UZMA was awarded a two-year contract extension from Petronas Carigali for the provision of coiled tubing and services, worth RM200m. We are positive on the extension, showcasing the client’s reliance on UZMA’s services, and bringing its order book to ~RM1.5b. Moving forward, the group is confident of further job wins coming from its bidbook of ~RM1.5b. Maintain OP with TP of RM0.64.

Extension of contracts from Petronas Carigali. UZMA announced that it has received a two-year contract extension from Petronas Carigali for the provision of coiled tubing and services. The original contract was previously awarded in November 2015. The extension contract has commenced in December 2020, valued at RM200m.

Positive on the contract extension. We are positive on the contract extension, reflecting on the client’s reliance on UZMA’s services to continue maintaining optimal production in the wells. The extension should bring UZMA’s firmed order-book to ~RM1.5b. We expect this extension to fetch gross margins of roughly 30-35%, in line with the group’s average, as well as with the original contract.

Further new wins to come. Outside of the recent contract wins, the group has submitted bid-book of another ~RM1.5b. Management is targeting for its bid-book to grow to RM2.9b in the coming months, as it is in preparation of submitting additional job bids. We are encouraged by this, as this signals the presence of opportunities despite the challenging environment. Of the submitted bids, management guides that roughly half has a 70% chance or better at winning, displaying its confidence in further contract wins to come.

Maintain OUTPERFORM, with unchanged TP of RM0.64, pegged to 0.4x PBV on FY22E BVPS at -1.5SD below mean. No changes to our FY21-22E earnings as we believe our assumptions have already more than encompassed this contract extension (assumption of ~RM500m order-book replenishment for FY21).

Our OUTPERFORM call is premised on UZMA’s recovery play. Being an integral upstream services provider, any factors leading to an increase in oil demand (e.g. positive news flow on Covid-19 vaccine developments) will bode well for the stock’s trading sentiment.

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

Source: Kenanga Research - 16 Dec 2020