FY13 core net profit of MYR167m made up 119% of our forecasts, on better-than-expected 4Q results.
UMWOG is a direct play to rising drilling activities in SEA with a sound balance sheet to support long term growth.
Maintain BUY with MYR4.80 TP pegged at 23x 2015 PER.
Only 2 out of 18 JUs in Malaysia are locally-owned. Of the 18, 12 contracts are set to expire in 2014. 20 out of 66 JUs in SEA are old units (>25 years). Preference is for new, premium JUs with enhanced safety and operating features.
UMWOG will take delivery of 4 new premium JUs (Naga 5-8) in 2014- 15. We expect them to be contracted on LT charters, at prevailing market rates (DCRs of USD150k-170k). While 2 of its 5 incoming JUs are China-built with fast-track delivery dates, we do not see this as an issue. These JUs are similar to its Naga 2, 3 and are handled by the same project management team.
UMWOG has one of the stronger balance sheets to leverage on the demand for new premium JUs over the next 6 years. Taking delivery of 4 new JUs by 2015 will still keep its net gearing level at 51%. There is also upside to earnings of about 11%, for our model assumes six JUs (Naga 2-7), versus UMW OG’s seven (Naga 2-8).
Source: Maybank Research - 25 Feb 2014
UMWOG is a direct play to rising drilling activities in SEA with a sound balance sheet to support long term growth.
Maintain BUY with MYR4.80 TP pegged at 23x 2015 PER.
What’s New
4Q13 core net profit of MYR55m (-6% QoQ) was better than our initial MYR28m. The stronger earnings were fueled by: (i) higher investment income & lower interest expense post IPO and (ii) a 9% pretax growth at its drilling ops. We had initially projected a fall in (ii) as Naga 3 underwent maintenance works in Nov.What’s Our View
Our forecasts are unchanged. We see UMWOG as a direct proxy to capitalize on the improving fundamentals in drilling activities in SEA over the next 2 years: from import substitution opportunities in Malaysia to high replacement cycle and demand for premium jack-up rigs in SEA.Only 2 out of 18 JUs in Malaysia are locally-owned. Of the 18, 12 contracts are set to expire in 2014. 20 out of 66 JUs in SEA are old units (>25 years). Preference is for new, premium JUs with enhanced safety and operating features.
UMWOG will take delivery of 4 new premium JUs (Naga 5-8) in 2014- 15. We expect them to be contracted on LT charters, at prevailing market rates (DCRs of USD150k-170k). While 2 of its 5 incoming JUs are China-built with fast-track delivery dates, we do not see this as an issue. These JUs are similar to its Naga 2, 3 and are handled by the same project management team.
UMWOG has one of the stronger balance sheets to leverage on the demand for new premium JUs over the next 6 years. Taking delivery of 4 new JUs by 2015 will still keep its net gearing level at 51%. There is also upside to earnings of about 11%, for our model assumes six JUs (Naga 2-7), versus UMW OG’s seven (Naga 2-8).
Source: Maybank Research - 25 Feb 2014
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