News

Uzma Berhad (UZMA) announced that it has recently acquired a 30.04% stake in Rockwash Prep and Store Limited (RockWash), a company based in the United Kingdom. RockWash was established in 2010 and its core business is providing advance cuttings-sample preparation and documentation services to the oil & gas industry.

This partnership with RockWash will further enhance and complement UZMA’s service offerings in the oil & gas geoscience subsurface segment where UZMA is the leading independent service provider in Malaysia. UZMA’s multidisciplinary and innovative solutions for exploration and production cover technical studies in identifying and evaluating hydrocarbon reserves as well as optimising a field’s production life cycle.

Comments

Overall, we believe the acquisition will be neutral to the company in the medium-term in anticipation of lacklustre demand for geoscience services with oil prices hovering at these levels.

The earnings impact is uncertain and we believe this acquisition is driven by strategic motive rather than financial as the technology it acquires complements its core geoscience operations.

Acquisition price is funded entirely by internal cash as it is insignificant to the group (price of acquisition is below disclosure threshold). Overall, we believe it is good timing for an acquisition for the company which will benefit the group in the long run by providing more dimensions to its capability.

Outlook

Tanjung Baram RSC’s earnings contribution is expected to come in earliest September after the group rectified several technical issues of the field operations. Earnings from this project will be oil price neutral, assuming certain mentioned production targets are met by UZMA.

Maiden full-year revenue contribution from MMSVS, a company providing repair and maintenance services using HWUs, is expected in FY15, lifting its earnings further.

Contract awards may slow till year-end as oil majors are expected to reassess their cost options under the current volatile crude oil price environment.

The recently secured RM350-500m Water Injection Facility contract is expected to contribute from 2H16 as the asset required for the contract is currently under conversion.

Forecast

We maintain our forecasts for now.

Rating

Downgraded to UNDERPERFORM from OUTPERFORM. Risk reward changed significantly post its recent share price surge since one month ago. Near-term earnings risks remain.

Valuation

Our Target Price is maintained at RM1.85 based on an unchanged 8.0x CY16 PER.

Risks

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

Source: Kenanga Research - 16 Oct 2015