Despite sequential recovery in 1QFY22, the quarter’s performance is deemed to be below expectations given the poorer margins and job mix – especially on a YoY-basis. 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 RM0.67.

1QFY22 deemed to have missed expectations. 1QFY22 core net profit of RM4m is deemed to have come in below expectations at only 14%/15% of our/consensus full-year earnings forecasts, on poorer-than-expected project margins. No dividends were announced, as expected.

Sequential bounce back. QoQ, 1QFY22 earnings managed to recover more than double from previous weak quarter. While job flows remain steady (as seen in the flattish revenue), the quarter benefitted from better margins amidst the group’s continuous cost optimisation initiatives. YoY, however, earnings came in poorer amidst poorer job margin mix, despite revenue still remaining somewhat flattish (+2%).

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, digital, and technology.

Maintain OUTPERFORM, with a lowered TP of RM0.67 (from RM0.75 previously) – pegged to unchanged valuations of 0.5x PBV, in-line with the stock’s mean valuation. Post results, we trimmed our FY22E/FY23E CNP by 18%/28% after adjusting our job margins and cost assumptions.

Our call is premised on the stock’s relatively undemanding valuations, gradual recovery outlook coupled with the fruition of 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 - 25 Nov 2021