- We maintain our HOLD call on UMW at unchanged fair value of RM12.20/share.

- The group’s oil & gas unit has secured a new contract for its Naga 5 jack-up rig from PTTEP International Limited. The contract is for the drilling of five firm wells over a duration of 250 days for PTTEP’s Block M-3 Appraisal Drilling Campaign 2014, located in the Gulf of Mottama, Union of Myanmar. The contract is extendable for another optional well, which we estimate will add another 50 days to the contract.

- The contract is worth USD51.3mil (RM164mil), which translates into average day rates of USD205,200 – one of the highest rates secured by UMW so far for its jack up rigs. Naga 5 is currently deployed in the Philippines under a contract with Nido Petroleum Philippines Pty Ltd.

- The new day rates from PTTEP is reasonably higher (+23%) than the existing contract with NIDO which entails USD166,667 day rates (for a period of six weeks commencing June 2014, and expected to be completed by July 2014).

- The rates secured were higher than expected but the impact on our projections however, is quite marginal as FY14F is diluted by existing contract which entails a lower day rate, a short-term contract and UMW’s diluted stake in UMWOG post-listing.

- The net impact to our FY14-15F projection (for the group) is just an increase of 0.4%-0.5%. As such we have maintained our fair value the time being given the marginal impact.

- Nonetheless, we note that recent rates secured for UMWOG’s jack up rigs have been on the uptrend and we do not rule out potential upside to our projections for 2H15F-FY16F.

- UMW has seen its share price retrace quite significantly over the past 12 months. We see value gradually emerging, but we are still concerned over its auto division (which contributes to the bulk of bottom line), in particular due to uncertainties in its strategy to capitalise on the EEV program, which is enhancing the price competitiveness of models from competitors that are qualified under the program.

- This is particularly so since Malaysia’s EEV program entails comprehensive coverage, which means competition will come across all segments. 

Source: AmeSecurities