Uzma reported a strong core net profit of RM11.7m in 2QFY23 from a breakeven in 2QFY22. This is on the back of revenue growth of 84.0% YoY driven by contribution from well services activities and operational efficiency in the absence of restrictive COVID-19 SOPs. However, on a QoQ basis, core net profit dipped 14.4% attributed to higher proportion of contributions from the trading segment which typically carries lower margins as compared to well services. Overall, 1HFY23 results surpassed both our and consensus FY23 estimates at 84% and 105% of full-year numbers respectively. We raise FY23-25F earnings by 22%-38% on account of better overall margins, having held consistent (and even trumping estimates) for three consecutive financial quarters. Our optimistic view is also substantiated by the recent multiple contract awards within the last one month. We maintain our Outperform call and raise our TP to RM1.05 (from RM0.80) based on 10x PER to a rolled-over CY24 EPS. 

• Achieved new normal. Uzma’s 1HFY23 core net profit surpassed both our and consensus FY23 estimates at 84% and 105% of full-year numbers respectively. Notably, this is the 3rd consecutive financial quarter the Group has delivered stronger performances while also beating estimates. This is on the back of strong progress billings on its services segment in the absence of restrictive COVID-19 SOPs. Moving forward, we expect the Group’s progress billings to normalize to at least RM120m per quarter.
  In addition, the Group’s overall margins have also improved to 7%-11% in past three financial quarters from low single digits previously. This provides more visibility on its overall margins, with the Group achieving a new-normal in operational efficiency.

• Outlook. We affirm our optimistic outlook on the Group as a key beneficiary of increasing brownfield activities especially on production enhancement and decommissioning activities, supported by steady Brent crude oil price at above USD80/bbl. Our view is also substantiated by the recent three contracts secured in past one month: i) Provision of Coiled Tubing and Services of RM230 from Petronas Carigali, ii) Provision of Kinetic Hydrate Inhibitor, Corrosion Inhibitor and Associated Services of RM40m from Sarawak Shell and iii) Provision of Self-cleaning through Tubing Perforation from Petronas Carigali, which is estimated at RM8m- 12m. All in, it current orderbook stands about c.RM3.0bn providing earnings visibility for the next 3 to 5 years.

Source: PublicInvest Research - 24 Feb 2023