We came away from its analysts? briefing feeling more assured with UZMA?s earnings recovery in FY17 backed by RM2.6b in order-book. Current net gearing stood at 1.1x and UZMA has no intention to raise new funding unless for new major contract win this year. All in, we keep our MARKET PERFORM call on the stock with an unchanged TP of RM1.81 pegged to 1.1x FY17E PBV.

Anticipating higher activities. Management is feeling confident of UZMA?s outlook backed by strong order-book of RM2.6b spanning the next 3-4 years. Some of these projects include RM20m-30m directional drilling (2-month) contract in Indonesia, estimated to start in 2Q17 and RM800m contract to operate five coiled tubing units (CTU) which was deployed since April last year. Note that currently UZMA is operating four CTUs and is expecting another one to commence operation by April this year.

Better utilization for MMSVS. Recall that UZMA announced a 9- month HWU contract from Lundin early of the month. Despite contract value being uncertain at this juncture, depending on work orders are issued, UZMA is aiming to utilize on average 6-7 HWUs by end of 2Q17, which is higher from average utilization of 2.8 units FY16.

Expecting full-year contribution from D18 WIF project. UZMA has started its water injection facility at D18 oilfield since November last year and has been operating more than 95% uptime. We expect stable earnings contribution from the project at DCR of RM200k/day till November 2021. Apart from this, management also highlighted that UZMA may recognize unrealized forex gain/loss arising from the USD-denominated asset and its corresponding debt for the project moving forward.

RSC remains at capex reimbursement stage. Tanjong Baram RSC?s earnings contribution is expected to be minimal in FY17 as most cash received from bbls lifted are used to offset opex and recouping of capex. The field is currently capped at production of 2,000 bbl/day pending technical resolution of excess gas production whereby flaring and cold venting are not allowed owing to close proximity to Miri town.

Hunting down more jobs. Apart from existing jobs in hand, UZMA is also in the midst of gunning more contracts riding on the increase in tender enquiries. Despite so, we opt to be conservative with our earnings estimates, implying YoY growth of 24%-3% in FY17-18 as the timeline of contract award is uncertain. Thus, no changes to our estimates.

Maintain MARKET PERFORM. UZMA?s net gearing stood at 1.1x as of 4Q16. Management highlighted that the relatively high gearing is not alarming as part of it is attributable to USD-denominated debt funded for RSC and D18 WIF project. All in, we maintain our MARKET PERFORM call with unchanged TP of RM1.81 pegged to 1.1x FY17E PBV which is equivalent to -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 - 28 Feb 2017