News

Last Friday, UZMA proposed to undertake a private placement involving the issuance of 21.6m shares representing c.8.01% of its existing issued and paid up share capital with issue price to be determined later.

Assuming issue price of RM2.36/share, gross proceeds raised from the placement could amount to RM50.9m with RM35.0m slated for CAPEX, RM10.0m for repayment of bank overdrafts and the remaining for expenses related to the private placement.

Barring any unforeseen circumstances, the proposed corporate exercise is expected to be completed by 4Q15.

Comments

The announcement is a pleasant surprise as it had just completed the placement of shares comprising of c.5.4m shares for the acquisition of 18.98% stake in Setegap Ventures Petroleum Sdn Bhd in January this year.

Dilution to our FY16E EPS is expected to be by 9.3% assuming everything remains status quo while net gearing will remain relatively unchanged at 0.1x post the completion of the exercise.

We believe the corporate exercise is to prepare the group for the CAPEX spending on currently undisclosed new oilfield services assets, which indicate that the group could be close to securing a new contract soon.

Moreover, it is still too early to gauge the financial impact from upcoming contracts to its future earnings, but we view this exercise positively as it shows the group’s confidence of its ability to secure contracts even under the current turbulence times of the industry.

Outlook

The group’s prospects remain intact despite low oil prices due to the maintenance nature for most of its services.

Year-to-date, it has secured RM325.5m worth of projects relating to oilfield intervention and support services. This shows that oilfields still require maintenance activities namely well interventions and inspection to maintain its oil production amid yearly natural production decline.

MMSVS, its Thai-based Hydraulic Workover Unit (HWU) subsidiary is expected to experience high growth in the coming years upon UZMA’s acquisition and thus enabling it to ride on UZMA’s business network in SEA to capture a bigger slice of the oilfield work over market in the region.

It will also bring an additional dimension to UZMA’s oilfield services business segment making UZMA a one-stop oilfield services provider in Malaysia.

Forecast

We maintain our forecasts for now

Rating

Maintain MARKETPERFORM

Valuation

Our Target Price is maintained at RM2.58 based on an unchanged 11.0x CY16 PER.

Risks to Our Call

(i) Higher-than-expected capex requirements could see further rise in gearing. (ii) Contractual and project execution risks in new projects.

Source: Kenanga Research - 29 Jun 2015