Period     1Q13/3M13

Actual vs. Expectations     Uzma’s 1Q13 net profit of RM8.9m was largely in line with both ours and the consensus expectations, accounting for 26.1% and 25.2% of ours (RM34.1m) and the market (RM35.3m) FY13 full-year forecasts respectively. 

Dividends    No dividend was declared as expected.

Key Results Highlights   QoQ, the 1Q13 net profit grew by 31.2% from RM6.8m in 4Q12 due to a better performance from the services division. Revenue increased by 11.1% due to one additional unit of Uzmapres being installed within 1QFY13 and higher services in the quarter. Margins also expanded by 9.8% due to operational efficiencies across all product ranges. This mitigated the slight fall in trading services, which we believe is merely a timing difference in contract executions.

YoY,  as expected, the net profit was significantly higher (+88.8%) due to the stronger revenue (+60.8%) on the back of higher UZMApres units and the better performance of its GRE, wireline and MECAS services.

Outlook    UZMA’s share price has rallied by significantly since Feb-13, as 1) it is believed that UZMA’s chances are high in securing RSC projects after news emerged of Petronas kick-starting the third round of marginal field bids; and 2) sentiment for the oil and gas sector turning more positive post the 13^th GE. 

We believe Uzma’s chances for RSC wins are strong given that it was a participant in the early studies for some  of the marginal fields, giving it in-depth knowledge that should have helped its tender proposals. 

Further game-changers are the successful participation in any of the Chemical Enhanced Oil Recovery (CEOR) projects.

Change to Forecasts   While the earnings are within expectations, we believe that we may have been too conservative in our forward margin projections; and in estimating its FY14 earnings growth. As such, we are increasing our FY13-14 EBIT margin assumption for the UzmaPres and wireline services to 22% (from 20%) and the FY14 utilisation rate of these two products to 80% and 85% respectively (from 75% previously). 

The above changes lifted our FY14 net profit projections by 7.4% and 13.3% respectively from RM34.1m and RM35.3m previously. 

Rating  Maintain OUTPERFORM

Valuation     We note that UZMA has gone through a PER multiple expansion of c.5.8x since Feb-13; with the first 2.2x PER multiple expansion (from Feb-May 13) being on the market receiving news that the next round of marginal field bids is emerging; and the subsequent 3.6x PER multiple expansion (from 6 May onwards); due to the bullish oil and gas sector sentiment. We believe that the market will continue to reward UZMA if it 1) delivers strong sustainable earnings  moving ahead; and 2) successfully wins any RSC or CEOR contracts within the year, which we believe is a good chance  given its knowledge of such projects. As such, we are increasing our target PER to 12x (from 11x previously). 

Our changes resulted in our target price increasing to RM3.64 (from RM2.94) based on FY14 EPS of 30.3 sen.

Risks    Declining global crude oil price trend that will discourage O&G activities and delays in UzmaPres deployments within the year.

Source: Kenanga