Results

Largely Inline: FY13 PATAMI increased 51% yoy to RM34m, making up 96% and 95% of HLIB and consensus full-year estimates.

Highlights

Uzma registered strong FY13 earnings growth due to increasing UzmAPRES units, higher revenue recognition from Petronas’ well testing project, integrated water injection studies contract and higher contribution from the provision of oilfield chemicals and associate services.

QoQ PBT margin fell from 12% to 9% due to higher administration and operating expenses and lower contribution from its associate. We expect margin to improve going forward due to its newly released version of UzmAPRES, which is smaller in size with less steel structure or lower cost per unit.

Share price has appreciated 300% in one year and exceeded our TP of RM6.16. To note, Uzma is one of our top pick for small cap space in 2014 (report titled “2014 Outlook – What’s Next?” dated 9 Jan 14) with potential to benefit from RSC contract award (another pick is Scomi Energy (HOLD: TP RM1.02) given Uzma’s experience and knowledge on full field review and reservoir study. As there is no change to the company underlying fundamental, share price has run ahead of fundamental, hence, we advise investors to take some profit off the table and downgrade the stock from BUY to HOLD. However, in the long run, we still like the company as it is one of the main beneficiaries from the increasing rejuvenating brownfield activities to boost oil production in Malaysia.

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.

We conservatively do not include the potential RSC award in our forecasts. Any marginal field contract win will re-rate the stock and transform the company into an E&P player. Total latest orderbook of RM1.6bn (~4x FY13 revenue) with tenderbook of RM2.6bn is expected to sustain earning growth going forward.

Risks

• Delays in contract disbursement.
• Execution risk.

Forecasts

Unchanged.

Rating

HOLD

Positives –

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

Negatives –

• Small cap with low liquidity.

Valuation

We downgrade the stock from BUY to HOLD with unchanged TP of RM6.16 based on a 16x FY15 EPS of 38.5 sen/share.

Source: Hong Leong Investment Bank Research - 27 Feb 2014