UMWOG (5243) - UMW Oil & Gas - Happy fleet
Target RM3.43 (Stock Rating: ADD)
Our communication with management revealed that UMW-OG’s fleet expansion continues with the delivery of Naga 7 yesterday. Next up is Naga 8, which is due for delivery in Sep. The jack-up has yet to be contracted but management is optimistic that it will secure a contract before the delivery date, similar to several earlier jack-ups, including Naga 7. Management is currently bidding for 29 contracts worth RM5.6bn. 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 Naga 8 contract and Middle Eastern foray as potential re-rating catalysts.
What Happened
UMW-OG took delivery of the US$220m Naga 7 from a Shenzhen yard yesterday. This Friday, the jack-up will sail to the Philippines to service a 120-day, US$20m contract with Frontier Oil, with an option for a 180-day extension. Separately, we note that UMW-OG’s parent company, UMW Holdings, has been accumulating UMW-OG shares. Since 30 Dec 2014, UMW Holdings has bought 8.4m shares, bringing its total shareholding in UMW-OG to 55.5% currently.
What We Think
We are encouraged by UMW-OG’s on-track fleet expansion and astute pricing power. The contract for Naga 7 translates into an attractive daily charter rate (DCR) of US$166,667, which is higher than the regional average of US$140,000-150,000. Last month, the company’s Naga 5 secured a 100-day, US$18.7m contract with PetroVietnam for end-client Korea National Oil Corp in Vietnam starting Jun. Excluding mobilisation cost, the DCR works out to be US$160,000, which is impressive given the current industry environment as it matches the current DCR that the jack-up is fetching from its PTTEP’s Myanmar contract, which was secured in Jul 2014. Naga 8, which is expected to join the fleet in Sep, was 66.85% completed at the beginning of this month. Management has yet to clinch a contract for the jack-up but it remains active on the bidding circuit, gunning for 29 contracts worth RM5.6bn. As at Dec 2014, the company had an order book of RM1.9bn.
What You Should Do
We advise investors to accumulate UMW-OG shares. After building a solid presence in Southeast Asia, the company is on the verge of a new phase of international expansion, with a potential contract in the Middle East by year-end.
Source: CIMB Daybreak - 29 January 2015
Target RM3.43 (Stock Rating: ADD)
Our communication with management revealed that UMW-OG’s fleet expansion continues with the delivery of Naga 7 yesterday. Next up is Naga 8, which is due for delivery in Sep. The jack-up has yet to be contracted but management is optimistic that it will secure a contract before the delivery date, similar to several earlier jack-ups, including Naga 7. Management is currently bidding for 29 contracts worth RM5.6bn. 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 Naga 8 contract and Middle Eastern foray as potential re-rating catalysts.
What Happened
UMW-OG took delivery of the US$220m Naga 7 from a Shenzhen yard yesterday. This Friday, the jack-up will sail to the Philippines to service a 120-day, US$20m contract with Frontier Oil, with an option for a 180-day extension. Separately, we note that UMW-OG’s parent company, UMW Holdings, has been accumulating UMW-OG shares. Since 30 Dec 2014, UMW Holdings has bought 8.4m shares, bringing its total shareholding in UMW-OG to 55.5% currently.
What We Think
We are encouraged by UMW-OG’s on-track fleet expansion and astute pricing power. The contract for Naga 7 translates into an attractive daily charter rate (DCR) of US$166,667, which is higher than the regional average of US$140,000-150,000. Last month, the company’s Naga 5 secured a 100-day, US$18.7m contract with PetroVietnam for end-client Korea National Oil Corp in Vietnam starting Jun. Excluding mobilisation cost, the DCR works out to be US$160,000, which is impressive given the current industry environment as it matches the current DCR that the jack-up is fetching from its PTTEP’s Myanmar contract, which was secured in Jul 2014. Naga 8, which is expected to join the fleet in Sep, was 66.85% completed at the beginning of this month. Management has yet to clinch a contract for the jack-up but it remains active on the bidding circuit, gunning for 29 contracts worth RM5.6bn. As at Dec 2014, the company had an order book of RM1.9bn.
What You Should Do
We advise investors to accumulate UMW-OG shares. After building a solid presence in Southeast Asia, the company is on the verge of a new phase of international expansion, with a potential contract in the Middle East by year-end.
Source: CIMB Daybreak - 29 January 2015
