News

Business Times reported that Petronas has awarded the fifth risk service contract (RSC) during the Offshore Technology Conference Asia 2014 (OTC Asia), according to a senior executive.

Petronas executive vice-president of exploration and production Wee Yiaw Hin said the agreement was signed with Uzma and British EnQuest Plc during the conference. However, no details were revealed.

Financial impact

We understand the 5th RSC might refer to the Tanjung Baram field which requires capex of ~US$100m. With assumption of i) capex of US$100m, ii) project IRR of 20%, iii) project stake of 30%, we estimate that it will contribute ~RM14m or 11sen per share to Uzma’s bottom line once production. To stay conservative, we 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.

Pros/Cons

We are positive and this is inline with our expectation as we mentioned Uzma to be one of the beneficiary from RSC contract award in report titled ‘2014 Outlook- What’s next?’ dated 9 Jan 2014. (another pick is Scomi Energy (HOLD: TP:RM1.02) given Uzma’s experience and knowledge on full field review and reservoir study.

To recap, Uzma recently has propose a renounceable right issue of up to 132m right shares on the basic of 1 Rights Share for every 1 existing shares, which expected to raise up to RM90m. We believe the fund raised will be used for potential special project(s) such as marginal fields, enhance oil recovery and others.

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.

Risks

Delays in contract disbursement, execution risk.

Forecasts

Unchanged, pending official announcement.

Rating

HOLD

Positives –

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

Negatives –

• Small cap with low liquidity.

Valuation

We maintained our HOLD call with unchanged TP of RM6.16 based on a 16x FY15 EPS of 38.5 sen/share.

Post the exercise, the ex-share price and ex-target price will be adjusted to RM3.60 and RM3.48 respectively.

Source: Hong Leong Investment Bank Research - 31 Mar 2014