UZMA has secured licences from Suruhanjaya Tenaga to import and distribute LNG in Malaysia under the Third Party Access (TPA) system. Overall, we are positive as it allows UZMA to tap into the growing demand of LNG, and also diversify its business downstream. Maintain OUTPERFORM with a higher TP of RM0.80.

Licence to import, distribute LNG in Malaysia. UZMA recently secured licences from Suruhanjaya Tenaga to import LNG for regasification in the country, as well as to transport or distribute natural gas within Malaysia. The licences are effective 3 Feb 2021 and valid for a period of 10 years.

Positive on the development. The licences allow UZMA to bring LNG into a regasification terminal in Malaysia and distribute under the implementation of the TPA system. Overall, while we are still unable to ascertain the immediate earnings impact to UZMA (dependent on UZMA’s implementation of the licences), we are positive on the development as this allows UZMA to tap into the growing LNG market. Demand for gas has been steadily increasing, as it is seen as a cleaner energy source compared to crude oil or coal. In Malaysia, LNG imports are expected to grow by more than 1m tonnes annually to reach 4.8m tonnes by 2022 – doubling within a two-year period, according to Independent Commodity Intelligence Services (ICIS).

As for UZMA, this will also provide a new source of earnings as well as diversification further downstream within the oil and gas value chain.

Maintain OUTPERFORM, with higher TP of RM0.80 (from RM0.72 previously). Following the rebound in crude prices, UZMA’s overall recovery theme, and our positivity on the group’s recent developments, we raised our ascribed valuations to 0.5x PBV (from 0.45x previously) – close to roughly -1SD from its mean. No changes to our FY21-22E numbers for now, pending results release later this month. Still our top “trading” pick within the sector as a recovery play.

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 Feb 2021