We are positive on its new JV agreement with Aerosun as it demonstrates UZMA’s ability to innovate and adapt amidst challenging environment. However, we maintain our earnings estimates in view of minimal initial contribution from the new JV company. All in, we keep our MARKET PERFORM call on the stock with an unchanged TP of RM1.63, implying 1.0x FY17 PBV.

Entered new JV agreement. Last Friday, UZMA announced that the company has entered into a Joint Venture Cum Shareholders’ Agreement with Aerosun Corporation (Aerosun) to incorporate a new JV company to provide engineering, procurement, construction, installation and commission of non-metallic pipes in Malaysia. UZMA shall subscribe to a 48% stake in the newly formed JV company under the name “Aerosun Uzma Malaysia Sdn Bhd with the 49% stake to be held by Aerosun HK and the remaining 3% by individual shareholder, Gameladha Nasiriffin Bin Arifin.

Offering new products to new majors. We are positive on this JV as it intends to offer new products, non-metallic pipes to its clients, demonstrating its ability to innovate and adapt amidst challenging environment. Aerosun is a company incorporated in China and Aerosun HK is a subsidiary company of Aerosun. We gather that the new JV company will propose such product and services offering to Petronas on existing fields and new projects in order to achieve further cost savings. Should such product is successfully being used locally, we do not discount the possibility of UZMA eyeing more similar jobs within the region.

4Q16 to be buoyed by D18 WIF project. Tanjong Baram RSC’s earnings contribution is expected to be minimal in FY16 as most cash received from bbls lifted are used to offset opex and recouping of capex. Meanwhile, we expect the D18 WIF project to contribute in 4Q16. Recall that UZMA secured this project with contract value of RM350-400m in July 2015 for duration of 5 years.

No changes to our earnings forecast. While UZMA has yet to secure any contract at this juncture, we do not factor any earnings contribution from the JV.

Maintain MARKET PERFORM. Despite facing margin corrosion pressure due to low offshore activities, we believe UZMA’s outlook will gradually recover as higher crude prices will speed up capex reimbursement of its RSC, Tanjong Baram and entice oil majors to roll out more maintenance jobs. Hence, we maintain our MARKET PERFORM call with an unchanged TP of RM1.63 peg to 1.0x FY17E PBV, which is <-1.0SD over the 5-year mean.

Risks to our call: (i) Weaker-than-expected recovery in O&G market, (ii) Slower-than-expected delivery in D18 Water Injection Project, and (iii) Lower-than-expected margins.

Source: Kenanga Research - 23 Jan 2017