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By HLIB Re­search Rating: Buy Tar­get price: 38 sen

HLIB Re­search is pos­i­tive on UMWOG, and main­tained its “buy” call on the counter fol­low­ing the group’s first quar­terly profit in two years.

The re­search house noted that the group’s bot­tom line for the third quar­ter of fi­nan­cial year 2017 (Q3’17) re­turned to the black as rig util­i­sa­tion rates im­proved to 90% (from 68% in Q2’17).

Year-to-date rig util­i­sa­tion rates have im­proved from 26% in Q1’17 to 90% in the lat­est quar­ter on the back of the sta­bil­i­sa­tion of crude oil prices ow­ing to the Or­gan­i­sa­tion of Petroleum Ex­port­ing Coun­tries’ pro­duc­tion cut.

UMW OG’s cur­rent av­er­age daily char­ter rate is hov­er­ing at around US$70,000 per day.

“We ex­pect the rate to sta­bilise around this level in the near term as the sup­ply glut of jack up rigs still per­sists while no sig­nif­i­cant im­prove­ment is seen in the near term.

“The num­ber of new rigs to be de­liv­ered in 2018-2020 is ex­pected to be around 98 units, which is about 18.1% of the num­ber of global jack-up rigs avail­able glob­ally,” the re­search house said.

Not­with­stand­ing this, it said, over 50% of the global rig fleet are aged above 30 years, in­di­cat­ing that a sig­nif­i­cant num­ber of rigs could be scrapped in the longer run.

The re­search house added that in 2018, at least 12 jack-up rig con­tracts would be needed in the Malaysian rig mar­ket.

“This is pos­i­tive for UMW-OG be­ing one of the only two lo­cal play­ers in the in­dus­try.

“We be­lieve the com­pany stands a fairly good chance to se­cure suf­fi­cient amount of con­tracts to re­plen­ish its order book,” it added.

It noted that the the group was cur­rently par­tic­i­pat­ing in 25 rig con­tract bids, of which 15 are in Malaysia, worth a to­tal of US$802mil, in­di­cat­ing po­ten­tial win­ning of more rig con­tracts.

The group is also look­ing to con­tinue its cost ra­tio­nal­i­sa­tion ex­er­cise and plans to cut an­other RM30mil in costs in FY18.

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