We attended Uzma’s analyst briefing and walked away feeling neutral. Uzma incurred forex loss in 5QFY17 results mainly because D18 assets are kept in Labuan and are denominated in USD and hence incurred translation forex loss. Uzma is expected to incur RM80m capex this year and c.RM12m has been spent YTD. Uzma’s firm order book currently stands at c. RM1.43bn, representing c.3.8x cover ratio to CY17 revenue. Tender book stands at c.RM7bn and we understand that bidding activities have been improving following the surge of oil prices. Maintain forecast and HOLD recommendation with unchanged TP of RM1.04, based on 12x P/E multiple pegged to FY18 EPS.

We attended Uzma’s analyst briefing and walked away feeling neutral. Key highlights as below:

Forex loss. To recap, Uzma incurred forex loss in 5QFY17 results despite strengthening of ringgit. This is mainly because D18 assets are keep in Labuan and are denominated in USD and hence incurred translation forex loss.

Capex. Uzma is expected to incur RM80m capex this year and c.RM12m has been spent YTD. All of the guided capex are for firm contracts and does not include the capex required by umbrella contracts as the timing of work orders is uncertain.

Order book. Uzma’s firm order book currently stands at c. RM1.43bn, representing c.3.8x cover ratio to CY17 revenue. However, major part of the group’s order book is on call up basis and the group’s recovery hinges on the actual demand of client which is starting to recover in the near term.

Tender book. Current tender book stands at c.RM7bn and we understand that bidding activities have been improving following the surge of oil prices. Nonetheless, we expect the company to continue facing margin pressures due to cost optimization exercises implemented by oil majors and heightened competitive pressure to grab contracts among industry players. As a result, going forward the company is focusing more on bidding for high margin jobs in order to counter the impact from shrinking margin.

Forecast. Maintain as the briefing yielded no major surprises.

Maintain HOLD, TP: RM1.04. Maintain HOLD recommendation with unchanged TP of RM1.04. TP is pegged to unchanged FY18 PER of 12x. While CY17 earnings are weak, we believe recovery will be in place for CY18 with ramp up in works for services division expected for the contracts secured by the group in 1HFY17.

Source: Hong Leong Investment Bank Research - 6 Jun 2018