News

• UMWOG has received a Letter of Award from ConocoPhillips Sarawak Limited ("COPSK") for a contract for the provision of Jack-Up Drilling Rig Services for COPSK ("Contract").

• The Contract is to drill two (2) firm wells with the option of an additional two (2) wells commencing in second quarter of 2018. UMWOG will assign its UMW NAGA 4 for this contract.

• UMW NAGA 4 is a premium independent -leg cantilever jack up drilling rig that has a drilling depth capability of 30,000 feet and has a rated operating water depth of 400 feet.

Comments

• Based on the contract value of US$6.8m for the 2 firm wells and assumption of 50 days duration per well, the implied daily charter rate (DCR) is about US$68,000/day which is consistent with the current market rate.

• The announced contract will help UMWOG to achieve higher rig utilisation in 2018. Note that current contract of Naga 4 is scheduled to be completed by January 2018.

• According to Petronas Activity Outlook 2018-2020 report, about 7-10 jack-up rigs are required by Petronas Group of Companies and other Petroleum Arrangement Contractors (PACs). This is positive for UMWOG as being one of the only two local players in the industry, the company stands a fairly good chance to secure sufficient amount of contracts to replenish its order book which currently stands at about RM363m (c.RM1,034m if assumed optional contracts are being exercised)

Risks

• Global recession hitting O&G price; High asset cash cost; Petronas’ further CAPEX and OPEX cut.

Forecast

• Unchanged as contract win is within assumption.

Rating

BUY ↔ TP: RM0.38 ↔

• Completion of rights issue and removal of debt maturity overhang risk are expected to provide catalyst for the share price while earnings outlook appears to be more encouraging in 2018.

Valuation

• We maintain our BUY call with unchanged TP of RM0.38 (pegged to unchanged FY18 BVPS of 0.7x).

Source: Hong Leong Investment Bank Research - 5 Dec 2017