New IPO - UMW Oil & Gas

Company Name: UMW Oil & Gas
Date of Listing: 01 Nov 2013
Issue Price: RM2.80
Closing Date: 14 Oct 2013

It has tremendous demand from institutional investors vying for the 127 million shares allocated to them.

It has set aside 648.6 million shares to Malaysian and foreign institutional and selected investors including 248.63 million shares for bumi investor and 399 million shares for cornerstone investors.

With strong demand from both institutional and cornerstone investors, UMW-OG managed to offer the shares for these investors at a narrow range of indicative prices of between rm2.70 and rm2.80 valuing the company at a market cap of rm6.1 billion.

Two of the cornerstone investors are the founder of RHB Bank Tan Sri Abdul Rshid Hussain and Tan Sri Chua Ma Yu. Tan Sri Hamad Kama Piah, the president and group CEO of PNB Bhd is one of the cornerstone investors.

At rm2.80 per share, the forward PER is slightly above 17 times which is reasonable when compared to other O&G players in Malaysia. Estimated PER of O&G service providers with a market cap of less than rm7 billion for 2014 from 9.2 times to 24.04 times.

It will stand to raise total gross proceeds of rm1.71 billion while the remainder will be raised from the sale of its existing shares.

About 58% of the proceeds will be used for acquisition of drilling rigs and hydraulic work over units. About rm580 million will be sued for repayment of amounts owing to parent UMW Holdings due to UMW-OG’s internal reorganization.

The capex will be mainly used to buy more assets to ensure growth and stability.

It will be focusing on its drilling business and with the IPO it will be expanding its fleet.

About 93% of UMW O&G’s revenue comes from its drilling services business.

The firm currently (Oct 2013) has a total of eight rigs. Another premium jack up named Naja 6 will be delivered in May 2014.

UMW O&G’s gearing level will be less than 0.5 times after the IPO.

There is a shortage of locally-owned rigs domestically. As of September 2013, there were 16 jack-up rigs operating in Malaysia but only two were locally-owned (Naga 3 & 4).


Fourteen foreign jacks-up rig contracts are expected to expire within two years from Oct 2013 with three in the second half of 2013, four in first half of 2014, five in second half 2014 and two in 2015.

Hence, expects tender and contract award to accelerate in the next two years from Oct 2013 with the early call for tender by end-2013.

The average age of jack-up rigs is around 13 years compared with UMW O&G’s new rigs at below three years. Industry players indicated that oil majors preferred to spend more to charter newer rigs

Domestically, the ETP-driven RM300bil capex to enhance exploration, enhanced oil recovery and marginal fields requires massive level of drilling activities which the financial market has underestimated.

UMW O&G is the only pure rig-related domestic play with sizeable market capitalisation which makes it likely to attract premium valuations.

It expects to raise RM1.7bil from the IPO with RM1bil allocated to acquire drilling rigs and hydraulic workover units.

Assumes UMW O&G will acquire at least two more new rigs after the IPO with net gearing remaining manageable at 0.35 times in the financial year ending Dec 31, 2014 (FY14), which suggests more room for asset expansion.

Full contribution from Naga 5 and Naga 6 will only be reflected in FY15.