Period  2Q14/1H14

Actual vs. Expectations Uzma Bhd (UZMA)’s 2Q14 net profit of RM8.6m brought 1H14 net profit to RM17.1m. This accounted for 36.5% of our FY14 estimate (RM46.8m) and 35.0% that of the consensus (RM48.7m).

 We deem the results to be within expectations as 2H14 is expected to be stronger on the back of: (i) contributions from the MMSVS acquisition and (ii) service contracts to the RSC.

Dividends  No dividend was declared as expected.

Key Results Highlights QoQ, the 2Q14 net profit was only up by 2.6%; despite higher revenue (+9.1%) mainly due to lower EBIT margins from MECAS activities (-3.4pts) on poorer product-mix and (ii) lower JCE earnings (-29.3%) on account of lower contributions from UZMA’s helicopter division.

 YoY and YTD, 2Q14 and 1H14 net profits were down marginally by 4.6% and 4.7%, respectively due to slimmer group margins as UZMA incurred higher administration and operating expenses ahead of upcoming projects across the board (including the RSC project won in April). Such costs included expenses for its new HQ, which was acquired this year.

Outlook  Catalysts for FY14-15E earnings growth are: (i) earlierthan-expected income recognition from the RSC project (we only forecasted contribution in FY15), and (ii) higherthan-expected margins from MMSVS (Thai oilfield services company).

 Uzma’s order book stands at RM1.8b whilst bids are at RM2.8b.

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

Change to Forecasts As we deem the results to be within expectations, we maintain our FY14-15 forecasts.

Rating Maintain OUTPERFORM

Valuation  We maintain our TP of RM4.30, which is based on an unchanged targeted FY15 PER of 16x.

 Our PER is justifiable given that the stock has successfully moved up the value chain instead of just being a service provider; and as the share base is quite illiquid, price appreciation can be significant.

Risks to Our Call (i) Lower-than-expected margins and O&G activities; and (ii) delay in first-oil of the RSC.

Source: Kenanga