News  Yesterday, Uzma Bhd (UZMA) announced that it had entered into a 70:30 joint-venture (JV) agreement with Chemical Tracer Services Sdn Bhd (CTS).

 The joint venture with CTS will enable UZMA to procure contracts relating to the provision of chemical tracer services for the oil and gas offshore activities.

 UZMA’s initial commitment for the new JV is some c. RM70k, which will be financed by internally generated funds.

Comments  We are positive on the JV which will enable UZMA to tap into opportunities in the chemical tracer services space going forward.

 However, we understand from management that there is currently no near-term contract, they are just positioning for future growth.

 As such further commitments beyond the subscription of shares in the company will only come later.

Outlook  UZMA’s services division is expected to grow steadily due to the higher number of UzmaPres units and better wireline and well services take-up rates 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 strengthen 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 FY13E and FY14E earnings forecasts unchanged as there are no material contracts in the horizon as yet.

Rating Downgrade to MARKET PERFORM as our target price has been achieved.

Valuation  Our unchanged TP of RM5.28 is based on a targeted PER of 15.0x on its CY14 EPS of 35.2 sen.

 Given the minimal upside from current share price level, we are downgrading our call to Market Perform.

 Higher-than-expected earnings from UZMA would be a catalyst for a rating revision.

Risks to Our Call   A sustained decline in global crude oil price may discourage O&G activities and cause delays in UzmaPres deployments within the year.

Source: Kenanga