Period  4Q14/FY14

Actual vs. Expectations  Within expectations. Uzma Bhd (UZMA)’s 4Q14 net profit of RM11.2m brought FY14 net profit to RM40.5m. This accounted for 104.6% of our estimate (RM38.7m) and 98.3% of the consensus (RM41.2m).

Dividends  No dividend was declared as expected.

Key Results Highlights  4Q14 net profit was down 8.5% QoQ due to higher tax expenses in the quarter. In the previous quarter, MIDA tax incentive for MMSV acquisition is significantly higher at RM4.0m compared to RM0.8m this quarter.

 Core net profit surged 70.5% in 4Q14 YoY mainly driven by stronger performances from both its oilfield services and chemical trading divisions. EBIT margin in 4Q14 is at 9.2%, marginally lower than 9.6% recorded in 4Q13.

 For FY14, NP gained 20.6% YoY attributable to partial contribution from newly acquired MMSVS in FY14 and stronger performance from its chemical trading division.

Outlook  Drilling for its RSC is on-going in 1Q15 and management hopes to meet first oil by 2Q15.  Maiden full-year revenue contribution from MMSVS, a company providing repair and maintenance services using HWUs, are expected in FY15, possibly lifting earnings.

 Possibility of cuts in rental rates by Petronas on UZMA’s assets is a concern but we do not expect it to be significant due to low local competition for that particular segment.

 Contract awards may slow in 2015 as oil majors are expected to reassess their options under the current volatile crude oil price environment.

Change to Forecasts  We have tweaked our FY15E CNP forecast marginally to RM59.0m (from RM59.2m previously) post housekeeping.

 FY16E CNP forecast introduced with CNP of RM61.0m. This is based on” (i) 11 units UZMAPRES from 10 in FY15, and (ii) higher growth for its trading services (GRE & DWS) compared to 2015 due to expected stronger market in 2016.

Rating Downgraded to UNDERPERFORM (from OUTPERFORM previously) as per our rating definitions.

Valuation  Our TP is revised upwards to RM2.23 (from RM2.02 previously) as we pegged its CY15 EPS to higher PER of 10.0x (from 9.0x). The reason behind the higher PER ascribed is because we believe that UZMA’s business model which is geared towards production enhancement means higher defensive quality.

 Having said that, we believe the market has priced in its nearterm earnings prospects post the recent surge in share price. CY16 PER is at 10.6x, which is already at the upper range of small-mid cap O & G peers downcycle valuation. (7-10x).

Risks to Our Call  (i) Faster than expected recovery in O&G market, and (ii) higherthan- expected margins 

Source: Kenanga