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Stocks In Focus MY (MISC, Perdana Petroleum, UMW O&G) – 24/02/15
Malaysia Daily Bulletin | 24 February 2015

MISC Seals RM4b Contract With Petronas And Hyundai

  • A US$1.1 billion (RM4 billion) novation agreement to build five liquefied natural gas carriers (LNGCs) has been reached between energy shipping company MISC, its main shareholder, Petroliam Nasional (Petronas) and South Korean shipbuilder Hyundai Heavy Industries Co. The novation agreement also incorporates a 15-year time-charter party (TCP) with a five-year extension option involving the respective LNGCs upon delivery from September 2016 to December 2017.
  • The firm disclosed that it inked the TCP via Petronas’ indirect wholly-owned subsidiary, Petronas LNG (PLSB). It also disclosed that PLSB has consented to extend the charter of five refurbished Puteri Class LNG carriers on a time-charter basis for 10 years each. The respective charters shall start from the date of delivery of each refurbished vessel to PLSB, which are expected to be from September 2015 to September 2017.
  • The group said that its FY15 performance would continue to be underpinned by recurring income secured from a portfolio of long-term contracts in the liquefied natural gas shipping and offshore business segments. Its petroleum shipping segment has been strengthened by sustained global oil production in spite of the serious decline in global oil prices for the past few months.

Significance: AmResearch maintains its ‘Hold’ rating on MISC with an unchanged fair value of RM7.90 a share. It feels that the time charter agreement has dispelled the uncertainty concerning the company’s expiring LNG fleet charters. In addition, the stable earnings from its LNG segment will supplement the earnings contributions from the new carrier.

‘Young’ OSV Fleet To Move Perdana Petroleum Forward

  • Perdana Petroleum is counting on its “young and versatile” fleet of offshore support vessels (OSVs) to sit out the oil and gas (O&G) storm because it feels that its tender activities will continue to provide longer-term charter opportunities and the necessary stability. At the moment, more than 70 percent of its fleet is under long-term contracts with a strong order-book of RM1.1 billion up to the year 2019.
  • The company saw its 4Q14 earnings fall by 31 percent to RM15 million on the back of RM16.8 million of impairment losses on goodwill recognised during the quarter. However, its full-year earnings increased by 43 percent to RM88.1 million, mostly because of higher vessel utilisation and a rise in the quantity of vessels.
  • Moving forward, the group acknowledged that the prolonged uncertainty in the fluctuation of oil prices will continue to pose difficulties for O&G operators and service providers. It mentioned that any sustained fall in oil prices may lead to oil companies slashing their exploration budgets and development capital expenditures which may result in slower new project awards.

Significance: That said, the group continues to be optimistic about the long-term fundamentals of the O&G industry which it feels will promote continued development and spending. Analysts have also noted that the company stocks are not directly affected by the volatility in oil prices because it is a service provider with operations in various segments along the value chain.

UMW O&G 4Q14 Earnings Soar To RM71m

  • UMW Oil & Gas Corporation’s 4Q14 net profit rose 38.5 percent from RM51.5 million to RM71.3 million, mostly as a result of greater contributions from both its drilling and oilfield services segments. At the same time, its revenue grew 58.2 percent to RM327.7 million.
  • The company said that revenue from the drilling services segment increased by 39.9 percent from RM693.7 million in 2013 to RM970.2 million or 95.5 percent of its total FY14 revenue. It also said that revenue from the oilfield services segment increased by 6 percent from RM43.6 million in 2013 to RM46.2 million or 4.5 percent of its total FY14 revenue.
  • Going forward, the group foresees difficult environment for its drilling services segment and expects less favourable day rates for its drilling rigs in 2015 since rig utilisation rates are likely lower than the high levels seen in 2014. The firm will also take into consideration the cyclicality of the O&G industry when it implements its expansion plans which include penetrating into new markets over wider geographical areas and adding a number of new clients, reducing reliance on a single market and stimulating growth.

Significance: The firm projects revenue and profit contributions from its oilfield services segment will stay at 2014 levels because it expects its 2015 profitability to be affected by the slowdown in the O&G industry. Nevertheless it believes that the impact will gradually lessen as the oil prices bounce back.

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