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HwangDBS Research has maintained a 'buy' call on UMW Oil & Gas Bhd (UMWOG), with an unchanged target price of RM5.15.
This is based on the almost completion of its jack-up rig called Naga 5, which is being built at Keppel's yard in Singapore, and the company is in talks for longer charters for the jack-up rig beyond its first assignment for Nido Petroleum Philippines Pty Ltd.
In its research note, HwangDBS said UMWOG will be able to receive the Naga 5 jack-up rig by May this year, ahead of its first assignment for Nido Petroleum, which will commence operations in June.
"This is a six week job worth US$7 million to drill the Baragatan prospect on behalf of the SC 63 joint venture. Concurrently, UMWOG is in negotiations with prospective parties to secure a long-term charter for Naga 5," it said.
Apart from Naga 5, HwangDBS said UMWOG is in line to take delivery of Naga 6 jack-up rig by September 14, Naga 7 (December 14), and Naga 8 (September 5) this year.
"While there's some sceptism over issues such as the built quality and timely delivery of its Naga 6 and Naga 7 jack-up rigs, which are being built in China, such concern will be allayed once it (UMWOG) secures charters.
"Given the inherent demand for new, premium jack-up rigs, we are confident of these rigs being chartered," HwangDBS said.
HwangDBS also said its forecasts on UMWOG are unchanged and continue to view the company as a growth stock, with sound financial and operating acumen to capitalise on the prospects of jack-up rigs in Southeast Asia over a five-year horizon
"It is the only Malaysian entity that has the track record and in-house crew competencies in the drilling space. We opine that new jack-up orders beyond Naga 8 will likely be done from 2015 as UMWOG balances growth with balance sheet disciplines, unless a new unit is available with a contract in hand," it said.