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Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 22 Jan 2021, 10:30 AM

 

Uzma Behad - Key Takeaways from Analysts’ Briefing

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We came away from UZMA’s analysts’ briefing feeling positive on its outlook. Its recovery trajectory is underway, as several previously-delayed jobs are gradually resuming operations. Additionally, management is confident on new wins from its bid-book of RM1.47b to further strengthen its current firmed order-book of RM1.3b. On the long-term, management targets to reach RM1.5b revenue by 2025, of which 40% will be derived from non-oil and gas. Maintain OP with TP of RM0.64.

Recovery underway. To recap, in its recently announced 1QFY21 results, core earnings managed a turnaround to profit of RM6.6m, from core loss of RM22.1m in the quarter prior, thanks to reduced operating costs as additional Covid-19-related expenses were recognised in 4QFY20. However, revenue was down 34% QoQ to RM99.6m, due to slower activities as a result of the pandemic and the oil down-cycle. Nonetheless, management has reassured that a recovery is underway, and that many of the previously-delayed jobs are gradually resuming operations.

Confident of more new wins. Currently, the group’s bid-book stands at RM1.47b. Management is targeting for its bid-book to grow to RM2.9b in the coming months, as it is in preparation of submitting an additional RM1.43b worth of bids. We are encouraged by this, as this signals the presence of opportunities despite the challenging environment. Of the submitted bids, management guides that roughly half has a 70% chance or better at winning. Any additional wins from here will further bolster its current firmed order-book at hand of RM1.3b.

Ambitious growth targets; reducing reliance in oil and gas. On the longer-term, the group is setting an ambitious growth target of reaching RM1.5b revenue by 2025. This implies a CAGR of 18%. In order to achieve this, the group is seeking to accelerate its diversification plans, thereby reducing its reliance on the oil and gas industry. By 2025, the group targets that 40% of its revenue will be derived from non-oil and gas. Non-oil and gas ventures the group is embarking on include new energy, aerospace and tech. In fact, the recently concluded 1QFY21 quarter saw the first fruition of these initiatives, as renewable energy contributed close to 6% of the quarter’s revenue.

Maintain OUTPERFORM, with unchanged TP of RM0.64, pegged to 0.4x PBV on FY22E BVPS at -1.5SD below mean. Overall, we came away from the analysts’ briefing feeling more positive on its outlook.

Our OUTPERFORM call is premised on UZMA’s recovery play. Being an integral upstream services provider, any factors leading to an increase in oil demand (e.g. positive news flow on Covid-19 vaccine developments) will bode well for the stock’s trading sentiment.

Risks to our call include: (i) lower-than-expected margins, (ii) slower- than-expected order book replenishment, and (iii) cost overruns.

Source: Kenanga Research - 30 Nov 2020

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