Uzma announced that it has been awarded a work order for the Provision of Integrated Well Services for Intervention, Workover & Abandonment by SEA Hibiscus Sdn Bhd for a one-year period. We are positive on this development as it reflects Uzma’s strong track record as a brownfield service provider and to continue securing contracts even amid challenging operating environments. No contract value was disclosed. We keep FY21-23F forecasts unchanged, having imputed this in our replenishment assumption under the umbrella contract work order. Our Neutral call on the stock is retained at a revised target price of RM0.55 (RM0.48 previously) on a higher 8x multiple to earnings given the recent change in market dynamics following positive developments on the Covid-19 vaccine. Although there could be lagged effects of Petronas’ capex and opex reduction cuts will affect some work orders to be issued, stability is still being seen for some of the Group’s key projects.

• The work order is part of a Pan Malaysia Umbrella Contract for Petroleum Arrangement Contractors. It covers well intervention and integrity operations as required at site using equipment, consumables and technology as agreed by both parties, and supply of equipment which includes Supply Vessel, Coil Tubing Unit, Pumping Package, E-Line, Consumables & Project Management Team. While no value has been disclosed, we estimate such works could be worth between RM20m and RM30m. The tenure of the contract is 1 year, starting 20 Nov 2020.
• Cautiously optimistic. This marks the Group’s first contract for FY21, though also representing Uzma’s 6th contract in calendar year 2020, demonstrating its ability in replenishing its orderbook consistently amid a shaky operating environment given the Covid-19 pandemic and low oil prices. Uzma is still actively bidding for numerous projects with a combined value of RM2.9bn. We believe the flow of contracts should continue, in tandem with oil price recovery. That said, we are also cautious over the possibility of slower-than-expected recoveries as global oil demand still way below the pre-Covid levels. Capex and opex reduction by oil majors are still evolving hence there could be lagged effects. Massive rise in local Covid19 cases and re-enforcement of movement controls in various states and also keep efficiency levels low.

Source: PublicInvest Research - 2 Dec 2020