A VERY Pessimistic Outlook ...
At TP of RM0.30 is based on a 40% discount to its diluted book value of 50 sen per share.
Streets do not expect any near-term re-rating for UMW-OG, as even at full rig utilisation at current (16 Jan 2018) 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 there may be 12 rig charters materialising for the company in 2018 — compared to five in 2017 — 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%, Streets 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,
Streets view the 19% share price discount to its estimated diluted book value as too low.
On UMW-OG's announcement that it has secured a three-year umbrella contract from Petronas Carigali Sdn Bhd for the provision of hydraulic workover units (HWU), there has not been any call-out or work order under the contract that commenced on Dec 22 2018, 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.