UMWOG (5243) : Alliance DBS Research downgrades UMW OG to Hold
KUALA LUMPUR: Alliance DBS Research has downgraded UMW Oil and Gas (UMW-OG) to Hold and cut the target price to RM2.70 from RM4.15 previously.
It said on Wednesday the lower target prices was after downgrading earnings and target price-to-earnings (PE) to 18 times from 22 times.
“This is a slight premium to the sector’s large cap trough valuation of 16 times and reflects UMW-OG’s healthy growth and clean balance sheet.
“The re-rating catalysts for UMW-OG would be a sustained rebound in crude oil prices to above US$80/barrel levels. The group might also take advantage of its strong balance sheet for M&A or continue to grow its fleet as rig prices are likely to decline,” it said.
Alliance DBS Research said lower crude oil prices making jack-up rig market more challenging
“Cut earnings by 20-25% after factoring in lower daily charter rates (DCR) and utilisation. Downgrade to HOLD, cut TP to RM2.70,” it said.
The research house pointed out the continued weakness in crude oil prices has prompted it to move UMW-OG’s earnings and valuations to its bear case scenario.
“We now expect crude price to average US$70 to US$80 a barrel in 2015 instead of US$95.
“In this scenario, there will be greater pressure on daily charter rates (DCR) and utilisation, as five out of seven units of UMW-OG’s drilling fleet are currently on short term charters.
“NAGA 3 comes off charter in March 15 while NAGA 2, 5, 6 and 7 have optional extensions lined up over 2Q-3Q15. Extensions could materialise but possibly at lower DCR. NAGA 8 (September 2015 delivery) has still not been contracted out.
“With a softer market outlook, the impact of new rig deliveries will hit the rig market harder than previously thought. Clarksons data indicate 61 and 45 new jack-up (>300ft water depth) deliveries slated for 2015-2016.
“This compares to only 19 year-to-date to October. Some slippage is expected but deliveries will still be stronger on-year.
“Cut FY15-FY16 earnings by 20-25%. This was after reflecting lower DCR (from US$172,000 a day to US$161,000 to US$165,000) and utilisation (90% to 79%-84%) over FY15-FY16,” it said.
http://www.thestar.com.my
KUALA LUMPUR: Alliance DBS Research has downgraded UMW Oil and Gas (UMW-OG) to Hold and cut the target price to RM2.70 from RM4.15 previously.
It said on Wednesday the lower target prices was after downgrading earnings and target price-to-earnings (PE) to 18 times from 22 times.
“This is a slight premium to the sector’s large cap trough valuation of 16 times and reflects UMW-OG’s healthy growth and clean balance sheet.
“The re-rating catalysts for UMW-OG would be a sustained rebound in crude oil prices to above US$80/barrel levels. The group might also take advantage of its strong balance sheet for M&A or continue to grow its fleet as rig prices are likely to decline,” it said.
Alliance DBS Research said lower crude oil prices making jack-up rig market more challenging
“Cut earnings by 20-25% after factoring in lower daily charter rates (DCR) and utilisation. Downgrade to HOLD, cut TP to RM2.70,” it said.
The research house pointed out the continued weakness in crude oil prices has prompted it to move UMW-OG’s earnings and valuations to its bear case scenario.
“We now expect crude price to average US$70 to US$80 a barrel in 2015 instead of US$95.
“In this scenario, there will be greater pressure on daily charter rates (DCR) and utilisation, as five out of seven units of UMW-OG’s drilling fleet are currently on short term charters.
“NAGA 3 comes off charter in March 15 while NAGA 2, 5, 6 and 7 have optional extensions lined up over 2Q-3Q15. Extensions could materialise but possibly at lower DCR. NAGA 8 (September 2015 delivery) has still not been contracted out.
“With a softer market outlook, the impact of new rig deliveries will hit the rig market harder than previously thought. Clarksons data indicate 61 and 45 new jack-up (>300ft water depth) deliveries slated for 2015-2016.
“This compares to only 19 year-to-date to October. Some slippage is expected but deliveries will still be stronger on-year.
“Cut FY15-FY16 earnings by 20-25%. This was after reflecting lower DCR (from US$172,000 a day to US$161,000 to US$165,000) and utilisation (90% to 79%-84%) over FY15-FY16,” it said.
http://www.thestar.com.my
