News

• Uzma announced that it has on 9 January 2018 received award from PETRONAS Carigali Sdn. Bhd. (PCSB) for 3 umbrella contracts for the provision of electrical submersible pump (ESP) and services such as a) Supply of Jointed Tubing ESP and the Deployments; b) Supply of Coiled Tubing ESP and the Deployments; and c) Surveillance, Monitoring and Maintenance of ESP.

• The tenure of each of the umbrella contract is three (3) years from 20 November 2017 to 19 November 2020, with first extension option of one (1) year

Financial Impact

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

• Exact financial impact is difficult to ascertain as it is based on a work order basis.

• On top of that, we believe the margin for the contracts 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).

• Notwithstanding, it is still a positive sign for the company as it indicates that oil producers are getting ready to invest again in the oil production market in anticipation of stabilisation of oil prices this year.

Forecast

• Maintained

Rating

HOLD ↔ , TP: RM1.51

• While 2017 earnings outlook is gloomy, we believe recovery will be in place in 2018 with ramp up in works for services division expected for the contracts secured by the group in 1H17.

Valuation

• Maintain HOLD with TP maintained at RM1.51 pegged to unchanged FY18 PER of 11x.

Source: Hong Leong Investment Bank Research - 10 Jan 2018