Period

3Q15/9M15

Actual vs. Expectations

UZMA recorded 3Q15 core net profit of RM5.1m, bringing its cumulative 9M15 earnings to RM30.1m. This is below expectations at 55.2%/54.4% of in-house/consensus fullyear estimates. The negative deviations are due to slowerthan- expected oilfield services revenue and margins due to the weak O&G market. Our core net profit excludes RM34.5m of unrealised forex loss.

Dividends

No dividend was declared as expected.

Key Results Highlights

3Q15 core net profit plunged 58.5% YoY to RM5.1m from RM12.3m the corresponding period last year due to: (i) slower contribution from oilfield services segment, (ii) higher finance cost, (iii) margin compression in trading segment despite revenue rising by 11.0%.

Sequentially, 3Q15 core net profit also weakened by 57.4% QoQ from RM11.9m from the previous quarter on the back of weaker trading margin to 16.9% from 20.5% in 2Q15 and poorer performance from oil field services in terms of both topline and margin.

For 9M15, core net profit still managed to grow 2.8% YoY to RM30.1m from RM29.3m last year, reflecting full contributions from MMSVS, drilling well services (DWS) business, and PEC – its chemical trading business but was offset by abovementioned reasons coupled with higher staff costs incurred following several business expansions.

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. Profit 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 are expected to weak due to the competitive market driving down the margins.

Contract awards may slow in 2016 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 2Q16 as the asset required for the contract is currently under conversion, which will provide earnings cushion during this turbulent era in the O&G industry.

Change to Forecasts

For FY15/FY16, we have cut our NP forecast by 25.8%/4.6% to RM40.4m/RM58.4m after reducing earnings contribution from MMSVS, which provides hydraulic workover services in view of more challenging and competitive market in the nearterm.

Rating

Maintain UNDERPERFORM.

Valuation

TP is cut to RM1.77 (from RM1.85 previously) post earnings cut pegging to CY16 PER to 8x.

Risks to Our Call

(i) Faster than expected recovery in O&G market, and (ii) higher-than-expected margins

Source: Kenanga Research - 30 Nov 2015