News

Uzma to acquire MMSVS for a purchase value of US$29.7m or (RM95.34m). MMSVS is incorporated in Thailand since 2005 and owned a fleet of 7 modern hydraulic workover units (HWUs) and 1 Truck Mounted Service Rig that can work onshore and offshore.

The US$29.7m acquisition price comprise of US$1.5m deposit, US$13.6m debt, US$9.9m settlement upon completion and balance of US$4.7m to be paid no later than 31 Mar 16 which will adjust accordingly to the aggregate sales target in FY14 and FY15.

The sales targets are US$18.2m and US$22.6m for FY14 and FY15 respectively.

Financial Impact

The acquisition price translates to 5.5x of FY14 forecast EV/EBITDA. We deem the acquisition price attractive as compared to UMW O&G at 21x and Malaysia O&G peers at 12x.

We see potential to revise up our earnings forecast. With assumption of net margin of 15%, we expect the new company to increase Uzma’s bottomline by 18% in FY14 and FY15.

Pros/Cons

We are positive on the acquisition as this will expand products offering and complement existing services especially wireline, sickline, pumping and coil tubing units.

HWUs are generally used to conduct well intervention operations such as restoration and stimulating well to increase production and prolonging a well’s productive life. They will complement Uzma’s existing businesses.

We understand that MMSVS owned a young fleet of HWUs with average age below 5 years old and smaller in size which is suitable for shallow water well in SouthEast Asia region.

Currently, all 7 HWUs and 1 Truck mounted service rigs are operating mainly in Thailand with some contract duration range from 1-2 years.

The company is pursuing inorganic growth through few others potential acquisition(s) related to chemical and well services. The recent proposed right issue of RM90m will provide sufficient war chest for Uzma to look for potential acquisition target(s).

In addition, we do not ruled out the possibility of Uzma wining other RSC contract(s) in future given their experience and knowledge on full field review and reservoir study. Oil revenue remains vital and forms major part of government revenue. Hence, one of the best solutions to increase oil production is through EOR. Uzma stands out as the main beneficiary as its proprietary product, UzmAPRES, is designed to boost production with minimal capex.

Risks

Delay in contract disbursement, execution risk.

Forecasts

Unchanged pending more details and completion of the deal.

Rating

BUY

Positives –Direct exposure to EOR and exploration spending.

Negatives – Small cap with low liquidity.

Valuation

We maintained our BUY call with TP of RM7.30 based on unchanged 16x FY15 EPS of 45.7 sen/share.

Post rights issue, the ex-share price and ex-TP will be adjusted to RM3.33 and RM3.84 respectively.

Source: Hong Leong Investment Bank Research - 21 May 2014