Results

Beat expectation: 1Q13 PATAMI increased 61% yoy to RM8.9m, making up 27% of HLIB and consensus full-year estimates.

Deviations

Better operating margin due to economies of scale and lower administrative expenses.

Highlights

Strong 1Q13 earnings growth due to the role out of UzmaAPRES units 8 in Feb 13, mobilisation of the 5 year RM350m well testing contract, supply chemical services under subsidiary Malaysia Energy Chemical & Services Sdn Bhd (MECAS) and additional contributions under JCE level of 30% SPV related to the increase in well testing services. Profit was augmented by economies of scale and lower administrative expenses. (Operating margin improved from 10.1% in 1Q12 to 13.3% in 1Q13).

Going forward, we expect the RM238m worth of contract award in Apr 13 under MECAS to drive 2H13 profit growth. The 1Q13 results reaffirm our view that operations and execution of the current RM1.2bn orderbook (~3.6x FY13 revenue) is running smoothly.

We maintain that Uzma is a unique direct proxy to Petronas’ Exploration (through Manpower Studies and Wireline) and enhanced oil recovery (through the UzmaPress and Chemicals) spending which makes up part of the RM310bn Capex spending program.

Risks

• Delays in contract disbursement.
• Execution risk.

Forecasts

FY13 and FY14 EPS increased by 8% and 23% respectively to factor in RM50m contribution from contract wins in 2014 (vs. zero replenishment from previous assumptions) from the current RM1.5 bn tenderbook and better operating margins.

Rating

BUY

• Positives –
  • Earnings inflection.
  • Direct exposure to EOR and exploration spending.
  • Room to grow.
• Negatives –
  • Small cap with low liquidity.
  • Earnings strength is unproven.

Valuation

We raised our TP from RM2.72 to RM3.98 based on a higher P/E multiple of 13x (previously 12x) and higher FY14 EPS of 30.6 sen to reflect the better results and optimism on Uzma’s tenderbook.

Source: Hong Leong Investment Bank Research - 23 May 2013