Results

• Inline: YoY, 2QFY15 core profit surged by 35%, bringing 1HFY15 core profit to RM25m, making up 45% of HLIB and consensus full-year estimates.

Deviation

• We have stripped off one-off item of RM7.8m forex loss in 1HFY15 and now expect stronger 2H due to contribution from RSC contract.

Highlights

• YoY: 1HFY15 core profit (excluded forex loss of RM7.8m) surged by 41% due to additional contribution from MMSVS and PEC coupled with higher income from its associate, SVP. To note, the forex losses should be considered as non-cash item, given that its US debt is naturally hedged as the income from Tanjung Baram will be in US dollar.

• QoQ: 2QFY15 core profit fell by 8% mainly due to slowdown in customer activity as a result of reduction in capex and opex amidst subdued oil price environment.

• We expect a stronger 2H15 due to maiden contribution from Tanjung Baram RSC. We only assumed one quarter earnings contribution from Tanjung Baram RSC.

• Despite the dry newsflow on the upstream sector, Uzma managed to secure circa RM500m contract year to date. We continue to be impressed by the company’s ability to replenish its contract backlog despite sluggish oil price.

• The recent contract win to provide Water Injection Facility (WIF) for rejuvenation of the D18 brownfield reinforces our investment thesis that Uzma’s exposure to E&P opex instead of capex spending should help it to weather through this challenging period.

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 and plunged in oil price.

Valuation

• We reduced our target P/E from 11x to 8x given the weak industry outlook and sentiments as WTI fell below US$40/bbl given concerns about oversupply from US Shale and Iran coupled with weakening demand from China.
• We maintained our BUY call with a lower TP of RM2.12 (previously: RM2.92) after factoring in the reduced target P/E.

Source: Hong Leong Investment Bank Research - 25 Aug 2015