Highlight

Share price has appreciated 25% (vs. KLCI return of 2.6%) since we upgraded the stocks to a BUY in a report titled “It’s just the beginning…” dated 17 Apr 2013. Year to date, share price outperformed market strongly (+52% vs. KLCI return of 1.4%).

Uzma is one of our small to mid cap top pick in the beginning of the year and fit into one of our favourable micro themes – RSC (Refer report titled 2014 Outlook – What’s Next? dated 9 Jan 14). We recognised the strong share price rally was due to ability to secure Tanjung Baram RSC contract and grow inorganically through M&As.

Year to date, Uzma has acquired MMSVS (Thailand company with 7 modern HWUs) and Premier Enterpirese Corporation (oilfield chemicals) for a total value of RM114m. Both acquisition will expand Uzma’s products offering and complement its existing services.

Share price continued to perform strongly after the tsock went ex for its right issue on 24 June 14 and exceeded our TP of RM4.19. As there is no change to the company’s underlying fundamental, share price has run ahead of fundamental in short run, hence we advise investors to take some profit off the table and downgrade the stock to HOLD.

However, in the long run, we still like the company given its long term strategy to further grow the business through: i) expanding product range; ii) merger and acquisition; and iii) oversea expansion.

Uzma is still targeting another acquisition related to well services this year as we estimate there are still about 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.

Rating

HOLD

Positives – Direct exposure to EOR and exploration spending.

Negatives – Small cap with low liquidity.

Valuation

We downgraded our call from BUY to HOLD with unchanged TP of RM4.19 based on unchanged 16x of FY15 EPS of 26.2 sen/share.

Source: Hong Leong Investment Bank Research - 9 Jul 2014