At 100%/69% of HLIB/consensus full year estimates, FY19 core profit of RM10.3m came within our expectation but below consensus, whereby we suspect the negative deviation stemmed from higher-than-expected operating cost and finance cost. Despite management remains upbeat about its outlook especially on rising work orders, we are still cautious on its operating cost and stretched finances (net gearing of 0.97x as of 4QFY19) upon aggressive expansion. We cease coverage on Uzma due to reallocation of our internal resources on our coverage. Our previous forecast, SELL recommendation and TP of RM0.63 (pegged to 9x FY20 P/E) should no longer be used as a reference going forward.

Within our expectations. Uzma chalked in 4QFY19 earnings of RM7.8m (turnaround QoQ, -12% YoY), lifting FY19 net profit to RM10.3m (-54% YoY). This came within our expectation at 100% of our estimate but below consensus expectations at only 69% of its full year forecast. We suspect the earnings disappointment is due to higher-than expected operating cost (including additional one-off expenses being recognised in 3QFY19) and finance cost.

QoQ: Uzma turned into the black with core net profit of RM7.8m in 4QFY19 from core losses of -RM4.9m in 3QFY19 after stripping off (i) RM3.7m unrealised forex gain, (ii) RM0.9m reversal of receivables impairment loss, (iii) RM0.4m bad debts written off and etc. The stronger performance was largely due to higher work orders (+25%) coupled with full consolidation of Setegap Ventures Petroleum Sdn Bhd (SVP) since end-Jan this year.

YoY: Although revenue increased by 68% due to consolidation of SVP and higher work orders, core earnings still declined by 12% YoY largely due to higher tax expense of RM6.1m (vs tax credit of RM0.6m in the preceding year corresponding quarter).

YTD: Core earnings fell by 54% YoY to RM10.3m mainly marred by higher operating cost, D18 and Uzmapess downtime in 1QFY19 as well as higher tax (+5.3x) and finance costs (+73%).

Outlook. As highlighted in the previous analyst briefing, management remains upbeat about its outlook especially on rising work orders from its existing businesses as well as potential win from new projects. However, we are still cautious on its operating cost and stretched finances (net gearing of 0.97x as of 4QFY19) upon aggressive expansion. Uzma is venturing into renewable energy business via three new bids under the Large Scale Solar Cycle 3 project announced by Energy Commission with three different partners. The choice of partner for the new solar projects, in our view, would be a key determinant factor given that Uzma is new in the business.

Cease Coverage. We cease coverage on Uzma due to reallocation of our internal resources on our coverage. Our previous forecast, SELL recommendation and TP of RM0.63 (pegged to 9x FY20 P/E) should no longer be used as a reference going forward.

Source: Hong Leong Investment Bank Research - 29 Aug 2019