UMWOG (5243) - UMW Oil & Gas - Oiling a new venture
Target RM3.43 (Stock Rating: ADD)
UMW-OG’s management reiterated its plan to break into the Middle East by year-end at its post-4Q14 results briefing today. We think that Naga 8, which is set for delivery in Sep, may be earmarked to work in the prospective new region. Closer to home, active bidding for contracts continues, although there may be gaps in between contracts for three jack-ups with contracts due to expire in 2Q15. We prudently lower our FY15 EPS but our target price is unchanged as we maintain our FY16-17 EPS. 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
UMW-OG’s management held a briefing today following the release of its 4Q14 results yesterday. The Middle Eastern venture is on track and management is committed to adding at least one jack-up p.a. Management is bidding for 22 contracts worth RM5.4bn but acknowledged that there may be one- to three-month gaps in between contracts for Naga 2, Naga 3 and Naga 6, which have contracts due to expire in 2Q15. To be prudent, we lower our FY15 EPS by 16.2% but we maintain our FY16-17 EPS. See overleaf for more briefing highlights.
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 and sticking to its two-pronged expansion plan, which involves: 1) Expanding the fleet: UMW-OG is expected to end FY15 with two new jack-ups – Naga 7 (Jan) and Naga 8 (Sep) – but we understand that there may be another – Naga 9 – if the pricing is attractive. As at 31 Dec 2014, the company had cash of RM1.2bn and net gearing of 0.3x. 2) Widening its geographical presence: After successfully capturing the Southeast Asian market, the company intends to make inroads into the Middle East by year-end to reduce its dependence on a single region. We think that Naga 8 may be deployed in the Middle East to facilitate the new venture.
What You Should Do
We advise investors to accumulate UMW-OG shares. 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 and would become a global player if it secures a contract in the Middle East by year-end.
Source: CIMB Daybreak - 25 February 2015
Target RM3.43 (Stock Rating: ADD)
UMW-OG’s management reiterated its plan to break into the Middle East by year-end at its post-4Q14 results briefing today. We think that Naga 8, which is set for delivery in Sep, may be earmarked to work in the prospective new region. Closer to home, active bidding for contracts continues, although there may be gaps in between contracts for three jack-ups with contracts due to expire in 2Q15. We prudently lower our FY15 EPS but our target price is unchanged as we maintain our FY16-17 EPS. 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
UMW-OG’s management held a briefing today following the release of its 4Q14 results yesterday. The Middle Eastern venture is on track and management is committed to adding at least one jack-up p.a. Management is bidding for 22 contracts worth RM5.4bn but acknowledged that there may be one- to three-month gaps in between contracts for Naga 2, Naga 3 and Naga 6, which have contracts due to expire in 2Q15. To be prudent, we lower our FY15 EPS by 16.2% but we maintain our FY16-17 EPS. See overleaf for more briefing highlights.
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 and sticking to its two-pronged expansion plan, which involves: 1) Expanding the fleet: UMW-OG is expected to end FY15 with two new jack-ups – Naga 7 (Jan) and Naga 8 (Sep) – but we understand that there may be another – Naga 9 – if the pricing is attractive. As at 31 Dec 2014, the company had cash of RM1.2bn and net gearing of 0.3x. 2) Widening its geographical presence: After successfully capturing the Southeast Asian market, the company intends to make inroads into the Middle East by year-end to reduce its dependence on a single region. We think that Naga 8 may be deployed in the Middle East to facilitate the new venture.
What You Should Do
We advise investors to accumulate UMW-OG shares. 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 and would become a global player if it secures a contract in the Middle East by year-end.
Source: CIMB Daybreak - 25 February 2015
