Uzma has increased its equity holdings in SVP by additional 15% to 64% (from 49%) for a cash consideration of RM36m. We are positive on the news as Uzma will have better control over the company upon completion of acquisition. This may derive cost reduction through the pooling of resources and streamlining of operations. The acquisition is likely to be completed by 1QCY19 and will be funded via borrowings. We have increased our FY19-21 earnings by 10% respectively following the consolidation of higher earnings contribution from SVP. Maintain HOLD rating on the stock with higher TP of RM0.85 (from RM0.78 previously) pegged to unchanged 8x FY20 P/E.

NEWSBREAK

Uzma has entered into a conditional share sale agreement with Nasri Nasrun Ventures Sdn Bhd to acquire 694,350 ordinary shares (15% equity stake) in Setegap Ventures Petroleum Sdn Bhd (SVP) for a cash consideration of RM36m. Upon completion of the acquisition, Uzma’s equity holdings in SVP will increase to 64% (from 49%).

HLIB’s VIEW

Increasing its holding in SVP to 64%. Recall that Uzma has gradually acquired 30.02% and 18.98% equity interest in SVP back in Jan 2012 and Jan 2015 respectively. SVP is a service provider in the O&G industry, specialising in well pumping, coiled tubing units (CTU), integrated production enhancement solutions, desander and cementing services. These services are complementary to Uzma’s existing services offerings to its clients. We are positive on the news as Uzma will have better control over the company upon completion of acquisition. This may derive cost reduction through the pooling of resources and streamlining of operations. The acquisition is likely to be completed by 1QCY19 and will be funded via borrowings.

Great potential for expansion. SVP generated RM23.6m and RM4.3m PAT in 18MFY18 and 3MFY19, respectively. While the implied valuation of the annualised 12-month FY18 trailing P/E ratio of 14.8x may seem to be slightly pricy, we believe Uzma may derive further cost synergies in the future. SVP’s prospect is also looking bright backed by existing orderbook of RM700m spanning the next five years. Furthermore, SVP is aiming to expand its services offerings such as Reinforced Thermoplastic Pipe (RTP) installation services and cementing and acidizing services for geothermal wells.

Forecast. We have increased our FY19-21 earnings by 10% respectively following the consolidation of higher earnings contribution from SVP offsetting additional finance cost incurred. Reiterate HOLD. Following our earnings adjustment, we maintain HOLD recommendation on the stock with higher TP of RM0.85 (from RM0.78) pegged to unchanged FY20 P/E of 8x.

Source: Hong Leong Investment Bank Research - 30 Jan 2019