe as feared.