News     Petronas Carigali has extended UMW’s NAGA 1 contract for a further period of two years, commencing 20 Aug 2016. The estimated contract value is USD130m.

NAGA 1’s current contract duration is for five years, which commenced on 13 Nov 2010 and will end on 12 Nov 2015.

However, the current contract has been extended to 19 Aug 2016 for an additional 281 days due to upgrading works on the rig during the 281-day period. The terms and condition of the current contract remain the same.

Comments     We view this news positively. This is the second extension for NAGA 1. The first extension was in 2010 (the current contract).

Based on the new contract value, the charter rate comes up to USD180k/day, which is higher than the current USD139k/day.

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

The rerating catalysts would include (i) a stronger than expected vehicle sales and (ii) the listing of its oil & gas division.

Forecast     We have adjusted our earnings forecast accordingly although the impact is immaterial.

Rating     Maintain MARKET PERFORM

Valuation     We are maintaining our MARKET PERFORM rating even after raised our TP higher to RM14.00 (from RM12.53 previously) as we roll forward our valuation year to FY14 and apply the same targeted multiple of 14.0x PER over its FY14 EPS of RM1.00.

Risks    A weak consumer sentiment and the uncertainty over the outcome of the upcoming general election, which may negatively affect the purchasing decision of the consumers.

Source: Kenanga