Target RM4.63 (Stock Rating: ADD)
UMW-OG's
management confirmed at a recent meeting that Naga 5, which is
currently under construction, is due to be rolled out in May 2014 as
scheduled. The demand for jack-ups is so strong that not only is Naga 5
already contracted for, management expects to secure a second contract
for the rig by end-1Q14. We have also factored in the delivery of Naga 6
and Naga 7 in 2014. We continue to value the stock at 22.5x CY15 P/E,
at a 40% premium over our implied market target of 16.1x, but still
within the historical P/E range of the oil & gas big caps. We
maintain our contrarian Add call amid the bearish consensus view of
UMW-OG, with the aggressive fleet expansion as the potential re-rating
catalyst. Watch out for positive newsflow.
What Happened
We recently met with the management of UMW-OG, who confirmed that the construction of the jack-up drilling rig Naga 5 is on track for completion in May. Naga 5, which is being built at Keppel's (KEP SP, Add) yard in Singapore for a cost of US$223m (RM738m), already has a contract waiting for it. In Dec 2013, UMW-OG bagged a US$7m (RM23m) drilling contract for Naga 5 from Australia's Nido Petroleum. The contract will commence in Jun for a duration of about six weeks at the Baragatan prospect in the Philippines. Management is currently in negotiations to secure a second contract for Naga 5, with the outcome due in Mar.
What We Think
We are encouraged that UMW-OG's fleet expansion programme is progressing as planned. In addition to Naga 5, we have imputed the delivery of two other jack-ups, namely Naga 6 and Naga 7, in our FY14 forecasts. UMW-OG currently owns four rigs, comprising a semi-sub (Naga 1) and three jack-ups (Naga 2, Naga 3 and Naga 4). The company's decision to add more jack-ups is driven by the shortage of locally-owned jack-ups working in Malaysian waters and the priority that Petronas gives to Malaysian-flagged assets. UMW-OG is presently the only jack-up owner in Malaysia but Perisai (PPT MK, Add) plans to bring its first jack-up to the market in Jun 2014, followed by a second unit in FY15 and a third one in FY16. See overleaf for order book opportunities in Malaysia and Southeast Asia.
What You Should Do
We advise investors to accumulate the stock as UMW-OG expands its fleet to take advantage of the high requirement for jack-ups in Malaysia and Southeast Asia.
We recently met with the management of UMW-OG, who confirmed that the construction of the jack-up drilling rig Naga 5 is on track for completion in May. Naga 5, which is being built at Keppel's (KEP SP, Add) yard in Singapore for a cost of US$223m (RM738m), already has a contract waiting for it. In Dec 2013, UMW-OG bagged a US$7m (RM23m) drilling contract for Naga 5 from Australia's Nido Petroleum. The contract will commence in Jun for a duration of about six weeks at the Baragatan prospect in the Philippines. Management is currently in negotiations to secure a second contract for Naga 5, with the outcome due in Mar.
What We Think
We are encouraged that UMW-OG's fleet expansion programme is progressing as planned. In addition to Naga 5, we have imputed the delivery of two other jack-ups, namely Naga 6 and Naga 7, in our FY14 forecasts. UMW-OG currently owns four rigs, comprising a semi-sub (Naga 1) and three jack-ups (Naga 2, Naga 3 and Naga 4). The company's decision to add more jack-ups is driven by the shortage of locally-owned jack-ups working in Malaysian waters and the priority that Petronas gives to Malaysian-flagged assets. UMW-OG is presently the only jack-up owner in Malaysia but Perisai (PPT MK, Add) plans to bring its first jack-up to the market in Jun 2014, followed by a second unit in FY15 and a third one in FY16. See overleaf for order book opportunities in Malaysia and Southeast Asia.
What You Should Do
We advise investors to accumulate the stock as UMW-OG expands its fleet to take advantage of the high requirement for jack-ups in Malaysia and Southeast Asia.
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