News  Last week, Uzma Bhd (UZMA) announced that its subsidiary Uzma Engineering Sdn Bhd (UESB) had won a contract for the provision of drilling project management team for PMU wells from Petronas Carigali Sdn Bhd (PCSB).

 The contract is for one year (primary term) from 17 September 2013 to 16 September 2014 with an extension option of 1 year.

 The contract value was not mentioned in the announcement; but we understand that the contract is between RM50m and RM100m in value.

Comments  We are positive on the win as it is a decent one year contract and also shows PCSB’s confidence in the company.  This would be the company’s second contract announcement for the year; bringing YTD wins to c.RM288.0m-RM338m (assuming it’s RM50-100m contract). The first contract was in Apr-13 for the provision of oilfield chemicals and associated services.  Assuming a PAT margin of 5% for the project; it would yield PAT of RM2.5-5.0m for the current year.

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 helped in its tender proposals.

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

Forecast  We are keeping our earnings forecasts for now pending further confirmation by management in regards to the impact of this contract.

Rating Maintain OUTPERFORM

Valuation  We maintain our target price of RM4.57 based on FY14 PER of 13x.

 This is above the historical forward +2 std deviation of 12x that Uzma had previously traded at. However as we believe Uzma is slowly looking to change its earnings base profile to also include RSC activity; we are accrediting the company with a premium 1x PER.

Risks to Our Call

 (i) Lower-than-expected margins on contracts; (ii) Slowerthan- expected rollout of UzmaPres units (currently we understand 8 units are already installed; and (iii) No RSC wins.

Source: Kenanga