We visited Uzma’s 86%-owned Setegap Ventures Petroleum (SVP) and 75%- owned Malaysia Energy Chemical and Services (MECAS) yards located in Labuan, hosted by the Group’s top management comprising the Managing Director/Group Chief Executive Officer (CEO), CEO of SVP, and Senior General Manager of MECAS. During the visit, management demonstrated the use of its specialty blended chemicals and equipment that are being used for its core business, production and well solutions services. In addition, Uzma introduced its lightweight hydraulic workover unit (HWU), which provides more flexibility and efficiency as compared to standard HWU. Looking ahead, we believe Uzma will continue to benefit and ride on increasing brownfield activities on the back of stable oil prices by positioning itself as technology and asset owner. We maintain our Outperform call and TP of RM1.20, pegged to an undemanding ~8x on FY24 EPS.

• Resurgence of MECAS. Uzma acquired MECAS as part of its expansioninto oilfield chemicals (OFC) with full suite of production chemicals (Figure1) in 2010. Throughout FY2014-FY2020, MECAS’ revenue contributionwas at an average of RM70m or 15% of total Group revenue, thougheventually falling to RM37.3m in FY2022 due to stiff competition.Nevertheless, management believes the worst is over for MECAS, with therevenue rising to RM45.6m in FY2023 and expected to hit at least RM60mnext year on the back of its existing long-term contracts (3-5 years) andincreasing demand from high-value deepwater chemical.

• SVP remains sturdy. Since SVP became a subsidiary of Uzma in FY2019,it has grown from a single-pumping service provider to an integrated multiservice provider offering services ranging from coil tubing unit (CTU), wellpumping, cementing, and de-sander services. Revenue contribution was atan average of RM125m or 28% of total Group revenue with commendablenet profit margin at an average of 11%. This visit reaffirms ourunderstanding of SVP’s capabilities on how it provides bespoke offeringsafter factoring the unique well and reservoir conditions based on theequipment and laboratory in the yard.

• Lightweight HWU provides cutting edge due to its flexibility in pullingcapacity and ability to be mounted on small offshore platforms.Management estimates about 95% of wells in Malaysia are suitable for thelightweight HWU solution, with clients potentially able to save about 75%chartering costs as compared to jack up rigs. With the asset, Uzma couldbe the frontrunner for the upcoming long-term plug and abandonment(P&A) contracts in 1H2024, similar to the two contracts secured in June2023 worth RM450m.

Source: PublicInvest Research - 9 Nov 2023