News

Uzma Bhd announced to acquire a 12-storey commercial building with a total built-up area measuring approximately 38,901 square feet from Mammoth Empire Estate Sdn Bhd (the developer for EMPIRE DAMANSARA).

The property is leasehold (99 years and expiring 13 May 2018) with purchase consideration of RM24m.

The property is strategic located in the heart of Damansara Perdana, Petaling Jaya and enjoy good connectivity.

Comments

The proposed acquisition is part of the group’s expansion plans and will facilitate the relocation of its headquarters to house all of its staffs and operations in one location.

The acquisition price translates to a purchase price of approximately RM617 psf as compared to similar projects which ranges from RM615 psf to RM700psf. We understand that it may take 6-9 months to move into the new corporate office in Damansara Perdana. The existing office in Fraser Park with book value of approximately RM9m is likely to be disposed off.

Assume 85% of the purchase consideration is financed via bank borrowings, the net gearing ratio are expected to increase from 0.1x to 0.28x.

Oil revenue remains vital and form major part of government revenue. Hence, one of the best solutions to increase oil production is through Enhance Oil Recovery (EOR). Uzma stand out as the main beneficiaries as its propriety product - UzmAPRES is designed to help clients boost production without much capex.

Given Uzma’s experience and knowledge on full field review and reservoir study, we do not rule out the possibility that Uzma might secure a marginal field contract. The company can leverage on its expertise in geoscience and reservoir engineering to increase the chance of winning. Any marginal field contract win will re-rate the stock and transform the company into an E&P player.

Total latest orderbook of RM1.35bn (~4.7x FY12 revenue) with tenderbook of more than RM2bn is expect to sustain earning growth going forward (31% CAGR from 2012-2015). Uzma is one of our top pick in the O&G small cap universe given its strong growth prospect.

Risks

• Delays in contract disbursement.
• Execution risk.
• Forecasts

Forecasts

Unchanged.

Rating

BUY

Positives –

• Direct exposure to EOR and exploration spending.
• Room to grow.

Negatives –

• Small cap with low liquidity.
• Earnings strength is unproven.

Valuation

We maintained our BUY call with an unchanged TP of RM4.85 based on an unchanged 14x FY14 EPS of 34.6 sen. Although current TP only provides 5.4% potential return, we see upside risk to our forecast given its RM2bn tenderbook

Source:Hong Leong Investment Bank Research - 6 Nov 2013