UMW OIL & GAS CORP BHD

By AmInvestment Bank Sell (downgraded) Fair value: 30 sen

AMINVESTMENT Bank Research has downgraded its recommendation on the soon-to-be rebranded UMW Oil & Gas Corp (UMWOG) from “hold” to “sell” as the share price has rebounded above its unchanged fair value of 30 sen per share, based on a 40% discount to the diluted book value of 50 sen per share.

The research house says the group has secured the contract to provide hydraulic workover units (HWUs) to Petronas Carigali under an umbrella contract.

“These services involve maintenance and/ or remedial treatments on an oil or gas well.

“This could involve the use of all or any of UMWOG’s 5 HWU, namely UMW Gait 1, UMW Gait 2, UMW Gait 3, UMW Gait 5 and UMW Gait 6 to undertake workover services.”

AmInvestment Bank Research said the contract, which commenced on Dec 22 last year, is under an umbrella framework which may comprise a series of individual orders and call-outs.

“It has a term of three years with an option to extend for one more year. At present, there has not been any call-out or work order, which will be made at stipulated price, for those HWU services.

The research house says HWUs currently represent a minor part of the group’s asset base and is registering 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.”

Separately, even at near full rig utilisation of 90% in the third quarter of 2017, AmInvestment Bank Research said UMW O&G still suffered a minor core loss of RM4mil.

“As there will be three rigs out of charter in the first quarter of 2018 or a utilisation rate of 60%, we expect a resumption of losses for the group.”