Bad results and tough outlook but all priced in
While the kitchen sinking exercise was expected in 4Q15, the core loss was higher than earlier anticipated. The outlook for rigs is tough and UMWOG is expected to remain in the red but this bearish sentiment has been priced in, in our view. Our earnings forecasts are unchanged. We reiterate our non-consensus trading BUY call with a lower TP of MYR1.16 (-7%) as we roll forward our valuations to 2016 on unchanged 1x EV/replacement value peg.
FY15 results below; sizeable impairment
Headline net loss of MYR372m in FY15 included of a massive exceptional loss of MYR320m (non-cash item), which comprised mainly of: (i) a MYR338m impairment on assets (rigs: MYR327m) and goodwill (MYR11m) and (ii) a one-off 5-yearly asset write-off of MYR13m (i.e. oilfield services), which was offset by (iii) a MYR29m forex gain. The impairment charge was undertaken to reflect the persistent depressed oil price that impacted demand for UMWOG’s assets (rigs) and services. Stripping that off, core net loss of MYR52m in FY15 was higher than our expected loss of MYR39m. As expected, no dividend was declared in FY15.
Weaker QoQ rig utilisation further depressed 4Q
On a QoQ basis, UMWOG reported a wider core net loss of MYR59m (+82%) on lower: (i) revenue (-38% to MYR131m) and (ii) rigs utilisation (- 7-ppt to 50%) but higher opex. Operationally, 4 (Naga 1, 4, 7, & 8) out of 8 rigs were on hire in 4Q15 vs. 4 out of 7 rigs in 3Q15. UMWOG took delivery of Naga 8 rig in 4Q15, which was chartered to SAKP.
A tough market, at least in 1H16
The rigs market remains challenging due to the capex cutback in upstream operations. DCRs are depressed, at USD70k-90k now, based on prevailing market conditions. Securing charter remains the key for 2016, at the expense of DCR. As such, we expect UMWOG to be P&L negative but cashflow positive.
Source: Maybank Research - 24 Feb 2016
http://klse.i3investor.com/blogs/kltrader/91806.jsp
