News

Uzma announced to acquire Premier Enterprise Corporation for RM18.6m.

There will be an additional purchase price of RM2m upon receipt of award for the extension of current contracts for chemical supplies which are expiring in Oct 15 and Jan 16.

Premier Enterprise Corporation is mainly engaged in trading of oilfield chemicals. The acquisition is expected to be completed within one month.

Financial Impact

The acquisition price (included RM2m additional payment) translates to 6.9x of FY14 forecast (RM3m). We deem the acquisition price attractive as compared to Malaysia O&G peers at 13x.

We see potential to revise up our earnings forecasts. With assumption of contract renewal and extension for current contracts, we expect the new company to increase Uzma’s bottomline by 4% in FY15.

Pros/Cons

We are positive on the acquisition as this will would expand Uzma’s market share in oilfield chemicals and reduce cost through economies of scale.

We understand that after this acquisition, Uzma’s market share in oilfield chemical will double from 25% to more than 50%.

After this, Uzma is targeting another acquisition related to well services this year as we estimate there are still ~RM20m fund unutilized from the recent proposed right issue of RM99m after funding the RSC, MMSVS and Premier Enterprise 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 the future given their experience and knowledge on full field review and reservoir study.

Risks

• Delays in contract disbursement.
• Execution risk.
• Forecasts
• Unchanged pending 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 unchanged TP of RM4.19 based on unchanged 16x of FY15 EPS of 26.2 sen/share.

Source: Hong Leong Investment Bank Research - 3 Jul 2014