Uzma has secured its first Liquefied Natural Gas (LNG) supply contract with ND Paper Malaysia (Selangor) SB via its 70%-owned subsidiary, Uzma LNG SB for a duration of two years. Uzma stated that value of the supply contract for the first year is estimated to be more than RM70m, subject to its volume and market price. This brings the total value of the contract to an estimated RM140m, assuming constant volume and market price for the second year. We are positive on this development as this widens Uzma’s revenue stream into the downstream oil & gas (O&G) segment, which provides more stable income and is able to offset volatility in the upstream O&G segment. Nevertheless, we gather margins for LNG supply are low single digits given that it is trading-related, and is in a regulated pricing environment. We maintain our forecasts for now, and retain our Outperform rating with an unchanged TP of RM1.05.

• Two licenses from the EC. The contract is the first LNG supply contract after Uzma obtained two licenses from the Energy Commission (EC) in February 2021. The licenses enable Uzma to import natural gas into regasification terminal (Import License) and to transport natural gas via regasification terminal or transmission pipeline or distribution pipeline to consumers’ premises through Third Party Access system (Shipping License). The licenses are valid for a period of ten years.

• Positive contribution. Assuming a conservative margin of 1%-2%, we expect the contract could contribute about RM0.5m to RM1m (+1.3% to +2.6%) per annum, also considering 30% minority interest

• Solid outlook and diversified income. The outlook for Uzma’s core upstream O&G remains solid as oil producers’ capital expenditure plans are on an upward trajectory despite recent moderations in oil price. Notwithstanding the solid outlook, Uzma is actively diversifying its revenue streams via the renewable energy segment, Large Solar Scale 4 (LSS4) and the LNG supply contract, which could provide stable income and mitigate any possible downturns in the upstream O&G industry.

Source: PublicInvest Research - 3 Apr 2023