Uzma has secured a contract from Sarawak Shell for the supply of Kinetic Hydrate Inhibitor, Corrosion Inhibitor, and associated services for the Shell Timi Field via its 70%-owned subsidiary, Malaysian Energy Chemical & Services SB (MECAS). The contract is worth RM40m for a duration of 5 years. This will keep its oil and gas (O&G) upstream segment outstanding orderbook healthy at about RM2bn. Although earnings contribution from this contract is minimal on an annual basis, this contract reaffirms our positive outlook on Uzma as a key beneficiary of increasing brownfield activities in tandem with increased spending by major oil producers on the back of stable oil prices at above USD80/bbl. We maintain our earnings forecast and keep our Outperform rating and unchanged TP of RM0.71 (based on 10x PER over CY23 EPS).

• Positive contribution, although minimal. The contract is awarded by Sarawak Shell for a period of 5 years, starting 20th January 2022 to 19th January 2027 to 70%-owned subsidiary, MECAS with the scope to supply Kinetic Hydrate Inhibitor, Corrosion Inhibitor, and other associated services. The contract is valued at RM40m for duration of 5 years. Assuming equal revenue recognition throughout the duration at our assumed blended net margin of 5.5%, this contract is expected to contribute about RM0.31m or +1.1% to +1.3% per annum to its core net profit from FY23F onwards.
• Orderbook remains healthy. Currently, its orderbook stands at RM2bn, which will provide earnings visibility for the next 5 years, at least. We believe it will continue to secure more contracts for the O&G upstream segment going forward amid a sizeable tenderbook of RM1.3bn, as guided in October 2022.
• Reaffirms our positive outlook, on the back of stable oil price at above USD80/bbl. This encourages major oil producers to spend on upstream services to boost oil production. To add, we also believe Uzma is a key beneficiary from the uptick in well decommissioning activities over the next 3 years as guided by the Petronas Activity Outlook 2023-2025. We maintain our earnings forecast and keep our Outperform rating and unchanged TP of RM0.71 (based on 10x PER over CY23 EPS).

Source: PublicInvest Research - 26 Jan 2023