• Uzma’s FY25 growth prospects remain intact following a slow 1QFY25, driven by rebound in well solution and production enhancement activities
   
• LSS4 project to recognise full recognition from 2QFY25 onwards

• Maintain BUY rating with RM1.45 target price. Valuation is attractive at 6x FY26 PE

O&G Work Orders to Pick Up After Delays; Incoming IWCS Tender Award

To recap, Uzma’s 1QFY25 performance was affected by slower-than-expected well solution and production enhancement activities due to the client’s delays in securing work permits amid ongoing uncertainties between Petronas and Petros. This issue has now been solved, with management securing the work orders for 2QFY25 onwards. In Oct24, Uzma was appointed as a panel contractor for the Integrated Well Continuity Services (IWCS), allowing the company to bid for three service packages, including well intervention, well plug & abandonment (P&A), and hydraulic workover unit (HWU) services. Securing the tender would represent a positive development for Uzma, with rates guided to be 15–20% higher than previous contracts. Tender awards are anticipated by early 1QCY25, and work is set to begin 2QCY25.

LSS4 Full Rates Recognition From 2Q Onwards; WIF2.0 on Track

Uzma’s revenue contribution from the LSS4 project was minimal in 1QFY25, as only partial rates were received prior to achieving the commercial operation date (COD) at end Sept24. The full rates will begin from 2QFY25 onwards, with expected annual revenue of RM20–25m over the 25-year PPA period. For the upcoming LSS5 tenders, we gather that Uzma only participated as an EPCC contractor rather than an asset owner, given the challenging tariff rates, high solar panel costs, and the need to manage its balance sheet. Elsewhere, the construction of Uzma’s second water injection facility (WIF2.0) is 70% complete and remains on track to begin operations in 4QFY25, which is expected to strengthen its recurring income base further.

Reiterate BUY With RM1.45 Target Price

We expect Uzma’s strong earnings momentum to sustain into FY25, driven by maiden LSS4 project recognition, ramp-up in O&G activities, and its sizeable RM3bn order book. We reiterate our BUY rating and RM1.45 target price based on 10x PE on FY26E EPS. Uzma is trading at an attractive 6x forward FY26 PE. Key risks include lower-than-expected work orders from customers, unforeseen project delays, and escalation in project execution costs.

Source: Phillip Capital Research - 26 Nov 2024