UZMA has secured a five-year contract for the D18 Water Injection Facility from Petronas Carigali until October 2018. This effectively is an extension contract, in which the facility has been operating in the same location since July 2016. Overall, we are positive on the contract win, with this being one of UZMA’s more prominent contracts within its order book. There are no changes to our forecasts and OUTPERFORM call, but TP is raised to RM0.64.

New contract for D18 water injection. UZMA announced that it has been awarded a contract from Petronas Carigali for the provision of leasing, operation and maintenance of the D18 Water Injection Facility for a period of 5 years until October 2027.

Our take on the contract win is as follows:

• Extension of an existing contract. This new contract is effectively an extension of an existing contract, continuing the operations of the D18 Water Injection Facility which has been in the same location since July 2016.

• Contract estimates and assumptions. While no contract values were disclosed, based on the job scope, we estimate the contract to be worth ~RM300m. We expect the contract to fetch ~40% gross margins (in line with its historical average), which implies an average gross profit contribution per year of RM24m.

• Positive on the contract win. Overall, we are positive on the contract win, with this being one of UZMA’s more prominent jobs within its portfolio. We believe the extension contract also reflects the client’s satisfaction with UZMA’s job execution capabilities thus far. We expect this job to lift its order book to an estimated ~RM2b (of which ~RM1b is expected to be from umbrella contracts).

No changes to forecasts. All in, we made no changes to our FY23F/FY24F earnings, as we have already assumed a continuation of the existing job in our numbers.

Maintain OUTPERFORM, with a higher TP of RM0.64 (from RM0.58 previously), as we switched our valuation methodology to 10x PER (from 0.4x PBV previously) – based on a 33% discount on valuations ascribed on other local-centric oil and gas equipment and service provider peers such as DAYANG and VELESTO, given UZMA’s far smaller market cap. There is no adjustment to 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 - 22 Nov 2022