Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Thu, 18 Jan 2018, 09:54 AM


Uzma Berhad - Second Win for the Week

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We are positive on the contract win as it helps to improve the overall utilisation of its HWUs. No change to our earnings forecasts as we have factored in utilisation assumptions of 50-60% for HWUs in FY18-19. All in, we maintain our OUTPERFORM call with an unchanged TP of RM1.65 pegged to 1.0x FY19E PBV premising on more contract wins backed by its innovative solution offerings as well as stronger oil prices.

Secured an umbrella HWU contract. Yesterday, UZMA received approval from PETRONAS Carigali Sdn. Bhd. (PCSB) to announce the award of an umbrella contract for the provision of 340K and 460K Hydraulic Workover Unit (HWU). The contract will run for a duration of three years from 22 December 2017 to 21 December 2020 with a 1- year extension option.

Unknown contract value. This is the second contract win for CY18 and we are positive on the contract win as it will help to improve the overall utilisation of its HWUs. Recall that UZMA has achieved utilisation of 40% for its HWUs in 9M18 and is targeting utilisation of 60- 70% in CY18. Currently, three out of nine HWUs are contracted in Thailand and another one is contracted in Malaysia. However, note that this is an umbrella contract and UZMA would need to compete with other shortlisted player, UMWOG (Not Rated) for the actual work orders when services are required. Thus, the contract value is uncertain at this juncture depending on work orders to be issued from time to time and the service rates are not explicitly laid out.

No changes to our earnings forecast. As no firm contract value was provided, we make no changes to our earnings forecast as we have factored in 50-60% HWUs’ utilisation assumptions for FY18-19. We believe such contract could fetch EBIT margins ranging from 10-30% depending on the work scope and complexity of the jobs.

Keep OUTPERFORM. UZMA is still actively tendering new jobs amounting to RM7.0b while having a sizeable order-book of RM2.0b in hand. With the anticipation of oil prices stabilising above USD55/bbl in CY18, we believe this will provide sufficient comfort for Petronas to execute the contracts that have been awarded lately and thus minimising the risk of delay in work orders. Thus, we maintain our OUTPERFORM call on the stock with unchanged TP of RM1.65 pegged to unchanged FY19E 1.0x PBV premising on its ability to innovate multiple solutions to oil majors amidst a challenging environment. Such valuation is equivalent to -1.0SD over a 5-year mean. Our TP also implied a FY19E PER of 15.6x which is at its 5-year average mean.

Risks to our call: (i) weaker-than-expected recovery in O&G market, (ii) slower-than-expected delivery in D18 Water Injection Project, and (iii) lower-than-expected margins.

Source: Kenanga Research - 12 Jan 2018

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