Despite an overall recovery, FY21 is still deemed to have missed expectations given slower-than-expected job flows. Specifically, the 4QFY21 quarter was also dragged by higher opex. Nonetheless, we remain sanguine of UZMA’s recovery prospects, given its unique position in the oil and gas brownfield space, while its diversification plans also serve as a long-term catalyst. Maintain OP with TP of RM0.75.

FY21 missed expectations. FY21 core net profit of RM21.7m missed expectations, coming in at only 85% of our, and 71% of consensus, full- year earnings forecasts. This was mainly dragged by slower-than- expected job flows during the year. No dividends were announced, as expected.

Recovery year, albeit quarter dragged by higher opex. 4QFY21 recorded a core net profit of RM1.6m – representing an 80% decline QoQ from 3QFY21. Although job flows and margins were gradually recovering – as seen in higher revenue and stable gross margins, bottom-line for the quarter was dragged by higher opex e.g. administrative, depreciation, finance costs, and taxes. Nonetheless, YoY, it managed to see a turnaround from losses. While overall job flows were still slow – as seen in the declined revenue, bottom-line was lifted from better cost management and higher operational efficiencies. Also note that in 4QFY20, the group had also recognised additional project cost provisions arising from the Covid-19 pandemic. Cumulatively, FY21 core profit more than doubled YoY. Similarly, while job flows were still slow, bottom-line was lifted from better cost management and lower project costs.

To benefit from increased brownfield upstream activities. While the recovery of the oil and gas sector is still expected to be 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 venturing into growth areas such as renewable energy, and digital and technology.

Maintain OUTPERFORM. Post results, we trim our FY22E earnings by 10% as we lowered our job flow assumptions, while simultaneously introducing new FY23E numbers. Nonetheless, following the results disappointment, we lowered our ascribed valuation to 0.5x PBV (from 0.6x previously) – in-line with the stock’s mean valuations. As a result, our TP is lowered to RM0.75, from RM1.00 previously.

We like the stock given its relatively undemanding valuations, coupled with its long-term diversification plans.

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

Source: Kenanga Research - 30 Aug 2021