Oil price has recovered from the bottom but not the day rate of offshore drilling. It will take sometime for the market the absorb the rig overcapacity before the day rate starts to climb. If you already have bought in, just wait or pass it down to your children to continue to wait. If you are thinking to buy because price is already cheap, well, price can remain low for a long period of time. Until there is reversal of impairment, there is no turnaround yet.
There is reason why impairment is needed. Year 2017 should be profitable year because all rigs have contract. If it is losing even if there is contract, obviously the book value of the rigs are overvalued, resulting to high depreciation that cannot be covered by the current day rate. I always suspect the management is understating the impairment because they need to rollover the financing and can't afford to show a very negative result to the banks.
Ok listen guys... the QTR results that came out was very much to analysts expectation! Read this about umwog by Billy Toh. So dont speak and follow blindly. Speak with FACTS.
UMW Oil & Gas Corp Bhd (UMW O&G) could turn around in 2018 as its earnings recovery is on sight. The country’s biggest jack-up rig operator has returned to the black in the third financial quarter ended Sept 30, 2017 (3QFY17), with a net profit of RM3.4 million, or 0.16 sen per share, compared to a net loss of RM135.4 million, or 6.26 sen per share. UMW O&G has seen its fleet utilisation improve from a dismal average of 21% in the 1QFY16 to 68% and 90% in 2QFY17 and 3QFY17 respectively.
According to TA Securities analyst Abel Goon, UMW O&G’s management expects the utilisation rate to be greater than 90% in 4QFY17, while FY18 will realise at least 80% utilisation rate.
“For UMW O&G, one of the key risks is the idling costs incurred. With the utilisation rate now back to about 90% level, the company should see a turnaround in 2018. Although the rates remain at a fairly low level, the company would turn profitable if the management could maintain the utilisation rate,” Goon told The Edge Financial Daily over a phone call.
He added that UMW O&G should be able to secure more drilling contracts from Petroliam Nasional Bhd’s (Petronas) prioritising local content. Based on UMW O&G management’s feedback, Goon pointed that Petronas requires at least 12 rigs in Malaysia for FY18. UMW O&G currently has seven premium jack-up rigs generating 99% of the group’s revenue.
Further, it is on a stronger financial footing after the completion of RM1.8 billion rights issue.
UMW O&G has guided that a one-time write-off of unamortised transaction costs plus potential asset impairment loss arising from a year-end review in 4QFY17 could weigh on its annual earnings for the financial year ended Dec 31, 2017 (FY17).
Goon reckons the market has priced in a large impairment in 4QFY17, which is why the share price remains at a subdued level. At the current price, UMW O&G is trading at about 0.5 times its book value, one standard deviation below its historical average, despite the expected turnaround in its operations, alleviations of short-term liquidity risks and upwards trajectory seen in oil prices.
TA Securities has set a target price of 51 sen a share, indicating a potential upside of 67.2% from its closing price of 30.1 sen last Friday.
Nonetheless, there remains downside risks for O&G players, especially if the crude oil price sees another sharp decline, which could lead to low utilisation rate. The higher-than-expected finance costs, despite the reduction in borrowings, could also hurt UMW O&G, which has a relatively high gearing level. — By Billy Toh
After reading thoroughly the result of UMWOG, in conclusion this 4th Q results showed significant improvement in revenue and gross profit vs previous year and preceeeding Q results. If you take away the impairment losses, there is actually a profit of RM 13.5mil vs a loss of RM 135.5mil in the 2016 Q4. In addition, there was increase in the drilling segment with 95% utilization rate currently vs 90% ( preceeding Q) vs 19% (last year 4Q) due to stabilizing crude oil prices of $60. The heavy impairment losses of RM 980mil this Q is already been expected and predicted by other research houses eg TA enterprise . According to UMWOG, the additional impairment was crucial this Q of RM 982mil vs RM 780mil. As at 31st December 2017, the Group impaired its assets by RM982.1 million mainly due to revision in basis and assumptions including charter rates, utilisation rates and discount factors, to take into account the latest developments in the drilling industry. The revision has resulted in lower projected discounted net cash inflows from the Group’s asset. As at 31st December 2017, the United States Dollar had weakened against the Ringgit Malaysia by about 9.5% compared with the exchange rate as at 31st December 2016. This had affected assets and liabilities upon translation of the Group’s assets and liabilities denominated in USD to RM, the presentation currency of the Company. The net impact to equity as at 31st December 2017 was a loss of RM232.4 million. As a summary, i think UMWOG is growing and able to utilize its jack rig to 95% currently and able to generate cash of RM 693mil vs RM 330mil previous year. It has also able to par down its borrowings to RM 1.85bil from RM 3.772 bil. Operating cash flow is positive at RM 83mil vs RM 55mil. UMWOG is affected by volatility in global crude oil prices and forex rates, which will affect the translaton of the group's liabilities and assets which is denominated in USD to MYR. For myself,after considering the above growth potentials, i will continue to keep UMWOG, but will not buy more of this shares. I will not invest alot of money in this stock, but keep my investment in it to the minimum. For sure, there are larger room for UMWOG share price to grow and limited down sides due to 1) increasing global crude oil prices 2) political play for GE 14 3) Big funds EPF KWAP as major share holders will help cushion the price from falling further. 4) More umbrella projects to be awarded by Petronas
After reading thoroughly the result of UMWOG, in conclusion this 4th Q results showed significant improvement in revenue and gross profit vs previous year and preceeeding Q results. If you take away the impairment losses, there is actually a profit of RM 13.5mil vs a loss of RM 135.5mil in the 2016 Q4.
on UMWOG, the impairment loss on the balance sheet will create a 'deferred tax-asset'... When a company incurs a tax loss, it can then carry forward the tax loss to reduce taxable income in future ?
On the balance sheet, long-term assets are reduced by the impairments. A deferred-tax asset is created. Stockholders' equity is reduced as a result of the impairment loss included in the income statement.
Future net income will be higher as there will be lower asset value, and thus a smaller depreciation expense. Future ROA and ROE will increase.
This impairment is a paper loss only in the books but has no actual impact on the Company's cash balance or cash flow. Cash balance in UMWOG has in fact improves. Cash flow balance is very important as an on-going concern.
This impairment is a paper loss only in the books but has no actual impact on the Company's cash balance or cash flow. Cash balance in UMWOG has in fact improves. Cash flow balance is very important as an on-going concern.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
offshore
327 posts
Posted by offshore > 2018-02-27 18:47 | Report Abuse
Oil price has recovered from the bottom but not the day rate of offshore drilling. It will take sometime for the market the absorb the rig overcapacity before the day rate starts to climb. If you already have bought in, just wait or pass it down to your children to continue to wait. If you are thinking to buy because price is already cheap, well, price can remain low for a long period of time. Until there is reversal of impairment, there is no turnaround yet.