Company report Alex Goh alexgoh@ambankgroup.com 03-2036 2280 OIL & GAS UMW OIL & GAS CORPORATION (UMWOG MK EQUITY, UMWOG.KL) 14 June 2017 Pricing ahead of massive rights Rationale for report: Company update HOLD (Maintained) Price Fair Value 52-week High/Low Key Changes Fair value EPS RM0.52 RM0.45 RM1.04/RM0.51 YE to Dec FY16 FY17F FY18F FY19F Revenue (RM mil) 320.8 500.4 730.6 702.9 Core net profit (RM mil) (405.9) (344.2) (171.4) (115.4) FD Core EPS (sen) (18.8) (15.9) (7.9) (5.3) FD Core EPS growth (%) 1,783.7 (15.2) (50.2) (32.7) Consensus Net Profit (RM mil) - (263.4) (147.2) (87.1) DPS (sen) - - - - PE (x) nm nm nm nm EV/EBITDA (x) nm nm 58.9 33.2 Div yield (%) - - - - ROE (%) (42.5) (16.6) (9.4) (6.9) Net Gearing (%) 144.1 191.3 215.4 228.4 Stock and Financial Data Shares Outstanding (million) 2,162.0 Market Cap (RMmil) 1,113.4 Book Value (RM/share) 1.04 P/BV (x) 0.5 ROE (%) (42.5) Net Gearing (%) 144.1 Major Shareholders Free Float 22.4 Avg Daily Value (RMmil) 1.9 UMW Holdings(55.7%) Skim Amanah Saham Bumiputera(8.4%) Price performance 3mth 6mth 12mth Absolute (%) (18.9) (30.9) (45.8) Relative (%) (22.1) (36.6) (50.3) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Jan-14 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 UMWOG MK FBMKLCI Index 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Investment Highlights We maintain our HOLD call and forecasts on UMW Oil and Gas Corp (UMWOG) but with a lowered fair value of RM0.45/share, based upon a 10% discount to the estimated book value of RM0.50/share after the completion of the group s proposed rights issue by September this year. Recall that the group is still undertaking a massive recapitalisation at 1.6x its current market capitalisation via a RM1.8bil renounceable rights issue, priced at RM0.30/rights shares on a basis of 14-to-5 existing shares, bundled with a free 1-for-4 7-year warrant which is exercisable at RM0.395. Our earlier fair value of RM0.62/share was based on a 40% discount to current book value. However, in anticipation of the impact of the upcoming rights completion, the market is pricing ahead of the massive dilution which could cut our exrights valuation to RM0.35/share. Since the beginning of May this year when UMWOG aborted its proposed acquisition of Icon Offshore for RM589mil and Orkim for RM495mil but retained the rights quantum, UMWOG s share price has fallen by 25% due to the impending dilution. Last week, PNB has issued an irrevocable undertaking letter to subscribe for its entitlement to the rights following the distribution of UMWOG shares from UMW Holdings. To ensure that UMWOG will secure the entire funds of RM1.8bil, PNB will also subscribe to up to 4.8mil new Islamic redeemable convertible 5-year preference shares (RCPS) at RM0.30/RCPS together with the 1-for-4 free 7-year warrant. PNB will own 45.5% directly in UMWOG after the distribution by UMW Holdings back to shareholders. To maintain UMWOG s listing, PNB will not subscribe for the amount of rights shares which will lead to a UMWOG shareholding beyond the 65% threshold should minority shareholders renounce their rights. Hence, PNB will undertake to subscribe to only the proportion of RCPS which will enable UMWOG to reach the targeted proceeds of RM1.8bil, of which 83% is earmarked for debt repayment, thus lowering its gross gearing to 0.6x from 1.8x currently. While UMWOG s prospects have slightly improved with the recent addition of two short-term charters worth US$35mil (RM151mil) for the group s jack-up rigs Naga 3 and Naga 4, the charter rates may be at breakeven levels of US$60K/day against the backdrop of prevailing depressed market conditions. Given its unchanged weak earnings prospects, we view UMWOG s current share price near to the ex-rights book value as justified.
