News     UMW has secured a contract from Petronas Carigali Sdn Bhd (PCSB) for the provision of its Jack-Up Drilling Rig, NAGA 4, for PCSB’s domestic operations within Malaysian waters at a contract value of USD157.68m (RM473m).

The contract period is for three years and is extendable for another two years.

NAGA 4 is a premium jack-up drilling rig which is able to operate in water depths of up to 400 ft, with a drilling depth of 30,000 ft.

Comments      The contract came as expected UMW to secure taking delivery of NAGA 4.

We reckon that the rig sometime in May 2013.

Outlook      We expect UMW Toyota and Perodua to retain their leaderships in the non-national and national passenger car segments respectively.

Re-rating catalysts would include: (i) stronger than expected vehicle sales, and (ii) listing of the oil & gas division.

Forecast    We have factored in a charter rate of USD146k/day (RM438k/day) for the new contract, similar to the rate obtained by NAGA 3.

Our FY13-15F earnings have been increased by 1.3-1.0% due to the inclusion of the new contract into our forecasts.

Rating     Maintain MARKET PERFORM

At its current level, the stock price has now exceeded our fair value slightly (offering thus a negative total return of -3%). We will be reassessing our rating if the share price rallies further.

Valuation     Following the NAGA 4 new contract, note that we have raised our target price slightly to RM12.53 (from RM12.37 previously) based on 14x FY13 EPS.

Risks      A weak consumer sentiment may cause a slowdown in car sales.

Source: Kenanga