Stronger 1HFY20 results came in within expectations, thanks to operational normalcy for D18 project, as well as higher activities and call-out contracts. Overall, we see UZMA as a prime beneficiary of increased brownfield activities in Malaysia, with the group also positioned to benefit from plug and abandonment umbrella contract awards. Maintain MARKET PERFORM and TP of RM0.85.

Within our expectations. 1HFY20 core net profit of RM15.2m (arrived after stripping-off unrealised forex) came in within our expectation at 50% of our full -year earnings forecast. However, the results exceeded market’s expectation, at 57% of consensus full-year estimates. We believe this was due to slightly lower-than-expected fixed costs (e.g. finance costs) compared to the assumptions used by consensus, as revenue and operating profit lines seemingly were in-line with consensus estimates. No dividends were announced, as expected.

Overall improved earnings. 1HFY20 core profits more than doubled YoY, given the disastrous core earnings in 1QFY19, where the quarter saw operational hiccups in its D18 water injection project, registering an operational efficiency of only 40-50%. Since then, D18 has resumed to operational normalcy, with the project now at >90% operational efficiency.

For 2QFY20, core net profit of RM8.2m leapt 19% YoY. Apart from higher activities and call-out contracts, the higher earnings were also partially contributed by the consolidation of Setegap Ventures Petroleum since Jan 2019. Sequentially, core earnings also improved 17% QoQ, from higher activities and additional call-out contracts.

Beneficiary of higher brownfield activities. We see UZMA as one of the first names to benefit from increased brownfield oil and gas activities locally, given its market leading position in Malaysia within the production enhancement space. Additionally, we believe UZMA is also positioned to benefit from more plug and abandonment jobs awards (via umbrella contracts). Nonetheless, we feel that cost optimisation is imperative, and UZMA would need to successfully convert on-hand contracts to work orders with profitable margins in order to deliver earnings growth.

Maintain MARKET PERFORM, with unchanged TP of RM0.85, pegged to 0.5x PBV which is -1SD from its 12-month mean, implying forward PER of c.9x.

Risks to our call: (i) higher-than-expected margins, (ii) faster-thanexpected order-book recognition, (iii) slowdown in jobs flow among local oil and gas brownfields, and (iv) significant job wins of sizable value.

Source: Kenanga Research - 28 Feb 2020