The News
UMW Oil and Gas Corporation Bhd (UMW-OG) is issuing 4,836.7mn shares and 1,216.9mn redeemable convertible preference shares (RCPS). The shares will begin trading today. To recap, UMW-OG carried out a 14-for-5 rights issue to raise up to RM1.8bn to repay borrowings and fund its working capital requirements

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The issue was fully underwritten by PNB where it would subscribe to any additional allocation, up to 65% stake. The rest of the funding will be secured via issue of RCPS.
We note that 64% of shareholders subscribed for the rights issue, which translates to additional subscription of circa RM642mn by PNB as underwriter. Note that PNB is not required to make a mandatory general offer. Our view

We are still largely positive on the funding exercise as 1) net gearing is reduced to 0.4x from 1.4x, 2) alleviates UMW-OG’s funding issues, 3) provides cash for its working capital management and 4) reduces finance costs significantly (circa RM50mn according to our estimates)
Furthermore, we believe UMW-OG is poised for a turnaround as utilisation rates for its rigs have improved drastically and DCRs remain stable. Additionally, stable crude oil price may motivate O&G majors to resume drilling activities.

Lastly, UMW-OG is positioned as the sole local jack-up rig service provider and we opine that all local drilling contracts will be awarded to UMW-OG.

Earnings and Valuation Maintain earnings forecasts. Our new TP is adjusted to RM0.48 based on 0.9x CY18 P/B. Maintain BUY. UMW-OG is currently trading at 0.5x CY18 P/B.  

 

From chart, UMWOG today closed at 32c breakthrough the massive selling volume at 30c. This indicates big banker chip coming to swallow up all the selling volume. The next two minor resistance is at 34-38c b4 price ready to surge 68c and 93c.