EXHIBIT 1: UMWOG S RIG CHARTER DETAILS Source: UMWOG slide AmInvestment Bank Bhd 2
EXHIBIT 2: SOUTHEAST ASIA JACK-UP CHARTER RATES (361-400 FEET, INDEPENDENT CANTILEVERED) Source: IHS EXHIBIT 3: PB BAND CHART EXHIBIT 4: PE BAND CHART 3.50 50.00 3.00 40.00 2.50 2.00 +1δ 30.00 20.00 +1δ 1.50 Avg 1.00 10.00 Avg -1δ 0.50 0.00 Dec-13 Feb-14 Apr-14 Jun-14 Oct-14 Dec-14 Apr-15 Jun-15 Oct-15 Dec-15 Apr-16 Jun-16 Oct-16 Dec-16 Apr-17 0.00-10.00-20.00 Dec-13 Feb-14 Apr-14 Jun-14 Oct-14 Dec-14 Apr-15 Jun-15 Oct-15 Dec-15 Apr-16 Jun-16 Oct-16 Dec-16 Apr-17-1δ AmInvestment Bank Bhd 3
EXHIBIT 5: FINANCIAL DATA Income Statement (RMmil, YE 31 Dec) FY15 FY16 FY17F FY18F FY19F Revenue 839.5 320.8 500.4 730.6 702.9 EBITDA 283.0 (16.6) (121.5) 82.3 144.8 Depreciation/Amortisation (244.6) (285.4) (204.6) (206.0) (207.5) Operating income (EBIT) 38.4 (302.0) (326.0) (123.8) (62.7) Other income & associates 0.5 0.3 0.3 0.3 0.3 Net interest (39.6) (101.6) (57.1) (67.1) (66.0) Exceptional items (347.7) (780.2) - - - Pretax profit (348.4) (1,183.5) (382.8) (190.6) (128.4) Taxation (20.0) (5.5) 38.3 19.1 12.8 Minorities/pref dividends (0.8) 2.8 0.3 0.2 0.1 Net profit (369.3) (1,186.2) (344.2) (171.4) (115.4) Core net profit (21.6) (405.9) (344.2) (171.4) (115.4) Balance Sheet (RMmil, YE 31 Dec) FY15 FY16 FY17F FY18F FY19F Fixed assets 6,081.6 5,292.6 5,774.1 5,618.1 5,460.6 Intangible assets - - - - - Other long-term assets 7.5 341.4 7.9 8.1 6.3 Total non-current assets 6,089.2 5,634.0 5,782.0 5,626.2 5,466.9 Cash & equivalent 973.8 553.5 228.1 215.5 333.1 Stock 204.5 211.0 228.5 238.2 205.1 Trade debtors 286.0 148.7 170.5 248.9 239.5 Other current assets 93.5 9.1 9.1 9.1 9.1 Total current assets 1,557.8 922.3 636.2 711.7 786.7 Trade creditors 294.2 198.3 328.8 342.7 295.0 Short-term borrowings 2,257.3 1,499.7 1,529.7 1,560.3 1,591.5 Other current liabilities 3.9 4.7 4.7 4.7 4.7 Total current liabilities 2,555.5 1,702.7 1,863.2 1,907.7 1,891.2 Long-term borrowings 1,747.0 2,291.6 2,337.4 2,384.2 2,431.9 Other long-term liabilities 1.1 309.2 309.3 309.3 309.3 Total long-term liabilities 1,748.1 2,600.8 2,646.7 2,693.5 2,741.1 Shareholders funds 3,333.0 2,246.6 1,902.4 1,731.0 1,615.6 Minority interests 10.4 6.1 5.9 5.7 5.6 BV/share (RM) 1.54 1.04 0.88 0.80 0.75 Cash Flow (RMmil, YE 31 Dec) FY15 FY16 FY17F FY18F FY19F Pretax profit (348.4) (1,183.5) (382.8) (190.6) (128.4) Depreciation/Amortisation 244.6 285.4 204.6 206.0 207.5 Net change in working capital 76.5 34.4 91.1 (74.2) (5.1) Others (45.0) (21.4) 18.4 7.7 (1.2) Cash flow from operations (72.3) (885.2) (68.7) (51.1) 72.9 Capital expenditure (925.0) (50.0) (50.0) (50.0) (50.0) Net investments & sale of fixed assets - - - - - Others 53.8 38.2 19.5 11.1 13.7 Cash flow from investing (871.2) (11.8) (30.5) (38.9) (36.3) Debt raised/(repaid) (111.0) 300.0 - - - Equity raised/(repaid) - - - - - Dividends paid (10.8) - - - - Others - - - - - Cash flow from financing (121.8) 300.0 - - - Net cash flow (1,065.2) (597.0) (99.2) (90.0) 36.6 Net cash/(debt) b/f 1,179.2 84.6 (534.9) (634.1) (724.1) Net cash/(debt) c/f 113.9 (512.4) (634.1) (724.1) (687.5) Key Ratios (YE31 Dec) FY15 FY16 FY17F FY18F FY19F Revenue growth (%) (17.3) (61.8) 56.0 46.0 (3.8) EBITDA growth (%) (31.0) (105.9) 631.8 (167.7) 76.0 Pretax margin (%) (41.5) (368.9) (76.5) (26.1) (18.3) Net profit margin (%) (44.0) (369.7) (68.8) (23.5) (16.4) Interest cover (x) 1.0 (297.1%) (570.7%) (184.3%) (95.0%) Effective tax rate (%) 5.7 0.5 10.0 10.0 10.0 Dividend payout (%) nm nm nm nm nm Debtors turnover (days) 124 169 124 124 124 Stock turnover (days) 134 228 134 134 134 Creditors turnover (days) 193 215 193 193 193 Source: Company, AmInvestment Bank Bhd estimates AmInvestment Bank Bhd 4
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