UMW Oil & Gas : Accumulate Now

Target RM3.43 (Stock Rating: ADD)

Naga 7 will be delivered by month-end as scheduled, we learned from our recent communication with management. In typical UMW-OG style, the jack-up was snapped up for work six months before the construction is completed. Naga 8, which will be delivered in Sep, is still not contracted, but we think that it will not be for long as management actively bids for 29 contracts worth RM5.6bn. We continue to value the stock at 15x CY16 P/E, on par with our target market P/E. We keep our Add call, with a Middle Eastern foray and a Naga 8 contract as potential re-rating catalysts.

What Happened 

We recently touched base with UMW-OG's management on its two newbuilds, namely jack-ups Naga 7 and Naga 8. Naga 7 is now 99.02% completed and is set for delivery by month-end. The jack-up has been signed up to service a 120-day, US$20m contract with Frontier Oil in the Philippines effective next month, with an option for a 180-day extension. Meanwhile, Naga 8, which is expected to join the fleet in Sep this year, is 66.85% underway. Management has yet to clinch a contract for the jack-up, but it remains very active in the bidding circuit, gunning for 29 contracts worth RM5.6bn. As at Dec 2014, the company had an order book of RM1.9bn. 

What We Think 

We are encouraged that UMW-OG's fleet expansion is on track. Secured in Jul 2014, the early contract for Naga 7 should allay any concerns about the company's ability to deliver Naga 7 and Naga 8. We are also heartened that management has demonstrated an astute pricing power. The Frontier Oil contract for Naga 7 translates into an attractive daily charter rate (DCR) of US$166,667/day, which is higher than the regional average of US$140,000-150,000/day. Furthermore, the company last month landed a 100-day, US$18.7m contract with PetroVietnam for end-client Korea National Oil Corporation in Vietnam starting Jun this year. Excluding mobilisation cost, the DCR works out to US$160,000/day, impressive in the current industry environment and matching the DCR that the jack-up is currently fetching from its PTTEP's Myanmar contract, which was secured in Jul 2014. 

What You Should Do 

We advise investors to accumulate UMW-OG shares. The company has evolved from a local player to a force to be reckoned in Southeast Asia, and is now on the verge of being a global player if it secures a contract in the Middle East by year-end.

Chart	Stock Name	Last	Change	Volume
	UMWOG	2.75	+0.15 (5.77%)	2,727,100

Source : CIMB Research

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

UMW Oil and Gas IPO Oversubscribed table

INITIAL PUBLIC OFFERING (“IPO”) OF UP TO 843,180,000 ORDINARY SHARES OF RM0.50 EACH IN UMW OIL & GAS CORPORATION BERHAD (“UMW-OG”) (“IPO SHARES”) COMPRISING AN OFFER FOR SALE OF UP TO 231,380,000 EXISTING SHARES (“OFFER SHARES”) AND A PUBLIC ISSUE OF 611,800,000 NEW SHARES (“ISSUE SHARES”) IN CONJUNCTION WITH THE LISTING OF AND QUOTATION FOR THE ENTIRE 2,162,000,000 ORDINARY SHARES OF RM0.50 EACH IN UMW-OG (“SHARES”) ON THE MAIN MARKET OF BURSA MALAYSIA SECURITIES BERHAD, IN THE FOLLOWING MANNER:

 

(I) INSTITUTIONAL OFFERING OF UP TO 648,600,000 IPO SHARES TO MALAYSIAN AND FOREIGN INSTITUTIONAL AND SELECTED INVESTORS, INCLUDING BUMIPUTERA INVESTORS APPROVED BY THE MINISTRY OF INTERNATIONAL TRADE AND INDUSTRY AT THE INSTITUTIONAL PRICE TO BE DETERMINED

 BY WAY OF BOOKBUILDING (“INSTITUTIONAL PRICE”); AND

 

(II) RETAIL OFFERING OF 194,580,000 IPO SHARES TO THE ELIGIBLE DIRECTORS AND EMPLOYEES OF UMW-OG GROUP, THE ELIGIBLE DIRECTORS AND EMPLOYEES OF UMW HOLDINGS BERHAD (“UMWH”) AND ITS SUBSIDIARIES, THE ENTITLED SHAREHOLDERS OF UMWH AND THE MALAYSIAN PUBLIC, AT THE RETAIL PRICE OF RM2.80 PER SHARE (“RETAIL PRICE”), PAYABLE IN FULL UPON APPLICATION AND SUBJECT TO REFUND OF THE DIFFERENCE BETWEEN THE RETAIL PRICE AND THE FINAL RETAIL PRICE IN THE EVENT THAT THE FINAL RETAIL PRICE IS LESS THAN THE RETAIL PRICE,

 

SUBJECT TO THE CLAWBACK AND REALLOCATION PROVISIONS AND OVER-ALLOTMENT OPTION. THE FINAL RETAIL PRICE WILL EQUAL THE LOWER OF:

 (I) THE RETAIL PRICE OF RM2.80 PER SHARE; AND

 (II) THE INSTITUTIONAL PRICE,

 SUBJECT TO ROUNDING TO THE NEAREST SEN.

=================================================================================

MIH is pleased to announce that Westports' initial public offering ("IPO") to the Malaysian public ("Public Retail Offering"), comprising 68,200,000 Offer Shares has been oversubscribed.

A total of 32,835 applications for 429,799,600 Offer Shares were received from the Malaysian public representing an oversubscription rate of 5.30 times.

 

If you look at the subscription rate, chances of striking the IPO is not very low. Saw from web site that if apply public 1,000 shares, the chances are 5.97%

 

1,000  5.97%

2,000  6.97%

10,000 9.96%

100,000  13.73%

1,000,000   66.67%

 

 

Bumiputra portion:

1,000  26.19%

2,000  27.12%

10,000 30.24%

100,000  76.11%

1,000,000   100%

UMW Oil & Gas

TA Securities initiate coverage on UMW Oil & Gas Corporation Bhd (UMW-OG) with a Buy recommendation and Target Price of RM3.36 based on 22x FY14 P/E. They believe that 22x FY14 PER is not excessive given that Malaysian-listed mid-large cap upstream O&G counters with market cap between USD2bn-3.5bn currently trade at an average of 21x CY14 P/E. This includes Bumi Armada (19x), MMHE (20x), Dialog Group (25x). Their Target Price translates into 19.8x FY15 P/E whereby FY15 would see the full-year contribution of UMW-OG’s entire fleet of 6 drilling rigs and 5 HWUs. They expect UMW Oil & Gas dividend yield zero for the next few years.

Kenanga give UMW-OG fair value at RM3.33 per share, based on CY14 21.0x PER. This is at a small discount to the PER of 22.0x which they ascribed to Sapurakencana (SKPETRO; OP; TP: RM4.72), in terms of relatively smaller size than the latter. Whilst this is at a premium to its global peers’ weighted average CY14 PER of 7.7x, they believe UMW-OG should be rated against domestic peers given that the major contributor to group earnings is mainly derived from Malaysia. They also expect UMW Oil & Gas dividend yield zero for the next few years. 

HLIB expects price to earnings ratio (P/E) to fall to 14 times in FY15 with a conservative assumption of additional one rig per year after FY14. HLIB initiated coverage on UMW O&G with a “buy” call and a target price of RM3.36 based on 20 times average FY14 to FY15 P/E as the full contribution from Naga 5 and Naga 6 will only be reflected in FY15.