- Over the weekend, Starbiz featured an interview with UMW’s
CEO Datuk Syed Hisham Syed Wazir, highlighting that UMW’s oil & gas
division is expected be its main engine of growth in the near-to-mid term.
- Further, management indicated that it might invest further
in the oil & gas sector later this year, with a focus on its core
competencies in drilling and exploration services. The group does not rule out
acquisitions as a measure to improve bottomline, besides organic growth.
- This is to take advantage of opportunities, particularly
in regards to marginal field development – Petronas has identified 23 marginal
fields divided into 6 clusters. Petronas expects to announce award of the six
by year end.
- Several news articles in international oil & gas
industry publications recently also highlighted that UMW has been sounding out
the market for newbuild jack-ups (400 foot). UMW is also said to be looking to
buy a jack-up that is already under construction for delivery by March
2013.
- UMW currently operates two jack-up rigs i.e. Naga 1 and
Naga 2, which generate collective revenue of circa RM80mil/quarter and RM20mil
operating profit (5%-6% of group EBIT), on our estimates. Naga 2 (30,000 feet
drilling depth capability) is deployed in Pangkah PSC, East Java, Indonesia,
while Naga 3, under a contract with Petronas Carigali, is deployed for Petornas’
local operations. Capex incurred for Naga 2 and Naga 3 were circa US$177mil (RM550mil)
each.
- Any acquisitions will be backed by UMW’s strong balance
sheet i.e. RM2.3bil gross cash, 5% net gearing – we see significant room to
gear up for any form of expansion. Additionally, UMW is in the midst of
rationalizing certain loss making oil & gas businesses i.e. fabrication yards
in Vietnam and Malaysia (Lumut) which are loss making.
- We maintain our BUY call on UMW at unchanged SOP derived
fair value of RM8.90/share. Key catalysts are: (1) Upward earnings revision –
our forecasts are 6%-7% above consensus over FY12-14F; (2) Potential M&As
in the auto sector; (3) Expansion of oil & gas operations and one of
potential proxies to local marginal field development.
Source: AmeSecurities
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