PETALING JAYA: Uzma Bhd appears to be on a winning streak, having landed yet another huge contract that will significantly boost its order book.

With the award of the three-year contract from Petronas Carigali Sdn Bhd worth RM180mil on Tuesday, the oil and gas (O&G) company’s order book is estimated to have grown to RM1.6bil now. This could mean an earnings visibility for the next three years.

Market reaction to Uzma’s latest contract win, however, was rather muted amid broad market weakness.

The company’s share price yesterday closed 1.5 sen higher at 81.5 sen.

UOB Kay Hian noted that the three-year contract from Petronas Carigali, which was for electronic wireline logging (EWL) for Peninsular Malaysia scope also contained an optional scope for East Malaysia (Sabah and Sarawak) though no values had been disclosed.

The brokerage said in its report that the Peninsular Malaysia scope was smaller, compared with that of East Malaysia, which was a larger O&G region with more wells. Nevertheless, this was still a positive development for Uzma, given that the value for the Peninsular Malaysia scope was firm, and if other contractors failed to execute its scope, Uzma would get the bonus East Malaysia jobs being converted from option to firm.

“This EWL contract essentially continues from the previous contract despite a smaller work scope, unless the East Malaysia work scope eventually goes to them.

“Nevertheless, Uzma has been securing more contracts (of all upstream services) relative to most other O&G local peers, ” UOB Kay Hian said.

The brokerage recommended a “buy” on Uzma, with a target price of 95 sen based on 10 times the estimated earnings for the financial year ending June 30,2022 (FY22).

“Uzma will continue to chase more renewable energy projects to meet its long-term target, though this is reminiscent of the past 10 years when it had aggressively expanded its O&G offerings but recorded volatile earnings as it remains highly dependent on Petronas’ work orders, ” UOB Kay Hian said.

Meanwhile, TA Research pointed out that Uzma, which has secured contract wins totalling RM510mil thus far, has exceeded its FY21 orderbook replenishment assumptions (excluding call-out contracts) of RM450mil for the company.

Given the better-than-expected orderbook traction, TA Research has now raised its orderbook replenishment assumptions for Uzma to RM550mil for FY21, and RM400mil for FY22 and FY23, from RM450mil and RM200mil, respectively.

The brokerage has also raised its target price for Uzma to 74 sen from 61 sen previously. However, it has reiterated its “sell” call on the counter. “Uzma is heavily reliant on Petronas contracts, as evident from its 85% revenue exposure in Malaysia currently. However, we expect subdued capital expenditure and operating expenditure spend from Petronas in the near term.

“On the bright side, if the oil price volatility is contained, this may alleviate Petronas’ cautious spending plans. To recap, Petronas is currently budgeting its projects at US$40 per barrel, ” TA Research explained.

https://www.thestar.com.my/business/business-news/2021/03/25/uzmas-earnings-on-an-uptrend