News

• UMW Oil & Gas Corporation Bhd (UMWOG) announced that it has been awarded a contract for the provision of hydraulic workover units (HWU) for PETRONAS Carigali Sdn. Bhd (Petronas Carigali).

• The contract is for the provision of HWU to undertake workover services for Petronas Carigali under an umbrella contract. It calls for the use of all or any of UMWOG five HWU to undertake workover services, which are services rendered in performing maintenance and/or remedial treatments on an oil or gas well.

• The tenure of the contract is three (3) years commencing from 22 December 2017, with an extension option of one (1) year.

Financial Impact

• While we are positive on the contract announcement, we believe the positive earnings impact from the contracts to our forecast is still not significant as the revenue would only be booked when the work order is issued by Petronas.

• Exact financial impact is difficult to ascertain as it is based on work order basis.

• On top of that, we believe the margin for the contracts would not be far off from our existing assumed EBIT margin of 6% as we believe Petronas would still be conservative in terms of quotation of its work orders (due to uncertainties in oil prices despite firmer trend).

• The announcement of the contracts indicates a pickup in oilfield maintenance activities, pointing to improvement in activities in the overall upstream industry.

Forecast

• Maintained.

Rating

HOLD ↔ TP: RM0.40 ↔

• 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 HOLD call with unchanged TP of RM0.40 (pegged to unchanged FY18 BVPS of 0.8x).

Source: Hong Leong Investment Bank Research - 17 Jan 2018