UMW Oil & Gas Corp Bhd
(Nov 28,  31.5 sen)
Upgrading to buy with an unchanged discounted cash flow (DCF)-derived target price (TP) of 35 sen: This is the first quarter that the group has reported a profit since the fourth quarter of financial year 2015 (4QFY15). We make no changes to our earnings pending an analyst briefing scheduled for yesterday afternoon.

UMW Oil & Gas Corp Bhd’s (UMW-OG) earnings for the third quarter of financial year ended Sept 30, 2017 (3QFY17) earnings saw a turnaround after significant losses over the past two years. Headline net profit came in at RM3.4 million, which is a growth of 107% quarter-on-quarter (q-o-q) or 103% compared with a year ago, a sharp improvement over the previous quarter’s losses. The first nine months of the financial year ended Sept 30, 2017 (9MFY17) earnings remained in the red at RM147 million, which accounted for 81% of our and 68% of consensus forecasts. 9MFY17 revenue surged 48% year-on-year (y-o-y) to RM394.7 million, driven by a higher rig utilisation rate of 61% against 22% in 9MFY16. 3QFY17 recorded a headline profit of RM3.4 million. After stripping off the one-offs, core net profit stood at RM5.8 million, which is a growth of 112% q-o-q and 104% y-o-y, driven by a revenue growth of 48% q-o-q as the average utilisation rate recovered to 90%, compared with 68% in 2QFY17. This also led to the jump in the earnings before interest, taxes, depreciation and amortisation  margin from 31% to 55%.

We believe that the RM7.6 million “other operating income” in this quarter is non-recurrent and may have provided the exceptional boost in margin and earnings. — Affin Hwang Investment Bank Bhd, Nov 27