UZMA’s FY22 results beat expectations on higher work orders executed. Nonetheless, earnings still declined YoY, weighed down by cost escalation. Looking ahead, the group is poised to benefit from a recovery in local oil & gas sector activity levels, while its diversification into the solar energy space will help future-proof its longer-term prospects. We upgrade our FY23F net profit by 15% and raise our TP by 7% to RM0.58 (from RM0.54). Maintain OUTPERFORM.

Above expectations. FY22 core net profit of RM13m beat expectations, exceeding our forecast and consensus estimate by a whopping 55% and 75%, respectively. The variance against our forecast came largely from a higher number of work orders executed.

FY22 core earnings declined 46% on a flattish topline due to cost escalation and project start-up losses. Contribution from its new solar ventures is only expected from FY23 onwards.

Forecasts. We raise our FY23F net profit by 15% to account for stronger work orders, and introduce our FY24F numbers.

We like UZMA for: (i) it being a good proxy to elevated oil prices given its focus in the brownfield segment, providing a wide range of services such as well services, oil production enhancement and optimisation, as well as late-life operation and maintenance, and (ii) its diversification into the solar energy space which will help future-proof its longer-term prospects.

Currently, the group’s orderbook stands at ~RM2.5b for its oil and gas segment, while its solar ventures have already accumulated an orderbook of ~RM950m (inclusive of both EPCC and PPA contracts). We expect the solar business to contribute ~5-10% of FY23-24F earnings.

Maintain OUTPERFORM, with a higher TP of RM0.58 (from RM0.54 previously), pegged to 0.4x PBV. Our valuation is based on a 33% premium from current average trading valuations of some of its local-centric asset-based oil and gas equipment provider peers (e.g. VELESTO, PERDANA), given UZMA’s better earnings visibility (i.e. many of its local peers are still loss making). There is no adjustment to our TP based on an ESG rating of 3-star as appraised by us (see page 4).

Risks to our call include: (i) significant pull-back in oil prices, weighing on oil & gas activities, (ii) project cost overrun and delays, and (iii) escalating input cost.

Source: Kenanga Research - 1 Sept 2022