Highlights

Uzma’s share price went ex for its right issue on 24 June 14. To recap, Uzma has proposed a renounceable right issue of up to 132m right shares on the basis of 1 right share for every 1 existing shares at RM0.75/share.

The recent acquisition of MMSVS business for US$29.7m will be fully integrated under Uzma by July 14 with 6 month of revenue contribution in FY14. We expect the acquisition to create synergy value 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.

On the Tanjung Baram RSC, first oil is anticipated to occur within 11 months which will be around Feb 15. We understand that substantial portion of the US$100m development cost by the JV will be contracted to Uzma. We have factored in some sub contract works worth RM64m to Uzma in 2H14.

Besides, Uzma is targeting to finalise two additional acquisitions related to chemical and well services this year as we estimate there are still ~RM40m fund unutilized from the recent proposed right issue of RM99m after funding the RSC and MMSVS acquisitions. 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 contracts (potential 14 clusters to be awarded) in future given their experience and knowledge on full field review and reservoir study.

Risks

• Delays in contract disbursement.
• Execution risk.

Forecasts

We raised our FY14 and FY15 PAT by 2% and 15% respectively after integrated the MMSVS business.

Rating

BUY 

Positives –Direct exposure to EOR and exploration spending.

Negatives – Small cap with low liquidity.

Valuation

Post rights issue, we maintained our BUY call with TP raised from RM3.84 to RM4.19 based on unchanged 16x of higher FY15 EPS of 26.2 sen/share.

Source: Hong Leong Investment Bank Research- 26 Jun 2014