News

• Uzma announced that it was awarded from PETRONAS Carigali Sdn. Bhd. (PCSB) for two umbrella contracts for the Provision of 340K and 460K Hydraulic Workover Unit (HWU) and Provision of HWU- Ghazi 461.
• The tenure of the umbrella contract for 340K and 460K HWU is three (3) years from 22 December 2017 to 21 December 2020, with an extension option of one (1) year.
• For Ghazi 461 HWU, the tenure of the contract is from 28 December 2017 until the completion of three (3) firm wells with an extension option of a further 2+1+1+1+1 wells. 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 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).
• The announcement of the contracts indicates a pickup in oilfield maintenance activities, pointing to improvement in activities in the overall upstream industry.

Forecast

• Maintained

Rating

HOLD↔ , TP: RM1.64↑

• 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 higher TP of RM1.64 (from RM1.51) after we pegged to higher FY18 PER of 12x which is in line with sector valuation upgrade.

Source: Hong Leong Investment Bank Research - 12 Jan 2018