The overall weaker 3QFY21 results came in within expectations, dragged by delayed activity levels amidst the Covid-19 pandemic. Nonetheless, given UZMA’s unique position in the sector, the group is expected to benefit from the recovery of brownfield activities going forward. The group has also put in place long-term plans to diversify into non-oil and gas businesses. Maintain OP and TP of RM1.00.

9MFY21 within our expectations. 9MFY21 core net profit of RM20.1m came in within our expectation at 78% of full-year earnings forecast. However, the results were above consensus at 87%, possibly due to the lower-than-expected opex against street’s estimate. No dividends were announced, as expected.

Poorer results overall. Cumulatively, 9MFY21 core net profit declined 26% YoY, in tandem with the 30% weaker revenue, due to delayed activities amidst the Covid-19 pandemic. Meanwhile, for 3QFY21, core net profit declined 16% YoY, in tandem with the 24% decrease in revenue amidst the slower activity levels. Additionally, 3QFY20 also recognised one-off modification services revenue from sales of assets amounting to RM15.5m, and reclassification of payroll costs from costs of sales to operating expenses of RM13m. These resulted in normalised gross profit margin of 39% versus 63% in 3QFY20. QoQ, 3QFY21 core net profit improved by 48%, largely thanks to a reversal of tax overprovision, which resulted in a positive tax contribution of RM3.2m (versus tax expense of RM3.9m in the previous quarter). In fact, at the PBT level, results actually came in poorer, dragged by lower margins job mix despite the higher revenue.

To benefit from increased brownfield upstream activities. While the recovery of the oil and gas sector is still expected to be slow and gradual, UZMA will be able to benefit from the rebound in brownfield activities going forward, given its unique position in the market. UZMA has also put in place long-term plans of diversifying beyond the oil and gas sector, and venture into growth areas such as renewable energy, and digital and technology.

Maintain OUTPERFORM, with unchanged TP of RM1.00, pegged to 0.6x PBV, broadly in-line with the stock’s mean valuations. No changes were made to our FY21-22E earnings post-results.

Risks to our call include: (i) lower-than-expected activity levels, (ii) slower-than-expected order-book recognition, (iii) cost overruns.

Source: Kenanga Research - 1 Jun 2021