Results

• Above expectations: 4Q17 core profit came in at RM25.1m, bringing FY17 core loss to RM129.3m, lower than HLIB’s and consensus losses of RM158.1m and RM167.8m respectively. We have excluded RM2.6m net gain on derivatives, RM982.1m impairment on assets, RM12.2m net FOREX loss and RM16.3m non-recurring expenses.

Deviations

• Higher than expected rig utilisation.

Dividend

• None

Highlights

• YoY: Core profit of RM25.1m was posted against core loss of RM127.7m due to 7 working rigs in 4Q17 vs 2 working rig in 4Q16.
• QoQ: Core profit surged due to higher average asset utilisation rate of 95% (vs. 90% in 3Q17).
• FY17: Core losses narrowed significantly to RM129.3m against RM428.1m in FY16 due to significantly higher rig utilisation (FY17: 70% vs. FY16: 21%) with the commencement of new rig contracts during the year.
• 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.

Risks

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

Forecasts

• Our FY18 loss projections are reduced to RM55m we changed our FY19 forecast to core net profit of RM16m from core loss to reflect higher expected rig utilisation rates.

Rating

BUY ↑ , TP: RM0.44 ↑

• Following latest outstanding quarterly result, we opined that earnings outlook of the company improved significantly and UMWOG is a major beneficiary of steady jack-up rig demand by Petronas Group given its role as the largest domestic jack- up rig owner. Moreover, recent share price correction has made the valuation of the stock more attractive.

Valuation

• Upgrade to BUY with higher TP of RM0.44 (from RM0.40) based on FY18 PBV multiple of 0.8x post earnings forecast adjustment.

Source: Hong Leong Investment Bank Research - 28 Feb 2018