UZMA has been awarded a directional drilling contract from Pertamina. Contract tenure is 24 months, with a value of approximately RM12m. We are positive on the contract win, although the smallish contract value would be somewhat inconsequential to the company’s order-book of ~RM2b. Nonetheless, the award could help UZMA strengthen its regional presence, considering how local-centric the company is. Maintain MP with TP of RM0.67.

Awarded an Indonesian contract. UZMA has been awarded a contract by Pertamina for the provision of directional drilling together with manpower services for the drilling of Sumatera 1 exploitation wells. The contract has tenure of 24 months, and a value of approximately RM12m.

Positive on the contract win. We are positive on the contract award, especially considering the current challenging backdrop plaguing the oil and gas sector. This award should be the company’s fifth publicly announced contract win in FY20, bringing announced YTD firm-value wins to ~RM172m (excluding contracts which values are work order dependent/umbrella-based). Nonetheless, given the smallish value of this contract award, it would be somewhat inconsequential to the company’s total order-book of ~RM2b (of which ~RM1.5b are firmvalued) and we expect the contract to fetch single-digit net margins.

On the bigger picture, this contract award would help UZMA further strengthen its regional presence, considering how local-centric the company is. Its footing in Indonesia is relatively weak (in comparison to its local operations), and hence, a proper and competent job delivery might help enable UZMA to establish its regional credentials, setting it up for further job wins from the country in the future.

Maintain MARKET PERFORM, with unchanged TP of RM0.67, pegged to 0.4x FY21E PBV at -1.5SD below its 5-year mean.

No changes to our FY20-21E numbers for the time being, considering the smallish size of the contract (accounting for <1-2% of FY21E).

Keen investors should be wary of the upcoming weaker results, given operational disruption led by the Covid-19 and plummeting oil prices, and thus should be adopt a nimble trading strategy or be prepared to weather through a period of volatility.

Risks to our call include: (i) lower-than-expected margins, and (ii) slower-than-expected order-book recognition.

Source: Kenanga Research - 5 Jun 2020