May sees strongest order book replenishment for O&G

by **Cals** Thu 13 Jun 2013, 10:58

Business & Markets 2013

Written by BIMB Securities

Thursday, 13 June 2013 10:37

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Oil and gas sector
Maintain overweight: The latest quarterly results for companies under our coverage were mixed, with companies we are bullish on — DAYANG ENTERPRISE HOLDINGS BHD [] and UZMA BHD [] — recording a solid set of figures. As guided previously, we have upgraded our valuation parameters for both Dayang (year-to-date [YTD] gains 110%) and Uzma (YTD gains 131%) to factor in their resilient fundamental performances and stronger market following.
We believe May, which saw the award of Pan Malaysia topside maintenance-hook-up and commissioning (TSM-HUC) contracts, was the peak month (RM8 billion) for 2013 in terms of order book replenishment. It brings total contracts awarded YTD to RM16.3 billion, 49% higher than the whole of 2012 amounting to RM10.9 billion. Winners for the month were beneficiaries of the TSM-HUC contracts — Dayang (RM3.8 billion) and PETRA ENERGY BHD [] (RM2.5 billion).
For the rest of 2013, it is likely that sizeable fabrication contracts and risk service contracts (RSCs), which have been our primary focus, may only crystallise towards the end of the year at the earliest, but we still believe other contracts will continue to flow in to push 2013’s overall order book intake up further.
While it remains unclear on how much UMW Oil and Gas Corp Bhd (UMW OG) is looking to raise from its latest IPO, we are very excited with the entrance of UMW OG into the market as it offers investors exposure to one of the hottest demand areas within the oil and gas (O&G) services segment both locally and internationally. We see that the drilling segment is currently experiencing a bull run as reflected by the high charter and tight utilisation rates, to the extent that oilfield operators are having difficulty securing rigs to meet their exploration and production programme needs.

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With all of its four rigs chartered out on long-term contracts, we see room for UMW OG to further expand its asset base, a view that is supported by the robust industry activity. Currently, most of the rigs operating in Malaysian waters are foreign owned so migration of demand to local players, which is championed by Petroliam Nasional Bhd (Petronas) would certainly benefit UMW OG.
Petronas’ bottom line for the first quarter of the 2013 financial year (1QFY13) contracted by 5% year-on-year (y-o-y) to RM17.6 billion on the back of weaker selling prices and higher costs. This slower performance is also in line with other big international players which also endured lower product selling prices. Capital expenditure remained strong, gaining by about 20% y-o-y.
We retain our “overweight” call on the sector with a “buy” on Dayang (target price [TP]: RM6.98) and Uzma (TP: RM3.91), “trading buy” on Bumi Armada Bhd (TP: RM4.32), “neutral” on DIALOG GROUP BHD [] (TP: RM2.93), Malaysia Marine and Heavy Engineering Holdings Bhd (TP: RM3.31) and Scomi Energy Services Bhd (TP: 73 sen) with a “sell” call on Wah Seong Corp Bhd (TP: RM1.44). — BIMB Securities, June 12
This article first appeared in The Edge Financial Daily, on June 13, 2013.