Period  4Q13/FY13

Actual vs. Expectations Uzma Bhd (UZMA)’s 4Q13 net profit of RM6.6m brought the FY13 net profit to RM33.6m. This is below our estimates (RM37.9m) but broadly within consensus (RM35.7m) expectations at hit rates of 88.7% and 95.2%, respectively.

 Variance to our full-year estimates was caused by: (i) our over optimistic view with regards to core operations margins in the final quarter and (ii) lower-than-expected JCE and associate earnings.

Dividends  No dividend was declared as expected.

Key Results Highlights QoQ, the 4Q13 net profit was down (-27.9%) due to (i) higher administration and operating expenses that led to overall EBIT margins decline and (ii) lower JCE and associate earnings (-79.5%) due to additional administrative and selling expenses incurred in the quarter.

 YoY, 4Q13 net profit was down marginally (-2.6%) mainly due to higher administration and operating expenses and slimmer JCE and associate earnings.

 YTD, UZMA turned in a significant annual net profit growth (+49.8%) on the back of better performance of its GRE, wireline and MECAS services. Higher associate earnings (+60.6%) also helped to bump up the numbers.

Outlook  Order book stands at RM1.6b whilst bids are at RM2.6b.

 UZMA’s earnings are expected to grow steadily due to higher 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, which give its in-depth knowledge. Assuming a win, we suspect the company will have to raise funds as it is a large endeavour.

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

Change to Forecasts We reduce our FY14 net profit by 3.5% to RM44.7m from RM46.5m as we: (i) lowered our expected UzmaPres units to 10 units (versus 12 units previously) due to slower-thanexpected installations this year (only 8 units installed) and (ii) increased revenue from other divisions as we believe we were too conservative previously.

 We also introduce our FY15 net profit forecasts of RM55.0m which features a growth of 23.1% that is largely driven by the UzmaPres units (13 units) in 2015.

Rating Maintain MARKET PERFORM

Valuation  We have raised our TP to RM6.67 (from RM5.28) as we roll forward our valuation base year to FY15. Our target PER is raised to 16x (from 15.0x as we understand that it might be close to securing an RSC this year; which would lead to further share price re-ratings. Stock is pretty illiquid hence gains can be significant).

 We are positive on UZMA’s net profit growth prospects, however we believe this is fully reflected in the recent share price gains as such we maintain our Market Perform call.

Risks to Our Call Higher-than-expected margins and O&G activities.

Source: Kenanga