Uzma reported a core net profit of RM15.5m in 4QFY23, higher by 42.7% and 98.5% YoY and QoQ respectively. Performance on its bottomline is mainly attributed to oil and gas (O&G) well services. Revenue from trading segment tripled on a QoQ basis meanwhile, boosted by the recent LNG supply contract secured in March 2023. Cumulatively, full year FY23 core net profit also tripled to RM51.7m from RM12.9m, exceeding our and consensus estimates by 34.2%. We believe Uzma will be able to maintain its growth momentum from FY24 onwards on the back of strong orderbook estimated at RM2.8bn, with 70% in the O&G segment. This may increase further with Uzma likely to secure more contracts in the next 2 quarters amid robust brownfield activity. While pursuing growth, Uzma is also diversifying its business across multiple matrices to mitigate volatility in O&G. Overall, we are upbeat on Uzma’s outlook and raise our earnings forecast by 45% and 34% for FY24 and FY25F to factor in accelerated work progress and high well services activities within its orderbook. We retain Our Outperform call with a higher TP of RM1.20 (from RM1.00), pegged to an undemanding valuation of ~8x FY24 EPS.

• FY23 triple earnings. Uzma’s FY23 full year core earnings tripled to RM51.7m, from RM12.9m a year earlier. The significant improvement is due to the absence of movement control restrictions, which allows for more activities and lower compliance cost in the financial year. It is also noteworthy that the trading segment’s revenue doubled, underpinned by the LNG supply contract secured in March 2023, though commanding expectedly lower single digit margins.

• Maintaining growth momentum. We believe Uzma is likely to secure a water injection facility (WIF) contract from a local oil producer soon. As compared to other contenders, Uzma can capitalize on the success of its existing WIF which has a monthly uptime track record of up to 100%. There are also three tenders on non-metallic pipe supply expected to be finalized in 3Q 2023. These contracts may further increase its current orderbook from our estimated RM2.8bn to support growth going forward.

• To mitigate O&G volatility, Uzma is looking to diversify its exposure via 3 matrices: i) O&G and non-O&G, ii) project-based and recurring income, and iii) local and overseas exposure. Uzma’s diversification through renewable energy (RE) ticks two of three boxes (non-O&G and recurring income), following Large Scale Solar 4 (LSS4) and recent Corporate Green Power Purchase (CGPP) awards. Although the projects are capital intensive in nature, we do not see it jeopardizing growth in its core O&G segment in which it has strong foundations of in the local industry.

Source: PublicInvest Research - 28 Aug 2023