Uzma reported a core net profit of RM14.3m in 2QFY24, higher by 22.9% YoY though flattish QoQ due to better margin contribution from the oil and gas (O&G) artificial lift division despite it recording lower revenue. The decrease in revenue is due to lower contribution from the O&G integrated well solution division, which we believe is from one of its hydraulic workover units (HWU) and coiled tubing services (CTU) due for service maintenance in its yard during the period. Cumulatively, Uzma’s 1HFY24 core net profit of RM28.6m meets our estimates at 51% of full year numbers but exceeds consensus at 65%. At this rate, we reckon Uzma would achieve record earnings for FY24F on the back of high asset utilization and resurgence of its chemical business. We also expect Uzma to secure a few more significant contracts due to demand for its assets and production enhancement services as a brownfield specialist. On account of its solid outlook, we maintain our Outperform call with higher TP of RM1.70 (from RM1.40) after we peg FY25F EPS to 11x PER (+1 SD).

• High asset utilization to boost FY24F earnings. Uzma has just mobilised its HWU in early January after 2 months in the yard for maintenance. HWU remains in high demand for well services although the 3Q period in its financial year (January to March) is seasonally lowest due to the monsoon. On this basis, we expect revenue for 3QFY24 would be able to record at least RM120m compared to RM90m for past 3 years. Thus, we expect Uzma would be able to achieve record earnings for FY24F.

• Strong orderbook to sustain at least 3 years of earnings. Uzma’s orderbook remains strong at RM2.4bn, with 66% in the O&G segment to keep it busy for at least the next 3 years. About RM1bn worth of contracts was secured from the PETRONAS group, including D18 Water Injection Facility (WIF), two contracts for provision of HWU and plug and abandonment (P&A) and 2-year extension for Coiled Tubing. We believe that the mobilization of HWU in early January may relate to the existing contract for HWU and P&A.

• A slice of RM2.3bn O&G tenderbook. We continue to like Uzma for its specialization to secure new contracts in brownfield projects, which are mostly tied to its assets (i.e HWU) and capability of the project. For instance, Uzma would be the frontrunner to secure new HWU contracts for P&A project on the back of its existing 6 units of HWUs. On another note, Uzma could also potentially secure another WIF by riding on its success in D18 WIF. These new contracts could be the catalyst for Uzma to record another breaking year profit-wise.

Source: PublicInvest Research - 21 Feb 2024