Uzma has secured a contract for supply of chemicals and related services for PM3 from Hibiscus Oil and Gas Malaysia, via its 70%-owned subsidiary, Malaysian Energy Chemical & Services SB (MECAS). Taking cue from previous contracts, we estimate the contract value to be worth about RM70m for the duration of 5 years until November 2028. This validates management guidance on the resurgence of MECAS in providing full suite of production chemicals for production enhancement. On another note, Uzma has just mobilised its 460K hydraulic workover unit (HWU) in early January after 2 months in its yard for maintenance, following a year of utilisation of the unit. Looking ahead, the demand for HWU remains strong on the back of accelerated plug and abandonment (P&A) activities and workover well services for CY2024-2026. We believe Uzma has a competitive advantage due to the limited supply of locallyflagged HWUs. All in, we maintain Uzma as our top pick for the sector with Outperform call retained though with a higher TP of RM1.40 (from RM1.20) as we peg a higher ~9x PER to FY25F EPS, considering the promising outlook for local oil and gas services equipment (OGSE) providers.

• Validating resurgence of MECAS. Based on guidance given, MECAS’ annual revenue is expected to rebound from RM37.3m and RM45.6m in FY2022 and FY2023 to achieve at least RM60m a year going forward. Assuming equal revenue recognition of RM14m a year, the contract contributes 23% of MECAS’ annual revenue for the next 5 years. This contract also will add to the Group’s existing orderbook of RM2.42bn.

• Riding on high demand for HWUs. 2 out of 6 HWUs available for operation are expected to remain busy for the next 2 years on the back of the 3-year contract from PETRONAS Carigali awarded in May 2023. Based on the PETRONAS Activity Outlook (PAO) 2024-2026, there is a requirement for another 2 HWU units yet to be contracted for in CY2024 and CY2025 to support the accelerated plug and abandonment (P&A) activities and workover well services in the pipeline. It is expected the new contracts will supersede the existing legacy integrated well services (IWS), which will expire by April 2024. We believe Uzma will be the frontrunner for the contracts given the number of HWUs available under its ownership, amid a limited supply of locally-flagged HWUs. In addition, Uzma’s lightweight HWU also provides it a cutting edge due to its flexibility in pulling capacity and has the ability to be mounted on small offshore platforms with estimated 95% compatibility of wells in Malaysia.

Source: PublicInvest Research - 31 Jan 2024