UMW-OG eyes new markets beyond Southeast Asia

by **Cals** Thu 12 Jun 2014, 02:58

Business & Markets 2014

Written by CIMB Research

Wednesday, 11 June 2014 10:46

UMW Oil & Gas Corp Bhd
(June 10, RM4.05)
Maintain add with a target price of RM5.18: Asset and geographical expansion were the main discussion points at UMW-OG’s presentation during Invest Malaysia on Monday. The company will add three new jack-ups by the end of financial year 2014 (FY14) and it has its eyes on new markets beyond Southeast Asia, where it has stamped a strong presence. Management is very active in the bidding circuit and is negotiating for 25 contracts worth US$2.2 billion (RM7.04 billion) for Naga 3, Naga 5, Naga 6 and Naga 7. Our target price rises as we now value the stock at 23.4 times calendar year 2015’s price-earnings ratio (PER) from 22.5 times, a 40% premium over our revised implied target market PER of 16.7 times from 16.1 times, but still within the historical PER range of the oil and gas big caps. We maintain our “add” call. Aggressive fleet expansion and early deliveries are potential rerating catalysts.

Management, represented by president Rohaizad Darus, chief financial officer Wai Thuy Fong and head of corporate development Chew Eng Hong, presented to about 80 fund managers at a large-group session during Invest Malaysia on Monday. There were no surprises from the briefing. Management gave two key updates: (i) The construction of Naga 6 and Naga 7 is on schedule. Slated for delivery in September 2014, Naga 6 is 90% completed. Naga 7, expected to be delivered in December 2014, is 75% completed; (ii) Management plans to expand the company’s presence outside Southeast Asia in 2015, with the Middle East being the potential key market.

We are encouraged that construction schedules for Naga 6 and Naga 7 are intact, and that there could be positive surprises in the form of early deliveries. Naga 5, which is now working on a six-week US$7 million job in the Philippines, was delivered on April 29, 2014, thirty-two days ahead of schedule. Naga 5 is expected to complete the project in the Philippines by month-end. We are excited by the robust jack-up tendering market in Southeast Asia. Given the shortage of jack-ups in the region, UMW-OG is in a position to choose its contracts. — CIMB Research, June 10.

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This article first appeared in The Edge Financial Daily, on June 11, 2014.
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