Uzma’s 18MFY18 core profit of RM47.1m came within consensus but above HLIB forecast due to lower than expected tax expenses. 2Q18 core earnings surged by 87% on higher work orders and tax credit masking higher finance cost and weaker JV & associate contribution. Current order book stood at RM1.8bn including estimate of work orders received from the umbrella contracts secured thus far. We increased FY19/20 earnings forecast by 16%/19% respectively on higher work orders recognition and lower tax expenses assumptions. FY21 core net profit forecast of RM46.0m (+4% YoY) is introduced. Maintain HOLD recommendation with higher TP of RM1.21 (from RM1.04) post earnings forecast.

Results above expectation. 18MFY18 core profit of RM47.1m came above HLIB forecast but within consensus at 106%/102% of 18-month forecasts. The stronger than expected results was due to lower than expected tax expenses.

QoQ: Despite 10% decline in topline, core profit increased by 15% to RM8.9m after stripping off (i) RM10.8m net forex gain and (ii) RM17.5m impairment on receivables related to Tanjung Baram RSC. The better performance was underpinned by tax credit of RM0.6m (vs tax expenses of RM2.0m in 1Q18), partially offset by higher finance costs (+40%).

YoY: Core profit surged by 87% from RM4.7m thanks to higher recognition of work orders as evident by stronger revenue (+15%), tax credit of RM0.6m (vs tax expenses of RM3.5m). This helped to cushion higher finance cost (+67%) and weaker JV & associate contribution (-53%).

YTD: Cumulative YoY comparison is not available due to the changes in financial year-end.

Outlook. The current order book of the group stands at c.RM1.8bn and tender book at c.RM5bn. Going forward, the company is focusing more on bidding for high margin jobs. However, part of the group’s order book is on call up basis and the group’s recovery hinges on the actual demand of clients which is starting to recover in the near term due to the increase in oil price.

Forecast. We increased FY19-20 earnings forecast by 16%-19% respectively after imputed higher work orders recognition and lower tax expenses assumptions. FY21 core net profit forecast of RM46.0m (+4% YoY) is introduced.

Maintain HOLD, TP: RM1.21. Maintain HOLD recommendation with higher TP of RM1.21 (from RM1.04) post earnings forecast. TP is pegged to unchanged FY19 PER of 10x.

Source: Hong Leong Investment Bank Research - 3 Sept 2018