Excluding exceptional items amounting to RM3.6m, Uzma reported a core net profit of RM5.6m in 3QFY23, 52.4% lower QoQ from the RM11.7m recorded in 2QFY23 as revenue fell 38% sequentially. The decline in revenue is expected nonetheless considering lesser oil and gas (O&G) well services during the monsoon season. Nevertheless, net profit was stronger on a YoY basis compared to the marginal core net profit of RM1.1m in 3QFY22 due to higher O&G services activities. Overall, 9MFY23 results exceeded both our and consensus FY23 estimates at 85% and 93% of full-year numbers respectively, owing to higher margins and lower effective tax rate. As such, we raise our earnings forecast slightly by an average of 5.5% for FY23-25F on account of better overall margins. We remain optimistic on Uzma’s prospects as it continues to maintain its earnings growth momentum by securing new contracts, some of it renewed with upward revisions in value. Our Outperform call is retained with a higher TP of RM1.10 (from RM1.05) based on 10x CY24 EPS.

• Better gross profit margin. Uzma’s 3QFY23 is seasonally weaker with core net profit dipping 52.4% QoQ on the back of lower revenue by 38%. However, it is mitigated by higher gross profit margin due to higher proportion of O&G services, 88.8% in 3QFY23 against 65.4% in 2QFY23.

• Secured contracts to-date. Throughout financial year-end 2023, Uzma estimates it has secured a total of RM600m contracts from PETRONAS with notable contracts including D18 Water Injection Facility, 2-year extension for Coiled Tubing and Services, Self-Cleaning Through Tubing Perforation, supply of Electrical Submersible Pump and the most recent Gas Lift valve provision. In addition, some of the contracts saw upward revisions in value upon the extension or renewal, such as Coil Tubing Services from PETRONAS (15% higher upon extension) and Coil Tubing Services from Valeura (96% higher upon renewal).

• Outlook on Uzma remains solid with positive trajectory of oil producers’ capital expenditure (capex) plans remaining intact despite recent moderations in oil price. Based on our checks, oil producers may review the economics of respective capex plans if the Brent Crude oil price drops steadily below USD60/bbl. However, we believe this situation is unlikely in the near to medium-term given the recent voluntary cut from OPEC+ members to provide psychological support for oil prices at the USD70/bbl level. Uzma’s orderbook remains strong at RM2.5bn (O&G RM1.7bn, Non O&G RM0.8bn) providing earnings visibility for the next 3 to 5 years.

Source: PublicInvest Research - 31 May 2023