Period     2Q13/1H13

Actual vs. Expectations  Uzma’s 2Q13 net profit of RM9.1m brought the 1H13 net profits to RM17.9m which is within both our (RM36.6m) and the consensus (RM35.2m) expectations, accounting for 49% and 50% of the full-year forecasts respectively. 

Dividends    No dividend was declared as expected.

Key Results Highlights   QoQ, the 1Q13 net profit grew by 2.3%, despite a drop in EBIT (-11.1%) due to the strong performance of its  JCE earnings from Setegap Ventures and Sazma Aviation (which started contributing this quarter). EBIT was slightly down due to bonuses paid within the quarter, but we expect margins to normalise in subsequent quarters.

YoY,  as expected, the net profit growth was significantly higher (+70.6%) 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 services division is expected to grow steadily due to higher UzmaPres units and better wireline and well services take-up rate as Uzma continues to build up its track record in this space.

Chances for RSC wins are strong given that Uzma was a participant in the early studies for some of the marginal fields, giving its in-depth knowledge, which should have helped in its tender proposals. 

Further possible game-changer is the successful participation in any of the Chemical Enhanced Oil Recovery (CEOR) projects.

Change to Forecasts     We recently visited UZMA and noted that management seemed bullish on forward prospects given that its wireline & well services and MECAS divisions are performing well and the 8th UzmaPres unit has already been installed. As such, we reckon that we may have been, again, too conservative in our FY13-14 margin and revenue projections. 

Main changes to our forecasts are (i) higher utilisation for UzmaPres and wireline services to 90% (from 80% and 85% previously); and (ii) higher FY13E-FY14E EBIT margin assumption for the UzmaPres and wireline services to 25% (from 22%). However, we have offset such increases  with higher interest costs of RM3.6m per annum as we note borrowings have increased in the current year.

The above changes lifted our FY13-FY14 net profit projections by 3.6% and 16.1% respectively from RM36.6m and RM40m previously. 

Rating  Maintain OUTPERFORM

Valuation     We believe that the recent strong share price performance of UZMA is largely attributable to rumours that it might be securing a RSC as well as on expected strong net profit growth.

As we expect healthy net profit growth and more positive news-flow, we are raising our target PER to 13x (from 12x previously), raising our TP to RM4.57 from RM3.64 previously.

Given the 14% upside potential to current share price, we are keeping our OUTPERFORM recommendation.

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

Source: Kenanga