UMWOG (5243) - UMW Oil & Gas - Orders are far from dry
Target RM2.78 (Stock Rating: ADD)
Dry-docking for two jack-ups and contract gaps are the two key updates from our communication with UMW-OG’s President Rohaizad Darus on Friday. Nonetheless, he reiterated that active bidding for contracts continues, with management gunning for 22 contracts worth RM5.4bn. A Middle Eastern venture by year-end is also still on the cards. Our target price drops as we lower our FY15-17 EPS to impute the asset downtime and dry-docking costs. We continue to value the stock at 15x CY16 P/E, on par with our target market P/E. We keep our Add call, with a successful Middle Eastern foray as a potential re-rating catalyst.
What Happened
On Friday, we spoke to Rohaizad who shared two key updates: 1) Following the expiry of contracts for Naga 2 and Naga 3 in late Mar 2015 and early Apr 2015 respectively, management will take advantage of the downtime to dry-dock the jack-ups, putting them out of action for up to three months. The dry-docking cost is around US$15m for each jack-up. 2) In addition to Naga 2, Naga 3 and Naga 6, two more jack-ups – Naga 5 and Naga 7 - are expected to have one- to three-month gaps in between contracts this year. The operations of Naga 1 and Naga 4, the contracts of which will expire in FY16 and FY18 respectively, are going smoothly.
What We Think
The current low oil price environment is far from ideal but we are encouraged by management taking the challenges in its stride. Management is pressing on with its aggressive approach to ensure all its assets are contracted, bidding for 22 contracts worth RM5.4bn as at Feb 2015. Of the 22 contracts, eight are domestic and the rest are international. The split between long-term and short-term contracts is 36:64. The company’s order book stood at RM1.8bn as at 31 Dec 2014. The plan to venture into the Middle East by year-end is intact. We think that Naga 8 may be deployed to facilitate the new venture. The jack-up, which is expected to be delivered in Sep 2015, was 76.44% completed as at Feb 2015.
What You Should Do
We advise investors to accumulate UMW-OG shares, given the current share price weakness. The company has evolved from a local player to a major force to be reckoned in Southeast Asia. It is now on the verge of a new phase of international expansion, with the potential securing of a contract in the Middle East.
Source: CIMB Daybreak - 13 March 2015
Target RM2.78 (Stock Rating: ADD)
Dry-docking for two jack-ups and contract gaps are the two key updates from our communication with UMW-OG’s President Rohaizad Darus on Friday. Nonetheless, he reiterated that active bidding for contracts continues, with management gunning for 22 contracts worth RM5.4bn. A Middle Eastern venture by year-end is also still on the cards. Our target price drops as we lower our FY15-17 EPS to impute the asset downtime and dry-docking costs. We continue to value the stock at 15x CY16 P/E, on par with our target market P/E. We keep our Add call, with a successful Middle Eastern foray as a potential re-rating catalyst.
What Happened
On Friday, we spoke to Rohaizad who shared two key updates: 1) Following the expiry of contracts for Naga 2 and Naga 3 in late Mar 2015 and early Apr 2015 respectively, management will take advantage of the downtime to dry-dock the jack-ups, putting them out of action for up to three months. The dry-docking cost is around US$15m for each jack-up. 2) In addition to Naga 2, Naga 3 and Naga 6, two more jack-ups – Naga 5 and Naga 7 - are expected to have one- to three-month gaps in between contracts this year. The operations of Naga 1 and Naga 4, the contracts of which will expire in FY16 and FY18 respectively, are going smoothly.
What We Think
The current low oil price environment is far from ideal but we are encouraged by management taking the challenges in its stride. Management is pressing on with its aggressive approach to ensure all its assets are contracted, bidding for 22 contracts worth RM5.4bn as at Feb 2015. Of the 22 contracts, eight are domestic and the rest are international. The split between long-term and short-term contracts is 36:64. The company’s order book stood at RM1.8bn as at 31 Dec 2014. The plan to venture into the Middle East by year-end is intact. We think that Naga 8 may be deployed to facilitate the new venture. The jack-up, which is expected to be delivered in Sep 2015, was 76.44% completed as at Feb 2015.
What You Should Do
We advise investors to accumulate UMW-OG shares, given the current share price weakness. The company has evolved from a local player to a major force to be reckoned in Southeast Asia. It is now on the verge of a new phase of international expansion, with the potential securing of a contract in the Middle East.
Source: CIMB Daybreak - 13 March 2015
