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Company Update – UMW (REDUCE, maintain) - Lacking re-rating catalysts, maintain REDUCE




Affin Hwang Investment Bank Bhd


05 Nov 2013





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Raised FY14-15 EPS by 3-12% as we gain earnings clarity on UMW O&G We have gained better clarity on UMW O&G’s earnings trajectory with its listing exercise recently. All in, we expect UMW O&G – now a 61% owned subsidiary of UMW, to grow its core earnings by a stronger-than-expected 3-year CAGR of 71% over FY12-15. Key earnings drivers are: (1) higher asset utilisation; (2) lower interest cost with the paring down of debt; and (3) importantly, earnings contribution from 4 new rigs in the pipeline. Naga 5 is currently under construction and we expect management to optimise the company’s balance sheet by leveraging and purchasing 3 new rigs in FY14. Factoring these into our UMW’s earnings model, we raise FY14 and FY15 EPS forecast by 3% and 12%, respectively.

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