Results

• Inline: FY14 Core profit increased by 30% YoY to RM251m, making up 100% and 98% of HLIB and consensus full-year estimates, respectively.

Deviations

• None.

Dividends

• None.

Highlights

• QoQ, 4QFY14 revenue increased by 29% mainly due to additional contribution from Naga 6 (commenced operation in Oct 14), additional hydraulic workover unit and higher utilisation of Naga 5 (underwent installation in 3Q14). All six drilling rigs were fully utilised in 4Q14. Overseas operations currently contributed ~66% of overall group revenue.

• Oilfield service also recorded improvement QoQ due to better contribution from Labuan and Turkmenistan.

• After the acquisition of Naga 6 and 7, a total of 8 rigs will be operating in FY15. Naga 8 will be delivered in Sep 15. Net gearing remain comfortable at 0.34x, which still provides room for asset acquisitions.

• Current low oil price environment provides opportunity to expanding asset. There are 70 new rigs being built but only 30 are built by operators while the rest are speculative built. As an operator, UMW O&G stand to benefit from the opportunity to purchase these assets at discount.

• Despite benefiting from localisation of rigs, we remain cautious on the near term outlook given pressure on charter rate amidst lower oil price.

Forecasts

• Unchanged pending analyst briefing later.

Risks

• Global recession hitting O&G price; Technology advancement; relaxation of Petronas’ domestic Policy.

Rating

SELL

Positives

• : Market leader in domestic drilling sector with strongbalance sheet to expand further.

Negatives

• : Increased competition for the markets.

Valuation

• We maintain our SELL call and TP adjusted from RM2.47 to RM2.50 after rolled forward valuation to FY16 based on unchanged 14x P/E.

Source: Hong Leong Investment Bank Research - 24 Feb 2015