Hibiscus Petroleum Berhad (HIBISCS) Earnings Call Transcript & Summary

Good morning. I am Joyce Vasudevan, Head of Corporate Finance at Hibiscus Petroleum Berhad. We thank our shareholders for attending today's extraordinary general meeting, which seeks your decision on our proposed share consolidation exercise. Our presentation today provides an overview of key points relating to the proposed share consolidation. This includes the rationale, mechanism, effects, approvals required and indicative time line. We will conclude with the views and recommendation of our directors. As mentioned, the purpose of this presentation is to provide an overview of the proposed share consolidation to facilitate your understanding prior to your vote. Please read the content of the circular to shareholders dated 20th September 2023 in its entirety before voting on the resolution at our EGM today. The circular is uploaded on our website. A copy of this presentation will also be uploaded on our website. On 23rd August 2023, we announced through our adviser CIMB Investment Bank Berhad that our company is proposing a share consolidation of every 5 existing Hibiscus shares into 2 consolidated shares. We believe that this benefits our company and our shareholders, which we will discuss in the ensuing slides. You should take note, however, that there is no guarantee that the share consolidation will achieve the desired results or that it can be sustained over the longer term. Let's first start with an explanation as to how the propose consolidation will work. We take an example of a shareholder holding 5,000 shares before the proposed share consolidation. Assuming a share price of MYR 1, the value of the shares held is MYR 5,000. The consolidation ratio of 5 shares for every 2 shares held means that the number of shares will be divided by 2.5x and the share price will correspondingly be multiplied by 2.5x. The value of shares held by the shareholder, therefore, remains to seem at MYR 5,000. In essence, following the proposed share consolidation, there will not be any changes in the percentage equity interest of shareholders nor the market value of shares held by shareholders. There may, however, be fractional shares that could arise from the proposed share consolidation. Fractional shares are shares that are less than 1 share. Our Board at its discretion will disregard any fractional shares arising from the proposed share consolidation as deemed fit or expedient and in the company's best interest. We would like to highlight that fractional shares are not expected to be material, the highest amount of a fractional share of 0.9 share, which is equivalent to MYR 2.15 based on an adjusted share price of MYR 2.38. Logically, share prices should rise in line with growth in earnings. The price to earnings ratio, which is a common valuation metric reflects how cheap or expensive the shares are. If the share price falls faster than its earnings growth, the PE ratio reduces, and therefore, the shares become relatively cheap vis-a-vis its earnings. We selected 24th January 2022 as a reference point as it marks the completion date of our transformative acquisition of assets in Malaysia and Vietnam from Repsol. We looked at the performance of our share price versus our earnings growth and Brent oil price from this date to September 2023. Our share price grew by 20%, which outperformed Brent oil price, which rose by only 5%. In comparison, however, our earnings per share increased substantially by 134%. As our share price did not keep pace with our increase in earnings, our PE ratio reduced by half. This is despite a modest increase in dividend payouts in terms of quantum and frequency during this period. We believe that one of the factors contributing to our lower share price, [indiscernible] earnings performance may be the susceptibility of our shares to speculative day-to-day trading due to a relatively lower share price base. The closing price of our shares over the 12 months up to 30th August 2023 has ranged between MYR 0.83 to MYR 1.16. As can be seen in the chart, our share price over more than a year has been even more volatile versus the KLCI index and Brent oil price. We believe that the higher adjusted share price of Hibiscus resulting from the proposed share consolidation may help to minimize the degree of fluctuations of our share price and thus create a more stable trading environment for our shares. Secondly, we believe that the proposed share consolidation may enhance the marketability of our shares to a wider pool of investors, particularly those seeking share price stability and long-term growth. It may also attract institutional investors and investment funds whose investment guidelines, limits trading and securities which are below a prescribed floor price. We do believe that with a higher adjusted share price, there would likely still be sufficient trading liquidity of our shares. This is because our average volumes traded and share turnover ratio are amongst the highest when compared to the 30 constituent companies of the KLCI index and 30 companies with comparable market capitalization of between MYR 1.6 billion and MYR 2.5 billion. We looked at 3 data points based on the last 1 year up to 30th August 2023: first is volumes traded. Hibiscus' volumes traded are significantly higher versus the median trading volumes of both the 30 constituent companies and 30 comparable companies. Hibiscus has the third highest average daily traded volume and total volume of shares traded when compared to both groups of companies. Hibiscus also has the highest average daily value of shares traded when compared to the 30 comparable companies. Second is shares turnover ratio, which is computed based on shares traded over public float shares as well as over total number of shares in issue. Again, Hibiscus generally has had the highest shares turnover ratio compared to the ratios of the 30 constituent companies and 30 comparable companies. Third is public float, where Hibiscus shares have a relatively high public float of about 75% of total number of issued shares as at 30th August 2023. With such relatively high trading liquidity, it is expected there would still be ample buffer for any drop in shares traded pursuant to the proposed share consolidation. We expect our shares to remain accessible to a broad range of investors as well as support market participation in demand for our shares. The proposed share consolidation essentially involves reducing the number of Hibiscus shares by 2.5x from its current 2 billion shares to approximately 805 million shares. With all factors remaining constant, this reduction in number of shares will correspondingly increase the consolidated net assets per share of the company based on the group's results as at 30th June 2022 from MYR 1.09 to MYR 2.73. Based on the results over the same period, the consolidated earnings per share will also increase from MYR 0.32 to MYR 0.81 after deducting the estimated expenses for the proposed share consolidation of approximately MYR 700,000. Other matters to note in relation to the proposed share consolidation are upon allotment and issuance, the consolidated shares shall rank equally in all respects with each other. As earlier announced, we have received approval from Bursa Securities for the proposed share consolidation on 4th September 2023. The remaining approval is that of our shareholders at this EGM. Finally, we confirm that none of our directors, media shareholder, CEO and/or any persons connected with them has any interest in the proposed share consolidation, say for the resulting consolidation of their respective shares, which is the key for all other shareholders of our company. If we received the approval of our shareholders today for the proposed share consolidation, we expect to announce the entitlement date shortly thereafter. The entitlement date will be 10 market days from such announcement date. We expect the consolidated shares to be listed and quoted on Bursa Securities, the day after the entitlement date, i.e., by mid-October 2023. In conclusion, our Board has considered and deliberated on all aspects of the proposed share consolidation and is of the opinion that the proposed share consolidation is in the best interest of our company. Accordingly, our board recommends that you vote in favor of the resolution on the proposed share consolidation. Once again, we thank you for your time taken in attending our EGM. There will be some time allocated at the conclusion of this presentation for questions. So do take the opportunity to ask any question on areas that you remain uncertain about.