• News Uzma Berhad announced that it has received approval from LUNDIN for a press release in relation to the award from LUNDIN Malaysia B.V. to Uzma Engineering Sdn. Bhd. (wholly-owned subsidiary of Uzma) for a Contract for the Provision of Hydraulic Workover Unit (“HWU services”) and services (“Contract”).

• The Contract will run for duration of nine (9) months for HWU Services for the client’s operations at the Bertam field, on the east coast of Peninsular Malaysia.

• Financial Impact While we are positive on the Contract announcement, we believe the positive earnings impact from the Contract to our forecast is relatively insignificant as the revenue would only be booked when the work order is issued by Lundin.

• Rates are undisclosed at this juncture but we believe that the margins are roughly consistent with groups current overall EBIT margin (circa 5%).

• We expect Uzma to utilize its fleet of HWU units to execute the Contract. As this is a brownfield project involving oilfield work over, we believe Uzma will have the ability to execute the project.

• The announcement of the Contract indicates a pickup in oilfield maintenance activities, pointing to improvement in activities in the overall upstream industry.

• Forecast Maintained. Too early to determine the impact as work orders have yet to be issued and we believe it would not be significant enough to have material impact on our earnings forecasts.

Rating

HOLD ( ↔ )

• 2017 would be a better year for UZMA (due to improvement in brownfield maintenance activities) 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 - 17 Feb 2017