Highlights

• We attended Uzma’s briefing on Tanjung Baram and D18 Water Injection Facility (WIF). We walked away feeling positive and following are the salient points from the briefing.

• Tanjung Baram has hit 1st oil in mid of Aug 15 after resolving the liquid carryover at West Lutong gas outlet. The delay due to longer than expected rig demobilisation and liquid carryover has not impacted earnings. We understand that the production flow is better than expectation and no downtime currently. Total capex is slightly more than US$100m but remain as one of the lowest RSC solution.

• Cont ribution from Tanjung Baram will be recognised in P&L once its hit oil and we have al ready factored in 1 quarter of contribution. We estimated Tanjung Baram RSC to contribute circa RM14m per annum to the bottomline.

• The construction of WIF is about 3.37% behind schedule, mainly due to delay in contract award to fabricator. Despite the delay, the company expects 1st water injection by end of 1Q16, inline with our assumption of 9 months contribution from WIF in FY16.

• The strengthening of US dollar against Ringgit has caused capex increased from RM266m to RM308m. Management is negotiating with Petronas for potential mitigating measures.

• Besides organic growth, we also understand Uzma is looking for few potential acquisitions in near term to further broaden its product range. In addition, Uzma is also eyeing to deploy another 2-3 units of UzmaAPRES from existing 9 units.

Comments

• We are positive that Tanjung Baram’s production is on stream and WIF on track to commence by end of 1Q16. We continue to like the management’s ability to provide lowest cost of solution to oil operators. To note, Uzma is one of the few gems with earnings expected to grow by 2 years CAGR of 37%.

• Despite 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.

Risks

• Delays in contract disbursement; execution risk.

Forecasts

• Unchanged.

Rating

BUY

Positives

• Di rect 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 RM2.12 to RM2.38 based on higher target P/E of 9x (versus 8x previously) with Tanjung Baram’s production back on track.

Source: Hong Leong Investment Bank Research - 7 Oct 2015