UMW Holdings – Expands suite of O&G services

December 15, 2008 at 6:19 am Leave a comment

· Enters into JV with Snubco Pressure Control
UMW’s subsidiary, UMW Petrodrill has entered into a joint venture agreement with Snubco Pressure Control International Ltd (Snubco International) to establish a JV company to be known as UMW Petrodrill Pressure Control Sdn Bhd, with a proposed paid-up share capital of
RM600k divided into 600k ordinary shares of RM1.00 each. UMW Petrodrill will own 51% while Snubco International will hold 49%. The JV company is expected to carry on the business of providing pressure control related services to the oil & gas (O&G) industry such as hot-tapping, under-balance intervention, snubbing and other services. By tapping into Snubco’s expertise in pressure control operations, this will essentially expand the range of O&G services provided by UMW Petrodrill.
UMW Petrodrill provides workover-related services for old wells in Malaysia and other regional markets such as India and Indonesia. Petronas counts as one of UMW Petrodrill’s client.
· About Snubco
Snubco International is an affiliate of Snubco Pressure Control Ltd (Snubco Canada), a privately owned company. Both companies provide pressure control related services to the O&G industry.
· Minimal earnings impact
We understand from management that earnings contribution from this venture is likely to be small, and will not have a material impact to earnings in the short term. The small size of investment is another indication that earnings contribution to UMW’s bottom line to be minimal.
· Revising auto sales targets downwards
As the domestic economy continue to weaken due to the worsening global credit crunch, we revise our estimates of auto sales targets for Toyota and Perodua downwards in anticipation of slower vehicle sales going forward.
· Downgrade to HOLD, target price revised to RM5.30
As a result, our earnings estimates are cut by 1%-5% for FY08-10. We downgrade UMW from Buy to HOLD, as our sum-of-parts target price is reduced from RM6.10 to RM5.30 as we peg lower PE multiples to its Auto and O&G divisions due to poor outlook for both sectors.

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