Friday 29 Mar 2024
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KUALA LUMPUR (Jan 17): UMW Oil & Gas Corp Bhd (UMW-OG) fell 4.94% today after the counter was downgraded to 'sell' from 'hold' by AmInvestment Bank Bhd, as the group's share price has rebounded above the research house's target price.

At 3.20pm, UMW-OG slid 2 sen or 4.94% to 38.5 sen, with some 104.6 million shares exchanged.

The counter previously saw a rally in late December 2017 up to earlier this month, to touch a six-month closing high of 45.5 sen, spurred by the climb in crude oil prices to above the US$65 per barrel mark.

At the time of writing, Brent crude was trading at US$69.14 per barrel according to Bloomberg data.

In a note today, AmInvestment analyst Alex Goh said the counter was downgraded as its share price had rebounded above the research house's target price of 30 sen per share, based on a 40% discount to its diluted book value of 50 sen per share.

Goh said he does not expect any near-term re-rating for UMW-OG, as even at full rig utilisation at current day rates, the company will be barely breaking even, notwithstanding the group's efforts to draw cost efficiencies with a stronger credit profile amongst suppliers and financiers.

While Goh said there may be 12 rig charters materialising for the company in 2018 — compared to five in 2017 — he said these may be short-term charters to replace contracts expiring in 2018.

"Even at near full rig utilisation of 90% in 3QFY17, UMW-OG still suffered a minor core loss of RM4 million. As there will be three rigs out of charter in 1QFY18 or utilisation rate of 60%, we expect a resumption of losses for the group.

"Given that the group will incur one-off recapitalisation and rig impairment costs in 4QFY17 amid persistent losses against the backdrop of jack-up charter rates which are just about breaking even, we view the 19% share price discount to its estimated diluted book value as too low," Goh added.

On UMW-OG's announcement yesterday that it has secured a three-year umbrella contract from Petronas Carigali Sdn Bhd for the provision of hydraulic workover units (HWU), Goh noted that there has not been any call-out or work order under the contract that commenced on Dec 22, which will be made at stipulated price, for those HWU services.

The contract, which involves maintenance and remedial treatments for an oil or gas well, may comprise a series of individual orders with a term of three years with a one-year extension option.

"Currently, HWUs represent a minor part of the group's asset base and currently register losses for the group given that the HWUs are largely idle over the past year. While this award is mildly positive for the group, our forecasts are maintained as the utilisation of these HWUs do not have a high degree of certainty," said Goh.

 

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