Uzma has secured two contracts from Sabah Shell for the provision of integrated production and integrity chemical and associated services for Malikai Stage 1 and Gumusut Kakap, via its 70%-owned subsidiary, Malaysian Energy Chemical & Services SB (MECAS). The contracts are worth RM68.1m for a duration of 3 years. This represents a second win for the year 2023 from Shell after the first awarded in January, and will keep its orderbook for the oil and gas (O&G) segment healthy at RM2bn. We believe Uzma remains as a key beneficiary of increasing brownfield activities especially on production enhancement and decommissioning activities amid the recent Brent Crude oil price volatility. Separately, Uzma has recently proposed a private placement of up to 10% of its share capital, mainly to fund its Large Solar Scale 4 (LSS4) project. Although we are neutral on the exercise, our EPS and TP could be diluted upon the subscription. We retain our Outperform rating and unchanged TP of RM1.05 based on 10x PER FY24F EPS for now.

• Continuous contract wins. The contracts are awarded by Sabah Shell worth RM68.1m arer for a period of 3 years with the scope to supply integrated production and integrity chemical and associated services for Malikai Stage 1 and Gumusut Kakap. To recap, the contracts are the second ones announced from Shell, demonstrating the client’s confidence in Uzma’s capabilities.

• Positive contribution. Assuming equal revenue recognition throughout the duration at our assumed blended PATAMI margin of 7.1%, this contract is expected to contribute about RM1.6m or +3.8% per annum to its PATAMI from FY23F onwards.

• Outlook still intact amid oil price volatility. Capital expenditure (capex) by major oil players typically lag oil price trends, to allow the producers to build up cash reserves while remaining prudent on expenditure. In 2022, most players reaped the benefits of a +USD100/bbl environment. We believe the current Brent Crude oil price volatility is still manageable and will not cause a roll back in these players’ capex plans in 2023. Thus. we reaffirm our optimistic outlook on Uzma as a key beneficiary of increasing brownfield activities especially on production enhancement and decommissioning activities.

• Private Placement. The proposed private placement is expected to fund 10% of the RM229m development cost for the 50MW LSS4 project. Although Uzma has ample cash reserves, most are earmarked for debt repayment and working capital for its growing order book. Nevertheless, our TP could be lowered by 10% due to dilution of EPS.

Source: PublicInvest Research - 23 Mar 2023