UMW-OG is world’s most expensive rig operator

by **Cals** Mon 23 Dec 2013, 11:20

Business & Markets 2013

Written by Affin IB Research

Monday, 23 December 2013 09:57

UMW Oil & Gas Corp Bhd
(Dec 20, RM4.03)
Downgrade to sell at RM4.12 with a target price of RM3.10: UMW-OG announced recently that it had secured an extension of its existing contract with PetroVietnam Drilling and Well Services Corp (PV Drilling) for its Naga 2 jack-up rig. The proposed extension is for a duration of four months with an option for another five months, commencing in June 2014. The contract value for the firm period is US$19 million(RM62.5 million) or US$156,000 per day.

Separately, UMW-OG has also secured a US$7 million contract from Nido Petroleum Philippines Pty Ltd, a subsidiary of Australia-listed Nido Petroleum, for the Naga 5 jack-up drill, which will drill the Baragatan prospect in the Phillipines. The contract duration is six weeks, commencing in June 2014.

We are generally positive on the two contract wins. That said, we are not overly excited as the charter rates of US$156,000 to US$167,000 per day were broadly within our expectations, and we had imputed in our forecast a high utilisation rate of 89% for financial year 2014 ending Dec 31 (FY14).

We note that the Nido Petroleum contract fetches a higher daily charter rate of US$167,000 due to the short duration of the contract. We have imputed in our earnings model daily charter rates of US$155,000 to US$160,000 for the new rigs and hence, we make no change to our earnings forecast.

UMW-OG’s share price has done exceedingly well lately, surging by 21% in the month of December (+47% from its initial public offer price of RM2.80). We opine that the strong share price performance may be attributable to the two contract wins and stronger investor appetite for Malaysian oil and gas (O&G) stocks.

At its last traded price of RM4.12, UMW-OG is valued at 34.1 times calendar year 2014 (CY14) earnings per share (EPS) and 23.8 times CY15 EPS, making the group the world’s most expensive rig operator as well as the most expensive Malaysia O&G stock under our coverage. The group is trading at a substantial premium to the global peer average CY14 and CY15 price-earnings ratio (PER) of 11 times and 8 times, and Malaysian big caps O&G companies’ average CY14 and CY15 PER of 20 times and 16 times respectively.

We are downgrading UMW-OG to “sell” (from “reduce”) with an unchanged target price of RM3.10 based on 18 times CY15 EPS. While we like the group’s management and the good prospects of Malaysia’s jack-up rigs market, we opine that UMW-OG’s valuation is stretched with limited upside potential. Even with our strong earnings growth forecast of 73% compound annual growth rate over FY12 to FY15E, the valuation of 23.8 times CY15 PER is rich and in our view, the risk is on the downside.

Key risks to our negative view on UMW-OG are the undertaking of major earnings accretive mergers and acquisitions, faster than expected expansion plan and stronger than expected earnings. — Affin IB Research, Dec 20

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by **Cals** Mon 23 Dec 2013, 11:20

watch this sell call guys

UMW-OG is world’s most expensive rig operator

UMW-OG is world’s most expensive rig operator

Re: UMW-OG is world’s most expensive rig operator