- UMW announced last night that it had secured a new contract for its Naga 3 jack-up rig.

- Naga 3 is currently deployed offshore Terengganu under a contract with Petronas Carigali.

- This new job is sub-contracted out to Naga 3 by Petrovietnam Drilling and Well Services Corp for use by Japan Vietnam Petroleum Co.

- The contract entails Naga 3 drilling two wells, with an option to drill an additional two wells, offshore Vietnam.

- Contract value for the first two wells is estimated to be worth about USD24mil (RM78mil).

- Our channel checks suggest that it would take slightly less than six months to complete the job for the first two wells. Assuming a conservative 5-6 months period for the job, the contract works out to a day rate of USD133,333-USD160,000.

- This would be more or less similar to that of Naga 3’s existing contract with Petronas Carigali with a rate of USD145,000 per day. We note however, that the contract with Petronas Carigali is a direct deal, which tends to be more profitable.

- The new contract will commence in 1H14, after the completion of Naga 3’s current contract with Petronas Carigali and a scheduled repair work on a few of Naga 3’s ballast tanks in November 2013 (3 weeks of completion).

- This will be the second contract between UMW O&G and Petrovietnam. In April 2013, UMW secured a contract with Petrovietnam at an estimated day rate of USD138,889 for a 6 months + 6 months period.

- Maintain HOLD on UMW with an unchanged sum-of-part derived fair value of RM13.60/share.

- Share price has retraced downwards by 14% in the past month given concerns on a weaker MYR and outflow of foreign funds. However, valuation looks fair at 13.5x FY13F earnings.

Source: AmeSecurities