News

• Uzma proposed to further acquire 18.98% stake in Setegap Ventures Petroleum (SVP), increasing stake from 30.02% to 49%.

• Total purchase consideration is RM28.5m, satisfied via cash payment of RM17m and issuance of 5.35m new shares at issue price of RM2. 15 per share. Expects the deal to be completed by 1QFY15.

• SVP is mainly involved in providing well pumping, CTU and cementing services to the upstream sector.

Financial impact

• The acquisition implied 10x FY13 P/E and 9.1x FY14 P/E which we deemed as fair.

• We expect SVP earnings to grow by 10% in FY14 and the acquisition will increase FY14 EPS and FY15 EPS by 6% and 3% respectively.

Pros/Cons

• We are positive on the additional stake increase in SVP as this will complement Uzma’s drilling and well services. Increasing government effort to enhance production from mature and existing field also require demand on SVP’s well pumping and CTU services. To note, SVP has managed to grow its earnings by 2 years CAGR of 31% from FY11 to FY13.

• We also understand that SVP was awarded a 5 years Vendor Development Program (VDP) for the provision of its CTU servic es for Petronas Carigali’s East Malaysia o peration in Nov 14. Given this, we expect SVP to secure more contracts which will underpinned earning growth going forward. SVP currently owned 2 units of CTUs and plans to increase to 5 units.

• Drilling campaign for Tanjung Baram is expected to begin in 1Q15 and expects to hit first oil in May 15. Substantial portion of the US$100m development cost by the JV will be contracted to Uzma.

Risks

• Delays in contract disbursement.
• Execution risk.

Forecasts

• Unchanged pending completion of deal.

Rating

BUY

Positives

• Direct exposure to brownfield and EORspending.

Negatives

• Small cap with low liquidity and plunged inoil price.

Valuation

• We maintained our BUY call with unchanged TP of RM2.52, based on 11x P/E.

Source: Hong Leong Investment Bank Research - 8 Dec 2014