UMWOG announced that its indirect wholly-owned subsidiary, UMW Offshore Drilling Services has received a Letter of Award from Sapurakencana Energy Peninsula Malaysia, SapuraKencana Energy Sarawak and SapuraKencana Energy Sabah for a contract to provide a jack-up drilling rig and associated services. UMWOG has assigned its latest rig, UMW NAGA 8 for this contract, which is for up to 18 wells with an extension option for 3 additional wells.

Comments: The value of this contract is not disclosed but the contract is expected to contribute to UMWOG’s profits in 2015E (contract commenced on 28 September 2015), 2016E and 2017E. The contract award is also an expression of confidence on the longer term prospects for a recovery in crude oil prices by the SapuraKencana Group, which recently secured a Field Development Plan approval from PETRONAS for the SK310 B15 gas field development project.

We maintain our SELL rating for UMWOG (RM1.16, TP RM1.10), which is scheduled to release its 3Q15 results today, and HOLD rating for SAKP (RM2.13, TP RM2.00).

Source: Affin Hwang Capital Research - 24 Nov 2015