Uzma secured a 3+1 year HWU contract from PTTEP in Thailand, starting from 1 Mar 2019. We are positive on the contract announcement as it improves its overall HWU utilisation. However, Uzma may face tighter competition next year given that Petronas has guided lower HWU requirement in CY20. No changes to our forecasts as we have factored in improving utilisation in its HWU business. Keep HOLD call on the stock with unchanged TP of RM0.98 (9x FY20 P/E).

NEWSBREAK

Uzma has obtained the approval from PTTEP International Limited, PTTEP Siam Limited and PTTEP SP Limited to announce the award of provision of onshore hydraulic workover services (340K) contract in Thailand. The contract has a duration of three years from 1st Mar 2019 to 30th Jun 2022 with an option to extend for another one year.

HLIB’s VIEW

Improve utilisation. We are positive on the contract announcement as this helps to improve its hydraulic workover units (HWU) utilisation. Note that the HWU segment made RM2.9m losses in 2QFY19 and RM7m losses in 18MFY18. The contract award is somewhat in line with the company’s expectation of improving outlook within this space. Uzma is eyeing to breakeven for this business segment this quarter and hit optimal utilisation by end of FY19.

Lower HWU needed in CY20. According to Petronas Activity Outlook Report 2019- 2021, Petronas has guided 5-6 units needed in CY19, 2-3 units in 2020 and 3-4 units in 2021. These numbers a based on full-year utilisation and actual numbers will vary dependent on its respective campaign including the requirement for HWU during well abandonment activity. Therefore, we believe Uzma will face tighter competition from its peer, Velesto Energy (5 units as of end-CY18) next year.

Forecast. We believe such job will fetch EBITDA margins of 20%-25%, in line with our expectations. No changes to our forecasts as we have factored in improving utilisation in its HWU business.

Reiterate HOLD, TP: RM0.98. Our TP is maintained at RM0.98 pegged to unchanged FY20 PER of 9x. Maintain HOLD rating on the stock as we are cautious on its operating cost and finances upon expansion.

Source: Hong Leong Investment Bank Research - 20 Mar 2019