UMW Holdings; Hold
Price Target: RM12.70; UMWH MK

UMW’s 85%-owned Naga 1 has received a contract extension from Petronas Carigali. Naga 1’s existing USD250m contract is for 5 years (from November 2010 to 12 November 2015) . The extension entails:- (i) Additional 281 days to its existing 5-year contract as replacement for the days taken for rig upgrading works from 13 April 2012 to 18 January 2013. This extends the contract to 19 August 2016; and (ii) 2-year extension commencing on 20 August 2016. The additional 2-year extension contract is estimated at USD130m in value (c.RM775m).

The contract extension is positive providing strong earnings visibility. The contract value for the 2-year extension contract is 30% higher than its current 5-year contract (USD65m/year vs USD50m/year). Prospects for UMW’s O&G division remain bright, based on recent contract developments for Naga 1 and Naga 4. Being among the few domestic rig operators in Malaysia, we believe the group is poised to capitalize on the robust domestic demand for rigs. Despite the opportunities in oil & gas, we believe the Group’s positives has been priced in with its strong share price gain in the last year. Maintain Hold.

Source: HwangDBS Research - 24 Apr 2013