2QFY22 results posted barely breakeven earnings, missing expectations, dragged by slower activities amidst project delays. 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 a slightly higher TP of RM0.680 (vs. RM0.670 previously).

1HFY22 results missed expectations. UZMA’s 1HFY22 core net profit of RM4m missed expectations, coming in at only 18% and 19% of our and consensus full-year earnings estimates, respectively. This was largely dragged by the slower and delayed activities, particularly in 2QFY22. No dividend was announced, as expected.

Quarter barely broke even. YoY, 1HFY22 saw core earnings dwindled to only a quarter of last year, dragged by slower activities amidst project delays. Particularly, the 2QFY22 quarter barely managed to break even, as slower activities dragged revenue down by 25% QoQ and 18% YoY.

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 should 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. Post results, we lowered our FY22E/FY23E earnings by 37%/29% to account for a low work order assumption. Nonetheless, our TP has been raised slightly to RM0.68 (from RM0.67 previously), as we roll forward our valuation base year to FY23E, pegged to an unchanged valuation of 0.5x PBV – broadly in-line with its mean valuations.

Our call is premised on the stock’s relatively undemanding valuations, gradual recovery outlook coupled with the fruition of its long-term diversification plans. With the stock currently trading at the lower-end of its valuation range, we believe the risk-to-reward ratio seems favourable at the moment.

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

Source: Kenanga Research - 28 Feb 2022