UZMA was awarded a twelve-year contract by Petronas Carigali for the provision of portable water injection modules worth RM130m. We are positive on the win, showcasing the client’s confidence in UZMA’s job delivery capabilities, and bringing its firmed order-book to ~RM1.6b. Moving forward, the group is confident of further job wins to come. Maintain OUTPERFORM with higher TP of RM0.72.

Twelve-year contract from Petronas Carigali. UZMA announced that it was awarded a twelve-year contract from Petronas Carigali for the provision of portable water injection modules (PWIM), valued at a total of RM130m. Scope of the contract include: (i) design, engineering, fabrication, installation, hook-up and commissioning for the first two years, and then subsequently (ii) operating and maintenance for a minimum of ten years thereafter.

On a contract-winning spree. This marks UZMA’s third contract win announcement in this month alone, which also immediately trails after the previous PWIM contract (also secured from Petronas Carigali) announced back in June 2020 for the Sepat platform. We are positive on the win as this showcases UZMA’s class-leading competencies. Additionally, a long-term contract of similar nature is fairly rare in this space, further proving the client’s confidence in UZMA, as well as being able to enhance the group’s long-term earnings visibility. This new contract brings UZMA’s firmed order-book to ~RM1.6b. We expect gross margins for the contract to be roughly 30-35%, broadly in-line with the group’s average.

Further new wins to come. Outside of the recent contract wins, the group has submitted bid-book of another >RM1b. Management is targeting for its bid-book to grow to >RM2.5b in the coming months, as it is in preparation of submitting additional job bids. This is encouraging as it 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.

UZMA to benefit in the brownfield space. With expectations of Petronas to likely cap its capex spends going forward, we see UZMA to be uniquely positioned in the sector given its expertise in the brownfield space, which will benefit from Petronas relying on opex, rather than capex, to enhance productions via existing fields (instead of new fields), thereby helping the oil major with its cash preservation agenda.

Maintain OUTPERFORM, with higher TP of RM0.72 (from RM0.64 previously). We see the slew of contract wins (both recently and upcoming) as a rerating catalyst, and hence, have raised our ascribed valuations to 0.45x (from 0.4x previously), which is still close to 1.5SD below its mean valuations. No changes to our FY21-22E numbers, as the new wins are still deemed to be within our assumptions (order-book replenishment assumption of ~RM500m vs FYTD wins of RM350m).

Our OUTPERFORM call is premised on UZMA being a 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 - 18 Dec 2020