News

• Uzma announced that it has on 3 February 2017 received approval from PETRONAS for a press release in relation to the award from PETRONAS Carigali Sdn. Bhd. for an Umbrella Contract for the Provision of Electric Wireline Logging (EWL) (“Contract”).

• The Contract will run for a duration of three (3) years, commencing from 1 December 2016 to 30 December 2019, with two (2) extension options of one (1) year each (3+1+1 years) for Cased Hole Logging Services across Pan Malaysia area.

Financial Impact

• While we are positive on the contract announcement, we believe the positive earnings impact from the Contract to our forecast is still not significant as the revenue would only be booked when the work order is issued by Petronas.

• On top of that, we believe the margin for wireline logging would not be far off from our existing assumed EBIT margin of 6% as we believe Petronas would still be conservative in terms of quotation of its work orders (due to uncertainties in oil prices despite firmer trend).

• Contract of this nature would not be anything new to the company as it already has long track record in terms of its wireline logging service provision.

• We also do not anticipate major CAPEX required for its wireline assets as we believe that they are currently underutilised.

• On top of that, other foreign players with similar services were also awarded with the umbrella contract. Therefore, the exact share of the actual pie is still unknown at this juncture for Uzma.

Forecast

• Maintained

Rating

HOLD ( ↔ )

• 2017 would be a better year for UZMA upon YoY improvement in oil prices but the improvement has been more or less priced in at current share price level with forward FY17 PER of 12.4x, relatively high as compared to industry average of 10x.

Valuation

• TP is maintained at RM1.66 based on 12x FY17 PER with HOLD call maintained on the stock. We decide to conservatively hold out for 1 or 2 more quarters of financial results to better gauge the positive impact of the umbrella contract.

Source: Hong Leong Investment Bank Research - 7 Feb 2017