News  In a Bursa announcement, UMW Holdings ("UMW") announced that UMW Standard Drilling Sdn Bhd, a wholly-owned subsidiary of the UMW-OG Group, had secured a Letter of Award ("LOA") from Petrovietnam Drilling and Well Services Corporation ("PDWS") to provide its NAGA 3 jack up drilling rig for use by the Japan Vietnam Petroleum Company ("JVPC").

 NAGA 3 will drill two wells with an option to drill an additional two wells offshore of Vietnam. The work will commence after the completion of its current contract with Petronas Carigali Sdn Bhd ("PCSB").

 The contract value for the first two wells is estimated to be c.USD24m.

 NAGA 3 is expected to be mobilised for work on JVPC contract in 1H2014. Prior to the completion of its current contract with PCSB and before the commencement of the provision of its services to JVPC, NAGA 3 will undergo unscheduled repair work on a few of its ballast tanks in Nov 2013 for about three weeks.

Comments  We are NEUTRAL to SLIGHT POSITIVE on the announcement as this contract came in as an extension for the utilisation of NAGA 3 after the completion of the PCSB contract in Mar 2014.

 Although the management has yet to indicate the duration for the contract mentioned above, based on our back of the envelope estimation, by applying the current market daily charter rates of around USD140k/day, this worked out to be less than a 12-month period.

 On the bottomline impact, we believe it is immaterial as the contract contribution is estimated to be only c.1% if we were to take the low end historical EBIT margin which is at about c.30% as a gauge.

Outlook  On the automotive segment, although we reckon that the UMW's 2H vehicle sales will be boosted by new Toyota Vios that will be launched in the short-term, any significant positive impact will not be seen in FY13 given that deliveries which may spill over into FY14.

 On the flipside, the performance of the Oil & Gas segment is expected to continue to improve in subsequent quarters following full contribution from the refurbished NAGA 1, higher daily operating rate for NAGA 2, continuing contracts for NAGA 3 and additional contribution from the new NAGA 4.

Forecast  Given that the contribution is immaterial with little financial impact (c.1% contribution to FY14's bottom line), we leave our earnings estimates unchanged at this juncture.

Rating   MAINTAIN MARKET PERFORM

Valuation  Our TP of RM13.39 is based on a targeted PER multiple of 14.4x (being +1SD above its 5-year average forward PER)

Risks to our call  Lower than expected vehicle sales.

Source: Kenanga