UMW Oil & Gas - Jack Up!

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.

Source: Full PDF Report
              CIMB Research

Fibonacci Retracement

Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician Leonardo Fibonacci in the thirteenth century. However, Fibonacci's sequence of numbers is not as important as the mathematical relationships, expressed as ratios, between the numbers in the series. In technical analysis, Fibonacci retracement is created by taking two extreme points (usually a major peak and trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels. Before we can understand why these ratios were chosen, we need to have a better understanding of the Fibonacci number series. (For a more in-depth discussion of this subject, see Fibonacci And The Golden Ratio.)

The Fibonacci sequence of numbers is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc. Each term in this sequence is simply the sum of the two preceding terms and sequence continues infinitely. One of the remarkable characteristics of this numerical sequence is that each number is approximately 1.618 times greater than the preceding number. This common relationship between every number in the series is the foundation of the common ratios used in retracement studies.

The key Fibonacci ratio of 61.8% - also referred to as "the golden ratio" or "the golden mean" - is found by dividing one number in the series by the number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.

The 38.2% ratio is found by dividing one number in the series by the number that is found two places to the right. For example: 55/144 = 0.3819.

The 23.6% ratio is found by dividing one number in the series by the number that is three places to the right. For example: 8/34 = 0.2352.

For reasons that are unclear, these ratios seem to play an important role in the stock market, just as they do in nature, and can be used to determine critical points that cause an asset's price to reverse. The direction of the prior trend is likely to continue once the price of the asset has retraced to one of the ratios listed above. The following chart illustrates how Fibonacci retracement can be used. Notice how the price changes direction as it approaches the support/resistance levels.

In addition to the ratios described above, many traders also like using the 50% and 78.6% levels. The 50% retracement level is not really a Fibonacci ratio, but it is used because of the overwhelming tendency for an asset to continue in a certain direction once it completes a 50% retracement.

Based on depth, we can consider a 23.6% retracement to be relatively shallow. Such retracements would be appropriate for flags or short pullbacks. Retracements in the 38.2%-50% range would be considered moderate. Even though deeper, the 61.8% retracement can be referred to as the golden retracement. It is, after all, based on the Golden Ratio.

Shallow retracements occur, but catching these requires a closer watch and quicker trigger finger.


Golden Retracements

Chart below shows Pfizer (PFE) bottoming near the 62% retracement level. Prior to this successful bounce, there was a failed bounce near the 50% retracement. The successful reversal occurred with a hammer on high volume and follow through with a breakout a few days later.

Chart below shows JP Morgan (JPM) topping near the 62% retracement level. The surge to the 62% retracement was quite strong, but resistance suddenly appeared with a reversal confirmation coming from MACD (5,35,5). The red candlestick and gap down affirmed resistance near the 62% retracement. There was a two day bounce back above 44.5, but this bounce quickly failed as MACD moved below its signal line (red dotted line).

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Daya Materials Berhad

Background
DMB is an oil & gas and engineering company based in Malaysia with presence throughout the Asia Pacific region. Our group is principally involved in provision of oil & gas products and services, engineering, specialized polymers as well as technical services. DMB is listed on Bursa Malaysia with a stock symbol "DAYA" and stock code "0091". Founded in 1994, DMB started out as a pioneer in the production and marketing of specialized polymers. From a small, single-line business, we have since expanded into downstream chemicals, specialized facility maintenance services, engineering & construction, crane & lifting services, tank cleaning & repairs, solvent & waste oil recycling, ventilation & energy services. Oil & Gas now represents our single largest and most important business. Our O&G services encompass such activities as offshore pipeline services, submarine cable-laying, automated welding, subsea installation & engineering, offshore manpower, marine HVAC, upstream chemicals and FPSO desludging. Through various strategic partnerships, we are now venturing into marginal oilfield/brownfield development, drilling & well services, fabrication, EPCIC, hook-up & commissioning and T&I. Today, DMB is a leader in downstream chemicals, specialized lifting & material handling services as well as subsea installation to the domestic O&G industry.Through our unrelenting focus on delivering world-class products and services to our customers, our vision is set firmly on establishing ourselves as the supplier of choice in the international oil & gas markets.At DMB, we believe in "unleashing today ideas for tomorrow growth" (sourced by:http://www.dmb.com.my/index.php/en/home)