UZMA has secured a short two-month light weight hydraulic workover unit (HWU) job from Petronas Carigali, worth RM17m. We are positive on the contract win, highlighting UZMA’s specialty within the well decommissioning space, albeit the rather small contract value (<1% of order book). We maintain our forecasts, TP of RM0.58 and OUTPERFORM call.

UZMA has been awarded a contract by Petronas Carigali for the provision of a light weight HWU, with the scope of work comprising integrated HWU services for Petronas Carigali’s well abandonment campaign at offshore East Malaysia. The campaign will be for two wells, with work expected to commence in September 2022 and complete in October 2022. The value of the contract is approximately RM17m.

Our take on the contract win is as follows:

• UZMA’s specialty in well decommissioning. The award of the contract ties in with Petronas’ guidance for a surge in well decommissioning activities in the coming 2-3 years, as outlined in its activity outlook report. We believe the contract win further highlights UZMA’s specialty within this space.

• Smallish contract value. The contract value of RM17m represents <1% replenishment towards its current oil and gas order book totalling RM2.15b. We expect the contract to fetch ~40% gross margins – in-line with its current average.

No changes to forecasts. All in, we are positive on the contract win, albeit being only a small and short job. We made no changes to our FY23-24F forecasts (implying earnings growth of 28-33%), as the earnings contribution from the contract is immaterial.

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

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.

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 - 13 Sept 2022