The Magic of Merlin

Author: themagicianmerlin   |   Latest post: Wed, 7 Feb 2018, 06:27 AM



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I have discovered SUMATEC last two weeks. The share price has gone up since that to as high as 13sen yesterday.

Still don't believe in me? You decide yourself. 

And remember, once big institutional funds realise its potential, they will get into the stock very fast like what you can see in the past two days. That time, you won’t be able to get current level of share price anymore. Share price will surely fly high.

I know it’s hard to believe this penny long time ago can become the next Petronas in Khazakhstan. Only for people who know better the operation of oil producer will gain the most. 

The share price is now starting to reflect its fundamental value of 56sen. This is based on my opinion of its FY18 DCF valuation. For short-term, I expect SUMATEC will hit 25sen.

In fact, my DCF valuation is assumed conservatively and lower than management guidance here:


You can read my previous articles on SUMATEC here.

Part 1: https://klse.i3investor.com/blogs/themagicofmerlin/143497.jsp

Part 2: https://klse.i3investor.com/blogs/themagicofmerlin/144021.jsp


Again to remind you, although oil prices might see a correction after a long-rally, it will not give an impact to my FY18 DCF valuation.

My FY18 oil price forecast is at USD60/b. So, as long as oil price can sustain at this level and above, downside risk is zero and my valuation of 56sen will remain unchanged!

I believe SUMATEC will not go down even though oil prices make a correction this week. This is because SUMATEC still can make money at USD50/b with huge profit margin of 60%. Otherwise, it will be huge undervalued.

Plus, if oil prices do need to make a correction, it won't drop below USD60/b. As long oil prices can sustain at USD60 or above, SUMATEC is sitting on goldmine

I know SUMATEC has gone back down today... BUT for me, this is healthy correction. It is in the Wave 2.

Now, we are waiting for Wave 3, which is the resumption of the rally. It will hit 20sen and we will see SUMATEC to reach my short-term target at Wave 5.


My FY18 DCF valuation

This is rakushechnoye asset, worth of 21sen pre-share consolidation.

The valuation has not taken into consideration 100% stake in Rakushechnoye field yet.


This is karaturun asset, worth of 35sen pre-share consolidation


In total, its assets in Khazakhstan is worth 56sen as of FY18 DCF valuation.

This valuation excluding gas production. Should I include this, the valuation would be even higher!


Well, it is not too late to go in now. It is still at the beginning stage of the rally. Upside is huge of more than 5-fold from current price of 9sen. 

It will take some time and gradually to hit 56sen but I expect within this year as my DCF valuation is in FY18 basis. 

For short-term, maybe before its 4Q results release this February, I expect it will SHOOT UP to 25sen



To remind you again:

SUMATEC is in strong position to turnaround and poised to register strong earnings from this year and onwards.

Quarterly, its financial results has started to turnaround in 3QFY17.


Given favourable oil prices in 4Q17, its 4QFY17 earnings would be surely registered even higher.


Not just that, its oil production would also improve in 4Q17 to average 1,000 barrel daily against average 500 barrel daily in 1H17 as guided by the Management in its recent quarters results.

The company expects total oil production to increase to 7,500/b daily by end of this year. This means next year will see full year of oil production of 7,500/b daily. Annualised it, we will get 2.74 million/b for total oil production by the Company in FY19.

Recall that SUMATEC has commenced an oil  production enhancement program back in April 2017, which encompasses the improvement / repairing of existing wells that include rehabilitation and rejunevation works, drilling of new wells for appraisal and production, construction of oilfield surface facilities and upgrading of the central processing facilities.

The flow results of the initial wells have been encouraging and they expect total oil production to improve further.



It is time to reap the fruit of the past painful and restructuring. Things start to fall in place and favour SUMATEC now.

It is also a time to switch from upstream players like UMWOG or Sapura Energy, HIBISCUS, KNM, REACH to the BEST and still laggard upstream playerSUMATEC.



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