Results

Broadly Inline: YoY, 1QFY14 PBT was flat but PATAMI fell 5% to RM8.4m, making up 17% and 18% of HLIB and consensus full-year estimates. We deemed the result largely inline as we expect stronger quarter earnings ahead due to commencement work on RSC and deployment of additional UzmaAPRES unit.

Highlights

YoY, revenue increased 10% due to better contribution from oilfield chemicals, increasing UzmAPRES units and higher revenue from integrated water injection studies contract but partly offset by slowdown in drilling and well services. QoQ fell mainly due to weaker season with slower works done.

EBIT margin improved QoQ but decreased YoY mainly due to additional hiring for new projects since 4Q13. We expect margin to improve going forward as the revenue from new projects such as RSC, water solution and drilling project management to kick in. Its associate earning grows by 46% yoy mainly due to higher contribution from well-pumping, cementing and coiled tubing services.

Uzma has proposed to acquire a Thailand company which owned a fleet of 7 HWUs and 1 truck mounted service rig for US$30m. We see potential to revise up our earnings forecasts. Assuming net margin of 15%, we expect the new company to contribute US$3-4m to Uzma’s bottomline. Despite the recent proposed right issue of RM90m, the contributions from RSC and Thailand’s business are expected to enhance FY15 EPS by 14% (inclusive of the proposed right issue). To note, based on debt to equity ratio of 70:30 we estimated the company still has RM40-50m fund to utilise. Any additional potential M&A should further enhance our EPS forecasts

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, Uzma is also exploring growth through expanding product ranges. New products to focus are water solution, idle well solution, drilling project management and seismic processing. 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.

Risks

• Delays in contract disbursement.
• Execution risk.

Forecasts

Unchanged.

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 RM3.27 and RM3.84 respectively.

Source: Hong Leong Investment Bank Research - 27 May 2014