Naga 5 ready by May, a month ahead of schedule; in talks for longer charters beyond Nido’s.

With 3 new deliveries in 2014, UMWOG is unlikely to make new purchases (beyond Naga 8) until 2015.

Reiterate BUY with an unchanged TP of MYR5.15 pegged at 23x 2015 PER.

What’s New

We had a guided tour of UMWOG’s nearly completed jack-up (JU) rig; Naga 5, yesterday, being built at Keppel's yard, Singapore.

What’s Our View

UMWOG will be able to receive the JU by May, ahead of its first assignment for Nido Petroleum Philippines Pty Ltd, which will commence operations in June. This is a six week job worth USD7m to drill the Baragatan prospect on behalf of the SC 63 Joint Venture. Concurrently, UMWOG is currently in negotiations with prospective parties to secure a long-term charter for Naga 5.

Apart from Naga 5, UMWOG is in line to take delivery of Naga 6 (Sep 14), Naga 7 (Dec 14) and Naga 8 (Sep 15). While there's some skepticism over issues such as the built quality and timely delivery of its Naga 6 & 7 JUs, which are built in China, such concern will be allayed once it secures charters. Given the inherent demand for new, premium JUs, we are confident of these JUs being chartered. The investment returns for a JU is compelling, with ROEs >30%, based on DCR of USD160k, 70:30 debt-to-equity.

Our forecasts are unchanged. We continue to view UMWOG as a growth stock (49% 3-year net profit CAGR) with sound financial and operating acumen to capitalize on the prospects of JUs in SEA over a five year horizon. It is the only Malaysia entity that has the track record and in-house crew competencies in the drilling space. We opine that new JU orders beyond Naga 8 will likely be done from 2015 as UMWOG balances growth with balance sheet disciplines, unless a new unit is available with a contract in hand.  

Source: Maybank Research - 13 Mar 2014