Highlights

• The Water Injection Facility (WIF) will be used to rejuvenate the D18 brownfield at offshore Sarawak by improving recovery rate from existing 20% to 30-35%. To recap, Baker Hughes has awarded a long term contract by Petronas Carigali to enhance production in D18 field in 2013.

• The duration of the contract is for 5 years leasing period effective from 31 March 2016 with contract value estimated at RM350m to RM400m. This also translates to circa RM200k leasing rate/day.

• An old rig will be used for the conversion with estimated capex of about US$70m. This will be funded by 80% debt and 20% equity (funded by private placement). By end of the 5 years leasing period, Petronas has an option to buy the WIF.

• 1st oil from Tanjung Baram is expected to delay to Aug 15 (initially at end of Apr 15) mainly due to i) longer than expected rig demobilisation period and ii) liquid carryover in West Lutong gas outlet. Uzma is taking necessary measures such as cleaning up the well and rectify the gas outlet.

• In addition, Uzma is also eyeing to deploy another 2-3 units of UzmaAPRES from existing 9 units.

Comments

• We are positive on the WIF contract won amidst low oil price environment. This reemphasis our investment thesis that Uzma’s exposure to E&P opex instead of capex spending should help it to weather through this challenging period.

• We believe this maiden WIF project in Malaysia if execute well will provides plenty of opportunity on other mature fields in Malaysia. We estimate the payback period for this WIF at circa 5-6 years.

Risks

• Delays in contract disbursement.

• Execution risk.

Forecasts

• FY15 EPS reduced by 10% after we conservatively factored in only one quarter earnings contribution from Tanjung Baram RSC (versus 2 quarters previously). FY16 EPS raise by 8% after we incorporate 9 months contribution from WIF and enlarged share based due to proposed private placement.

Rating

BUY

Positives

• Direct exposure to EOR and exploration spending.

Negatives

• Small cap with low liquidity and plunged in oil price.

Valuation

• We maintained our BUY call with TP raised from RM2.69 to RM2.91 based on unchanged 11x FY16 P/E to reflect higher forecast.