UMW Oil & Gas - How to train your dragon

Date: 
2014-02-25
Firm: 
CIMB
Stock: 
VELESTO
Price Target: 
5.00
Price Call: 
BUY
Last Price: 
0.225
Upside/Downside: 
+4.775 (2122.22%)
Target RM5.00 (Stock Rating: ADD)

This is how you do it - secure a higher charter rate for Naga 2, raise the utilisation for Naga 3 and book a full-quarter contribution from Naga 4. These factors are behind UMW-OG's fiery record finish for FY13 with core net profit coming in at our forecast and 97% of consensus. In the months ahead, we expect active newsflow as the company secures first contracts for Naga 6, Naga 7 and Naga 8, and a second contract for Naga 5. We continue to value UMW-OG at 22.5x CY15 P/E, a 40% premium over our target market P/E but still within the historical P/E range of the oil & gas big caps. We maintain our contrarian Add call, with the aggressive fleet expansion as a potential re-rating catalyst.

120% jump in FY13 core net profit 
An improved charter rate for Naga 2, higher utilisation of Naga 3 and a full-quarter contribution from Naga 4 in 4Q pushed UMW-OG's FY13 core net profit up a blistering 120% yoy to a record RM159m, after stripping out RM31m gains from a property sale in Singapore. Drilling services, which consist of the Naga 1 semi-sub and the Naga 2, Naga 3 and Naga 4 jack-ups, contributed 93% to group pretax. Naga is a Malay word for dragon. 

Aggressive fleet expansion 
Riding on the high demand for jack-ups in Malaysia and other markets in Southeast Asia, UMW-OW is aggressively adding new assets. Naga 5 and Naga 8 are under construction at Keppel's (KEP SP, Add) yard in Singapore. Naga 8, which is slated for delivery in Sep 2015, is still without a contract, but Naga 5, which will be rolled out in May 2014, has been contracted to work for Nido Petroleum in the Philippines starting from Jun 2014 under a US$7m 6-week contract. Meanwhile, Naga 6 and Naga 7 are under construction at China Merchants Heavy Industry's yard in Shenzen for delivery in Sep 2014 for Naga 6 and Dec 2014 for Naga 7. Naga 6 and Naga 7 have yet to be contracted. 

Beneficiary of Petronas's import substitution model 
In Malaysia, there are currently 18 jack-ups, of which the two locally-owned ones are Naga 3 and Naga 4. Of the 16 foreign-owned ones, the contracts for 10 will expire this year (Figure 1). This will provide significant job opportunities for UMW-OG.

Discussions
1 person likes this. Showing 1 of 1 comments

shidayea

wait for RM5.00

2014-02-26 17:11

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