News???????

• UMWOG has received a Letter of Award from Vestigo Petroleum Sdn Bhd ("Vestigo") for a contract for the provision of a Jack-Up Drilling Rig for Vestigo.
• The Contract is for the provision of Drilling Rig Services for Vestigo’s Drilling Programme, whereby UMW-OG Group will assign its UMW NAGA 2 for this contract. The Contract is to drill one firm well, commencing by end of 1Q2017. Financial Impact
• While DCR might be higher than normal (US$60,000- 70,000/day), we believe the tenure of the contract should be less than 3 months as it is only for one firm well.
• The announced contract will help the group to achieve higher YoY rig utilisation. However, it’scontribution is expected to be minimal and not material to turnaround the group’s expected loss making in 2017given its short tenure.
• Overall, we have forecasted the group to have rig utilisation of 28% in 2017 in view of the absence of major drilling campaign expected from Petronas and regional oil majors in 2017.

Pros/Cons

• Signs of rig activities picking up in Malaysia are present with new/more rig contracts being awarded.
• However, we believe the jack up rig charter market remains depressed with oversupply in jack up rig market still present in the global market.

Forecast

• Maintain forecast.

Rating

SELL (↔)

• While overall prospects for rig market have improved upon bottoming of oil prices, rates remain depressed given the ongoing oversupply of rig in the market. Recent announcement of rights issue and merger with ICON may present further overhang on its share price.

Valuation

• We maintain our SELL call with TP at RM0.57 (pegged to unchanged FY17 PBV of 0.7x.

Source: Hong Leong Investment Bank Research - 13 Mar 2017