Results

Broadly inline: YoY, 1HFY14 profit fell by 5%, making up 35% of HLIB and consensus full-year estimates. We deemed the result largely inline as we expect stronger 2H due to commencement work on RSC and consolidation of Thailand’s MMSVS business.

Highlights

YoY, revenue increased 9% due to better contribution from oilfield chemicals and drilling project management for PMU wells. Despite higher gross profit, PBT margin fell slightly from 12% to 11% due to higher operating expenses, finance cost and lower contribution from its associates.

We expect stronger 2H due to commencement work on RSC as we understand that substantial portion of US$100m development cost by the JV will be contracted to Uzma. The consolidation of MMSVS business in July 14 will also provide around additional RM5m to Uzma’s bottomline.

Share price has corrected by ~19% since we downgraded our call from BUY to HOLD in July 14. Without changes in fundamentals and prospects, current share price present buying opportunity with potential upside of 23%. Hence, we upgraded our call from HOLD to BUY. In the long run, we 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 completed 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

BUY 

Positives –Direct exposure to EOR and exploration spending.

Negatives – Small cap with low liquidity.

Valuation

We upgraded our call from HOLD to BUY with unchanged TP of RM4.19, based on unchanged 16x FY15 EPS of 26.2 sen/share, after recent share price correction which presents buying opportunity with the expectation of subsequent stronger result.

Source: Hong Leong Investment Bank Research - 27 Aug 2014