Bumi Armada, UMW O&G Rebound as Oil Rout Impact Seen Minimal

Bumi Armada Bhd. and UMW Oil & Gas Corp. rebounded from record lows after both companies said the oil rout and a cut in spending by Malaysia’s state-owned energy company will have “minimal” impact on earnings.

Bumi Armada rose 4 percent at the close in Kuala Lumpur, after a three-day, 26 percent slump. UMW Oil & Gas surged 6.4 percent. Both stocks are trading at record-low valuations. Dialog Group Bhd. jumped 5.6 percent after saying it will deliver a “healthy” performance for its fiscal 2015 earnings. SapuraKencana Petroleum Bhd. climbed 2 percent.

Bumi Armada and UMW Oil & Gas sank the most on record yesterday after oil slid to a five-year low and a spending cut of as much as 20 percent by Petroliam Nasional Bhd. in 2015 prompted a selloff in energy-related companies. The share declines helped drag the benchmark stock index to its steepest loss in 22 months.

“Short-term sentiment does not reflect fundamentals,” Kong Ho Meng, an analyst at RHB Research Institute Sdn., wrote in a report today. “The multiples do not accurately reflect the fundamentals of the sector, given that some stocks have long-term cash-flow visibility, proven track record and support from sizable firm orderbook.”

Long-term

Bumi Armada has a wide customer base with a presence in more than 18 countries, the company said by e-mail to Bloomberg News. Its projects are long-term in nature, with some extending till 2048, it said. While 2015 will be “challenging,” it has committed contracts going forward, given its total order book of 33.6 billion ringgit ($9.8 billion).

UMW Oil & Gas’s ongoing contracts won’t be affected by the oil slump as these have locked-in rates and are insulated, Rohaizad Darus, president of UMW Oil & Gas, said by e-mail. The company may also be able to buy new drilling rigs at a “significant discount,” and there may be companies available for sale at a low prices, he said.

“Low oil prices will not be sustainable. All our plans are still on track as our plans are based on the long-term outlook,” he said.

Dialog, an oil and gas services provider, rebounded after falling 15 percent yesterday. The company said by e-mail that its oil and gas projects in the southern state of Johor are on track. While the cut in Petronas spending may impact some upstream work, the drop in oil can lead to more downstream activities due to cheaper raw material prices, it said.

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