3QFY22 results still missed expectations due to poorer project margins. Nonetheless, we remain sanguine of UZMA’s recovery prospects, given its unique position in the oil and gas brownfield space, while its diversification into the solar energy space could also serve as a long-term catalyst upon fruition. Maintain OP but with a lower TP of RM0.54.

9MFY22 results missed expectations. 9MFY22 core net profit of RM5.1m came in below expectations at only 36%/34% of our/consensus full-year estimates, mostly due to the poorer-than-expected project margins. No dividends were announced, as expected.

Results still largely underwhelming. QoQ, 3QFY22 core net profit of RM1.1m improved significantly (vs. last quarter which barely broke even), largely thanks to the lower fixed opex (e.g. admin expenses, depreciation) as well as the positive tax contributions due to reversal of overprovision. This managed to mask the weaker gross profit amidst poorer job margin mix during the quarter. YoY, 3QFY22 core net profit plunged 86%, again largely due to the poorer job mix during the quarter. Cumulatively, 9MFY22 deteriorated 75% YoY, dragged by slower project executions and poorer job margin mix.

Hopeful on long-term catalysts. Given UZMA’s unique positioning as a brownfield player in the local oil and gas space, we believe UZMA should eventually stand to benefit from the recovery of activities, especially in an elevated oil price environment. Meanwhile, the group is also kick-starting its diversification plans into the solar energy space, which will serve as a re-rating catalyst upon fruition of these ventures. Currently, the group’s order-book stands at ~RM2.5b for its oil and gas segment, while its solar ventures have already accumulated an order-book of ~RM950m (inclusive of both EPCC and PPA contracts).

Maintain OUTPERFORM. Post results, we slashed our FY22E/FY23E earnings by 40%/17% after accounting for weaker margins. Our TP is also lowered to RM0.54 (from RM0.68), pegged to a lower valuation of 0.4x PBV (from 0.5x) given its dismal results – broadly in-line with its 3- year mean valuation.

Nonetheless, 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 - 1 Jun 2022