UZMA’s FY18 results, which spanned 18 months due to financial year end change, came in within expectations, helped by positive tax impact coupled with greater jobs execution. Moving forward, we believe it should benefit from an improved oil price environment, given its expertise within the oil well intervention space. Maintain OUTPERFORM and TP of RM1.65, on the back of attractive valuations coupled with improved outlook.

Within expectations. UZMA’s FY18 results, which spanned 18 months due to change in financial year end, with core net profit of RM47.5m came in within expectations at 105% and 97% of our and consensus full-year earnings forecasts. No dividends were announced, as expected.

Stronger quarterly results. 6Q18 core earnings of RM11.5m came in 49% stronger QoQ, helped by its positive taxation of RM2.7m as compared to tax expense of RM2m in 5Q18, due to deferred taxes coupled with MIDA tax incentive following the acquisition of MMSV back in 2014. On the PBT level, sequential results were actually poorer, dragged by lower projects execution, with revenue also dropping by 10% QoQ. As for YoY against 2QCY17, core earnings jumped 4.6x similarly due to the aforementioned positive tax impact (against tax expense of RM3.5m in 2QCY17). Likewise, results were actually poorer on the pre-tax level despite greater jobs execution leading to improved revenue (+15%) due to lower margins job mix (gross margins of 31% vs 41% in 2QCY17). Cumulative-YoY comparable is not available due to the change in financial year end.

Better suited for improved oil price environment. We believe UZMA is well positioned to benefit from an improved oil price environment, with recent Brent crude prices hovering at around the USD70-80/barrel levels, as compared to around the USD50/barrel level a year ago. The improved oil prices could potentially spur increased production from oil fields, thus benefiting UZMA with its expertise in the oil well intervention space. Moving forward, UZMA’s earnings outlook is underpinned by its sizable order-book of an estimated RM1.8b, with a tender-book of RM7.2b.

Maintain OUTPERFORM. Post-results, we made no changes to our FY18-19E assumptions. Likewise, our TP is also maintained at RM1.65, pegged to an unchanged valuation of 1x FY19E PBV. Our OUTPERFORM call is premised on UZMA currently trading at attractive valuations of merely 0.7x Forward PBV which is grossly discounted compared to its 5-year average of 1.7x, despite the improved oil price environment. Our ascribed valuation of 1x PBV is at -1SD from its 5- year mean, implying PER of 16x on FY19E earnings, which is also in- line with its 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 - 3 Sept 2018