Analysts ‘hold’ on UMWOG after ex-rights trading announcement

KUCHING: Analysts have maintained ‘hold’ on UMW Oil & Gas Corporation Bhd (UMWOG) after the group’s announcement that the shares will trade ex-rights on September 25 while the trading rights will commence September 26 and cease on October 3.

According to AmInvestment Bank Bhd ( AmInvestment Bank), the theoretical value of the warrants, even though the mother share price is currently below UMWOG’s exercise price, works out to 16 sen given that the expiry period is seven years.

Including the potential value of the warrants, AmInvestment Bank estimated that the trading rights could be valued at four sen.

“However, if the ex-rights share price drops below RM0.30, the trading rights will be essentially zero,” the research firm said.

AmInvestment Bank noted that currently, six out of seven rigs wholly-owned by UMWOG (as 50 per cent of the Naga 1 semisubmersible rig’s equity stake was sold to JDC Panama recently) are being utilised as Naga 5’s shortterm charter with Petrofac was recently completed.

However, Naga 5’s one-year charter -- with another oneyear extension -- with Repsol commences in mid-September this year at RM113 million, which translates to US$72,000 per day, just around breakeven based on the research firm’s estimates.

“The group’s jack-up rigs Naga 3 and Naga 4 have commenced in June this year, with Naga 3 covering five firm wells with options for six more wells,” it said. “Naga 4 involves only two firm wells with options to extend to three more wells.”

AmInvestmentBankhighlighted that as the drilling of a well could take up to 40 days, the firm charter for Naga 4 may be less than three months while Naga 3 could take longer at just below seven months.

It pointed out that as Naga 2 is also currently on short-term charter, two rigs will drop out of a firm charter in the fourth quarter of financial year 2017 (4QFY17).

“This means that five out of the seven rigs in the fleet will be operational post-3QFY17, which will further extend the group’s losses,” the research firm said.

Against the backdrop of these persistent losses against a backdrop of a bleak market outlook, AmInvestment Bank viewed the 33 per cent share price discount to UMWOG’s estimated diluted book value as justified.

AmInvestment Bank had left its fair value of RM0.30 per share for UMWOG unchanged, based on a 40 per cent discount to the upcoming diluted book value of RM0.50 per share, which the market has already adjusted for.