Highlights

Uzma expects to finance the purchase consideration of US$29.7m for its newly acquired Thai-based company, MMSVS via a combination of 71% debt and 29% equity.

The borrowings are expected to be approximately US$21.2m and the balance of US$8.5m will be via internally generated funds.

Uzma expects MMSVS to be fully integrated under Uzma by July14 with 6 month of revenue contribution.

The recently proposed rights issue of RM99m will go ex on 24 June 14. Entitlement date is on 26 June 14.

Comments

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

We understand that MMSVS owns 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. With the acquisition, we expect MMSVS to expand its HWU services into Malaysia.

MMSVS recorded a loss before tax of THB0.87m in FY13 due to additional construction and finance cost as a result of 4 newly built HWUs just completed in FY13. However, we expect MMSVS to swing from losses to a profit of ~RM9m in FY14 as 7 HWUS are currently in operation.

Besides, Uzma is targeting to finalise two additional acquisitions this year as we estimate there are still ~RM40m fund unutilized from the recent proposed right issue of RM99m. Any additional potential M&A should further enhance our EPS forecasts.

In addition, Uzma is also exploring growth through expansion of product ranges. New products on focus are water solution, idle well solution, drilling project management and seismic processing. In addition, we do not rule 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 RM3.50 and RM3.84 respectively.

Source: Hong Leong Investment Bank Research - 13 Jun 2014