News Last week, Uzma Bhd (“UZMA”) announced that its subsidiary company (70% equity owned), Malaysian Energy Chemicals & Services Sdn Bhd ("MECAS") had won a contract for the provision of oilfield chemicals and associated services from ExxonMobil Exploration and Production Malaysia (“EMEPMI”).
The contract is for 5 years (primary term) from 1 April 2013 to 31March 2018 with an extension option of 2 years.
The value for the primary term is estimated at RM238m.
Comments We are positive on the win as it showed EMEPMI’s continued confidence in MECAS as well as the additional earnings boost it will give to Uzma.
The contract is expected to generate an annual revenue recognition of RM47.6m up until March 18. As for FY13, there will be an estimated revenue to be booked in of RM31.7m (no full-year impact yet until FY14). Inclusive of the previous contracts won, FY13 revenue should now be well ahead of our RM60m revenue assumption for FY13 earlier.
Assuming a EIBT margin of 5%, we estimate the project will yield RM1.1m in FY13, an annual RM1.6m from FY14-17 and RM0.4m in its final year in FY18.
Outlook We are optimistic that UZMA will be able to deliver a sterling FY13 full-year results based on the higher units of UzmaPres delivered and the growth in its wireline and well-testing divisions.
We understand that the eighth unit of UzmAPRES, has already been deployed as at Feb-13.
Forecast We have 1) raised MECAS’ FY13-14 revenue assumptions to RM50.1m and RM52.7m respectively as the divisions’s contracts wins have been stronger than anticipated; 2) increased our UzmaPres units to 9 in FY13 and 11 in FY14 (from 7 in 2013 and 8 in 2014) as management believes that it can install at least two units of UzmaPres per annum; and 3) raised our effective tax rate for FY14 to 25% (from 20%) as our earlier assumption was too conservative.
On an overall basis, this resulted in a rise of our FY13E EPS by 13.8% and FY14E EPS by 2.5%.
Rating Maintain OUTPERFORM
Valuation With an unchanged PER of 9x and higher FY13 EPS of 25.8sen, we are raising our target price to RM2.33 (from RM2.08). The PER of 9x represents a +1SD to Uzma’s 2-year historical average forward PER of 8.5x, but we believe this is warranted given the reduced earnings risk going ahead.
Risks Declining global crude oil price trend that will discourage O&G activities and delays to UzmaPres deployments within the year.
Source: Kenanga
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