Following its strong 4Q18 results (+2.6x QoQ; +43% YoY), 12M18 CNP of RM30.4m came within expectations, up 6% YoY due to better margins and stronger JV & associates. With no changes in our estimates, we maintain OUTPERFORM call on UZMA with an unchanged TP of RM1.65 pegged to 1.0x FY19E PBV premised on more contract wins backed by its innovative solution offerings and stronger oil prices.

Within expectations. 12M18 core net profit (CNP) of RM30.4m came within expectations at 68% of house/consensus 18-month FY18E earnings. No dividend was declared, as expected.

4Q18 core earnings up QoQ and YoY. 4Q18 CNP jumped 2.6x QoQ to RM11.5m thanks to higher contribution from D18 project, and also in tandem with an 11% increase in revenue led by higher revenue contribution from Drilling and Well Services segment (DWS) (+32%) and Geoscience and Petroleum Engineering (GPE) (+26%). YoY, 4Q18 earnings also improved by 43% despite a 23% fall in revenue helped by higher contribution from D18 project, better utilisation in HWUs and other services such as non-metallic pipe installation project. Following such a strong quarter, UZMA recorded 12M18 CNP of RM30.4m, marking a 6% improvement YoY. The better performance was due to: (i) strengthening of gross margins by 12.8 ppt to 38.5% led by better product and services mix, and (ii) stronger JVs and associates (+79%; higher CTU services).

No changes to our FY18-19E earnings. Recall that UZMA has changed its financial year end from December to June, resulting in 18- month FY18E (inclusive of CY17).

Keep OUTPERFORM. UZMA is still actively tendering for new jobs amounting to RM7.0b while having a sizeable order-book of RM1.8b- 1.9b in hand. With the anticipation of oil prices stabilising above USD60/bbl in CY18, we believe this will provide sufficient comfort for Petronas to execute the contracts that have been awarded lately and thus minimising the risk of delay in work orders. Thus, we maintain OUTPERFORM call on the stock with unchanged TP of RM1.65 pegged to unchanged FY19E 1.0x PBV premised on its ability to innovate multiple solutions to oil majors amidst a challenging environment. Such valuation is equivalent to -1.0SD over a 5-year mean. Our TP also implied a FY19E PER of 15.6x which is at its 5-year average 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 2018