- Over the weekend, Starbiz featured an interview with UMW's CEO Datuk Syed Hisham Syed Wazir, highlighting that UMW's oil & gas division is expected be its main engine of growth in the near-to-mid term. 

- Further, management indicated that it might invest further in the oil & gas sector later this year, with a focus on its core competencies in drilling and exploration services. The group does not rule out acquisitions as a measure to improve bottomline, besides organic growth.  

- This is to take advantage of opportunities, particularly in regards to marginal field development ' Petronas has identified 23 marginal fields divided into 6 clusters. Petronas expects to announce award of the six by year end. 

- Several news articles in international oil & gas industry publications recently also highlighted that UMW has been sounding out the market for newbuild jack-ups (400 foot). UMW is also said to be looking to buy a jack-up that is already under construction for delivery by March 2013. 

- UMW currently operates two jack-up rigs i.e. Naga 1 and Naga 2, which generate collective revenue of circa RM80mil/quarter and RM20mil operating profit (5%-6% of group EBIT), on our estimates. Naga 2 (30,000 feet drilling depth capability) is deployed in Pangkah PSC, East Java, Indonesia, while Naga 3, under a contract with Petronas Carigali, is deployed for Petornas' local operations. Capex incurred for Naga 2 and Naga 3 were circa US$177mil (RM550mil) each.

- Any acquisitions will be backed by UMW's strong balance sheet i.e. RM2.3bil gross cash, 5% net gearing ' we see significant room to gear up for any form of expansion. Additionally, UMW is in the midst of rationalizing certain loss making oil & gas businesses i.e. fabrication yards in Vietnam and Malaysia (Lumut) which are loss making. 

- We maintain our BUY call on UMW at unchanged SOP derived fair value of RM8.90/share. Key catalysts are: (1) Upward earnings revision ' our forecasts are 6%-7% above consensus over FY12-14F; (2) Potential M&As in the auto sector; (3) Expansion of oil & gas operations and one of potential proxies to local marginal field development.