We are positive on the second HWU contract win this year as it will help to improve the overall utilisation of its HWUs. However, earnings impact is likely to be felt only by end of 2Q17 or even 2H17. No changes to our earnings estimates. All in, we keep our MARKET PERFORM call on the stock with an unchanged TP of RM1.81 pegged to 1.1x FY17E PBV as the positives could have priced in.

2+1 HWU contract. Yesterday, UZMA has received approval from Murphy for a press release in relation to the award from Murphy Sabah/Sarawak Oil Co. Ltd. to Uzma Engineering Sdn. Bhd., a wholly-owned subsidiary for a provision of Hydraulic Workover Unit (HWU) and services. The contract will run for a duration of two years with a 1-year extension option.

Unknown contract value. This is the second HWU contract secured announced this year and third contract announcement YTD. We are positive on the contract win as it will help to improve the overall utilisation of its HWUs. Recall that UZMA announced a 9- month HWU contract from Lundin early of February. Despite contract value being uncertain at this juncture, depending on work orders to be 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.

No changes to our earnings forecast. Despite no firm value from the contract, we make no changes to our earnings forecast as we have factored in 60% utilisation assumption for its HWU segment. We believe such contract could fetch EBIT margins ranging from 10- 30% depending on the work scope and complexity of the jobs.

Maintain MARKET PERFORM. UZMA?s earnings recovery in FY17E remains intact backed by RM2.6b 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, 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 - 01 Mar 2017